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SPARKS, Md., Jan. 25 /PRNewswire-FirstCall/ -- McCormick & Company,
Incorporated (NYSE: MKC) today reported results for the fourth quarter and
fiscal year ended November 30, 2005, provided an update on the previously
disclosed restructuring plan, and announced long-term objectives as well as an
outlook for 2006.
-- Increased 2005 sales and earnings per share, overcoming several
challenges during the year.
-- Generated significant cash from operations of $339 million.
-- Provided details of the Companys restructuring plan to improve sales
and margins of its consumer and industrial businesses. Charges
related to the restructuring plan reduced fourth quarter and fiscal
year 2005 earnings per share by $0.05.
-- Announced goals to grow sales 3-5% and increase earnings per share,
excluding special charges, 8-10%.
Fiscal year results
For the fiscal year, McCormick reported $2.6 billion in sales, an increase
of 3% versus 2004, including a 1% increase from favorable foreign exchange
rates. Key initiatives driving sales growth in 2005 included acquisitions, new
products, improved marketing and price increases. Sales from Silvo, acquired
at the end of 2004, contributed 2% to the sales increase. During 2005, net
sales were negatively impacted by several factors. First, industrial sales
were reduced by lower pricing of vanilla products and the elimination of lower
margin products in Europe. Second, consumer sales in the fourth quarter were
affected by the impact of Hurricane Katrina on sales in the Gulf region of the
U.S. Third, consumer sales of a limited range of higher volume spice and herb
items in France continued to be adversely impacted by low priced products in
alternative retail channels. The Company estimated that these three factors
lowered sales for 2005 by approximately 2%.
In 2005, the Company exceeded its goal to lower costs by $25 million,
achieving savings of $33 million. These cost savings combined with pricing
actions, more than offset significant cost increases in packaging and energy
and the negative impact on gross profit from the sale of products manufactured
from high cost vanilla beans.
Earnings per share in 2005 were $1.56 and included an $11 million charge
($0.05 per share) for actions taken under the Companys restructuring plan.
In 2004, earnings per share were $1.52 and included a special credit of
$3 million which was the net result of a $9 million credit ($0.04 per share)
from a lawsuit settlement and a $6 million charge ($0.03 per share) related to
a 2001 streamlining action plan. Earnings per share rose as a result of
higher sales, an increase in unconsolidated income and lower shares
outstanding, offset in part by an increase in special charges, a higher
effective tax rate, an increase in interest expense and a decrease in other
income.
The Company continued to generate significant cash from operations, with
net cash flow from operations reaching $339 million. This compared to $349
million in 2004 and $202 million in 2003. During 2005, McCormick used this
cash and the proceeds of stock option exercises to fund $186 million of share
repurchases, $86 million of dividends and net capital expenditures of $72
million. As previously announced, the Board increased the quarterly dividend
paid January 20, 2006 to $0.18, a 12.5% increase.
Fourth quarter results
Sales in the fourth quarter declined 1% due to several factors affecting
both the consumer and industrial businesses. During this period, the Company
increased sales with the Silvo acquisition, new products, more effective
marketing and price increases. Demand for the Companys consumer products in
the U.S. Gulf region was lower due to the effects of Hurricane Katrina. Sales
in France continued to be impacted by competition from lower-priced products
in alternative retail channels. Sales for the industrial business declined in
the fourth quarter due primarily to lower pricing for vanilla products and the
elimination of lower margin products in Europe. Together, these factors
reduced fourth quarter sales approximately 3%.
In the fourth quarter, gross profit margin reached 43.9% compared to 42.4%
in the prior year. Cost savings initiatives and price increases more than
offset cost increases in packaging and energy. Also reflected in this
comparison is an adjustment to the accounting in an industrial plant in
Scotland that reduced gross profit margin by 0.9 percentage points in the
fourth quarter of 2004.
Earnings per share for the fourth quarter of 2005 were $0.65 including the
impact of $11 million of special charges that decreased earnings per share by
$0.05. Earnings per share for the fourth quarter of 2004 were $0.62 including
the impact of $4 million of special charges that decreased earnings per share
by $0.02. Earnings per share rose as a result of an increase in gross profit
margin and fewer shares outstanding, offset in part by a higher effective tax
rate and higher interest expense.
Restructuring plan
To further improve margins, the Company announced in September actions to
increase the effectiveness of its supply chain and reduce costs. At that time,
the Company also disclosed that a comprehensive review of its global
industrial business was underway to identify improvements. Following the
announcement, progress was made with both initiatives and in November the
Companys Board of Directors approved a comprehensive plan to restructure the
business.
As part of this plan, over the next three years, the Company will
consolidate its global manufacturing, rationalize its distribution facilities,
improve its go-to-market strategy and eliminate administrative redundancies.
