SPARKS, MD. — Continued pressure from smaller brands in the spices and seasonings category challenged McCormick & Co. during the company’s second quarter.
“We are taking aggressive actions to strengthen our brand equity and to win at retail,” said Alan Wilson, chairman, president and chief executive officer, during a June 26 call with financial analysts to discuss second-quarter earnings. “These actions are building as we progress through 2014. And we recognize it will take more than one or two quarters before these actions gain traction and help return to growth in this market.”
New products and increased brand marketing support in the first half of the year have helped McCormick gain share in the recipe mix category. But to better compete in the spices and seasonings space, McCormick has realigned its sales organization and initiated strategic dialogues with retailers.
“Through the first half, these conversations have led to some early wins that include better alignment of retail pricing between private label, McCormick brand and competitive brands,” Mr. Wilson said. “In addition, we have gained new distribution for Lawry’s and Simply Asia Foods brands and won the supply of private label from a competitor.”
During the quarter, increased brand marketing support and the unfavorable impact of business mix in the company’s consumer business were partially offset by higher sales and cost savings. Operating income for the segment declined by 2% to $85.8 million from $87.6 million in the second quarter of the previous fiscal year, while segment sales increased to $615 million from $591 million, reflecting growth in international markets that offset a 5% decline the Americas region.
Brand support in the second half of the year will focus on everyday cooking, new holiday advertising, quality messages, and the launch of FlavorPrint, a personalized recipe engine.
New products set to launch include gluten-free recipe mixes and McCormick skillet sauces in such flavors as fajita with roasted chili, garlic and lime.
“These flavors leverage mainstream family favorites with a bit of a twist,” Mr. Wilson said. “Both the gluten-free items and skillet sauces are designed to build upon our momentum in the recipe mix category. We are already gaining good retail acceptance of these new products and anticipate strong consumer trial and repeat purchases. Again improved results for our consumer business in the Americas are going to take some time but we have had initial progress with the actions that we have under way.”
McCormick said it also has a strong pipeline planned for its industrial business for the second half of the year, with an emphasis on health and wellness.
“With our foundation in herbs and spices, we believe McCormick is well positioned,” Mr. Wilson said.
Operating income for the industrial business increased 26% to $35.9 million from $28.4 million during the quarter, reflecting higher sales, cost savings and increased margins within the product portfolio. Net sales in the segment rose to $418.4 million from $411.6 million, as strength in international markets offset a 2% decline in sales in the Americas, reflecting ongoing weakness in demand from quick-service restaurants.
“Our snack customers are continuing to do pretty well and continuing to innovate and we are seeing that reflected,” Mr. Wilson said. “Our packaged food customers are struggling with core volume and part of the way that they are trying to overcome that is with new product innovation that we are working with them on. So what we have with packaged foods, or with our consumer food manufacturer customers so far, in the U.S. at least, is relatively flat. Snacks up, core process foods kind of down a little bit.”
For the second quarter ended May 31, McCormick posted net income of $84.5 million, equal to 65c per share on the common stock, up from $78.6 million, or 60c per share, in the prior-year period.
Net sales for the quarter climbed to $1,033.4 million, up from $1,002.6 million.“While the results varied by region, the overall performance demonstrated progress with McCormick's growth strategies and gives us increased confidence in our ability to deliver our 2014 financial outlook,” Mr. Wilson said.