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McCormick & Company Inc. Reports Operating Results (10-Q)

September 28, 2012 | About:

McCormick & Company Inc. (NYSE:MKC) filed Quarterly Report for the period ended 2012-08-31.

Mccormick & Company, Incorporated has a market cap of $8.38 billion; its shares were traded at around $61.75 with a P/E ratio of 22 and P/S ratio of 2.3. The dividend yield of Mccormick & Company, Incorporated stocks is 2%. Mccormick & Company, Incorporated had an annual average earning growth of 7.4% over the past 10 years. GuruFocus rated Mccormick & Company, Incorporated the business predictability rank of 5-star.

Highlight of Business Operations:

Increasing Sales and Profits – Our long-term goals are to grow sales 4 to 6%, increase operating income 7 to 9% and increase earnings per share 9 to 11%. Long-term, we expect to achieve mid-single digit sales growth with one-third from category growth, share gains and new distribution, one-third from product innovation and one-third from acquisitions. While no new acquisitions are included in our 2012 sales projections, we expect a 4% increase in 2012 from acquisitions completed in 2011 and a favorable impact from our pricing actions, in response to higher material costs. As a result, we project 9 to 11% sales growth in local currency for 2012, with an estimated 2% reduction in growth from unfavorable currency exchange rates based on prevailing rates. Also in 2012, we expect to achieve earnings per share of $3.03 to $3.08. This estimate includes the anticipated benefit of higher sales and CCI cost savings in 2012, a favorable comparison to 2011 when $10.9 million of acquisition-related transaction costs were recorded and a more favorable income tax rate in 2012 compared to last year. We anticipate that the positive effect on profit from these items will be offset in part by higher material costs, with anticipated increases at a high single digit range, as well as $9 million of increased retirement benefit expense. In addition to increased sales and profit, our business generates strong cash flow (we generated $340 million in cash flow from operations in 2011). Long-term, we expect higher cash flow and more efficient asset utilization as we anticipate growth in net income and further reductions in our working capital. We are increasing shareholder return with consistent dividend payments. We have paid dividends every year since 1925 and increased the dividend in each of the past 26 years.

The sales increase of 6.2% for the third quarter of 2012 included a 4.6% increase due to acquisitions and a 3.2% unfavorable impact from foreign currency exchange rates. Excluding acquisitions and the foreign currency impact, we grew sales 4.8%. This was mostly the result of pricing actions, which added 4.5% to net sales, taken in response to increased raw and packaging material costs. Volume and product mix rose 0.3% when compared to the prior year period. For the consumer business, sales increased 8.9%, which included a 3.1% unfavorable impact from foreign exchange rates. Acquisitions completed in 2011 accounted for 8.2% of the increase and the remaining increase was largely due to pricing actions. Also, for 2011, our consumer business in the Americas had an estimated $10 million benefit in third quarter sales from some customer buy-in in anticipation of a fourth quarter price increase. For the industrial business, net sales rose 2.8%, which included a 3.4% unfavorable impact from foreign exchange rates. Most of the industrial sales increase was the result of pricing actions with a 0.7% increase due to volume and mix.

The 8.9% increase in sales in the third quarter of 2012 as compared to the third quarter of 2011 included a favorable impact of 8.2% from acquisitions and 3.1% unfavorable impact from foreign currency rates. Excluding acquisitions and the foreign currency impact, we grew sales 3.8%, with increased pricing of 3.7% and higher volume and product mix of 0.1 %.

In the Americas, sales increased 4.4% in the third quarter of 2012, compared to the third quarter of 2011, including a 0.7% increase from the Kitchen Basics acquisition and a 0.6% decrease due to unfavorable foreign exchange rates. Excluding the Kitchen Basics acquisition and foreign exchange impact, we grew sales 4.3%. Sales rose 4.6% this period as a result of our pricing actions taken in the fourth quarter of 2011 and a more recent increase in the price of pepper. During this period volume and product mix was down 0.3% compared to the third quarter of 2011. In the third quarter of 2011 we estimated that customers purchased approximately $10 million of product in advance of a price increase, shifting sales into the third quarter of 2011 from the fourth quarter of 2011. Excluding this impact, third quarter 2012 volume and product mix were up about 3%

In the Asia/Pacific region, sales increased 66.9% in the third quarter of 2012, compared to the third quarter of 2011, with a 55.2% increase from the Kohinoor acquisition and a 2.1% decrease coming from unfavorable foreign exchange rates. Excluding the acquisition and foreign currency impact, we grew sales 13.8% with 11.9% from higher volume and product mix and pricing actions adding 1.9%. Following a strong start to the year and a more modest increase in the second quarter, sales rebounded this period, illustrating the quarter-to-quarter variability we have seen in this region which is due in part to the timing of holiday seasons and marketing programs. Our consumer business in China drove this quarter's increase and sales in that country are up 20.1% in local currency for the nine months ended August 31, 2012 compared to the same period for the prior year.

Read the The complete Report

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 3.0/5 (2 votes)


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