McCormick & Co. Inc. (NYSE: MKC), a global leader in flavor, today reported sales and profit results for the first quarter ended Feb. 28, 2014, and reaffirmed its financial outlook for fiscal year 2014.
- McCormick grew first quarter sales 6 percent, with solid increases in both its consumer and industrial businesses.
- Earnings per share rose 9 percent to $0.62 from $0.57 in the year-ago period, led by an 11 percent increase in operating income.
- For fiscal year 2014, the company reaffirmed its plans to grow sales 3 percent to 5 percent and report earnings per share in a $3.22 to $3.29 range.
Alan D. Wilson, chairman, president and CEO, commented, "Our first quarter result was a great start to 2014 with higher sales, a profit result that was ahead of our initial outlook, and strong cash flow. McCormick's leadership position in growing categories, employee engagement around the world, and focus on performance are driving these results and have us well-positioned for further success.
"Key elements of our consumer business growth strategy include brand building, scalable innovation and expansion of our geographic footprint. With progress in each of these areas, we grew consumer business sales and operating income 8 percent in the first quarter. We invested an additional $7 million of brand marketing during the quarter to connect with consumers through digital marketing and other media and to support our launch of innovative new products around the world. From our strength in the coastal region, we expanded our geographic footprint into central China with the acquisition of WAPC in mid-2013, which contributed significantly to consumer business sales this period. In the U.S. consumer business, we are seeing early indications of effectiveness with actions underway to accelerate innovation, increase brand marketing support and develop more effective category leadership with retail customers. Our industrial business grew sales 4 percent in the first quarter of 2014, building on a recovery that began in the previous quarter. In the U.S., growth in sales to food and beverage companies more than offset weaker demand from quick service restaurants. In international markets, we had continued strength in industrial sales and profit growth in our Europe, Middle East and Africa (EMEA) region and improved results in China. Operating income for our industrial business increased 24 percent in the first quarter, reversing a significant decline in the year-ago period.
"For the total company, we grew operating income 11 percent and earnings per share 9 percent from the year-ago period, as a result of higher sales, a favorable business mix, our Comprehensive Continuous Improvement (CCI) program and diligent cost management. Cash flow from operations rose $45 million from the year-ago period. We are committed to returning a portion of cash to McCormick shareholders, and exceeded $100 million used for dividends and share repurchases in the first quarter."
First quarter 2014 results
McCormick's first quarter sales rose 6 percent from the year-ago period and in local currency the increase was 8 percent. The acquisition of WAPC, completed in May 2013, contributed 4 percent to this growth rate. Pricing actions and higher volume and product mix, largely accounted for the other half of this sales increase. The company grew sales in both its consumer and industrial businesses through product innovation, brand building and expanded distribution. In the first quarter, the rate of sales increase in international markets was particularly strong.
Cost savings from the company's CCI program, as well as a favorable mix of business, improved gross profit margin, which rose to 39.4 percent from 38.7 percent in the year-ago period. The company increased operating income 11 percent to $125 million in the first quarter of 2014. Higher sales and improved gross profit margin more than offset a $7 million increase in brand marketing this period. Earnings per share rose 9 percent to $0.62 in the first quarter of 2014 from $0.57 in the year-ago period, with the strong increase in operating income, offset in part by the unfavorable impact of a higher tax rate. Net cash provided by operating activities rose $45 million from the year-ago period, primarily as a result of lower retirement plan contributions.
2014 financial outlook
McCormick reaffirmed its financial outlook for 2014. The company anticipates growing sales 3 percent to 5 percent in local currency, which includes an incremental impact of the WAPC acquisition in the first half of the year. In addition, the company expects unfavorable foreign currency exchange rates to reduce sales by 1 percent in 2014, based on prevailing rates. Plans are underway to invest at least $25 million in increased brand marketing support to drive sales of new products, as well as core items. Following a $7 million increase in brand marketing support during the first quarter of 2014, the company anticipates increasing its spending by at least the same amount in the second quarter. These investments, in brand building and innovation, are funded in part by McCormick's CCI program which is expected to deliver at least $45 million of cost savings in 2014.
The company reaffirmed projected 2014 earnings per share of $3.22 to $3.29. In this projection, higher sales, a favorable mix of business and CCI cost savings are expected to more than offset a significantly higher tax rate and an estimated $0.01 per share of special charges. In the second quarter of 2014, the company expects earnings per share to increase only slightly from the year-ago period as a result of several factors, including higher brand marketing support and weakness in demand from quick service restaurants in the U.S. Another year of strong cash flow is anticipated in 2014, with a significant portion expected to be returned to McCormick's shareholders through dividends and share repurchases.