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We have just completed what was our toughest year during my time as chairman and CEO of McCormick. Our 2005 financial results did not reflect the ongoing long-term success and momentum of our business.
Several significant challenges overshadowed an otherwise strong performance. These included a unique vanilla market, difficult business conditions in Europe, the impact of Hurricane Katrina and sales in our industrial business that did not meet our expectations.
The good news is that we have been taking actions to address those challenges...actions that we believe will position us for continued growth. So while we're disappointed in our 2005 financial results, we view them as a temporary setback in our strong long-term performance.
We remain unique in the food industry in our ability to make all types of food at all types of eating occasions taste great. That, along with the actions we're taking, makes me confident that we will quickly return to achieving the superior results that investors expect from McCormick.
A Temporary Setback in Our Long-Term Performance
The impacts of the recent vanilla market, difficult business conditions in Europe and Hurricane Katrina were significant and led to overall disappointing financial results. In addition, we did not meet our objectives for sales growth in the industrial business due in part to lower vanilla prices and delays in certain product introductions by our customers. These factors, and special charges related to our restructuring plan, led to earnings per share of $1.56 for 2005. That compares with $1.52 in earnings per share for 2004.
While I'm not happy with that result I am pleased with several aspects of our performance.
We overcame the negative pressure from our industrial business and achieved a 3% sales increase from some key sales growth initiatives:
- Introducing products that quickly became successful in retail markets.
- Improving our marketing effectiveness (for example, sales of grinders increased 26% and sales of grilling products increased 21 %.)
- Acquiring the Silvo brand at the end of 2004.
- Increasing our global reach with snack food seasonings and through restaurant chains in the Asia/Pacific region.
In 2005, cost savings of $33 million exceeded our $25 million goal. These savings, along with our pricing actions, more than offset the higher costs of packaging and fuel, as well as the impact from the year's significant challenges.
We continued to generate significant cash, which we used to pay dividends and repurchase our shares. We have increased our dividends in each of the last 19 years and at the end of 2005 increased our dividend by 13%. We also repurchased $186 million of our shares, following repurchases of $174 million in 2004 and $120 million in 2003. In June 2005, our Board authorized a new $400 million share repurchase program.
As we look back on the past year, we believe the challenges of 2005 are generally behind us. We are pleased with the key aspects of our performance that should get us back on our strong track record of increased sales and profit.
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