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McCormick (MKC) Poised on Prudent Buyouts & Cost Savings

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McCormick & Company (MKC - Free Report) is on track to capitalize on the sustained shift to cooking more at home, higher digital engagement, clean and flavorful eating as well as trusted brands. Also, a robust recovery in the away-from-home demand has been aiding the company. Apart from these, the global leader in flavor is benefiting from lucrative acquisitions. Also, its cost-saving efforts bode well amid inflationary pressure.

Acquisitions Driving Growth

McCormick strategically increased its presence through acquisitions to grow its portfolio. In December 2020, McCormick bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. The buyout of Cholula accelerates McCormick’s growth potential across the condiment platform and widens the product portfolio in the hot sauce category.

Several other companies in the food space are benefiting from acquisitions like Post Holdings, Inc. (POST - Free Report) , Hormel Foods Corporation (HRL - Free Report) and The Hershey Company (HSY - Free Report) . During the first quarter of fiscal 2022, Post Holdings' top line included $97.8 million in net sales from acquisitions. This includes the Private label ready-to-eat (PL RTE) cereal business, Egg Beaters liquid egg brand, Almark Foods business and related assets as well as the Peter Pan nut butter brand.

Hormel Foods is strengthening its business on the back of strategic acquisitions. In June 2021, the company acquired the Planters snacking portfolio. Prior to this, the company acquired Texas-based pit-smoked meats company Sadler's Smokehouse in March 2020. The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.

Hershey has been undertaking buyouts to augment portfolio strength and boost revenues. In December 2021, Hershey acquired Dot’s Pretzels LLC — the owner of Dot’s Homestyle Pretzels — a leading brand in the pretzel category. The addition of Dot’s Pretzels is a perfect match for Hershey’s growing salty snacking portfolio. The company also purchased Pretzels Inc. from an affiliate of Peak Rock Capital. The acquisition expands Hershey’s snacking and production capabilities.

Will Cost Hurdles be Countered?

McCormick has been grappling with cost inflation for a while now. During fourth-quarter fiscal 2021, the company’s gross profit margin contracted 180 basis points (bps) to 40.6%, thanks to increased cost inflation. In its last earnings call, management highlighted that it continues to face cost pressures from higher inflation along with broad-based supply chain-related hurdles.

That said, McCormick is on track to counter the inflationary pressure through various pricing and cost-saving actions. The company focuses on saving costs and enhancing productivity through the Comprehensive Continuous Improvement (CCI) program. McCormick’s CCI program helped the company to reduce costs and enhance productivity.