McCormick & Co. (MKC)
Q4 2010 Earnings Call
January 26, 2011 8:00 am ET
Alan Wilson - Chairman, Chief Executive Officer, President and Chairman of Management Committee
Joyce Brooks - Vice President of Investor Relations and Member of Investment Committee
Gordon Stetz - Chief Financial Officer, Executive Vice President, Chairman of Investment Committee and Member of Management Committee
Alex Bisson - Northcoast Research
Kenneth Goldman - JP Morgan Chase & Co
Andrew Lazar - Barclays Capital
Alexia Howard - Bernstein Research
Christopher Growe - Stifel, Nicolaus & Co., Inc.
Ann Gurkin - Davenport & Company, LLC
Eric Katzman - Deutsche Bank AG
Robert Moskow - Crédit Suisse AG
Mitchell Pinheiro - Janney Montgomery Scott LLC
Eric Serotta - Merrill Lynch
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Greetings, and welcome to McCormick's Fourth Quarter 2010 Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Joyce Brooks, Vice President Investor Relations for McCormick. Thank you Ms. Brooks, you may begin.
Good morning to everyone on today's call and to those joining us by webcast. The purpose of our call is to review McCormick's fourth quarter financial results, 2010 accomplishments and 2011 outlook. In the room with me are Alan Wilson, Chairman President and CEO; and Gordon Stetz, Executive Vice President and CFO. Paul Beard who has participated in many past calls is not with us today due to his recent appointment as President Asia Pacific. I know you join me in wishing him continued success in his new role. We posted a set of slides to accompany today's call at our website ir.mccormick.com.
As a reminder, our presentation today contains projections and other forward-looking statements, and actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or other factors.
Please refer to our slides in this morning's press release for more information concerning forward-looking statements. In addition, certain information that we will present today are non-GAAP financial measures. This includes information which excludes the impact of a significant tax accrual reversal recorded in the third quarter of 2010 and restructuring charges recorded in 2009. We present this non-GAAP information for comparative purposes alongside the most directly comparable GAAP measures. Reconciliations of GAAP to non-GAAP measures can be found in this morning's press release and in the presentation slides for our call.
It is now my pleasure to turn the discussion over to Alan.
Thanks, Joyce. Good morning, everyone, and thanks for joining our call. We delivered a fourth quarter performance that was a strong finish to McCormick's record 2010 results. At the top line, our sales growth was driven by 6% increase in volume and product mix, demonstrating the underlying strength of our key categories and products in a still difficult economy.
At the bottom line, our actions to repatriate cash from foreign subsidiaries led to a favorable tax rate. This lifted earnings per share to $0.99 which was above our initial projections for the quarter. Let's talk about the key initiatives that drove sales, beginning with the Consumer business in the Americas.
We had a record level of holiday support and for the first time in the U.S., distinctive advertising for Thanksgiving and for Christmas. Recipe Inspirations also received incremental advertising this quarter and we continue to benefit from new distribution in the Warehouse Club channel and for our Billy Bee Honey brand in Canada. The results were impressive.
In the U.S., unit sales of branded herbs and spices were up double digits. Gourmet and Extract products grew more than 20% and our dry seasoning mixes rose 8%. Sales of Lawry’s and Zatarain's were both up more than 5%. In fact the primary areas of weakness in this part of our business were private label and economy products, which both declined in the fourth quarter. Consumer sales in Canada also grew at a double-digit pace. The net result was a 9% increase in consumer sales in the Americas.
Clearly, consumers regard our brand as a good value and rely on McCormick to deliver great flavor, especially for their holiday meals and baking. As we indicated in our press release, our fourth quarter unit sales growth in the U.S. exceeded the increase in units purchased by consumers at retail based on our scanner data. We believe that customers who purchased products in advance of a late 2010 price increase contributed to this difference. As a result, we estimate that $10 million of sales may have shifted from the first quarter of 2011 to the fourth quarter of 2010. This would indicate that the underlying increase in volume and product mix for our Americas' Consumer business was closer to 6% rather than 8%. This rate of growth is more in line with the fourth quarter sales consumption rate based on our scanner data and still an exceptional performance.
In contrast to growth in the Americas, results for our Consumer business in Europe to Middle East and Africa, EMEA declined this quarter which was in line with our forecast of continued weakness in this part of the business. Throughout 2010, we have seen sales growth in the U.K. and in France dampened by declines in smaller markets such as Spain, Portugal, Italy, the Netherlands, Belgium markets which together account for about 20% of our sales in the EMEA.
In these smaller markets, our business has been impacted by the poor economy and competitive conditions. During the fourth quarter, increased promotions and allowances to U.K. customers more than offset a mid-single-digit increase in volume and product mix. Sales in France remained robust as a result of distribution gains, new products, successful grandeur advertising and merchandising improvements. Scanner data in this market showed a mid-single-digit increase in both the Spice and Seasoning category and for our new[ph program.
Likewise, the homemade desert category grew at a mid-single-digit pace along with our Vahiné brand. In the fourth quarter, Asia-Pacific had another outstanding result with Consumer business sales up 12% in local currency driven by a 22% increase in China, new products expanded distribution and increased demand all contributed to this increase.