McCormick profits dip, restructuring continues

By staff reporter

- Last updated on GMT

Spice firm McCormick has reported good sales increases for its
second quarter, although profits dipped in the period as the firm
continues its restructuring.

Net sales for the quarter ended 31 May 2007 rose 7 percent to $687m, but profits fell to $41m compared to $61m last year. However, the firm said its restructuring program is expected to generate $30m in cost savings during the year, and that 2007 "is shaping up to be another record year". ​ Second quarter sales for McCormick's industrial business increased 9 percent, although the elimination of lower-margin customers reduced sales by 2 percent. Industrial sales in the Americas rose 2 percent in the period, with strong sales of snack seasonings, condiments and new products for large food manufacturers, said the firm. In Europe, industrial sales rose 26 percent, with strong sales of condiments and of seasonings for snack products. Sales in the Asia/Pacific region rose 34 percent. In the second quarter, industrial business operating income excluding restructuring charges rose to $21m from $19m in 2006, an increase of 11 percent. McCormick said this increase was due to higher sales and the favorable impact of cost savings. McCormick's three year restructuring plan, which began in 2005, 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,"chief executive officer Robert​ 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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