Costs, prices and sales rise at McCormick

By Lorraine Heller

- Last updated on GMT

Related tags: Management, Marketing

Spice firm McCormick has posted increased sales in its industrial
business for the third quarter, but these were largely driven by
price increases as the company struggled to offset rising costs.

Actions to eliminate lower-margin customers and products also hit the firm's sales, bringing these down by two percent in the quarter ended August 31 2007. Overall, the company reported a seven percent growth in its sales for the period, which translated to a five percent rise in local currency. Higher sales were driven largely by price increases related to higher material costs, said the firm. According to McCormick, increased volume of snack seasonings and new products for large food manufacturers were offset by lower demand from restaurant customers that was related to "general industry weakness". ​ In Europe, industrial sales rose 16 percent, or 9 percent in local currency, with continued strength in sales of condiments and of seasonings for snack products. Sales in the Asia/Pacific region rose 27 percent, which was an increase of 19 percent in local currency, with the firm reporting "significant gains"​ in both China and Australia. The firm's overall business, which also includes its consumer operations, posted an eight percent increase in sales, although higher material costs in the company's industrial business dragged down overall profit marginally. The impact of these higher costs more than offset the benefit of savings from the company's restructuring program, said McCormick. The leading spice, seasoning and flavor company has reached the half-way point of its three year restructuring plan, which is designed to improve sales and profit margins. This 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,"​ said the firm's CEO Robert Lawless in a statement. "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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