McCormick & Co. Inc.MKC is set to report second-quarter 2015 results before the opening bell on Jul 1. Last quarter, this global leader in spices and flavors posted a positive surprise of 9.38%.
In fact, McCormick has delivered positive earnings surprises in the last four quarters, with an average surprise of 7.91%.
Let’s see how things are shaping up prior to the announcement.
Factors to Consider
McCormick has been witnessing rising demand for spices, herbs and seasonings over the last few years. It is also focusing on building sales through brand marketing investments and acquisitions.
Recently, McCormick announced the acquisition of Austin, TX – based One World Foods, Inc., the seller of Stubb's barbeque sauces (Stubb's), for approximately $100 million in cash. The acquisition is expected to be complete by the end of Jul 2015, subject to regulatory approval. This acquisition is McCormick’s third this year, after Drogheria & Alimentari (D&A) in May and Brand Aromatics in March. McCormick’s acquisitions are expected to contribute to revenues in the soon-to-be reported quarter.
McCormick’s increasing focus on saving costs and enhancing productivity through its ongoing initiative, the Comprehensive Continuous Improvement (‘CCI’) program, which started in 2009, is also encouraging. The company expects to report cost savings through CCI of at least $65 million in 2015, well above the $50 million target in 2014.
However, sluggish sales due to continued slowdown in demand from quick service restaurants in the Americas and the Asia-Pacific region in the industrial segment remain a concern. In fact, the company anticipates continued softness in demand from quick service restaurants in the Americas in the first half of 2015. In China too, demand from these quick service restaurant customers is expected to revive gradually.
Currency headwinds and higher input costs continue to remain concerns in the to-be reported quarter.
Earnings Whispers?
Our proven model does not conclusively show that McCormick is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP:The ESP for McCormick is 0.00% as both the Zacks Consensus Estimate and Most Accurate Estimate stand at 68 cents per share.
Zacks Rank:McCormick’s Zacks Rank #2 (Buy) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:
Inventure Foods, Inc. SNAK with an Earnings ESP of +200.0% and a Zacks Rank #3 (Hold).
Kraft Foods Group, Inc. KRFT with an Earnings ESP of +3.57% and a Zacks Rank #3.
Constellation Brands, Inc. STZ with an Earnings ESP of +3.28% and a Zacks Rank #2.
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