McCormick: Reports On Q1/2016 Results And Outlook

Sparks / MD. (mcc) McCormick + Company Inc., a global leader in flavour, reported financial results for the first quarter ended February 29, 2016 and provided its latest financial outlook for fiscal year 2016.

• Sales rose 2 percent in the first quarter from the year-ago period. In constant currency, which excludes the unfavorable impact of foreign currency, the company grew sales 7 percent, with strong increases in both its consumer and industrial segments.
• Earnings per share was 0.73 USD in the first quarter of 2016. Excluding the impact of special charges, adjusted earnings per share was 0.74 USD compared to 0.70 USD adjusted earnings per share in the first quarter of 2015. This increase was mainly due to higher sales and improved gross profit margin.
• For the 2016 fiscal year, the company adjusted its financial outlook as it now expects a lower impact from unfavorable foreign currency exchange rates. Excluding this impact, the company reaffirmed its expected growth rate for sales, adjusted operating income and adjusted earnings per share.

President + CEO’s Remarks

Lawrence E. Kurzius, President and CEO, stated, «McCormick’s first quarter results were a great start to fiscal year 2016. Consumer demand for healthy flavour and high quality products is increasing globally and we are meeting this demand with a growing portfolio of on-trend products. Each of our two segments achieved strong underlying sales increases driven by our growth strategy. We are growing base business sales with brand marketing and are launching differentiated new products such as herb grinders and slow cooker sauces for our consumer segment and snack seasonings for industrial customers. We had an incremental sales benefit from three acquisitions completed in 2015, and continued to expand the availability and footprint of our business through retail channels and with new industrial customers».

«Led by our Comprehensive Continuous Improvement (CCI) program, we are on-track to deliver at least 95 million USD of cost savings in 2016 and recently announced a goal to reach 400 million USD of cost savings in the next four years. Together with our strategies to drive sales growth, these cost savings are driving higher gross profit margin and in the first quarter, led to a double-digit increase in adjusted operating income on a constant currency basis. I want to recognize McCormick employees around the world for their efforts and engagement. Together, we are focused on building value for our shareholders and customers and are pleased with the momentum underway in 2016».

First Quarter 2016 Results

McCormick reported a 2 percent sales increase in the first quarter from the year-ago period, and in constant currency, grew sales 7 percent. In constant currency, consumer segment sales rose 6 percent, with higher volume and product mix driven by product innovation, brand marketing support and expanded distribution, as well as pricing actions and the impact of acquisitions completed in 2015. The growth was broad-based with a constant currency sales increase in each region and particular strength in China this period. In constant currency, the company grew industrial segment sales 7 percent mainly from higher volume and product mix, with the additional benefit of the Brand Aromatics acquisition completed in 2015 and pricing actions to offset higher material costs. The increase in volume and product mix was led by the Europe, Middle East and Africa (EMEA) region which drove product innovation, increased distribution and geographic expansion.

Operating income was 129 million USD in the first quarter compared to 94 million USD in the year-ago period. The company recorded 2 million USD of special charges in the first quarter of 2016 related to previously announced organization and streamlining actions. Excluding special charges, adjusted operating income was 131 million USD compared to 122 million USD of adjusted operating income in the year-ago period. In constant currency, adjusted operating income rose 12 percent, with the favorable impact of higher sales and cost savings more than offsetting higher material input costs and increased employee benefits expense.

Earnings per share was 0.73 USD in the first quarter compared to 0.55 USD in the year-ago period. Excluding the 0.01 USD and 0.15 USD impact of special charges in the first quarter of 2016 and 2015, respectively, adjusted earnings per share was 0.74 USD compared to 0.70 USD in the year-ago period. This 6 percent increase included the impact of unfavorable foreign currency exchange rates and was mainly due to the increase in adjusted operating income.

The company continues to generate strong cash flow and net cash provided by operating activities for the first quarter of 2016 was 78 million USD compared to 96 million USD in the first quarter of 2015, with the decrease mainly related to the timing of payments for raw material purchases.

2016 Financial Outlook

McCormick adjusted its financial outlook for fiscal year 2016 as it now expects a lower impact from unfavorable foreign currency exchange rates.

The company plans to grow sales 4 percent to 6 percent in constant currency, driven by base business increases, new products, pricing and acquisitions completed in 2015. Including the estimated impact of unfavorable currency rates, projected sales growth is 1 percent to 3 percent. The company continues to expect at least 95 million USD of cost savings to lead to improved margins and fuel an increase in brand marketing of approximately 20 million USD.

Operating income is expected to grow 17 percent to 20 percent from 548 million USD of operating income in 2015. Adjusted operating income is expected to grow 6 percent to 8 percent from operating income of 614 million USD in 2015. Projected adjusted operating income in 2016 excludes an estimated 7 million USD of special charges that relate to previously announced organization and streamlining actions, and adjusted operating income in 2015 excludes 66 million USD of special charges. The projected year to year increase in adjusted operating income is 9 percent to 11 percent, excluding the estimated impact of unfavorable currency rates.

Earning per share is projected to range from 3.65 USD to 3.72 USD. Excluding the impact of special charges, adjusted earnings per share is projected to range from 3.68 USD to 3.75 USD. This is an increase of 6 percent to 8 percent from adjusted earnings per share of 3.48 USD in 2015. The projected year on year growth rate in 2016 adjusted earnings per share is 9 percent to 11 percent, excluding the estimated impact of unfavorable currency rates. Adjusted earnings per share in the second quarter of 2016 is expected to be slightly below 0.75 USD of adjusted earnings per share in the second quarter of 2015. While the company anticipates strong sales growth and further improvement in gross profit margin, a portion of the additional brand marketing is planned in the second quarter. Additional pressure is also expected from a year-on-year increase in the tax rate and unfavorable foreign currency rates. For the fiscal year 2016, another year of strong cash flow is anticipated, with a portion expected to be returned to McCormick’s shareholders through dividends and share repurchases.