Friday, June 25, 2010

MKC Beats, Encouraging Outlook

McCormick & Co. Inc. (MKC: 38.96 0.00 0.00%) posted double-digit earnings growth for the second quarter 2010, which was helped by robust demand at both its consumer and industrial business segments. The company expects fiscal 2010 earnings growth at the upper end of its guidance.
McCormick’s adjusted earnings jumped 17% to 49 cents per share in the quarter, compared with 42 cents last year. The Zacks Consensus Estimate for the quarter stood at 44 cents a share. The quarterly earnings benefited from higher operating income, a favorable tax rate and the increase in income from unconsolidated operations.
The spice maker projects fiscal 2010 earnings between of $2.49 and $2.54 per share, inline with the Zacks Consensus Estimate of $2.51. Moreover, McCormick expects earnings to arrive at the higher end of the guidance.
For the quarter under review, total revenue grew to $345.6 million, up 5% from the year-earlier quarter, benefiting from positive currency translation, higher volume and product mix. The company reaffirms its sales guidance range of 2% – 4% annual growth in local currency. Based on the current currency translation rate, the sales growth in the second half of fiscal 2010 will be negatively affected by 2%.
Quarterly revenue for the consumer segment jumped 4% year over year due to an extensive distribution channel and the introduction of new products. For the industrial segment, sales surged 7% annually in the quarter, benefiting from new product launches in each region, with double-digit increases in the Europe, the Middle East and Africa (EMEA) region and also in China.
Gross margin expanded 100 bps to 40.9% in the quarter, compared with 39.9% in the year-ago quarter. Though McCormick posted strong profitability results in the first two quarters of fiscal 2010, it expects to deliver modest profitability growth in the remaining quarter of 2010. The profitability is anticipated to be affected mainly by a higher tax rate, and increased cost and unfavorable currency translation.
To improve productivity and reduce costs, McCormick has been implementing the Comprehensive Continuous Improvement program and expects savings of more than $40 million in 2010. Due to significant benefit from the savings program, the company expects gross margin to expand in fiscal 2010.
Exiting the quarter, the company had cash and cash equivalent of $23.1 million, up compared with $12.9 million in the prior-year quarter. However, the company’s cash flow from operating activities dropped to $65.2 million in the quarter compared with $96.7 million in the prior year.
Based in Maryland, McCormick & Co. Inc. is a leading manufacturer, marketer and distributor of spices, seasoning

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