McCormick & Co. (MKC) Plans Reorganization in EMEA; Reaffirms FY15 Adjusted EPS Outlook

McCormick & Co. (NYSE: MKC) announced additional reorganization plans in the Europe, Middle East and Africa (EMEA) region to enhance organization efficiency and streamline processes.

McCormick has embarked on several actions in recent years, along with its Comprehensive Continuous Improvement (CCI) program, which is an ongoing initiative to improve productivity across the organization. Since the inception of CCI in 2009, employees throughout McCormick have been engaged in these efforts and achieved more than $340 million of cumulative annual cost savings. In 2015, the company expects to deliver at least $85 million of cost savings from CCI and other actions. Importantly, these cost savings have been fuel for McCormick's growth, with increases in brand marketing support and other growth investments. The cost savings have also improved profit margin and in certain years, provided an offset to higher material costs.

The EMEA region has contributed significantly to the company's cost reduction and productivity improvement goals. During 2015, additional projects have been identified to further enhance organization efficiency and streamline processes in this region to support its competitiveness and long-term growth. These initiatives center on actions intended to reduce fixed costs and improve processes across selling, general and administrative activities, as well as continue to drive simplification across the business and supply chain. This will include the transfer of certain additional activities to the recently established McCormick Shared Services Center in Lodz, Poland. These proposed changes are subject to consultation processes as appropriate, with the company's employees or Works Councils in the region.

The company expects to record approximately $25 million of charges related to these actions, with approximately $24 million of cash expenses and approximately $1 million of non-cash fixed asset impairment expenses. Of the $25 million in special charges, the company expects to recognize approximately $24 million in 2015, which is expected to lower earnings per share on a reported basis in 2015 by $0.13. Of the approximately $24 million of cash expenditures associated with these special charges, approximately $13 million are expected to be spent in 2015 and the balance spent in 2016. Related annual cost savings are projected to reach approximately $16 million by the end of 2017.

In constant currency, the company reaffirmed its guidance for adjusted operating income to grow 6% to 7% from adjusted operating income of $608 million in 2014. On a reported basis, operating income is now expected to decline 2% to 4%. This is a decrease of 4 percentage points from the previous projection due to the increase in estimated special charges to $54 million from $30 million that are expected to be incurred in 2015. McCormick reaffirmed its expected 2015 adjusted earnings per share of $3.44 to $3.51, which excludes the impact of all special charges. On a reported basis, earnings per share is expected to be $3.15 to $3.22. This is a decrease of $0.13 per share from the previous projection due to the increased impact of estimated incremental special charges to $0.29 from $0.16.

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