McCormick & Co. Inc. (MKC) delivered better-than-expected earnings and revenues in the fourth quarter of fiscal 2014.
Adjusted earnings of $1.16 per share beat the Zacks Consensus Estimate of $1.14 by 1.7%. However, it was 3.33% lower than the year-ago earnings of $1.20 per share. The decline was due to lower adjusted operating income, partially offset by higher income from unconsolidated operations and lower shares outstanding owing to share buyback activity.
Revenues and Profits
The global leader in flavors and spices delivered revenues of $1.17 billion in the quarter, which grew 0.3% year over year. However, excluding currency headwinds, revenues grew 2%. While the consumer business did well in the quarter, sales from the industrial business were slightly lower than the prior-year. Overall, sales slightly lagged the Zacks Consensus Estimate of $1.20 billion.
McCormick’s gross margin expanded 20 basis points to 43.1% in the quarter, owing to cost savings from McCormick's Comprehensive Continuous Improvement (CCI) program. However, adjusted operating income declined 6% to $202.3 million due to a decline in both the segments.
Fiscal 2014 Results
In fiscal 2014, McCormick delivered adjusted earnings of $3.37 per share, which beat the Zacks Consensus Estimate of $3.35 by 0.6%. Earnings also grew 8% from the prior-year, driven largely by higher adjusted operating income, increased income from unconsolidated operations and lower shares outstanding.
On a constant currency basis, sales of $4.24 billion grew 3%, driven by pricing and acquisitions, and a minimal impact in foreign currency. Sales were slightly below the Zacks Consensus Estimate of $4.27 billion.
Segment Details
Consumer Business: Segment revenues increased 3% on a constant currency basis, driven by pricing, as well as volume and product mix. Sales increased on a constant currency basis in the Americas and were flat in the geographic regions of Europe, Middle East and Africa (EMEA) and Asia/Pacific.
Adjusted operating income of the segment was $172 million, 3.6% lower than the prior-year quarter, due to unfavorable business mix and an increase in brand marketing expenses offsetting the favorable impact of higher sales and CCI cost savings.
Industrial Business: Segment revenues declined 1% year over year to $400.3 million in the fourth quarter of 2014. Sales were also slightly below the year-ago period in local currency, with lower volume and product mix largely offsetting the favorable impact of pricing actions. In the industrial business, higher sales were led by the EMEA and Americas regions. Asia/Pacific witnessed a decline in the quarter due to weaker demand from quick service restaurants in China.
Adjusted operating income of this segment declined 16.7% in the quarter to $30 million due to higher material costs, as well as higher employee incentive expense.
Other Financial Details
The company returned $437 million of cash to its shareholders, up 22% from 2013. The company also increased its investment in brand marketing in 2014 by nearly $20 million. McCormick has also made significant improvements in productivity, generating $65 million of cost savings under its CCI program.
McCormick has set a goal to achieve cost savings of at least $85 million in 2015, up 23% from 2014.
2015 Guidance
In 2015, McCormick expects to sales to increase 4% to 6% in local currency. Adjusted earnings are expected to be in the range of $3.51 – $3.58 per share.
McCormick currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the consumer staples sector include Supervalu Inc. (SVU), Sysco Corp. (SYY) and Burcon Nutrascience Corp. (BUR). While Supervalu sports a Zacks Rank #1 (Strong Buy), Sysco and Burcon hold a Zacks Rank #2 (Buy).
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