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Q & A

One spicy stock

Despite a bland stock market, McCormick's shares rise; The Sparks company is riding high, so why is it cutting jobs?

By Jon Goldstein, SunSpot Staff

January 28, 2002

Sparks-based McCormick & Co. Inc. is the world's No. 1 spicemaker, employing 8,400 worldwide, including 2,000 in Maryland. Robert J. Lawless, the firm's chairman, president and CEO, recently discussed its strong financial performance and its plans for the future.

Despite record sales and earnings that rose 6.6 percent last year, you still announced 275 job cuts last week. How many of those will be in Maryland?

Minimal staff reductions here in the state. The majority is in our international operations. While I'm sad for the people, we thought it was necessary to streamline our business and keep the momentum going that we've had for the last five years. Part of why we did it was summarized today by an analyst to me. That is, we're one of the few companies he'd ever followed that restructured for the future rather than restructured to make the next quarter.

Do you expect those to be the last cuts or are there more coming?

In this particular project that we're working on we'd said it would take 18 months to bring to competition. During that time period there may be some reductions around the world relative to this project. In the near term, no. Longer term, streamlining your business has become a way of business operations around the world. To say we'd never do it again would not be an appropriate comment.

McCormick's stock has performed strongly in the past year, rising despite the broader market's decline. What is the engine that's driving that?

We've had five years of double-digit earnings-per-share growth. And we've had 12 consecutive quarters where we've met or exceeded analysts' expectations. We're in the flavor business and, in my words, we provide flavor to virtually everything to make it taste better – so we're in a good business. Combine that with the fact that we're spending money on innovation, we're spending money on developing our brands, we're spending money to reengineer our company for the future. I think as investors look at our company they see a company that has a leadership team that really gets it relative to the environment we work in today. We're the right size company to be relatively flexible in modification of strategy if that's what it takes.

I think you put all that together and it says we're a pretty good company to invest in. And that's what I attribute our stock price [to,] going from $36 at this time last year to $43 today.

Last week you also announced a second year in a row of record sales, $2.4 billion, up 12 percent. Do you expect to be able to maintain that kind of growth?

No. Our sales growth targets for 2002 are in the 4-to-6 percent range. Part of what drove it to 12 percent was that we made an acquisition in France last year. Without that, we'd have been at a 4-percent growth level. So, I think our targets for the future are consistent with our targets of the past minus the acquisition.

Speaking of that acquisition, you spent $379 million for Ducros, which at the time was the world's No. 2 spicemaker. Have you been happy with that purchase? It has suppressed earnings for the last few quarters.

Yeah, we had dilution in 2001 of 10 cents -- that's the debt associated with this acquisition. But we've also had the accretion of the earnings from Ducros. I'm very pleased with the performance over the last 18 months of the integration plan of Ducros. You read many, many stories about failed acquisitions and failed business plans. In this whole acquisitions game, we feel that we're comfortable where we're at today, and we have a very aggressive program in place to further the integration in 2002.

At the time, that added debt load caused downgrades from a few rating agencies. Is that a problem going forward?

No, it was lowered one stop. That's fine. What we’ve indicated to them is that our debt to total capital will be back in a range of 45 to 55 percent at the end of this year, 2002. We were at 58.7, I think it was, at the end of 2001, down from 65.9 when we made the acquisition. I think we'll go right back up to where we were.

Do you have more acquisitions that you're looking at now?

We're always looking at acquisitions but, unfortunately, I can't share any details with you. It's one of the growth initiatives we have on how to make our company either fill a geographic need, fill a product-based need or fill a satisfaction of a customer need on a worldwide basis.

Do you see any of those needs as particularly pressing for McCormick right now?

No, I don't think so. I think we've got the strategies in place. A year ago we talked about needing to have our industrial business rebound and that team came through tremendously this year. Consumer business obviously is a concern because we fit into the category of "What's a consumer going to do now?" But we feel they have to eat food and we satisfy virtually every opportunity they have to eat whether it's cooking from scratch or eating in a restaurant.

Where is McCormick going from here?

I think there are four things that we're working on right now. B2K (Beyond 2000) which is a whole process reengineering, we have to get that done over the next two or three years. Secondly, we have to continue to innovate. On the consumer side, new products that have been developed over the last three years represented 7 percent of our sales this year, and in industrial it was 15 percent of our sales. I mentioned acquisitions, which is part of our growth strategy. And geographic expansion -- we have to continue to grow in China. That has been a market we have focused on, and we want to continue to grow in China.

What about your plans? You're going into your sixth year as CEO. Do you have any plans to move on?

No, this is fun. I love it. I just turned 55 years old. When my father was 55, I called him old. Now I'm 55, I'm young.

I feel pretty young. I love the business. We've got a team of people here, this same team's been together for five years, and I just love participating with them and working in this company. It's kind of the dream of a lifetime. So, no I have no aspirations to move anywhere, unless the board wants me to, but right now it seems OK.