McCormick & Co. today (27 September) upped its forecast for annual earnings on the back of a better tax rate and also reported an increase in third-quarter profits.
The US spice manufacturer said it now sees its full-year earnings per share to be US$3.03 to $3.08, up from a June forecast of 3.01-3.07 dollars. It pointed to a "more favourable" tax rate.
The new guidance was given as McCormick booked a 13.5% increase in third-quarter net income to $104.4m. Operating income rose 12.3% to $144.2m for the three months to 31 August.
McCormick's profits improved on the back of a 6.2% increase in net sales to $977.7m. Acquisitions accounted for half the growth in sales but McCormick said it had managed to increase prices in response to higher commodity costs. Gross margin was up year-on-year.
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MCCORMICK REPORTS STRONG GROWTH IN THIRD QUARTER
SPARKS, Md., Sept. 27, 2012 /PRNewswire/ -- McCormick & Company, Incorporated (NYSE: MKC),
a global leader in flavor, today reported strong growth in the third quarter of fiscal year 2012. To
reflect a more favorable tax rate, the company increased its expected full year earnings per share
to a range of $3.03 to $3.08.
Grew third quarter net sales 9% in local currency and increased operating income 12% from the year-ago period.
Reported third quarter earnings per share of $0.78 compared to $0.69 in the third quarter of 2011. Increased guidance for 2012 earnings per share to a range of $3.03 to $3.08 to reflect a more favorable tax rate.
Generated cash flow from operations of $256 million through the first three quarters of fiscal year 2012. Cash flow is expected to exceed $400 million for the full year.
Alan D. Wilson, Chairman, President and CEO, commented, "Our third quarter financial results demonstrate the effectiveness of McCormick's growth initiatives, even in a challenging economic environment. We reported a 9% increase in sales in local currency and strong profit growth with solid performance in both our consumer and industrial businesses. Acquisitions, new product innovation, brand marketing programs and expanded distribution are helping to drive sales growth in each geographic region. We had particular strength in emerging markets which accounted for 14% of third quarter sales. In mid-2013, we anticipate expanding our emerging market presence with the acquisition of Wuhan Asia-Pacific Condiments Co., Ltd., which will extend our geographic footprint and flavor portfolio in China.
"Across all of our businesses, we continue to face volatile material costs. However, we are effectively offsetting the impact of higher material costs with our pricing actions and cost savings from our Comprehensive Continuous Improvement (CCI) program. CCI is also helping to fund our growth and in 2012 we are on track to increase our brand marketing support by at least $15 million. Our employees have been doing outstanding work on CCI, and we now expect to exceed $50 million of cost savings in 2012. With these CCI costs savings, additional brand marketing support, product innovation and other sales growth initiatives, we have momentum as we head into the final quarter of 2012."
McCormick's third quarter sales rose 6%, and in local currency the increase was 9% when compared to the year-ago period. In local currency, acquisitions completed in 2011 added about half of this increase, while pricing actions taken in response to higher material costs also contributed to the increase. In addition, sales in the third quarter of 2011 were impacted favorably by customer purchases in advance of a price increase effective in the fourth quarter of 2011. In the third quarter of 2012, operating income rose 12% to $144 million from $128 million in the third quarter of 2011, with the favorable impact of higher sales and cost savings from CCI effectively offsetting increased material costs.
Third quarter earnings per share rose to $0.78 from $0.69 in the year ago quarter with $0.08 of the increase due to higher operating income and $0.02 due to a favorable tax rate, offset by a $0.01reduction in income from unconsolidated operations. In the third quarter of 2012, the company repatriated cash from foreign subsidiaries which led to increased foreign tax credits in the U.S. This action is also expected to have a slightly favorable impact to net income in the fourth quarter of 2012.
Through the first three quarters of 2012, the company generated cash flow from operations of $256 million compared to $86 million in the first three quarters of 2011. This improvement in cash flow from operations was led by a much lower increase in inventory in the first three quarters of 2012 than the first three quarters of 2011. Due to the seasonality of McCormick's business, cash flow from operations is typically highest in the fourth quarter of the fiscal year, and the company expects cash flow from operations to exceed $400 million for fiscal year 2012.
For fiscal year 2012, the company reaffirmed its projected sales growth of 9% to 11% in local currency, which includes an estimated 4% contribution from acquisitions completed in 2011. Unfavorable foreign currency exchange rates are expected to have a 2% unfavorable impact. In addition, the company reaffirmed its outlook for operating income growth of 9% to 11%, which includes at least $15 million of incremental brand marketing support. The range of earnings per share projected for fiscal year 2012 was raised to $3.03 to $3.08, to reflect the more favorable tax rate.
