McCormick & Company (MKC)

Consumer Business

For the third quarter, consumer business sales rose 2% when compared to 2008, and in local currency grew 6%. The Company increased volume and mix 3%, due in large part to sales in the Americas, including the impact of Lawry’s, which was acquired in late July 2008. Pricing actions taken to offset higher costs added 3% to sales.

For the third quarter, operating income, excluding restructuring charges, rose 19% from the comparable period of 2008. This increase was driven by higher sales and cost reductions as well as a favorable business mix. A portion of the favorable business mix is due to the integration of the Lawry’s acquisition with few incremental costs.

Consumer Business

(in millions)

For the first quarter, consumer business sales rose 2% when compared to 2008, and in local currency grew 9%. Higher volume and product mix added 5% to sales, which included an 8% benefit from acquisitions. Pricing actions taken to offset higher costs added 4% to sales.

For the first quarter, higher sales, a favorable business mix and improved productivity led to an 11% increase in consumer business operating income, excluding restructuring charges.

Consumer Business

(in millions)

For fiscal year 2008, the Company grew consumer business sales 11% and 8% in local currency when compared to 2007. Higher volume and product mix added 5% to sales, including the impact of acquisitions which accounted for 4% of the increase. Pricing actions taken to offset higher input costs added another 3% to sales. Consumer sales in the Americas rose 13% and 12% in local currency. In this region, higher volume and product mix added 8% to sales including a 5% impact from acquisitions, as well as the benefit of new products, new distribution and increased marketing support. Higher pricing added 4% to consumer sales in the Americas. Consumer sales in Europe, the Middle East and Africa (EMEA) increased 6%, with 6% from favorable foreign exchange rates and 2% from pricing actions. Unfavorable volume and product mix reduced sales by 2% due to a more difficult economy in the second half of the year. Performance remained strong throughout 2008 in the Asia/Pacific region, with consumer sales up 14% and 6% in local currency, led by a double-digit increase in volume and product mix in China.

Consumer business operating income, excluding restructuring and impairment charges rose to $343 million in 2008 from $314 million in 2007 due to higher sales and improved productivity. Operating income in 2008 included $14 million of additional marketing expense to support the long-term growth of the Company’s consumer brands.

For the fourth quarter, the Company grew consumer business sales 8% and 11% in local currency when compared to 2007. Higher volume and product mix added 7% to sales, including the impact of acquisitions which accounted for 6% of the increase. Pricing actions taken to offset higher costs added another 4% to sales. Consumer sales in the Americas rose 15% and 16% in local currency. In this region, higher volume and product mix added 13% to sales including an 8% impact from acquisitions, as well as the benefit of new products, new distribution and increased marketing support. Higher pricing added 3% to consumer sales in the Americas. Consumer sales in EMEA declined 10%, with 6% from unfavorable foreign exchange rates. Pricing actions added 5% to sales while unfavorable volume and product mix reduced sales by 9%. In this region, the Company was impacted by trade inventory reductions as well as a slow-down in consumer purchases in a difficult economy. Early in 2009, sales in this region have begun to stabilize and the Company has plans for marketing programs and innovation to support its brands during the year. Fourth quarter sales in the Asia/Pacific region rose 1%, and 4% in local currency driven by a double-digit increase in volume and product mix in China. For the fourth quarter, higher sales and improved productivity led to a 12% increase in consumer business operating income excluding restructuring and impairment charges.

Consumer Business

From locations around the world, our consumer brands reach nearly 100 countries. Our leading brands in the Americas are McCormick, Lawry’s and ClubHouse^®. We also market authentic ethnic brands such as Zatarain’s, El Guapo^®, Thai Kitchen^® and Simply Asia, and specialty items such as Billy Bee honey products and seafood complements under the Golden Dipt^® and Old Bay labels. In Europe, the Middle East and Africa (EMEA) we sell the Ducros, Schwartz^®, McCormick and Silvo brands of spices, herbs and seasonings and an extensive line of Vahiné brand dessert items. In the Asia/Pacific region our primary brand is McCormick, and we own the Aeroplane^® brand which is the leader in gelatins in Australia.

Our customers span a variety of retail outlets that include grocery, mass merchandise, warehouse clubs, discount and drug stores, served directly and indirectly through distributors or wholesalers. In addition to marketing our branded products to these customers, we are also a leading supplier of private label items, also known as store brands.

The largest portion of our consumer business is spices, herbs and seasonings. For these products, we are the category leader in our primary markets with a 40 to 70% share of sales. There are a number of competitors in the spices, herbs and seasoning category. More than 250 other brands are sold in the U.S. with additional brands in international markets. Some are owned by large food manufacturers, while others are supplied by small privately owned companies.

Our leadership position allows us to more efficiently innovate, merchandise and market our brands.

CONSUMER BUSINESS

Higher volume and product mix added 5.3% to sales, including the net impact of the Lawry’s and Billy Bee acquisitions which accounted for 3.7%. Pricing actions taken to offset higher costs added another 3.2%. Favorable foreign exchange rates added 2.2% to consumer sales in 2008 compared to 2007.

