McCormick & Co. Inc. (MKC) announced its financial results for the third quarter of 2011 on September 28.
Earnings Review
McCormick’s third-quarter earnings came in at 69 cents per share, and surpassed the Zacks Consensus Estimate by 6.2%. However, earnings lagged the year-ago earnings by 9.2%.
The quarterly earnings benefited from favorable operating income and cost savings. Moreover, new products, increased distribution and brand marketing were able to offset business weaknesses.
Total revenue grew 16% year over year to $920.4 million from the year-earlier quarter, benefiting from McCormick’s favorable volume, product mix and pricing actions taken to curtail increased raw and packaging material costs. Revenue also exceeded the Zacks Consensus Estimate of $870 million.
(Read our full coverage on this earnings report: McCormick Beats, Re-Affirms Outlook)
Agreement of Estimate Revisions
Despite a strong third quarter, the analysts' community has remained rather static over the past week for the two upcoming quarters as well as fiscal year 2012. However, they are a little positive for fiscal 2011.
Out of the 13 analysts covering the stock, 4 have revised their estimates downward for the upcoming quarter over the past 30 days, while none of the analysts showed a positive trend. Similarly for the first quarter of 2012, only one out of 5 analysts reduced its estimates, with none increasing their estimates over the same period.
However, for the current fiscal 2011, only one out of 13 analysts increased his estimates over the past 30-day period, with none lowering their estimates. On the other hand, one out of 14 analysts lowered his estimates with none raising it for fiscal 2012.
During the quarter, the company has not only successfully completed its acquisitions and joint ventures, but launched new products, invested in brand marketing and expanded distribution with its growth strategies. However, we believe that the company is feeling the impact of the current economic environment.
Many consumers are struggling in this economy, and some are altering their shopping patterns. In the U.S. and the U.K., the analysts have seen a shift in private label sales for basic ingredients like pepper, garlic and cinnamon, which is expected to impact the sales in future.
Magnitude of Estimate Revisions
Therefore, there has been a marginal shift in the estimates over the past 30-day period. The Zacks Consensus Estimate for the fourth quarter of 2011 has declined by a penny to $1.01 per share. However, the estimates remained unchanged for the first quarter of 2012, and fiscal years 2011 and 2012 at 62 cents, $2.79 per share and $3.12 per share, respectively.
Founded in 1889 and based in Sparks, Maryland, McCormick is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors for the entire food industry, across the globe. The company’s key sales, distribution and production facilities are located in North America and Europe. Furthermore, the company has facilities in Mexico, Central America, Australia, China, Singapore, Thailand and South Africa.
McCormick has a significant presence in the international market. The company’s consumer brands reach approximately 100 countries. The significant international presence has boosted its growth, and we believe will continue doing so in the coming years.
However, the company has started experiencing further increases in the costs of raw materials, and is expecting a double-digit rate of material cost inflation in the remainder of 2011, and further expects these higher costs to persist through 2012. Additionally, the competitive nature of the market in which McCormick operates is a matter of concern.
McCormick, which competes with ConAgra Foods, Inc. (CAG) and Kraft Foods Inc. (KFT), currently holds a Zacks #4 Rank translating into a short term ‘Sell’ rating. Over the long term, we provide a Neutral recommendation on the stock.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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