McCormick & Co. Inc. reported sales growth of 1% during its 2019 fiscal year and projected larger sales growth this year — between 2% and 4% — alongside a “significant” business investment that could limit its profit potential.
The firm’s adjusted earnings per share rose 8% to $5.35 and its net income, or profit, fell compared to last year, though it rose more than 8% after adjusting for the benefits of the 2017 tax law changes and other special charges.
“The breadth and reach of our global flavor portfolio continues to meet the demand for flavor around the world and creates a balanced portfolio to drive differentiated growth,” Lawrence Kurzius, the company’s chairman, president and CEO, said in a statement Tuesday. “In 2019, our performance was in line with our objectives and driven by the successful execution of our strategies and the engagement of our employees around the world.”
The firm’s sales also grew 1% during its fourth quarter, which ended Nov. 30. But its profit declined overall for the quarter, even after adjusting for the special charges and the effects of the 2017 tax law.
The company attributed lower sales in the fourth quarter to lower-than-expected sales from its private label business.
Looking ahead to 2020, McCormick projected that its profits would remain constant, between 1 and -1% for the year, because of its investment in new enterprise resource planning software, also called ERP.
That investment, the groundwork for which was laid last year, will cost the firm $300 million to $350 million. Included in that is an $80 million operating expense in 2020. In the firm’s earnings call Tuesday morning, Kurzius said McCormick should return to its regular growth model in 2021.
McCormick has more than doubled since its last ERP update, Kurzius said. Its focus with the new software will be a “scalable growth platform.” He also said the investment in the update would not preclude the company’s making an acquisition if it saw the right opportunity.
In addition to the projected sales growth, McCormick expects adjusted earnings per share to be between $5.20 and $5.30 for 2020, which would be a decline of 1% to 3%.
Kurzius also noted that it was too soon to tell if the ongoing coronavirus outbreak in China would affect the company,
The firm has three factories in China, including one in Wuhan, the epicenter of the virus. The company’s first concern is for the health and safety of its workers and for product safety, Kurzius said.
Right now the factories are shut for the Chinese New Year, but travel bans within the country could limit McCormick’s sales opportunities as people do not eat out at restaurants or travel for the holiday, Kurzius said.