Zacks Investment Research upgraded McCormick & Co., Inc (MKC) to a Zacks Rank #1 (Strong Buy) on Dec 2, soon after the company raised its quarterly dividend. Better-than-expected third quarter 2014 results and a raised guidance for 2014 also led to the upgrade.
Why the Upgrade?
Dividend Hike
On Nov 25, this global leader in flavors and spices approved a 3-cent hike in its quarterly dividend to 40 cents. The quarterly dividend hike marks an 8.1% increase from the prior dividend. This means that the company will pay an annual dividend of $1.60 per share, translating to an annual yield of 1.6%.
The increased quarterly dividend will be paid on Jan 14, 2015 to stockholders of record as of Dec 31. (Read: McCormick Hikes Dividend, Boosts Shareholder Value)
McCormick 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.
Third Quarter 2014 Results and Raised Outlook
On Oct 2, McCormick delivered better-than-expected earnings and revenues in the third quarter of fiscal 2014 and raised its earnings outlook for 2014.
McCormick’s earnings of 94 cents per share beat the Zacks Consensus Estimate by 16% and increased 21% from the year-ago earnings, 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 product innovation, brand building and a distribution program. Sales marginally beat the Zacks Consensus Estimate by 1%.
McCormick also 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. (Read: McCormick Shares Rise on Solid Q3 Earnings & Raised View)
This food company witnessed sharp upward estimate revisions after the third quarter 2014 results. Most of the estimates for 2014 and 2015 have increased over the past 60 days.
Other Stocks to Consider
Other stocks in the consumer staples sector worth considering include Aramark Holding (ARMK), Hain Celestial Group Inc. (HAIN) and Monster Beverage Corp. (MNST). While Aramark Holding and Monster Beverage sport a Zacks Rank #1, Hain Celestial holds a Zacks Rank #2 (Buy).
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