McCormick spices
McCormick’s net income equaled $93.5 million for the quarter ended Feb. 28.

SPARKS, MD. — A slowdown in retail center-of-store sales was a challenge McCormick & Co. faced during the first quarter of fiscal 2017. Company management attributed the slowdown to unseasonable weather, a later date for the Easter holiday and the timing of income tax refund payments.

Lawrence Kurzius, McCormick
Lawrence E. Kurzius, chairman, c.e.o. and president of McCormick

“Taking a closer look at the first quarter, our customized I.R.I. consumption data indicated strong category dollar growth for spices and seasonings at 6%,” said Lawrence E. Kurzius, chairman, chief executive and president of McCormick & Co. “During the same period, retail sales of McCormick branded spices and seasonings grew 4%. The I.R.I. data showed pricing was 4% for both the category and McCormick, with underlying volume growth of 2% for the category and flat for McCormick. Both of these growth rates, for McCormick and the category, were lower than in past quarters and coincide with the general weakness in center-of-store food categories.”

For the quarter ended Feb. 28, McCormick’s net income equaled $93.5 million, equal to 76c per share on the common stock, and flat compared with the same period of the previous year when net income totaled $93.4 million, or 74c per share.

Sales for the quarter were $638.6 million and were also flat compared with the first quarter of fiscal 2016 when sales totaled $633.8 million.

McCormick Grill Mates
McCormick faced the challenge of a slowdown in retail center-of-store sales. 

In conjunction with the publication of the results, McCormick & Co. updated its financial outlook for the rest of the year. The company expects to grow sales 3% to 5% compared to 2016. Excluding the impact of unfavorable currency rates, the projected growth remains 5% to 7%. Driving sales will be brand marketing, new products, expanded distribution, and the incremental impact of such acquisitions as Giotti, according to the company.

“In measured channels, McCormick U.S. branded share declined 90 basis points this quarter,” Mr. Kurzius said. “This overstates our share loss as we continue to achieve strong growth in unmeasured channels. These are retail channels not captured in Nielsen or I.R.I. data and not in the I.R.I. consumption data I shared.

“In the first quarter, we had double-digit sales growth with club and e-commerce. We estimate that these unmeasured channels added another approximately 1.5 percentage points to our retail sales growth for spices and seasonings.”

McCormick Gourmet Spices
McCormick expects its gourmet spices and seasonings business to experience growth.

He added that the company expects its growth in unmeasured channels to continue throughout the rest of the year.

Regarding the share loss in measured channels, Mr. Kurzius attributed the loss to competition from private label.

“Part of it is something that we’ve created ourselves,” he said. “A great deal of our category management effort has been directed toward changing the price structure of the category and encouraging retailers to take higher pricing on private label. And you’re seeing that coming through in the data, where private label dollar growth is very strong over and above the unit growth.

Zatarain's biscuit mixes, McCormick
McCormick's sales for the quarter were $638.6 million.

“I don’t want to lose track of the fact that about half of the reported private label growth is actually not true growth, but it’s the conversion of a controlled brand by one of the major retailers from a branded item to their private label and a reclassification of those sales in the data.”

Giving Mr. Kurzius confidence for the rest of the year are his expectations for the company’s gourmet spices and seasonings business.

“ … We’re optimistic that we’re going to see better trends on our gourmet business,” he said. “In addition, we had a lot of new placements and expanded distribution on gourmet that really comes on a little bit later in the year as the retailers go through their shelf reset cycles. So our outlook for gourmet, particularly as we lap that transition period from a year ago, is actually quite positive. And we believe the conversion to organic was absolutely the right thing to do.”