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McCormick (MKC) Benefits From Brand Strength, Saving Plans

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McCormick & Company (MKC - Free Report) looks well placed on the back of its robust product innovations and lucrative acquisitions. Also, the company’s cost-saving efforts bode well. Apart from these, it is witnessing rising demand owing to increased at-home consumption amid the coronavirus outbreak.

In fact, burgeoning demand amid the pandemic bolstered the company’s third-quarter fiscal 2020 results. The top and the bottom line increased year over year and beat the Zacks Consensus Estimate. 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 that suggests a rise of 5-7% from $5.35 delivered in the year-ago quarter.

Factors Narrating McCormick’s Growth Story

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 growth in fiscal third quarter.



Further, McCormick strategically increases its presence through acquisitions to strengthen its portfolio. Recently, the company completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. Management believes that the buyout of Cholula accelerates its growth potential across the condiment platform and widens the product portfolio in the hot sauce category. Additionally, its 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.

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 fiscal third quarter.

Wrapping Up

The coronavirus pandemic marred the company’s Flavor Solution segment. During fiscal third-quarter, revenues in the segment declined 3% year over year, thanks to weak demand from restaurants and other foodservice customers in the Americas and EMEA regions amid the pandemic.

Moreover, the company is exposed to volatile foreign currency translations, as it has a widespread global business and undertakes business expansion efforts frequently. Evidently, adverse currency movements were a drag on McCormick’s top line by 1% during the fiscal third quarter.

Nevertheless, the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company remain in investors’ good books. Notably, shares of the company have increased 10.1% year to date compared with the industry’s growth of 1%.

Better-Ranked Food Stocks

The Hain Celestial (HAIN - Free Report) , with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 24.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. (MED - Free Report) , with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 20.2%, on average.

B&G Foods, Inc. (BGS - Free Report) , with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 9.3%, on average.

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