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McCormick Plans Job Cuts

The spice company hits targets and outlines a restructuring.
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hit fourth-quarter targets and set plans to cut 800 to 1,000 jobs.

The Sparks, Md., spice company made $88 million, or 65 cents a share, for the quarter ended Nov. 30, up from the year-ago $87 million, or 62 cents a share. The latest quarter was hit by a 5-cent restructuring charge. Excluding that item, fourth-quarter numbers beat the Thomson First Call analyst consensus estimate of 68 cents.

Sales fell to $737 million from $744 million a year earlier, missing the $760 million analyst estimate, as consumer product demand in the U.S. Gulf region was reduced by Hurricane Katrina. Sales in France continued to be hit by competition from lower-priced products in alternative retail channels. Sales for the industrial business declined in the fourth quarter due primarily to lower pricing for vanilla products and the elimination of lower margin products in Europe. Together, these factors reduced fourth-quarter sales by 3%.

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In the fourth quarter, gross profit margin reached 43.9%, compared to 42.4% in the prior year. Cost savings initiatives and price increases more than offset cost increases in packaging and energy.

McCormick said it will consolidate its global manufacturing, rationalize its distribution facilities, improve its go-to market strategy and eliminate administrative redundancies. In addition, for the industrial business, the company will reallocate resources to key customers and take pricing actions on lower-volume products to meet new margin targets.

The company expects that the restructuring plan will reduce complexity and increase the organizational focus on growth opportunities in both the consumer and industrial businesses. In addition, the company is projecting that $50 million of cost savings will be achieved by 2008, with at least $10 million to be realized in 2006. These savings will drive margin expansion and fund initiatives to grow sales.

McCormick sees charges of $130 million to $150 million. In the fourth quarter of 2005, $11 million of these charges were recorded due primarily to the announcement in January 2006 that two major U.S. facilities would be closed. For the total plan, the cash-related portion of the charges will be $85 million to $100 million, of which $60 million will be spent in 2006. The plan is expected to eliminate 800 to 1,000 positions globally over the three-year period. A significant number of these employees have already been advised.

For fiscal year 2006, the company expects earnings per share in the range of $1.21 to $1.24. This range includes 42 cents a share in special charges and 11 cents for stock compensation expense. Analysts were looking for $1.73.