McCormick & Company, Inc. (MKC) reported strong results for the third quarter of 2009. Recurring earnings of 59 cents per share were up 13.5% year-over-year and beat the Zacks Consensus Estimate of 54 cents.
Net sales for the quarter increased 1.3% year-over-year, driven by a 1.7% increase in the Consumer Business segment and a 1% increase in the Industrial Business segment. Also contributing to the top-line was the successful acquisition of Lawry’s and effective pricing actions.
The Consumer Business segment saw increased volumes and a product mix of 3%, due to strong sales in the Americas, including the impact of the Lawry’s acquisition. Furthermore, pricing actions also contributed 3% to the top-line.
Sales at the Industrial business segment rose 1%, primarily driven by pricing actions that contributed 4% to sales. Additionally, volume and product mix increased the top-line by 3%, including a benefit from the Lawry’s acquisition.
Gross margins for the quarter expanded 84 basis points (bps) to 40.3%, versus 39.5% in the prior-year quarter. The advance was primarily driven by price increases that helped offset commodity costs. In addition, the company’s on-going Comprehensive Continuous Improvement (CCI) program also generated improved profitability.
The operating margin expanded 284 bps to 14.7% from 11.9% in the prior-year quarter, attributable to lower selling, general and administrative expenses.
Cash flow from operating activities increased almost 70% year-over-year, reflecting efficient working capital management. The company has a debt-to-capitalization ratio of 40%. Year-to-date in 2009, the company has used cash to reduce the debt associated with the acquisition of Lawry’s.
McCormick & Company is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors to the entire food industry, globally. Increased sales, the CCI program and other cost reduction efforts together generated strong profits ahead of expectations in the quarter. Moreover, with more consumers preparing meals at home, the company expects strong returns on its investments in marketing. The company intends to further increase investment in marketing to drive sales of its leading brands.
Based on the results for the third quarter, management narrowed its guidance for fiscal 2009 to a range of $2.26 to $2.28 per share, compared to the previous guidance of $2.24 to $2.28. However, sales growth was reiterated in the range of 2% to 3%.
Management continues to expect a gross profit margin increase of at least 0.5 percentage points for fiscal 2009, and cost savings from CCI and other initiatives are now expected at $35 million. Management expects to invest at least $20 million of these savings for additional marketing support, including an incremental portion related to Lawry’s.
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