HUNT VALLEY, Md., March 26, 2019 /PRNewswire/ -- McCormick & Company, Incorporated (NYSE: MKC), a global leader in flavor, today reported financial results for the first quarter ended February 28, 2019 and reaffirmed its financial outlook for fiscal year 2019.
- Sales rose 1% in the first quarter from the year-ago period. In constant currency, the company grew sales 4%, with strong results in both the consumer and flavor solutions segments.
- Operating income was $197 million in the first quarter compared to $181 million in the year-ago period. Adjusted operating income was $199 million, a 4% increase from $192 million in the first quarter of 2018, and a 6% increase in constant currency.
- Earnings per share was $1.11 in the first quarter as compared to $3.18, including the non-recurring net favorable impact of the U.S. tax legislation, in the year-ago period. Adjusted earnings per share rose 12% to $1.12 from $1.00in the year-ago period.
- For fiscal year 2019, McCormick reaffirmed its sales, operating income, and earnings per share outlook.
Chairman, President & CEO's Remarks
Lawrence E. Kurzius, Chairman, President and CEO, stated, "McCormick's strong first quarter results were a great start to the year reflecting the successful execution of our strategies. We delivered against our plans for both sales growth and profit realization and are excited about our momentum. Our fundamentals are very strong and we are confident the initiatives we have underway in 2019 position us to continue on our growth trajectory.
"Both our consumer and flavor solutions segments contributed to our constant currency sales growth of 4%. Growth in both segments was entirely organic, driven by higher volume and product mix on base business and new products as we had no acquisition impact in the quarter. Consumer segment sales grew in each of our three regions driven by new products, expanded distribution as well as strong marketing programs and promotional activities. Our flavor solutions segment had excellent sales growth driven by increased base business and new product growth in the Americas and EMEA regions. In this segment, we continue to win with our customers through new products, expanded distribution and promotional activities.
"McCormick is a global leader in flavor with a broad and advantaged global portfolio which continues to grow and position us to fully meet the demand for flavor around the world. We are continuing to capitalize on the global and growing consumer interests in healthy, flavorful eating, the source and quality of ingredients, and sustainable practices. We deliver flavor across all markets and through all channels, while responding readily to changes in the fast-evolving food and beverage industry with new ideas, innovation and purpose. Our focus on profitable growth and strengthening our organization is the foundation of our future. In 2019, we expect to deliver another strong year while continuing to make targeted investments and fuel our growth to build the McCormick of the future.
"I want to recognize McCormick employees around the world for their efforts and engagement which drive our momentum and make us successful. With our vision to bring the joy of flavor to life and our relentless focus on growth, performance, and people, we are confident we are well positioned to drive future growth, continue our forward momentum and build value for our shareholders in 2019."
First Quarter 2019 Results
McCormick reported a 1% sales increase in the first quarter from the year-ago period, including a 3% unfavorable impact from currency. Consumer segment sales were flat with a 3% unfavorable impact from currency. Excluding the unfavorable currency impact, consumer sales grew in each region driven by new products, expanded distribution and strong marketing and promotional programs. Flavor solutions segment sales grew by 3%, including a 3% unfavorable impact from currency. Flavor solutions sales growth was driven by the Americas and Europe, Middle East and Africa(EMEA) regions attributable to new products and higher base business volume and product mix. In constant currency, the company grew sales 4%.
Operating income was $197 million in the first quarter compared to $181 million in the year-ago period. This increase was driven by higher sales and cost savings led by the Comprehensive Continuous Improvement (CCI) program as well as lapping prior year transaction and integration expenses from the acquisition of the Frank's and French's brands. Operating income margin increased 110 basis points versus the year-ago period. The company recognized $9 million of transaction and integration expenses in operating income related to the acquisition of the Frank's and French's brands in the first quarter of 2018. The company recorded $2 million of special charges in the first quarter of both 2019 and 2018. Excluding transaction and integration expenses as well as special charges, adjusted operating income grew 4% to $199 million compared to $192 million in the year-ago period, which in constant currency is 6%. The company expanded adjusted operating income margin 40 basis points versus the year-ago period.
Earnings per share was $1.11 in the first quarter of 2019 compared to $3.18 in the year-ago period. Special charges decreased earnings per share by $0.01 in the first quarter of 2019. The net favorable non-recurring impact of the U.S. tax legislation (U.S. Tax Act), partially offset by transaction and integration expenses as well as special charges increased earnings per share by $2.18 in the first quarter of 2018. Excluding these impacts, adjusted earnings per share was $1.12 in the first quarter of 2019 compared to $1.00 in the year-ago period. The increase in adjusted earnings per share was driven primarily by higher adjusted operating income and a lower adjusted income tax rate. This was an increase in adjusted earnings per share of 12%, which includes an unfavorable impact of foreign currency rates.
The company continues to generate strong cash flow. Year-to-date net cash provided by operating activities through the first quarter of 2019 was $104 million compared to net cash used for operating activities of $21 million through the first quarter of 2018. The increase was driven by higher operating income and working capital improvements.
Fiscal Year 2019 Financial Outlook
McCormick reaffirmed its sales, operating income, and earnings per share outlook. The company expects another year of strong performance driven by its broad and advantaged flavor portfolio, effective growth strategies and focus on profit realization.
In 2019, the company expects a two-percentage point unfavorable impact from currency rates on net sales, adjusted operating income and adjusted earnings per share.
In 2019, the company expects to grow sales compared to 2018 by 1% to 3%, which in constant currency is a 3% to 5% projected growth rate. This increase consists entirely of organic growth as the company has no incremental sales impact from acquisitions in 2019. The company expects to drive sales growth with new products, brand marketing and expanded distribution. Sales growth is also expected to include the impact of pricing taken to offset an anticipated low-single digit increase in costs. The company has plans to achieve approximately $110 million of cost savings and intends to use these savings to improve margins, fund investments to drive continued growth, and as a further offset to increased costs.
Operating income in 2019 is expected to grow 10% to 12% from $891 million of operating income in 2018. Special charges of approximately $15 million are currently projected for 2019 that relate to previously announced organization and streamlining actions. Excluding the impact of special charges as well as transaction and integration expenses in 2019 and 2018, the expected growth in adjusted operating income is 7% to 9%, which in constant currency is a 9% to 11% projected growth rate, from adjusted operating income of $930 million in 2018.
McCormick projects 2019 earnings per share to be in the range of $5.09 to $5.19 compared to $7.00 of earnings per share in 2018. Excluding an estimated $0.08 impact of special charges in 2019, the company projects 2019 adjusted earnings per share to be in the range of $5.17 to $5.27. Compared to $4.97 of adjusted earnings per share in 2018, this an expected increase of 4% to 6%, which in constant currency is a projected growth rate of 6% to 8% and includes a projected adjusted effective tax rate of approximately 22%, which is a significant increase from 2018. This increase results in an estimated 3% headwind on adjusted earnings per share growth, partially offsetting the company's strong adjusted operating income growth expectation. For fiscal year 2019, the company projects another year of strong cash flow, with plans to return a significant portion to McCormick's shareholders through dividends and to pay down debt.
