McCormick profit rises along with costs

NEW YORK (Reuters) - Spice maker McCormick & Co. Inc (MKC.N) reported better-than-expected quarterly profit on Thursday, bolstered by increased sales volume in Europe and Asia, but said it would raise prices to offset higher costs.

Gross profit margin will continue to be under pressure through the remainder of the fiscal year, the company said.

Net income for the fiscal third quarter, ended August 31, rose to $56.8 million, or 43 cents per share, from $43 million, or 32 cents per share, a year earlier.

Excluding restructuring charges, the company reported a profit of 45 cents. On that basis, analysts on average had expected 43 cents a share, according to Reuters Estimates.

Sparks, Maryland-based McCormick said it will continue to raise prices to offset higher material costs in its industrial business, which is less profitable than its retail arm and accounts for about half of its annual sales.

"Our industrial business is in a period right now where it's under pressure with steep cost increases for several commodities and a general weakness in the restaurant industry," Chief Executive Officer Bob Lawless said on a call with analysts.

Commodity costs are expected to remain at a high level through the fourth quarter, Lawless said.

McCormick said sales grew 8 percent to $716.2 million, ahead of analysts' expectation of $697.2 million.

Sales grew 12 percent in Europe and 21 percent in the Asia/Pacific region due to favorable foreign exchange rates and higher volume, the company said.

Sales in North America grew 6 percent, helped by increased sales of its Hispanic items, seafood complements, Zatarain's brand and gourmet products.

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Quarterly volume in McCormick's U.S. consumer business increased as the company encouraged its customers to buy early for the fall season, and the elimination of lower margin business reduced sales slightly.

"Although (the consumer business) shipped some volume early, consolidated and consumer sales were still both in line with our forecast," said Deutsche Bank analyst Eric Katzman, who reiterated his "buy" rating on McCormick shares.

McCormick affirmed that it expects to grow sales by 5 percent to 7 percent and earnings per share by 9 percent to 11 percent for the full fiscal year, excluding restructuring charges.

Analysts expect the company to earn $1.91 per share on sales of $2.88 billion for the year, according to Reuters Estimates.

Including estimated restructuring charges of 18 cents, the company said it expects a profit of $1.69 to $1.73 per share. On that basis, analysts expect $1.73.

McCormick's restructuring efforts included closing plants and consolidating operations in an effort to improve results.

Under its U.S. "spice revitalization plan," it has introduced trendy gourmet seasonings such as smoked paprika and black sesame seed, and packaging with flip-top caps.

Shares of McCormick fell to $36.73 in early trade but quickly recouped some of those losses and were down 72 cents, or 1.9 percent, to $37.32 in midday trading on the New York Stock Exchange.