McCormick to cut jobs and customers in restructuring
products and employees as it embarks on a three year restructuring
plan to improve sales and profit margins.
Together with an increase in fourth quarter sales, the company today reported details of its restructuring plan, which was first announced in September.
This involves reducing its number of business customers in the US by around 25 percent, while also eliminating one quarter of its products. However, McCormick said sales related to these customers and products represent only 2 to 5 percent of industrial business sales in the US, and claims the reduction will ultimately lead to higher margins.
"We have realized that we can better create value by rationalizing our business and driving our products through fewer customers, which will generate better margins," said chairman, president and chief executive officer Robert Lawless in a statement.
"During the next three years, we will eliminate underperforming products and customers, reallocate resources to strategic customers, lower costs and leverage our systems and capabilities. These steps will lead to more consistent sales growth and profit contribution from our industrial business," he added.
By 2008, the company said it aims to consolidate its global manufacturing, rationalize its distribution facilities, improve its go-to-market strategy and eliminate administrative redundancies.
It will also increase prices on lower-volume products to meet new margin targets.
The restructuring plan, which is expected to carry costs of around $130-$150 million, will also result in the loss of 800- 1,000 jobs globally.
McCormick said it expects the restructuring plan will "reduce complexity and increase the organizational focus on growth opportunities" in both its consumer and industrial businesses.
It also aims to achieve $50 million of cost savings by 2008, which it says will drive margin expansion and fund initiatives to grow sales.
In its fiscal year ended November 30 2005, the spice firm reported sales of $2.6 billion. This is 3 percent up on last year's sales, although the figure also includes a one percent increase from favorable foreign exchange rates. The company said that sales from Silvo, which it acquired at the end of 2004, also contributed 2 percent to the sales increase.
The company's sales growth this year was driven by acquisitions, new products, improved marketing and price increases.
However, McCormick estimates that sales for the year were reduced by around 2 percent as a result of lower pricing of vanilla products and the elimination of lower margin products in Europe, the impact of Hurricane Katrina on sales in the Gulf region of the US, and competition in France from lower priced consumer herb and spice products.
Over the next three years, the company aims to achieve annual sales increases of 3-5 percent, and operating income margin for the industrial business is expected to rise 2.5 to 3.5 percent in the period.