In the Americas, consumer business sales increased 12.7%, including 0.5% due to favorable foreign exchange rates. Higher volume and product mix added 8.6% to sales, including the net impact of the Lawry’s and Billy Bee acquisitions which accounted for 4.8%, as well as the benefit of new products, new distribution and increased marketing support. Higher pricing added 3.6% to consumer sales in the Americas.

In EMEA, consumer sales rose 5.6%, which includes 5.6% from favorable foreign exchange rates and 2.5% from pricing actions. The remaining decrease of 2.5% was due to unfavorable volume and product mix. A more difficult economy in the second half of the year and a subsequent slow-down in consumer purchases affected both the category and our products. Sales volume and product mix was also affected by a reduction in trade

inventory by retailers in France during this period. As we head into 2009, we expect this market to remain challenging. Our team in Europe is working to compete more effectively in this difficult market as they complete several restructuring actions, pass through higher costs in our pricing, introduce new products and optimize our marketing mix.

Sales in the Asia/Pacific region increased 13.8%, with 8.1% due to favorable foreign exchange rates. Sales volume and product mix in China grew at a double-digit pace, offset by a slight decline in Australia. Success in Australia from new products such as slow cookers offset lower sales of Aeroplane jelly and the impact of several lower-margin items that were discontinued.

The increase in operating income excluding restructuring costs and impairment charges was driven by higher sales and improved productivity. While we were able to offset commodity cost increases with pricing actions, this reduced our margin percentage. This was partially offset by savings in SG&A expenses, despite our increased investments in marketing support costs to grow our brands.

Consumer Business

For the third quarter, sales for McCormick’s consumer business rose 14% and 10% in local currency over the third quarter of 2007. Higher volume and product mix added 7% to sales, including the impact of recent acquisitions that accounted for 4% of the increase. Pricing actions taken to offset higher costs added another 3% to sales. Consumer sales in the Americas rose 15% and 14% in local currency. In this region, higher volume and product mix added 10% to sales including a 6% impact from the acquisitions of Lawry’s and Billy Bee honey, as well as the benefit of new distribution and increased marketing support. Higher pricing added 4% to consumer sales in the Americas. Consumer sales in Europe increased 11%, with 11% from favorable foreign exchange rates and 1% from pricing actions. Unfavorable volume and product mix reduced sales by 1% as a tough economy began to impact this region. Performance remained strong in the Asia/Pacific region, with consumer sales up 25% and 12% in local currency, led by favorable volume and product mix.

For the third quarter, consumer business operating income excluding restructuring charges rose to $75.1 million from $70.5 million in 2007 due in large part to

the 14% increase in sales. Operating income in the third quarter of 2008 included a significant increase in promotion and advertising to support the long-term growth of the Company’s consumer brands.

Consumer Business

(in millions)

For the second quarter, sales for McCormick’s consumer business rose 12% and 7% in local currency. The Company grew sales through favorable product mix and increased volume that included the impact of recent acquisitions, as well as pricing actions taken to offset higher costs. Consumer sales in the Americas rose 11% and 10% in local currency. In this region, higher volume and favorable product mix drove two thirds of the increase with the impact of new products and new distribution, as well as the Billy Bee acquisition, with the remaining portion of the sales increase coming from higher pricing. Consumer sales in Europe increased 13% and 2% in local currency. This increase was due to pricing and the acquisition of Thai Kitchen. In the Asia/Pacific region, consumer sales rose 17% and 4% in local currency, led by higher volume in China.

For the second quarter, consumer business operating income excluding restructuring charges rose to $55.8 million from $53.1 million in 2007, a increase of 5%. The benefit of the 12% increase in sales was offset in part by an 19% increase in marketing support behind the Company’s brands which lowered operating income by $4 million during the quarter.

Consumer Business

(in thousands)

                For the first quarter, sales for McCormick’s consumer business rose 10% and 5% in local currency.  This increase was driven by higher volume as well as pricing actions.   Consumer sales in the Americas rose 8% due to increased volume from revitalization activity, ethnic products and new items, as well as higher prices.  Foreign exchange rates added 1% to sales in this region.  Consumer sales in Europe increased 12% and 3% in local currency.  This increase was driven by higher prices as well as incremental sales from the Thai Kitchen acquisition, increased marketing support and merchandising improvements.   In the Asia/Pacific region, sales rose 14% and 3% in local currency, led by gains in China.

For the first quarter, consumer business operating income excluding restructuring charges rose to $67.0 million from $60.2 million in 2007, an increase of 11%.  This increase was due to higher sales and improved operating income margin.

CONSUMER BUSINESS

We began recording stock-based compensation expense in 2006. Total stock-based compensation expense recorded in the consumer business operating results was $13.9 million.

