Penny-pinching consumers have switched from McCormick & Co.'s gourmet spices to company products that are more economically priced.
They're also eating out less at the restaurants where McCormick supplies spices, flavorings and condiments.
But by raising prices, McCormick managed to offset weaknesses in the economy as well as higher costs for commodities. And it allowed the local food company to report yesterday a 16 percent increase in fiscal first-quarter earnings.
Net income for the three months that ended Feb. 29 was $51.4 million, or 39 cents per diluted share. That compared with $44.2 million, or 33 cents per diluted share, for the first quarter last year.
Net sales increased 11 percent to $724 million as the company benefited from favorable exchange rates.
The results were better than Wall Street analysts had forecast. They predicted earnings of 38 cents per share and revenue of $688 million. McCormick's shares rose $1.73, or nearly 4.8 percent, to $37.84.
"We think we had an excellent quarter," said Alan D. Wilson, McCormick president and chief executive. "We beat our expectations and the outside world's expectations. We think we had a great start to the year and we feel very good about our prospects for the rest of the year."
McCormick raised prices 3 percent on products sold at grocery stores during the quarter, while it passed on price increases of about 5 percent to its industrial customers.
While consumers are buying cheaper products, the company also said it has seen an uptick in grocery sales.
But while the price increases helped, analysts and the company said profit margins are still being pressured by rising commodity costs.
"I still think there will be price increases coming down the pike," said Morningstar equity analyst Ann Gilpin. "Their margins contracted and part of that is because they did not raise prices high enough to offset higher commodity prices."
Wilson said there are no plans for price increases for the rest of the year, though the company will continue to monitor commodity prices.
The world's No. 1 spice maker, which has its headquarters in Sparks, also saw benefits in the first quarter from a restructuring program that should be completed this year.
McCormick said it still expects earnings of $1.97 to $2.01 per share, including a restructuring charge of 10 cents per share, for the fiscal year that ends Nov. 30.
It raised its outlook for the year to a 5 percent to 7 percent increase in sales, up from its previous forecast of 4 percent to 6 percent. Sales will increase in part because of the acquisition of a Canadian company, Billy Bee Honey Products Ltd., which it bought in February for $75 million in cash. Billy Bee had about $37 million in annual sales last year.
McCormick also said it was still working to close a $605 million deal announced in November to buy Lawry's and Adolph's brands of seasonings and marinades from Unilever PLC.
The spice maker said it is in the process of answering a second round of questions from the Federal Trade Commission.