McCormick Reports Growth In Sales And Profit For Third Quarter And Provides Latest 2014 Financial Outlook
03 Oct 2014 --- McCormick & Company, Incorporated, a global leader in flavor, reported increased sales and profit results for the third quarter ended August 31, 2014 and provided the latest outlook for fiscal year 2014.
- McCormick grew third quarter sales 3% and operating income 6%, with increases in both the consumer and industrial businesses.
- Earnings per share rose 21% to $0.94 from $0.78 in the year-ago period primarily due to higher operating income and a favorable tax rate.
- The company raised its outlook for 2014 adjusted earnings per share to $3.30 to $3.37, due primarily to the favorable tax rate recorded in the third quarter.
Chairman's Remarks
Alan D. Wilson, Chairman, President and CEO, commented, "In the third quarter, we achieved solid growth in sales and operating income from the year-ago period. Our consumer business results were led by a 15% sales increase in China and solid growth in our Europe, Middle East and Africa (EMEA) region. In the U.S. consumer business, we are making steady progress with growth initiatives to build our brand equity and category leadership in a competitive environment. Industrial business sales grew 4% this period, largely driven by increases in snack seasonings in the Americas and higher margin industrial products in EMEA. We continue to improve operating income for this segment, which has increased 24% year to date, more than recovering a year-on-year decline in 2013. Earnings per share rose sharply in the third quarter mainly as a result of higher operating income and a lower tax rate. We are pleased that our profit performance is yielding higher cash flow from operations, which has increased nearly $50 million year-to-date through the third quarter. During this period, we have returned $323 million to shareholders in the form of dividends and share repurchases, up 42% from the 2013 year-to-date result.
"We continue to be encouraged by the growing consumer demand for flavor in markets around the world. To meet this demand, we are introducing exciting new products including Skillet Sauces, Freshlock herbs and in early 2015, will relaunch our premium gourmet line in the U.S. For the 2014 holiday season, we plan to increase our brand marketing support at least 15% from the fourth quarter of 2013. We are fueling these investments with our Comprehensive Continuous Improvement (CCI) program. Through CCI, employees around the world are working to improve productivity and we now expect 2014 cost savings from this program to reach at least $50 million.
"While we continue to project 3% to 5% sales growth in local currency, the pace of growth is more rapid in international markets. This change in business mix has led us to moderate our outlook for operating income in 2014, but is also driving a lower tax rate. We now anticipate higher earnings per share this year, with the net impact of these factors and additional favorable tax variances. Overall, we are pleased with our performance in 2014 and believe McCormick is well-positioned for the future, with great products, effective growth strategies and employees around the world engaged in our success."
Third Quarter 2014 Results
McCormick's third quarter sales rose 3% from the year-ago period and in local currency, the increase was 2%. In local currency, consumer business sales rose 1%, mainly driven by pricing actions. Industrial business sales grew 3% in local currency, with higher volume and product mix, as well as pricing actions. Across both business segments, higher sales and cost savings from the company's CCI program led to a 6% increase in operating income in the third quarter of 2014, which included a $2 million impact from special charges.
Earnings per share rose 21% to $0.94 in the third quarter of 2014 from $0.78 in the year-ago period. Together, higher operating income and income from unconsolidated operations accounted for $0.09 of this increase and a favorable tax rate contributed another $0.05. The lower tax rate reflected the company's current business mix across tax jurisdictions, final regulations clarifying the impact of a tax law change in France and other discrete tax items. Also contributing to the year-on-year increase in earnings per share this quarter was a reduction in shares outstanding.
For the first three quarters of 2014, net cash provided by operating activities reached $276 million, an increase of $48 million from the year-ago period. Higher net income and lower retirement plan contributions had a favorable impact to cash flow this period.
2014 Financial Outlook
McCormick reaffirmed its projected 3% to 5% sales growth in local currency. Based on year-to-date results and prevailing rates, the company anticipates minimal sales impact from foreign currency exchange rates. The company also reaffirmed its plans to invest at least $25 million in increased brand marketing support during the fiscal year to drive sales of new products, as well as core items. Approximately half of the brand marketing increase is planned for the fourth quarter of 2014, including a significant increase in the U.S. These investments, in innovation and brand building, are funded in part by McCormick's CCI program which is now expected to deliver at least $50 million of cost savings in 2014. Based on the year-to-date result and fourth quarter outlook, the company moderated its projected operating income growth rate. Excluding the impact of special charges in 2014, adjusted operating income is now expected to grow 4% to 5% from adjusted operating income of $591 million in 2013.
The company increased its 2014 guidance for adjusted earnings per share to a range of $3.30 to $3.37. The increase is primarily due to a lower tax rate projection of 27% for the current fiscal year. Excluded from this adjusted earnings per share range is $0.01 of special charges that were recorded in the third quarter of 2014. Another year of strong cash flow is anticipated in 2014, with a significant portion being returned to McCormick's shareholders through dividends and share repurchases.