Higher volume, pricing actions and a favorable product mix added 5.3%, while foreign exchange rates had no effect on sales. This included sales from Simply Asia Foods, acquired in June 2006, which added 1.3% to sales.

In the Americas, consumer business sales increased 8.1%, with 1.9% of the sales increase attributable to the Simply Asia Foods acquisition and 0.6% from favorable foreign exchange. The majority of the increase was driven by higher volume from new product introductions and more effective marketing, as well as pricing actions in the U.S. taken early in 2006. In 2006, we grew sales of Hispanic products, GrillMates, lower sodium items and slow cooker seasonings, with new varieties and marketing support. Print advertisements helped drive sales of gourmet products and gravy items. A new program, across our entire line of products, encouraged consumers to replace out-of-date spices and herbs. During the fourth quarter of 2005 , demand for our McCormick and Zatarain’s consumer products in the Gulf region of the U.S. was lower due to the effects of Hurricane Katrina. This had a positive impact when 2006 is compared to 2005.

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CONSUMER BUSINESS

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The sales increase of 8.7% includes a favorable foreign exchange rate impact of 3.2%. An increase of 2.0% came from higher volume and pricing (volume driven by new products, effective marketing programs and higher volumes of ethnic items) and 3.5% from sales of Simply Asia Foods, which we acquired early in the third quarter of 2006.

In the Americas, sales increased 9.7% in the first quarter of 2007, compared to the first quarter of 2006, with foreign exchange having no impact. The acquisition of Simply Asia Foods added 5.4%. The remaining increase of 4.3% resulted from higher volume, as well as the U.S. pricing action taken in late January 2006. During the quarter, a number of product lines led to higher sales. These include our ethnic items, our Zatarain’s brand and new products such as roasting rubs and our expanded organic line.

First quarter 2007 sales in Europe increased 6.0% compared to the first quarter of 2006. Without the impact of favorable foreign exchange rates, sales in Europe decreased by 3.6%. Of this decline, 0.9% was due to our decision to exit Finland in 2006.  We also continue to see an impact from lower distribution in The Netherlands. Sales in our other markets, in total, were generally flat to last year. In the first quarter of 2006, sales, excluding foreign currency, rose 5.1% compared to the first quarter of 2005 and we attributed a portion of this increase to customers’ buy-in preceding our SAP implementation. We expect 2007 consumer sales in Europe to improve in comparison to 2006 since the impact of Finland and the lower distribution in The Netherlands began in the second quarter of 2006.

In the Asia/Pacific region sales increased 13.7% in the first quarter of 2007 compared to the first quarter of 2006. Of this increase, 5.0% was due to the impact of favorable foreign exchange rates. Building off momentum in 2006, China posted strong sales growth this quarter. The changes to this business we have made over the past 2 years in our distributor network, product line-up and organization are delivering results.

First quarter 2007 operating income excluding restructuring charges for our consumer business increased $14.0 million, or 30%, compared to the same period of 2006. This increase was due to the benefit of higher sales and improved gross profit margins. We are seeing the benefit of cost savings related to our restructuring program.  In addition, there was a favorable impact related to stock-based compensation. Partially offsetting these factors was a $2.0 million increase in advertising in the first quarter of 2007 versus the first quarter of 2006.

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In the first quarter of 2007, $5.3 million of restructuring charges were recorded in the consumer business, compared to $21.3 million in the first quarter of 2006. The charges in the first quarter of 2007 include severance costs associated with the reduction of administrative personnel in Europe, other exit and inventory write-off costs related to the closure of the manufacturing facility in Salinas, California and accelerated depreciation of assets. The restructuring charges in the first quarter of 2006 of $21.3 million included $19.8 million for severance costs associated with our voluntary separation program and closure of manufacturing facilities. The remaining $1.5 million of restructuring charges recorded in the first quarter of 2006 include additional costs associated with the consolidation of production facilities and costs associated with the reorganization of the sales and distribution networks in the U.S. and Europe.

For the first quarter, sales for McCormick’s consumer business rose 9% and 6% in local currency.  This increase was driven by higher volume and pricing actions.  Higher volume was due to the incremental sales of Simply Asia Foods acquired in mid-2006, new products and effective marketing programs.  Consumer sales in the Americas rose 10% due to higher volume from Simply Asia Foods, new products and marketing support, as well as pricing.  Foreign currency had no sales impact.  Consumer sales in Europe increased 6%, but in local currency declined 4%.  This business continues to be affected by distribution lost to a competitor in The Netherlands and the Company’s decision in 2006 to exit its business in Finland.  Also, prior year sales benefited from customer purchases in advance of the implementation of SAP in this region.  In the Asia/Pacific region, sales rose 14% and in local currency 9% with significant gains in China.

For the first quarter, consumer business operating income excluding restructuring charges rose to $60.2 million from $46.2 million in 2006, an increase of 30%.  This significant increase was due to higher sales and improved gross profit margin, as well as lower stock-based compensation expense.  Advertising expense increased $2.0 million in the first quarter.