McCormick & Co. (MKC)
Q1 2012 Earnings Call
March 27, 2012 8:00 am ET
Joyce L. Brooks - Vice President of Investor Relations and Member of Investment Committee
Alan D. Wilson - Chairman, Chief Executive Officer and President
Gordon M. Stetz - Chief Financial Officer, Executive Vice President, Director and Chairman of Investment Committee
Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division
Thilo Wrede - Jefferies & Company, Inc., Research Division
Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division
Robert Dickerson - Consumer Edge Research, LLC
Ann H. Gurkin - Davenport & Company, LLC, Research Division
Mitchell B. Pinheiro - Janney Montgomery Scott LLC, Research Division
Robert Moskow - Crédit Suisse AG, Research Division
Eric R. Katzman - Deutsche Bank AG, Research Division
Charles Edward Cerankosky - Northcoast Research
Joyce L. Brooks
Previous Statements by MKC
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Good morning. This is Joyce Brooks, McCormick's Vice President of Investor Relations. Thank you for joining today's call to review our company's first quarter financial results and 2012 outlook. We have posted a set of slides to accompany today's call at our website, ir.mccormick.com. [Operator Instructions] As a reminder, the conference is being recorded.
Joining us for today's call are Alan Wilson, Chairman, President and CEO; Gordon Stetz, Executive Vice President and CFO; and Mike Smith, Vice President, Treasury and Investor Relations. Alan is going to share some highlights from the first quarter of 2012 and how we are effectively adapting to the current business environment. Gordon will provide a review of our first quarter financial performance and discuss our 2012 financial guidance. After that, we look forward to discussing your questions and some closing remarks from Alan. We're planning a more in-depth review of McCormick's strategy and global growth initiatives at our April 17 Investor Conference in New York. I hope that you're planning to attend.
As a reminder, today's presentation contains projections and other forward-looking statements. 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. As seen on Slide 2, our forward-looking statement also provides information on risk factors that could affect our financial results.
It's now my pleasure to turn the discussion over to Alan.
Alan D. Wilson
Thanks, Joyce. Good morning, everyone, and thanks for joining us. McCormick's financial results for the first quarter demonstrated the effectiveness of our strategy and growth initiatives. We grew net sales 16% with double-digit increases in both our consumer and industrial businesses. Over half of the increase was driven by very strong underlying sales growth, augmented by sales from acquisitions completed in 2011. We are particularly pleased with this performance given the current environment where consumers are confronted with a tough economy and higher prices.
Our portfolio of businesses, united by our Passion for Flavor, is a real advantage in this environment. Across our consumer and industrial business, we're delivering flavor, regardless of whether consumers are cooking at home or eating out. For consumers eating at home, we're meeting demand for great flavor, convenience and healthy eating with product innovation, meal ideas and brand marketing support. In our industrial business, our growth with quick service restaurants was a key driver of first quarter results. These customers are expanding globally and, in this economy, are seeing increased demand based on their competitively priced menu.
A further balance exists across our 3 regions and with our leading shares in a number of developed markets, along with an increased percentage of sales in emerging markets. We have illustrated on Slide 4 the distribution of our first quarter sales across a number of emerging markets, where we are participating in strong sales growth. Including acquisitions, our sales in emerging markets were up 73% in the first quarter versus the year ago period. As a reminder, we also participate in emerging markets through our unconsolidated operations around the world.
The rate of sales growth in the first quarter was ahead of our expectations, which led to an earnings per share result at $0.55 that was just above the guidance range we provided in our January earnings call. However, this bottom line result was below earnings per share of $0.57 that we achieved in the first quarter of 2011. As you recall, we anticipated a significant impact from year-over-year material cost inflation in the first quarter, which is expected to gradually improve in the next 3 quarters. Likewise, we expected income from unconsolidated operations to get off to a slow start due to unfavorable currency exchange rates and higher material costs and then improve as we progressed through the year. As we look ahead to the next 3 quarters, we are reaffirming the guidance provided in January, 9% to 11% sales growth in local currency and earnings per share of $3.01 to $3.06.
While we will discuss our growth initiatives in more detail at our April Investor Conference, I want to provide a few updates today with a focus on our consumer business. But first, let me just comment that our industrial business had consistently strong results around the world this quarter. In local currency, we grew industrial sales in each region at a double-digit rate, and this is all organic growth without any acquisitions. Our profit growth was even more impressive, up more than 30% on top of a 12% increase in the first quarter of 2011.
Let's turn now to our consumer business in the Americas. During the first quarter, sales in the U.S. have been an area of investor interest in the food industry due to weak December and January consumption data in many food categories for branded products and, in some cases, private label. McCormick was not completely immune from this weakness and our Americas consumer business was the one region that had a decline in volume and product mix in the first quarter due to lower sales of branded core items in the U.S. However, a number of our other product lines, Zatarain’s, Hispanic items, economy products and our consumer business in Canada had solid sales growth this period.