In addition, for the industrial business, the Company will reallocate
resources to key customers and take pricing actions on lower-volume products
to meet new margin targets. A new business-wide forecasting process is being
installed, and the use of technology will be accelerated to monitor and manage
the business more effectively. Through 2008, these actions are intended to
reduce the number of industrial business customers and products in the U.S. by
approximately 25%. Sales related to these customers and products represent
approximately 2-5% of industrial business sales in the U.S. As these sales
have minimal profit, this reduction will lead to higher margins. These
reductions will also facilitate the consolidation of certain manufacturing
facilities which will further increase margins. As these changes are made in
the U.S. and in international locations, operating income margin for the
industrial business will increase. When compared to 2005, operating income
margin for the industrial business is expected to rise 2.5 to 3.5 percentage
points by 2008, excluding the impact of special charges and stock option
expense.
The Company expects that the restructuring plan will reduce complexity and
increase the organizational focus on growth opportunities in both the consumer
and industrial businesses. In addition, the Company is projecting that $50
million of cost savings will be achieved by 2008 with at least $10 million to
be realized in 2006. These savings will drive margin expansion and fund
initiatives to grow sales.
The Company estimates that the total charges will be $130-$150 million.
In the fourth quarter of 2005, $11 million of these charges were recorded due
primarily to the announcement in January 2006 that two major U.S. facilities
would be closed. For the total plan, the cash-related portion of the charges
will be $85-$100 million, of which approximately $60 million will be spent in
2006. The plan is expected to eliminate 800-1,000 positions globally over the
three-year period. A significant number of these employees have already been
advised.
Financial outlook
With strong business fundamentals and the improvement activities underway,
the Company set a goal for the next three years to achieve annual increases of
3-5% in sales and 8-10% in earnings per share. These goals exclude the impact
of special charges related to the restructuring plan and in 2006, stock
compensation expense. As in past years, this sales growth will be achieved
through innovative new products, more effective marketing, distribution gains
and strategic acquisitions. These increases will be offset in part by the
negative effects of actions to simplify the business, as the number of
customers and products sold is reduced. Sales growth and margin improvement
are expected to drive higher earnings per share as well as generate funding
for business growth initiatives.
For fiscal year 2006, the Company expects earnings per share in the range
of $1.21-$1.24. This range includes an estimated reduction of $0.42 per share
for special charges and $0.11 for stock compensation expense which the Company
will incur beginning in 2006.
Chairmans comments
Robert J. Lawless, Chairman, President & CEO, commented, "In 2005, we
faced a number of challenges. We have worked aggressively to address them as
well as reposition our business for improved performance. Despite these
challenges, we were able to grow both sales and profit for the year. As we
look back on 2005, we view many of the challenges as one-time events and
regard the year as a temporary setback in our strong, long-term record of
business growth and financial performance.
"We recently concluded a comprehensive review of our industrial business.
This business continues to offer an important opportunity to develop and
supply flavors to food manufacturers and the entire food service industry. We
have realized that we can better create value by rationalizing our business
and driving our products through fewer customers, which will generate better
margins. During the next three years, we will eliminate underperforming
products and customers, reallocate resources to strategic customers, lower
costs and leverage our systems and capabilities. These steps will lead to more
consistent sales growth and profit contribution from our industrial business.
"Looking ahead, I am confident that the significant actions we are
undertaking will position us for future growth. The restructuring plan will
allow us to refocus our resources, continue to build competitive advantage and
leverage our global strength. We will improve the growth prospects and margin
structure of our consumer business and especially our industrial business.
Change is always challenging, but I know that McCormick employees are up to
the task. I am confident that, as a result of our actions, we will be better
positioned to grow sales, improve margins, achieve higher profits and increase
value for McCormick shareholders."
Business Segment Results
Consumer Business
(in thousands) Three Months Ended Twelve Months Ended
11/30/05 11/30/04 11/30/05 11/30/04
Net sales $440,421 $440,210 $1,401,820 $1,339,838
Operating income 115,897 118,329 283,081 269,719
For the fiscal year, sales for McCormicks consumer business rose 5%
versus the prior year. Sales from Silvo, acquired in November 2004, added 3%
and favorable foreign exchange rates added 1%. The additional increase of 1%
was mainly driven by pricing actions taken in 2005. In the Americas, consumer
business sales increased 3% with a 1% benefit from favorable foreign exchange
rates. During the fourth quarter, Hurricane Katrina reduced product demand for
Zatarains and McCormick products. This had a negative impact of approximately
1% on the full years results. The remaining increase of 3% was driven by more
effective marketing and sales of new products. In Europe, sales rose 10%.
