McCormick & Co. (MKC)
Q3 2011 Earnings Call
September 28, 2011 8:00 am ET
Alan D. Wilson - Chairman, Chief Executive Officer and President
Gordon M. Stetz - Chief Financial Officer, Executive Vice President, Director and Chairman of Investment Committee
Joyce L. Brooks - Vice President of Investor Relations and Member of Investment Committee
Andrew Lazar - Barclays Capital, Research Division
Ann H. Gurkin - Davenport & Company, LLC, Research Division
Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division
Charles Edward Cerankosky - Northcoast Research
Thilo Wrede - Jefferies & Company, Inc., Research Division
Robert Moskow - Crédit Suisse AG, Research Division
Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division
Robert Dickerson - Consumer Edge Research, LLC
Alexia Howard - Sanford C. Bernstein & Co., Inc., Research Division
Erin Swanson Lash - Morningstar Inc., Research Division
Eric R. Katzman - Deutsche Bank AG, Research Division
Mitchell B. Pinheiro - Janney Montgomery Scott LLC, Research Division
Previous Statements by MKC
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Greetings, and welcome to the McCormick's Third Quarter 2011 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joyce Brooks, Vice President, Investor Relations for McCormick. Thank you. Ms. Brooks, you may begin.
Joyce L. Brooks
Good morning, and welcome to our review of McCormick's third quarter financial results and latest 2011 outlook. We've posted a set of slides to accompany today's call at our website, ir.mccormick.com.
With me are Alan Wilson, Chairman, President and CEO; and Gordon Stetz, Executive Vice President, CFO and Treasurer. Alan is going to begin with an update on our business and the current operating environment, and then Gordon will discuss our third quarter financial performance and latest guidance. After that, we look forward to discussing your questions.
As a reminder, our presentation today 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.
In addition, certain information that we will present today are non-GAAP measures. This includes certain financial results from 2010 that exclude items affecting comparability. 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 the presentation slides for our call.
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. In the third quarter, we delivered strong top line growth and a solid profit result. In local currency, we grew sales 11%, a step up from our 5% sales increase in the first half of 2011. We're driving this growth with product innovation, expanded distribution and increased brand marketing support, along with pricing actions. We reported a double-digit increase in each of our 2 segments and in a number of our operating regions. Of particular note this quarter was a 5% increase in volume and product mix for our consumer business, which was accomplished during a period when pricing also rose 5%. The increase was led by our Americas business and was broad-based with increases in grilling products, dry seasoning mixes, authentic ethnic cuisines, Zatarain's, Simply Asia and Thai Kitchen, as well as our sales of the private label products that we produce for some of our major customers. We also had a favorable impact from customers that purchased product in anticipation of a fourth quarter price increase.
On the industrial side of our business, we grew sales in local currency at a double-digit rate in each of our 3 regions, with sales in China up 30%. In markets around the world, this performance was driven by demand from quick-service restaurants and our supply of seasonings for snacks. Earnings per share was $0.69. Several factors affected profit this quarter, as Gordon will discuss in more detail, but I will share the major drivers.
Positively impacting EPS this quarter were higher sales. Our cost savings for McCormick Comprehensive Continuous Improvement program, CCI, and discrete tax items. Offsetting a portion of these increases were our additional investment in brand marketing support, which was up 27% for the quarter, and a further escalation in our raw and packaging materials costs. For these reasons, as we anticipated, our third quarter profit growth moderated from the double-digit increase in earnings per share that we reported in the first half. For the full year, we remain on track with our 2011 sales and profit outlook.
During my remarks this morning, I'd like to cover 3 topics and will begin with comments about the completion of our investments in Kamis and Kohinoor, as well as a few remarks about a smaller acquisition in the United States. Next, I'd like to go a bit in depth into the current environment, including our input costs and pricing actions as we head into our fourth quarter and look ahead to 2012. Finally, I'll share why I'm pleased with our momentum as we kick off the fourth quarter, McCormick's peak selling period.
Earlier in September, we completed the acquisition of Kamis and our Kohinoor joint ventures. As stated in our June call, these 2 strategic deals give us a leap forward in executing against our emerging markets strategy. The acquisition of Kamis is an excellent complement to McCormick's business in Western Europe and our recent joint venture in Turkey. Kamis is a brand leader in spices, seasonings, mustards and other flavor products in Poland, with distribution subsidiaries in Russia, Romania and the Ukraine. The purchase price for this business was approximately $286 million. Kamis will be managed under Lawrence Kurzius, the President of McCormick International; and by Malcolm Swift, our President in Europe, Middle East and Africa.
We've welcomed the Kamis employees to McCormick and named one of our business leaders in Europe, Fiona McDonnell [ph], as General Manager, and she's now on site. Our integration plans began in the pre-close period, and our integration team is fully engaged. Sales of this business have been increasing at a double-digit rate, and we intend to continue this growth through new product introductions, brand marketing programs and penetration of other markets in Central and Eastern Europe.