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McCormick expects 'record' year after strong Q1

By Lorraine Heller , 29-Mar-2007

Spice firm McCormick has reported first quarter sales rises throughout its business operations, and predicts a continued strong performance in 2007 as its restructuring actions begin to bring in results.

Sales for the quarter ended February 28 2007 were up 7 percent, while profits benefited from cost savings and a favorable business mix.



According to the firm's chairman and chief executive officer Robert Lawless, McCormick's fiscal year 2007 is "off to a great start."



"The restructuring actions begun in late 2005 are delivering significant cost savings and sustainable margin improvement. Initiatives to grow our business are driving sales in a number of our regions around the world. This added up to an outstanding quarter and gives us increased confidence that 2007 will be another record year for McCormick," he said.



Sales for the firm's industrial business rose 5 percent - or three percent in local currency - in the quarter, to reach $278m from $265m last year. The increase was due to higher volume with strategic customers, said the firm.



However, sales in the Americas saw a slight dip in the quarter, reduced by 2 percent by the impact of the company's actions to eliminate lower margin customers and products. In Europe, sales rose 19 percent and 8 percent in local currency with continued increases in seasonings for poultry and for snack products. In this region, the elimination of lower margin customers again reduced sales 2 percent. Sales in the Asia/Pacific region rose 24 percent and 18 percent in local currency with "significant gains" in both China and Australia, said the firm.



Industrial business operating income excluding restructuring charges rose to $14m from $11.5m in 2006, an increase of 22 percent. This increase was due to higher sales and improved gross profit margin, as well as lower stock-based compensation expense.



McCormick's three year restructuring plan involves reducing its number of business customers in the US by around 25 percent, while also eliminating one quarter of its products. However, McCormick said sales related to these customers and products represent only 2 to 5 percent of industrial business sales in the US, and claims the reduction will ultimately lead to higher margins.



"We have realized that we can better create value by rationalizing our business and driving our products through fewer customers, which will generate better margins," Lawless had said.



"During the next three years, we will eliminate underperforming products and customers, reallocate resources to strategic customers, lower costs and leverage our systems and capabilities. These steps will lead to more consistent sales growth and profit contribution from our industrial business," he added.



By 2008, the company said it aims to consolidate its global manufacturing, rationalize its distribution facilities, improve its go-to-market strategy and eliminate administrative redundancies.



It will also increase prices on lower-volume products to meet new margin targets.



The restructuring plan, which is expected to carry costs of around $130-$150 million, will also result in the loss of 800- 1,000 jobs globally.



McCormick said it expects the restructuring plan will "reduce complexity and increase the organizational focus on growth opportunities" in both its consumer and industrial businesses.



It also aims to achieve $50 million of cost savings by 2008, which it says will drive margin expansion and fund initiatives to grow sales.

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