In 2013, McCormick people around the world made significant progress with our initiatives to grow sales and to improve productivity through our Comprehensive Continuous Improvement program—CCI. This progress was made despite a slow recovery from the recession in most of our developed markets and a slowdown in economic growth in many emerging markets. McCormick is succeeding in this environment through our increased connectedness to our consumers, which allows us to better align our innovation pipeline and marketing efforts with what consumers want today and beyond. In addition, through these insights, we are pursuing the most promising growth opportunities across our broad range of products, customers and geographic regions.
Performance. In 2013, McCormick delivered higher sales and record cash flow, demonstrating the resiliency of our business. Additionally, we managed through a period of weaker demand for industrial products in certain markets and effectively navigated some significant headwinds.
We grew net sales 3%. This result was led by a 5% increase in sales of our consumer business. We grew sales of our leading brands through pricing actions, the development and introduction of new products and effective brand marketing. In addition, we significantly expanded our consumer business in China with an acquisition. Sales declined 1% for our industrial business. While we had strong results in several developed markets and expanded our business in emerging markets, our growth was limited by lower demand this period from quick-service restaurants in the United States and China.
We reported operating income of $551 million, which included 2013 charges related to reorganization activities in our Europe, Middle East and Africa region (EMEA) and a voluntary pension settlement. Excluding these items, adjusted operating income rose to $591 million with higher sales and $63 million of CCI cost savings, well ahead of our initial goal of at least $45 million for 2013. As a result of these savings, we were able to increase our investment in brand marketing support by $10 million and more than offset headwinds from higher material costs and a $20 million increase in retirement benefit expenses.
In 2013, our earnings per share was $2.91. Excluding the 2013 charges, adjusted earnings per share rose to $3.13 from $3.04 in 2012, despite the significant increase in retirement benefit expense. We generated $465 million of cash flow and returned a record $357 million of cash to our shareholders through dividends and share repurchases. We also funded the $142 million acquisition of Wuhan Asia Pacific Condiments and other strategic capital expenditures, such as the expansion of our manufacturing capacity in Eastern Europe and China.
Growth. McCormick is uniquely positioned to meet the growing demand for more flavorful foods in markets around the world.
Globally, sales of packaged herbs and spices are a $10 billion retail category and are projected to increase another $1 billion by 2017. In a recent U.S. survey, more than half the consumers said that cooking with spices is quick and easy. Another survey underscored the importance of taste, as taste continues to be the top reason why people choose a particular food, ranking ahead of convenience and price.
Across our consumer and industrial businesses, McCormick provides the flavor for meals prepared at home, served in restaurants or intended as a satisfying quick snack. Within our product portfolio, we provide everything from value-priced store brands to gourmet items, such as the line of 23 new premium spices and seasonings launched this year in France under our market-leading Ducros brand. Given the breadth of our company’s products and innovations, we believe that each day you are likely to enjoy food flavored by McCormick.
At McCormick, we are at the leading edge of food trends and are investing in product development capabilities connected to our flavor, sensory and culinary knowledge leadership. In addition, we share our expertise with our customers and consumers around the world through our Flavor Forecast, which highlights food trends we expect to see in the near future.
With the growing demand for flavor throughout the world, McCormick is well positioned for growth, especially given our breadth of products and category leadership. In the past five years, we have increased sales at a 5% compound annual growth rate, which is in line with our long-term goal to achieve 4% to 6% annual sales growth. We expect to achieve this long-term goal through a continued focus on our base business, innovation and acquisitions.
McCormick will drive growth and win category share in our
McCormick
We are fueling our company’s growth with savings from CCI, McCormick’s ongoing program to improve productivity across the organization. This program includes environmental projects, and we are making impressive progress such as our reduction of solid waste by nearly 40% since 2009 on a per unit basis. Across all CCI projects, cost savings are expected to exceed $45 million annually. We will continue to invest CCI funds for additional brand marketing support and product development activity to grow sales and profit.
People. Our success starts with the people of McCormick. McCormick people from all over the world working together with a focus on growth and efficiency, truly is the key ingredient of our success. We thank them for their efforts and contributions to the long-term success of our company.
As I shared earlier, the theme for our 125th anniversary year is the Flavor of Together. At our company, this spirit of “together” has its foundation in McCormick’s Multiple Management, a philosophy that dates back to 1932, which is based on participation and inclusion. We are proud of our pioneering Multiple Management philosophy and that it continues to be a driving force in our global industry leadership, solving business challenges and creating growth opportunities.
The McCormick spirit of “together” can be found in everything we do: from working together to contribute to the communities in which we live and work, to ensuring a responsible supply chain, to sharing advancements in health and wellness through the McCormick Science Institute. And, together, this year we published a corporate social responsibility review, which covers these topics in a more in-depth manner and shares some ambitious goals we set to mark our further improvements.
McCormick’s Board of Directors and company leaders are shaping our strategy and direction toward continued growth. Departing from the Board is George Roche, who has served as a director and Compensation Committee member since 2007. We sincerely appreciate his contributions and service. Retiring from the company after a distinguished career and strong leadership are Mark Timbie, President—Consumer Foods Americas & Chief Administrative Officer and Ken Kelly, Senior Vice President & Controller. As part of our move toward a more global organization, Lawrence Kurzius was named President Global Consumer Business & Chief Administrative Officer and Chuck Langmead President Global Industrial Business. Also, Paul Beard was named Senior Vice President, Finance.
In closing, we want to thank our shareholders. We are proud of our 125 years of bringing flavor to people around the world and, more importantly, we are glad you have joined us as we head into the next 125 years at McCormick. We appreciate your support and are committed to increasing the value of your investment in our business.
Alan D. Wilson
Chairman, President & CEO
Our spirit of “together”
has its foundation in
McCormick’s Multiple
Management, a
philosophy that dates
back to 1932.