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Can McCormick (MKC) Spring a Surprise in Q1 Earnings?

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McCormick & Co., Inc.(MKC - Free Report) is set to report first-quarter 2017 results on Mar 28, before the market opens.

Last quarter, this global leader in spices and flavors had posted in-line earnings. In fact, the company has delivered positive earnings surprises in three out of the last four quarters, making for an average surprise of 4.26%.

Let us see how things are shaping up for this announcement.

McCormick & Company, Incorporated Price, Consensus and EPS Surprise

 

McCormick & Company, Incorporated Price, Consensus and EPS Surprise | McCormick & Company, Incorporated Quote

Factors to Consider

McCormick’s focus on building sales through buyouts has been driving earnings since the past many years.  The company completed the acquisition of Italy-based Enrico Giotti SpA (Giotti) in Dec 2016 and Australia-based Botanical Food Company in Apr 2016. In 2015, the company acquired One World Foods, the seller of Stubb's barbeque sauces in August, after Drogheria & Alimentari in May and Brand Aromatics in March. These acquisitions have boosted McCormick’s business and strengthened its portfolio. In fact, the company expects the trend to continue in the first quarter as well.

Further, McCormick has been regularly launching products in order to remain competitive. Its increasing focus on cost savings as well as enhancing productivity through the ongoing initiative – the Comprehensive Continuous Improvement (CCI) program – is encouraging and boosting earnings. With these cost savings and higher sales, the company expects to grow adjusted operating income 9% to 11% in constant currency for 2017, which is ahead of the company’s long-term objective of 7% to 9%.

However, the company has been facing margin pressure for some time. Higher raw material costs – particularly of vanilla and garlic have been hurting McCormick’s margins. Prices of majority of the raw materials including cinnamon, oregano, and rice and packaging costs have also been increasing since fiscal 2012. In 2017, the company expects material cost inflation in mid-single digits. In addition, continued currency pressure is also expected to hurt profits in the near term.

If we look into the past six months’ performance, McCormick’s shares have outperformed the Zacks categorized Food-Miscellaneous/Diversified industry. The stock increased 5.13% in comparison to the above mentioned industry’s fall of 0.6%. Notably, the industry is part of the bottom 16% of the Zacks Classified industries (214 out of the 265). The broader Consumer Staples sector is placed at the bottom 13% of the Zacks Classified sectors (14 out of 16).

Earnings Whispers

Our proven model does not conclusively show that McCormick is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: ESP for McCormick is 0.00% as both the Most Accurate estimate and Zacks Consensus Estimate are pegged at 75 cents per share.

Zacks Rank: McCormick has a Zacks Rank #3, which increases the predictive power of ESP. However, we also need a positive ESP for an earnings beat.

Concurrently, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:

The J.M. Smucker Company (SJM - Free Report) has an Earnings ESP of +0.57% and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Constellation Brands, Inc. (STZ - Free Report) has an Earnings ESP of +0.73% and a Zacks Rank #3.

Tupperware Brands Corporation (TUP - Free Report) has an Earnings ESP of +3.23% and a Zacks Rank #3.

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