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McCormick profit rises to $87.6 million

The Baltimore Sun

McCormick & Co. Inc. said yesterday that it posted strong foreign sales for the fiscal fourth quarter and the year that helped offset higher raw materials costs and a weakness in the restaurant industry at home.

The Sparks spice maker said net income rose to $87.6 million, or 67 cents a diluted share, in the quarter that ended Nov. 30. That compared with $83.1 million, or 62 cents a share, for the fourth quarter in 2006. Excluding charges related to the company's restructuring, earnings were 75 cents a share compared with 62 cents for the fourth quarter of 2006.

Net sales grew 7 percent to $860.1 million from $803.7 million. McCormick's final three months of fiscal 2007 were affected by a decision to ship $10 million in holiday products during the third quarter to make distribution during the company's busiest season more efficient.

For the fiscal year, McCormick reported a profit of $230.1 million, or $1.73 a diluted share, compared with $202.2 million, or $1.50 a share, for the comparable fiscal year. Sales rose 7 percent to $2.9 billion from $2.7 billion, driven by higher volume in Europe and Asia and a favorable exchange rate.

While international sales rose 7.1 percent in local currency, U.S. sales were up 2.7 percent. The industrial business was affected by weaker sales in the restaurant segment in part because consumers are eating out less due to the economic slowdown, McCormick said. The consumer side was unfavorably affected by the introduction of a private label line by a large warehouse club customer.

And the rising cost of black pepper, flour, cheese and soybean oil ate into margins before price increases took hold, McCormick chief executive Alan D. Wilson said yesterday during a conference call with analysts.

For 2008, McCormick expects earnings per share to climb 8 percent to 10 percent, in the range of $1.97 to $2.01 a share, which includes a restructuring charge of 10 cents. Sales are expected to increase 4 percent to 6 percent, with consumer sales on the upper end of the forecast and industrial sales on the lower end, Wilson said.

Also in 2008, McCormick hopes to close on its $605 million deal with Unilever PLC to buy the Lawry's and Adolph's brands of seasonings and marinades, which would contribute to earnings this year. The 2008 forecast was lower than analysts had expected but Wilson said it did not include the Lawry's acquisition, which is still under regulatory review.

Analyst Ann Gilpin of Morningstar Inc. said McCormick chose to increase prices later than its competitors. But she said McCormick, which is North America's largest manufacturer of private-label products, should fare better during the economic downturn than other packaged food companies such as Kellogg and Kraft, which suffer when consumers "trade down" to store brands.

"Having one foot in international sales and the other in private label will help them weather short-term volatility," said Gilpin, who does not own shares in McCormick or its competitors.

A three-year restructuring effort started in 2006 is ahead of schedule, Wilson said, having saved the company $45 million so far. It included closing plants and laying off as many as 1,000 employees. The company hopes to save another $10 million before the effort wraps up this year.

McCormick shares rose 30 cents yesterday to close at $34.91.


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