McCormick & Company Inc. MKC posted solid first-quarter fiscal 2018 results, with earnings and revenues outpacing the Zacks Consensus Estimate and improving year over year. The quarterly performance gained from positive acquisitions synergies, leading to growth in the consumer business and flavor solutions segments. Additionally, the company’s effective product strategies and savings efforts aided growth. Encouraged by the impressive results, management raised its outlook for fiscal 2018.
Sturdy results combined with an upbeat view raised investors’ optimism in the stock. Additionally, McCormick’s steady business expansion and savings initiatives have been boosting investors’ confidence. Shares of the company have gained almost 8.7% in the past year, against the industry’s decline of 15.2%.
Coming back to results, adjusted earnings of $1.00 per share beat the Zacks Consensus Estimate of 91 cents. Adjusted earnings were 31.6% higher year over year, owing to increased adjusted operating income, favorable impacts of currency rates, reduced adjusted income tax rate and favorable impacts of discreet items.
McCormick & Company, Incorporated Price, Consensus and EPS Surprise
McCormick & Company, Incorporated Price, Consensus and EPS Surprise | McCormick & Company, Incorporated Quote
Revenues & Profits
In the quarter under review, the global leader in flavors and spices generated revenues of approximately $1,237.1 million, exceeding the Zacks Consensus Estimate of $1,235 million. Revenues grew about 18.5% from the prior-year quarter, including a favorable 3.9% impact from currency. Encouragingly, the acquisitions of Reckitt Benckiser Group (RB Foods) and Enrico Giotti SpA drove sales by 12%. On a constant currency basis, sales grew 14.6%.
Gross profits in the fourth quarter surged 25.9% to $520 million. Gross margin came at 42%, expanding 240 basis points (bps) from the prior-year quarter’s figure, primarily gaining from the company’s shift to more value-added products and savings from the CCI program.
Adjusted operating income grew 41.2% to $194.6 million in the quarter under review. On a constant currency basis, operating income increased 38%.
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Segment Details
Consumer Business: Revenues grew 18.6% to $757.4 million. On a constant currency basis, sales improved almost 15%, primarily driven by growth in the Americas, EMEA and the Asia/Pacific regions.
Sales in the Americas, on a constant currency basis, was mainly driven by the acquisition of RB Foods as well as strong pricing actions and favorable impacts of volume/mix. These upsides were offset by reductions in trade inventory. On a constant currency basis, sales in the EMEA region also gained from the RB Foods buyout, while sales in the Asia/Pacific region were driven by growth in India and China.
Adjusted operating income in the consumer business segment grew 32% at constant currency, buoyed by sales growth, cost savings and favorable mix which more than offset the negative impact of higher freight and brand marketing expenses.
Flavor Solutions: Sales in the segment grew 18.4% from the prior-year quarter to $479.7 million. On a constant currency basis, sales increased 15% on improved performance in all three regions.
Sales in the Americas on a constant currency basis gained from the RB Foods buyout as well as higher sales of seasonings, flavors and continued growth momentum in branded foodservice.Sales in the EMEA region were mainly driven by the Giotti acquisition. Additionally, sales to quick-service restaurants and the flavor
category increased in the quarter. Sales in the Asia/Pacific region rose on the back of strong results in China, courtesy of higher sales of new product at quick-service restaurants.
Adjusted operating income at the flavor solution segment surged 52% year over year on a constant currency basis, driven by favorable impact of higher sales, product mix and savings initiatives.
Financial Update
McCormick exited the quarter with cash and cash equivalent of $179.6 million, long-term debt of $4,378.6 million and shareholders’ equity of $3,072.4 million.
During the quarter, net cash used for operations were $20.5 million compared with net cash flow provided from operations of $44 million in the prior-year quarter. The decline stemmed from higher interest payments and working capital payments.
Fiscal 2018 Guidance
Management is pleased with this Zacks Rank #3 (Hold) company’s first-quarter performance with strong results in the company’s consumer and flavors solution segments. Acquisitions as well as enhanced sales of the company’s seasonings and flavors brands aided performance across geographical regions. Moreover, the company is on track with its cost-savings initiatives under its CCI program and plans to achieve a target of $100 million in fiscal 2018.
That said, the company expects sales to grow approximately 13-15% in fiscal 2018 from the previous projection of an increase of 12-14%. The raised view takes into consideration favorable impacts of 2 percentage points from currency fluctuations. Further, management expects sales during the fiscal year to gain from acquisitions, new products, expanded distribution network and brand marketing. Additionally, the company expects low-single digit increase in material costs. These are anticipated to be offset by efficient pricing action.
Earnings for fiscal 2018 are expected in the range of $4.85-$4.95, reflecting considerable growth from the previous band of $4.80-$4.90. The revised guidance depicts a growth of 14-16% from the prior-year quarter’s adjusted earnings of $4.26. This includes an expected positive impact of nearly one percentage point from currency fluctuations. Favorable currency impacts are projected during the first half of the fiscal. Estimated earnings also takes into consideration the reduction in effective tax rates in accordance with the recent U.S. tax policies.
Hungry for More Consumer Staples Stocks? Check These
Investors interested in the same sector may consider United Natural Foods UNFI, Conagra Brands Inc. CAG and Tyson Foods, Inc. TSN. While United Natural Foods and Tyson Foods sport a Zacks Rank #1 (Strong Buy), Conagra Brands carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
United Natural has come up with an average positive earnings surprise of 10.7% in the trailing four quarters. It has long-term earnings growth rate of 8.2%.
Tyson Foods has delivered an average positive earnings surprise of 4.7% in the trailing four quarters. It has long-term earnings growth rate of 11%.
Conagra Brands has pulled off an average positive earnings surprise of 6.7% in the trailing four quarters. It has long-term earnings growth rate of 8%.
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