Shares of McCormick & Co., Inc. (MKC) reached a 52-week high of $74.75 on Nov 28, 2014 and eventually closed at $74.33, soon after the company raised its quarterly dividend on Nov 25.
In fact, shares of this global leader in flavors and spices have been rising ever since the company delivered better-than-expected earnings and revenues in the third quarter of fiscal 2014 on Oct 2 and raised its earnings outlook for 2014.
Dividend Hike
On Nov 25, McCormick approved a 3 cents hike in its quarterly dividend to 40 cents. This means that the company will pay an annual dividend of $1.60 per share, translating to an annual yield of 1.6%. The quarterly dividend hike marks an 8.1% increase from the prior dividend of 37 cents. The increased dividend will be paid on Jan 14, 2015 to stockholders of record as of Dec 31. (Read: McCormick Hikes Dividend, Boosts Shareholder Value)
We appreciate that this food company has been paying dividends every quarter since 1925 and the current increase marks the 29th consecutive hike in dividend. The last dividend hike of 8.8% was announced on Nov 27, 2013 and paid on Jan 14, 2014.
Besides the dividend, the company also has a solid buyback program in place. McCormick is currently repurchasing shares under the $400 million authorization approved in Apr 2013 and has $234 million available for repurchase under the plan.
Like McCormick, another consumer staple company Kimberly-Clark Corp. (KMB) also has been returning value to shareholders. Kimberly Clark has recently announced a new share buyback program.
Solid Third Quarter Results
McCormick posted earnings of 94 cents per share in the third quarter (results announced on Oct 2). Earnings beat the Zacks Consensus Estimate of 81 cents by 16% and increased 21% from the year-ago earnings of 78 cents per share, despite the constant pressure from currency headwinds, higher input costs and weakness in the Americas region.
Top-line growth, cost saving initiatives, higher operating income, higher income from unconsolidated operations and lower tax rate contributed to earnings growth in the quarter. Lower shares outstanding owing to share buybacks also contributed to the bottom line.
Revenues of $1.04 billion grew 3% year over year in the quarter. On a local currency basis, sales increased 2%. Both the consumer and industrial business segments witnessed positive results in the quarter, aided by the company’s product innovation, brand building and distribution program. Sales marginally exceeded the Zacks Consensus Estimate by 1%.
Adjusted operating income improved 7.5% to $159.6 million driven by higher sales in both the segments and cost savings initiatives.
Raised Fiscal 2014 Guidance
McCormick raised its outlook for adjusted earnings per share to $3.30 to $3.37 per share from the prior range of $3.22 to $3.29 per share based on a favorable tax rate in the third quarter of 2014. This marks an increase of 5.4% to 7.7% from adjusted earnings per share of $3.13 in 2013.
The company continues to expect sales to increase in the range of 3% to 5%, with rapid growth in the international markets. The company expects to achieve at least $50 million through cost savings efforts during 2014 versus the prior expectation of at least $45 million. (Read: McCormick Shares Rise on Solid Q3 Earnings & Raised View)
McCormick currently carries a Zacks Rank #2 (Buy).
Other players worth considering in the food industry include Aramark Holding (ARMK) and The Hain Celestial Group, Inc. (HAIN). While Aramark Holding sports a Zacks Rank #1 (Strong Buy), Hain Celestial carries a Zacks Rank #2.
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