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McCormick (MKC) Looks Poised on High Demand, Saving Efforts

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McCormick & Company (MKC - Free Report) is benefitting from rising demand stemming from increased at-home consumption amid the coronavirus outbreak. Moreover, the company’s robust product innovations and lucrative acquisitions bode well. Apart from this, McCormick’s impressive cost-saving efforts are yielding. However, sluggish Flavors Solution Unit and adverse currency fluctuation impacts are headwinds.

Let’s delve deeper.

Coronavirus-Induced Demand, Impressive Outlook

Burgeoning demand amid the coronavirus pandemic bolstered the company’s third-quarter fiscal 2020 results with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate. Performance in the quarter gained from consistent rise in at-home consumption trends, which favorably impacted the company’s consumer business. Notably, consumer segment sales increased 15% in the fiscal third quarter.

Moreover, management is anticipating sales growth in the higher end of 4-5% on a year-over-year basis in fiscal 2020. Also, adjusted earnings in fiscal 2020 are expected in the range of $5.64-$5.72, suggesting a rise of 5-7% from $5.35 delivered in the year-ago period. Notably, shares of the company have increased 12.9% year to date against the industry’s decline of 3.8%.


Other Factors Working Well for McCormick

McCormick regularly enhances products through innovation to remain competitive and tap the evolving demand for new flavors, spices and herbs. Aided by a sturdy brand image, McCormick enjoys strong retail acceptance for its new products. Notably, new products launched at the beginning of 2020 like Frank's RedHot thick sauces, Stubb’s reduced sugar barbecue sauce and Old Bay hot sauce contributed to the growth in third-quarter fiscal 2020.

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 position it 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 70 basis points to 41.3% in the fiscal third quarter.

We believe that the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company counter hurdles in the Flavor Solution segment.

What’s Hurting McCormick?

The coronavirus pandemic marred the company’s Flavor Solution segment. During third-quarter fiscal 2020, sales in the segment declined 3%, thanks to weak demand from restaurants and other foodservice customers in the Americas and EMEA regions. Moreover, adverse impacts of unfavorable foreign currency translations were a drag on McCormick’s top line by 1% during the fiscal third quarter.

Solid Food Stocks

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