Silvo added 10% to sales, and foreign exchange rates added 1%. Difficult
market conditions, particularly in France, continued to have a negative impact
on sales during 2005. During 2005, the Company took actions in China to
streamline both the number of products sold and the distributor network to
position us for growth in 2006 and beyond. As a result of these actions, sales
in 2005 declined 3% in the Asia/Pacific region. For the consumer business,
special charges recorded primarily in the fourth quarter of 2005 reduced
operating income $10 million. This compares to $1 million of special charges
recorded in the fourth quarter and fiscal year 2004. Operating income was
positively affected by higher sales and progress with cost reduction
initiatives during 2005.
For the fourth quarter, sales for McCormicks consumer business were about
even with the prior year. The acquisition of Silvo added 1% to sales, while
foreign exchange rates had a negative impact of 1%. As mentioned above, the
effects of Hurricane Katrina reduced sales approximately 1% in the fourth
quarter. The remaining increase of 1% was driven by holiday marketing programs
and new product sales. In the Americas, sales increased 1%, despite a 2%
decrease from lower sales in the Gulf region. Consumer sales in Europe
declined 1%, including an unfavorable 5% from foreign exchange rates. Silvo
increased sales in Europe 5%, while difficult market conditions, primarily in
France, had a negative effect. In the fourth quarter, sales declined 7% in the
Asia/Pacific region due to the streamlining actions mentioned above. For the
consumer business, special charges reduced operating income $10 million in
2005, compared to a reduction of $1 million in 2004. Operating income was
positively affected by cost reduction initiatives.
Industrial Business
(in thousands) Three Months Ended Twelve Months Ended
11/30/05 11/30/04 11/30/05 11/30/04
Net sales $296,634 $303,905 $1,190,160 $1,186,344
Operating income 30,467 28,151 105,299 113,629
For the fiscal year, sales for McCormicks industrial business rose
slightly from 2004. Foreign exchange rates added 1% to sales. Lower vanilla
prices in 2005 reduced sales 2%, and the elimination of lower margin products
in Europe further reduced sales 1%. However, these factors were partially
offset by increased sales of snack seasonings, and sales to food service
distributors in the U.S. and restaurants in the Asia/Pacific region. In the
Americas, sales rose 1% with foreign exchange rates adding 1%. In this region,
lower vanilla pricing reduced sales by 3%, while strength in snack food
seasonings, certain new product successes and improved sales in the food
service distributor channel increased sales 3%. Industrial sales in Europe
declined 5%, with an increase of 1% from foreign exchange rates. The
elimination of certain lower margin products in this region drove a large part
of the remaining 6% decrease. In the Asia/Pacific region, sales rose 7% with
2% from favorable foreign exchange rates. Higher volumes were achieved
primarily with sales to restaurants. Operating income decreased $8 million.
The sale of high cost vanilla beans during a period of declining prices
reduced operating income $15 million during 2005 and more than offset sales
gains in other parts of the business and the favorable impact of cost
reductions on the industrial business.
For the fourth quarter of 2005, sales for McCormicks industrial business
decreased 2% when compared to 2004. Lower vanilla prices reduced sales 3%, and
the elimination of lower-margin products in Europe decreased sales 1%. In the
Americas, sales were up slightly from the prior year, with a favorable foreign
exchange rate impact of 1%. Sales gains with products such as snack food
seasonings were offset by lower vanilla pricing that reduced sales in this
region by 5%. In Europe, sales declined 14%, with reductions of 4% from
foreign exchange rates. The elimination of certain lower margin products in
this region drove a large part of the remaining decrease. Sales in the
Asia/Pacific region rose 1%. Operating income for the industrial business rose
$2 million in the fourth quarter of 2005 when compared to 2004. In the fourth
quarter of 2004, the Company recorded an adjustment to the accounting in an
industrial plant in Scotland that reduced operating income by $6 million.
Live Webcast
As previously announced, McCormick will hold a conference call with the
analysts today at 10:00 a.m. ET. The conference call will be web cast live via
the McCormick corporate web site. Go to ir.mccormick.com and follow
directions to listen to the call and access the accompanying presentation
materials. At this same location, a replay of the call will be available
following the live call. Past press releases and additional information can be
found at this address.
Forward-looking Information
Certain information contained in this release, including expected trends
in net sales and earnings performance, are "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-
looking statements are based on managements current views and assumptions and
involve risks and uncertainties that could be materially affected by external
factors such as: actions of competitors, customer relationships, ability to
realize expected cost savings and margin improvements, market acceptance of
new products, actual amount and timing of special charge items, removal and
disposal costs, final negotiations of third-party contracts, the impact of the
stock market conditions on its share repurchase program, fluctuations in the
cost and availability of supply chain resources and global economic
conditions, including interest and currency rate fluctuations, and inflation
rates. The Company undertakes no obligation to update or revise publicly, any
forward-looking statements, whether as a result of new information, future
events or otherwise.
