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An Old Bay display at the McCormick World of Flavors store at the Baltimore Harborplace. (Maximilian Franz / The Daily Record)

McCormick’s earnings stymied by unfavorable currency rates, special charges

McCormick & Co. announced its second-quarter earnings Wednesday, with special charges and unfavorable currency rates dragging its numbers down below the consensus prediction.

The Sparks-based spice company reported total revenues of $1.02 billion — just shy of the projected $1.03 billion — and earnings per share of $0.65, which fell short of the predicted $0.68 per share.

But by stripping the $0.10 impact of special charges, the adjusted earnings per share for the quarter was $0.75, good for a 17 percent increase over the $0.64 EPS from this period last year and a 10 percent increase over the consensus prediction.

Similarly, unfavorable currency rates helped lead to the slight decline in overall revenue, which fell from $1.03 billion in the second quarter last year. In constant currency, the company grew sales 5 percent year-over-year and had increases in both the consumer and industrial business sectors.

A lower tax rate — 16 percent, compared to 28 percent in 2014’s second quarter thanks to $13.4 million in discrete tax benefits — contributed to these positive numbers, McCormick’s leadership said.

“Our second quarter results demonstrated the effectiveness of our sales and profit growth strategies and continued the momentum from the first quarter,” McCormick chairman and chief exexutive officer Alan Wilson said.

The special charges, which totaled $19 million for the quarter, were largely tied to the company’s restructuring of its operations in Europe, the Middle East and Africa. The costs incurred by the reorganization are hefty this year but will lead to $16 million annual savings in the future, Wilson said.

Along those lines, Wilson reaffirmed the company’s goal to reach $85 million in cuts in 2015 through its Comprehensive Continuous Improvement program. Most notably, about 5 percent of the company’s U.S. work force, the majority of whom worked in Baltimore, accepted voluntary retirement packages with “enhanced benefits” earlier this year.

Another key development for the company in the first half of the year was its acquisition of three smaller spice and seasoning companies.

The impact of the Brand Aromatics acquisition started to be borne out in this quarter’s results, Wilson said, and he expects the other two acquisitions — Italian spice maker Drogheria & Alimentari and Texas-based barbecue sauce maker Stubb’s — will soon reap similar benefits.

Wilson called the Stubb’s products a “perfect complement” to McCormick’s current offerings and added, “We saw the opportunity for us to really participate in more of the premium and higher-price part of the category that’s growing,” he said.

While the company has seen growth in the international market this year, particularly in China, one area of weakness has come from a decreased demand from domestic quick-service restaurants. With a new set of flavors and products, including the relaunched McCormick Gourmet line, McCormick hopes to stem losses in this area, company President and COO Lawrence Kurzius said.

“We’re confident that we’ll more than just stabilize but return to growth” in that category, he said.

Although McCormick’s leaders cautioned that they expect a decline in third-quarter earnings compared to last year, their forecasts for the remainder of the year remain strong.

In constant currency, the company increased its 2015 outlook for both operating income (now expected to grow 6 to 7 percent from 2014) and adjusted earnings per share (now expected between $3.47 and $3.54, versus $3.34 in 2014).

“Based on our first half performance, strong execution and our latest 2015 outlook, we expect to deliver another year of solid financial performance for McCormick shareholders,” Wilson said.