McCormick profits fall as restructuring continues

By Lorraine Heller

- Last updated on GMT

Related tags Management Marketing

Leading spice firm McCormick has reported a dip in its fourth
quarter and full year financial results, with profits weighed down
by restructuring charges.

However, the firm today said its performance during the year of change has been "excellent"​ , with overall sales increasing by 5 percent to $2.7bn for the year, compared to $2.6bn in 2005.

Higher sales were a result of new product introductions, marketing programs, increased prices and a 2006 acquisition, said the firm.

McCormick's industrial business saw a 4 percent increase in sales for the year ended November 30 2006, with sales of new products to strategic customers highlighted as the primary driver of sales in the Americas.

However, profit in this division fell to $49m, compared to $66m in fiscal year 2005, hit by restructuring charges amounting to almost $27m. The firm also said its industrial business was negatively impacted by extreme volatility in the vanilla market.

Overall company profit dipped to $202m, compared to $215m in 2005. Profits for the quarter stood at $83m, down from the prior year's figure of $88m.

But the firm said its financial performance "exceeded (its) expectations"​ , adding that it had accomplished a lot in a short time.

"A restructuring plan that is underway included the consolidation of several large facilities. In the US, we began the transformation of our industrial business and in the consumer business we embarked on a significant revitalization program for our spice and seasoning line,"​ said Robert Lawless, the firm's chairman and CEO.

"In Europe we successfully implemented SAP and increased sales of core herbs and spices in the U.K. and France. Each of these major initiatives was well-planned and well-executed. In addition, we acquired a promising new business in the US, Simply Asia Foods, which established a leadership position for McCormick in the Thai foods category,"​ he added.

McCormick's recently announced 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.

The spices and seasonings firm said it expects a 4 to 6 percent increase in sales for fiscal year 2007.

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