McCormick's 1Q16 Earnings: Off to a Good Start in Fiscal 2016?
How much did McCormick’s segments contribute?
As mentioned in the previous article in this series, McCormick & Company (MKC) earns its revenue through two segments: the Consumer Business and Industrial Business segments. The Consumer Business segment accounts for 60%–65% of McCormick’s revenue every quarter.
Consumer Business segment
The Consumer Business segment contributed 61% to total net sales in fiscal 1Q16, reporting $634 million in revenue. The segment’s revenue grew 2.2% from fiscal 1Q15. Increased volume/product mix and pricing actions taken to offset higher material costs drove the 6% rise in constant-currency sales. Acquisitions completed in 2015 also contributed 3% to the sales growth.
Consumer sales in the United States rose by 2% and by 4% in constant-currency terms. Higher volume and product mix increased US sales of McCormick brand spices and herbs, Hispanic items, Simply Asia products, and Lawry’s brand products. Also contributing 1% to the growth in the quarter were sales from Stubb’s, which McCormick acquired toward the end of fiscal 3Q15.
McCormick is also having success in Europe, the Middle East, and Asia, where consumer sales rose 4%. The increase was 14% in constant-currency terms. A 10% sales increase from the acquisition of Drogheria & Alimentari in mid-2015 drove the overall increase in the area. New distribution, an increase in brand marketing support, and product innovation in Poland and France added to volume and product mix growth.
Consumer sales in the fourth quarter for the Asia-Pacific region were comparable to 1Q15 sales. The segment’s operating profit, excluding special charges, rose to $94 million compared to $92 million in fiscal 1Q15.
Industrial Business segment
The Industrial Business segment recorded a 2% increase in sales from fiscal 1Q15. Sales grew 7% in constant-currency terms. Higher volume, higher product mix, and price changes in response to higher material costs contributed to the rise. Acquisitions also added 2 percentage points.
Industrial sales in the Americas rose 3% and 6% in constant-currency terms. This increase included a 3% positive impact from Brand Aromatics, which was acquired in March 2015. Industrial sales in the Asia-Pacific region fell 4%. The Industrial Business segment’s operating income, excluding special charges, was $36 million compared to $31 million in 1Q15.
The segment’s operating profit rose 27% over 1Q15’s operating profit in constant-currency terms. Operating profit benefited from higher sales growth and cost savings, as well as a shift toward more value-added products that offset material costs and employee benefit expenses.