McCormick & Company Inc. Earnings: Margins Suffer as Costs Rise, Profit Falls

Rising costs hurt S&P 500 (NYSE:SPY) component McCormick & Company Inc. (NYSE:MKC) in the fourth 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 Fourth Quarter

Results: Net income for McCormick & Company Inc. fell to $131.7 million (98 cents per share) vs. $133.7 million (99 cents per share) a year earlier. This is a decline of 1.5% from the year earlier quarter.

Revenue: Rose 13% to $1.11 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: MKC beat the mean analyst estimate of 97 cents per share. Analysts were expecting revenue of $1.09 billion.

Quoting Management: “At McCormick, 2011 was a year of significant accomplishment. We completed three acquisitions, and the integration of these businesses has gone well. These acquisitions are accelerating our sales and profit growth and have expanded our presence in emerging markets and across several growth platforms. In 2012 we expect at least 13% of sales to come from emerging markets, up from 6% in 2006. Innovation is another key avenue of growth and new products launched in the past three years added 9% to sales in 2011. Cost savings in 2011 from our Comprehensive Continuous Improvement program – CCI – totaled $65 million, ahead of our initial target. Along with our pricing actions, these cost savings provided an offset to increased material costs and also helped fuel a $20 million increase in brand marketing support. I want to recognize employees throughout McCormick for these achievements that drove our growth and helped us navigate a period of volatility in our material costs and weakness in the broad economic environment. During 2011, McCormick shareholders received nearly $150 million of the cash we generated through dividend payments, and in November, the Board approved an 11% increase in the quarterly dividend which was our 26th consecutive year of increase.”

“Consumers around the world continue to demand great taste, and we are meeting this demand with our passion for flavor, innovative new products, in-store merchandising and creative meal ideas. Our outlook is for solid profit growth in 2012 driven by higher sales and further cost savings. We expect the weak economy and volatile material costs to persist, and we intend to continue adapting our pricing actions and marketing programs. We also plan to offset a portion of increased costs and fuel higher brand marketing support with our CCI cost savings and have set a goal to achieve at least $40 million in 2012.”

Key Stats:

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

Gross margin shrank 2.6 percentage points to 42.9%. The contraction appeared to be driven by increased costs, which rose 18.4% from the year earlier quarter while revenue rose 13%.

Revenue has risen the past four quarters. Revenue increased 15.8% to $920.4 million in the third quarter. The figure rose 10.7% in the second quarter from the year earlier and climbed 2.4% in the first quarter from the year-ago quarter.

The company has now seen net income fall in each of the last two quarters. In the third quarter, net income fell 10.2% from the year earlier quarter.

Looking Forward: Expectations for the first quarter of the next fiscal year have not changed from 61 cents. The average estimate hasn’t changed from $2.78 per share for the fiscal year.

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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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

To contact the reporter on this story: Derek Hoffman at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com