McCormick & Company Earnings: Increasing Costs Tighten Margins as Net Income Falls

Rising costs hurt S&P 500 (NYSE:SPY) component McCormick & Company, Inc. (NYSE:MKC) in the third quarter as profit dropped from a year earlier. McCormick & Company manufactures flavor products including spices, herbs, extracts, seasonings, flavorings, and other food products.

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McCormick & Company Earnings Cheat Sheet for the Third Quarter

Results: Net income for the processed and packaged goods company fell to $92 million (69 cents per share) vs. $102.4 million (76 cents per share) a year earlier. This is a decline of 10.2% from the year earlier quarter.

Revenue: Rose 15.8% to $920.4 million from the year earlier quarter.

Actual vs. Wall St. Expectations: MKC beat the mean analyst estimate of 65 cents per share. It beat the average revenue estimate of $871.6 million.

Quoting Management: Alan D. Wilson, Chairman, President and CEO, commented, “We were pleased to report strong sales growth and solid profit performance this quarter. Sales grew at a double-digit rate in both our consumer and industrial segments driven by new products, distribution gains and an increased investment in brand marketing, as well as pricing actions taken in response to higher costs. Employees throughout McCormick are focused on high performance and driving cost savings from our CCI program. This on-going initiative to improve productivity and reduce costs throughout our organization is now expected to deliver at least $50 million of cost savings in 2011.”

Key Stats:

Last quarter’s profit decrease breaks a streak of four consecutive quarters of year-over-year profit increases. In the second quarter, net income rose 11.2% from the year earlier, while the figure increased 13.1% in the first quarter, 15% in the fourth quarter of the last fiscal year and 36.4% in the third quarter of the last fiscal year.

The company has now topped analyst estimates for the last four quarters. It beat the mark by one cent in the second quarter, by 2 cents in the first quarter, and by 4 cents in the fourth quarter of the last fiscal year.

Gross margin shrank 2.5 percentage points to 39.6%. The contraction appeared to be driven by increased costs, which rose 20.9% from the year earlier quarter while revenue rose 15.8%.

Revenue has risen the past four quarters. Revenue increased 10.7% to $883.7 million in the second quarter. The figure rose 2.4% in the first quarter from the year earlier and climbed 5.9% in the fourth quarter of the last fiscal year from the year-ago quarter.

Competitors to Watch: TreeHouse Foods Inc. (NYSE:THS), Campbell Soup Company (NYSE:CPB), H.J. Heinz Company (NYSE:HNZ), ConAgra Foods, Inc. (NYSE:CAG), Vitamin Spice (VTMS), General Mills, Inc. (NYSE:GIS), Ralcorp Holdings, Inc. (NYSE:RAH), The Hain Celestial Group, Inc. (NASDAQ:HAIN), The J.M. Smucker Company (NYSE:SJM), and Bridgford Foods Corp. (NASDAQ:BRID).

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(Source: Xignite Financials)