About McCormick
McCormick & Company, Incorporated is the global leader in the manufacture,
marketing and distribution of spices, seasonings and flavors to the entire
food industry - to foodservice and food manufacturers as well as to retail
outlets.
Fourth Quarter Report McCormick & Company, Incorporated
Consolidated Income Statement
(In thousands except per-share data)
Three Months Ended Twelve Months Ended
11/30/2005 11/30/2004 11/30/2005 11/30/2004
Net sales $737,054 $744,116 $2,591,980 $2,526,185
Cost of goods sold 413,352 428,961 1,555,426 1,518,259
Gross profit 323,702 315,155 1,036,554 1,007,926
Gross profit margin 43.9% 42.4% 40.0% 39.9%
Selling, general &
administrative
expense 177,674 183,850 681,885 677,698
Special charges /
(credits) 10,530 3,758 11,161 (2,426)
Operating income 135,498 127,547 343,508 332,654
Interest expense 12,637 11,213 48,200 41,039
Other income, net 78 (930) (367) (2,146)
Income from consolidated
operations before income
taxes 122,783 117,264 295,675 293,761
Income taxes 40,150 34,447 96,686 88,985
Net income from consolidated
operations 82,633 82,817 198,989 204,776
Income from
unconsolidated
operations 6,809 6,275 20,639 14,584
Minority interest (1,300) (1,740) (4,687) (4,853)
Net income $88,142 $87,352 $214,941 $214,507
Earnings per common share -
basic $0.66 $0.64 $1.60 $1.57
Earnings per common share -
diluted $0.65 $0.62 $1.56 $1.52
Average shares outstanding -
basic 133,398 136,131 134,463 137,017
Average shares outstanding -
diluted 136,228 140,562 138,224 141,341
Fourth Quarter Report McCormick & Company, Incorporated
Consolidated Balance Sheet
(In thousands)
11/30/2005 11/30/2004
Assets
Current assets
Cash and cash equivalents $30,263 $70,335
Receivables, net 369,277 407,645
Inventories 344,004 350,180
Prepaid expenses and other current
assets 56,665 35,918
Total current assets 800,209 864,078
Property, plant and equipment, net 469,761 486,607
Goodwill and intangible assets, net 822,192 828,094
Prepaid allowances 42,301 56,807
Investments and other assets 138,241 134,063
Total assets $2,272,704 $2,369,649
Liabilities and shareholders equity
Current liabilities
Short-term borrowings and current
portion of long-term debt $106,052 $173,180
Trade accounts payable 198,194 195,068
Other accrued liabilities 394,745 404,446
Total current liabilities 698,991 772,694
Long-term debt 463,900 464,957
Other long-term liabilities 280,671 211,291
Total liabilities 1,443,562 1,448,942
Minority interest 29,190 30,962
Shareholders equity
Common stock 387,157 336,093
Retained earnings 385,230 434,069
Accumulated other comprehensive
income 27,565 119,583
Total shareholders equity 799,952 889,745
Total liabilities and
shareholders equity $2,272,704 $2,369,649
Fourth Quarter Report McCormick & Company, Incorporated
Consolidated Statement
of Cash Flows (Unaudited)
(In thousands)
Twelve Months Ended
11/30/2005 11/30/2004
Cash flows from operating activities
Net income $214,941 $214,507
Adjustments to reconcile net
income to net
cash flow from operating
activities:
Depreciation and amortization 74,560 71,983
Income from unconsolidated
operations (20,635) (14,584)
Changes in operating assets and
liabilities 41,087 67,931
Dividends from unconsolidated
affiliates 29,242 9,599
Net cash flow from operating
activities 339,195 349,436
Cash flows from investing activities
Acquisition of businesses (5,495) (74,484)
Capital expenditures (73,830) (69,767)
Proceeds from sale of property,
plant and equipment 2,307 2,760
Net cash flow from investing
activities (77,018) (141,491)
Cash flows from financing activities
Short-term borrowings, net (34,820) (14,302)
Long-term debt borrowings - 50,090
Long-term debt repayments (32,803) (16,553)
Proceeds from exercised stock
options 45,042 53,024
Common stock acquired by purchase (185,636) (173,764)
Dividends paid (86,247) (76,869)
Net cash flow from financing
activities (294,464) (178,374)
Effect of exchange rate changes on
cash and cash equivalents (7,785) 15,623
Increase/(decrease) in cash and cash
equivalents (40,072) 45,194
Cash and cash equivalents at
beginning of period 70,335 25,141
Cash and cash equivalents at end of
period $30,263 $70,335
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