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McCormick (MKC) Poised on Lucrative Buyouts, Cost-Saving Efforts

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McCormick & Company (MKC - Free Report) is benefiting from solid growth endeavors, including lucrative acquisitions, robust product innovations and effective cost-saving plans. Apart from these, the company is witnessing higher consumer demand, stemming from escalated at-home consumption and more cook-at-home amid the coronavirus pandemic. However, softness in demand from foodservice customers is a concern.

We believe that such factors are likely to get reflected in the company’s fourth-quarter fiscal 2020 results later this month. Markedly, the current Zacks Consensus Estimate for fourth-quarter sales reflects 6.6% increase from the figure reported in the prior-year quarter. The consensus mark for the bottom line is presently in line with the year-ago period’s reported figure. 

What’s Driving McCormick?

McCormick strategically increased its presence through acquisitions to expand its portfolio. Recently, the company announced the buyout of FONA International, LLC and some of its affiliates. FONA’s diverse portfolio will help McCormick bolster its value-added offerings and expand the flavor solutions segment into attractive categories. In December 2020, McCormick completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. Per the company, the buyout of Cholula accelerates its growth potential across the condiment platform and widens the product portfolio in the hot sauce category.

Further, 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.


 

Additionally, 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 third-quarter fiscal 2020.

Apart from these, escalated at-home cooking trends have been driving McCormick’s growth in the Consumer Business for a while. Burgeoning demand amid the pandemic bolstered the company’s fiscal third-quarter 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.

Will Hurdles be Countered?

Lower demand from restaurants and other foodservice customers amid the coronavirus outbreak is hurting the company’s Flavors Solution segment. During fiscal third quarter, revenues in the segment declined 3% year over year. Apart from this, the company is exposed to volatile foreign currency translations, as it has a widespread global business and undertakes business-expansion efforts frequently.

Nevertheless, McCormick’s cost-saving endeavors together with the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company remain in investors’ good books. Notably, 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.

We note that, McCormick’s shares have increased 15.2% in a year compared with the industry’s growth of 3.3%.

Better-Ranked Food Stocks

The Hain Celestial (HAIN - Free Report) , currently sporting a Zacks Rank #1 (Strong 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.

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

TreeHouse Foods, Inc. (THS - Free Report) , also a Zacks Ranked #2 stock, has a long-term earnings growth rate of 6.1%.

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