- The Washington Times - Monday, September 12, 2005

McCormick & Co.’s stock started to rebound yesterday after plunging nearly $4 last week on a disappointing earnings forecast.

Analysts downgraded the Sparks, Md., spice maker’s stock last week after the company said it expects year-end earnings to fall by 8 cents per share, sending its stock price down $3.93 to $29.28 Wednesday on the New York Stock Exchange. Yesterday, McCormick shares rose 63 cents to close at $30.02.

McCormick lowered its forecast for fiscal-year earnings per share by 8 cents to $1.58 to $1.62 because of weak industrial sales and an expected sales slump for its Zatarain’s New Orleans-style food line in the South because of Hurricane Katrina. McCormick earned $1.57 per share in fiscal 2004.

Several analysts have downgraded the stock.

“We downgraded it mainly because the stock will trade in a fairly tight range over the next few months,” said Thomas Morabito, a senior analyst with Susquehanna Financial Group in Chicago, which downgraded McCormick shares from positive to neutral. “This was the most recent in a series of hiccups the company had in the past few quarters.”

The company’s minor problems include large vanilla crops this year, which gave competitors an opportunity to sell at lower prices, and an accounting irregularity in a British subsidiary.

But a bigger worry for analysts is the decline in industrial sales — a division that includes customers such as McDonald’s, Red Lobster and Taco Bell — that led to McCormick’s revised earnings estimate.

“The industrial business is very sluggish,” Mr. Morabito said. “That’s half of McCormick’s revenue and very much a core to McCormick.”

Neither he nor Susquehanna Financial has a business relationship with McCormick.

Prudential Equity Group LLC analyst John McMillin kept the stock rated neutral.

“The bottom line is that a consistent food company has turned a little inconsistent,” Mr. McMillin said in a report.

Neither Mr. McMillin nor Prudential has a business relationship with McCormick.

McCormick plans to consolidate global manufacturing and streamline production to improve revenue.

McCormick has a factory in New Orleans that incurred minor damage from Hurricane Katrina, and the company expects weak demand for its products in the affected area. Katrina’s impact is expected to be relatively minor and decrease earnings about 2 cents per share this quarter, Mr. Morabito said.

McCormick’s Zatarain’s product line accounts for 4 percent to 5 percent of the company’s revenue.

Analysts are confident McCormick will do well in the long term.

“Once it gets its industrial business back on the growth track, we think McCormick will be fine,” Mr. Morabito said.

Bear Stearns research analyst Terry Bivens has his doubts.

“The long-term story remains solid. But without visibility into how and when the industrial business can turn around and with certain metrics suggesting fair value in the stock price, we recommend staying on the sideline,” Mr. Bivens said in a report.

McCormick is a noninvestment-banking client of Bear Stearns.

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