McCormick Looks Poised on Solid Demand, Cost-Saving Efforts


McCormick & Company MKC appears to be in solid shape, courtesy of rising demand due to increased at-home consumption amid the coronavirus outbreak. Apart from this, the company is benefiting from its robust product innovations and lucrative acquisitions. Also, McCormick’s cost-saving efforts bode well.

Let’s delve deeper.

Coronavirus-Led Demand Drives Growth

Burgeoning demand amid the coronavirus pandemic bolstered the company’s second-quarter fiscal 2020 results with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate. Notably, McCormick’s adjusted earnings of $1.47 per share increased 26.7% in the quarter. Sales of $1,401.1 million increased 7.6% year over year, driven by major growth in the Consumer segment.

Consumer segment sales increased 26% primarily led by higher demand stemming from at-home consumption and cooking more at home amid the coronavirus outbreak. In fact, the company is anticipating an overall increase in consumer demand in the segment during periods of greater cooking at home.

Other Growth Drivers

McCormick regularly enhances products through innovation to remain competitive and tap evolving demand for new flavors, spices and herbs. Aided by a sturdy brand image, the company enjoys strong retail acceptance for its new products. New and renovated products drove the company’s performance during the fiscal second quarter. In June, McCormick re-launched its Old Bay hot sauce. The company plans to expand its Frank’s brand portfolio to offer frozen appetizers, chicken bites and dips later this year.

McCormick focuses on product launches to boost revenue prospects. In February 2019, McCormick entered into a partnership with IBM to boost artificial intelligence capabilities surrounding new product development. Additionally, the company is on track to augment robust marketing support for its products. Management is well aligned with consumer demand for flavorful healthy eating and developed a range of natural as well as organic offerings. In this regard, the company’s Flavor Real platform offers organic, non-GMO and gluten free products.

Further, McCormick strategically increased its presence through acquisitions to strengthen its spices and seasonings portfolio. The company’s acquisition of the food division of RB Foods (concluded in August 2017) is noteworthy. With iconic brands like Frank’s RedHot, French’s and Cattlemen’s, RB Foods is likely to continue being a profitable asset for McCormick’s flavor portfolio. These brands position the company in the leading U.S. condiments category and place it well for international expansion.

Apart from these, McCormick is focused on saving costs and enhancing productivity through its ongoing Comprehensive Continuous Improvement (“CCI”) program. Started in 2009, the CCI program enabled the company reduce costs and enhance productivity. Cost savings from CCI boosted gross margin, which expanded 230 basis points to 41.4% in the fiscal second quarter.

Are all Rosy for McCormick ?

The coronavirus pandemic marred the company’s Flavor Solution segment. During second-quarter fiscal 2020, sales in the segment declined 18%, thanks to weakness across all regions. Moreover, adverse impacts of unfavorable foreign currency translations are a concern.

Nevertheless, the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company remain in investors’ good books. Notably, shares of the company have rallied 18.4% in the past three months compared with the industry’s growth of 4.7%.

3 Better-Ranked Food Stocks

TreeHouse Foods THS, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

B&G Foods BGS, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 6.9%, on average.

Flowers Foods FLO, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 8.2%, on average.

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