McCormick’s Margins Are Expected to Rebound in Fiscal 4Q15
Margins to improve
McCormick & Company (MKC) expects improvement in its gross and operating margins in fiscal 4Q15. The company reported a gross margin of 40.1% in fiscal 3Q15, a fall compared to the same quarter last year. There was a negative impact of 54 basis point on the gross margin because of the Kohinoor business.
Also, $3 million of special charges—included in the cost of goods sold—led to the gross profit fall. This charge was an inventory write-down that was directly related to the decision to discontinue the sale of certain low-margin Kohinoor basmati rice product lines. A $2 million year-over-year fall in Kohinoor’s gross profit before the special charge also contributed to the overall fall in gross margin. In spite of the fall in gross margin for fiscal 3Q15, the company still expects its fiscal 2015 gross margin to be comparable with fiscal 2014.
Other key highlights of 3Q15
The adjusted operating income fell 4% to $153.8 million, excluding special charges. The company recorded $15 million of special charges in the quarter. About $2 million in special charges were related to streamlining actions in North America and EMEA (Europe, the Middle East, and Africa) that were previously announced. The remaining special charges relate to the company’s majority-owned Kohinoor business that was purchased in 2011. Operating margin was 14.5% compared to 15.3% in fiscal 3Q14.
The company reported a rise of 2% in sales for 3Q15 compared to fiscal 3Q14. Product innovation, brand marketing support, expanded distribution, and the impact of acquisitions completed in 2015 drove the sales. The rise was broadly based on growth in each region, including the US market where actions have been underway to improve performance.
Additionally, the company continues to generate strong cash flow. Net cash provided by operating activities for the first three quarters of fiscal 2015 were $317 million in 2015 compared to $276 million in 2014.
Management’s view on 3Q15 performance
Alan D. Wilson, the chairperson and CEO of McCormick, commented, “McCormick’s third quarter and year-to-date 2015 financial results reflect the effectiveness of our growth strategies and engagement of our employees. Through the third quarter, we have grown sales 6% in constant currency. Both our consumer and industrial businesses are delivering mid-single-digit constant currency sales increases, driven by innovation, effective brand marketing support, expanded distribution and customer intimacy.”