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McCormick (MKC) Hurt by Cost Inflation & Supply Chain Issues
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Escalated cost inflation has been marring McCormick & Company’s (MKC - Free Report) performance for a while. The global leader in flavor is battling supply chain-related issues. These were reflected in MKC’s second-quarter fiscal 2022 results, with the top and the bottom line declining year over year and missing the Zacks Consensus Estimate.
Shares of the Zacks Rank #4 (Sell) company have decreased 4.6% in the past three months against the industry’s 4.6% growth. Let’s delve deeper.
Image Source: Zacks Investment Research
Dismal Q2 Numbers
In the second quarter of fiscal 2022, McCormick battled a challenging global environment, including the ongoing cost inflation and supply chain issues. Major disruption across China owing to COVID-related lockdowns and the conflict in Ukraine were also hurdles. Quarterly adjusted earnings of 48 cents per share declined from 69 cents reported in the year-ago quarter. The downside stemmed from reduced adjusted operating income. McCormick generated sales of $1,536.8 million, down 1%. This includes an unfavorable impact from currency translation of 1%. Constant currency (cc) sales were in line with the year-ago quarter, reflecting a 7% positive impact from pricing actions countered by a 7% decline in volume and product mix. Volume and product mix were hurt by the lapping of the year-ago quarter’s U.S. trade inventory replenishments and disruption related to COVID-induced restrictions in China. The exit of low-margin business in India and the conflict in Ukraine also hurt the metric.
Cost Hurdles
McCormick has been grappling with cost inflation for a while now. During second-quarter fiscal 2022, the company’s gross profit margin contracted 550 basis points (bps) to 34%, thanks to increased material and transportation cost inflation and an adverse product mix. In the fiscal second quarter, the company’s operating income was $157 million, down from $237 million reported in the year-ago quarter. The downside was caused by gross margin contraction and increased distribution expenses.
In its last earnings call, management highlighted that cost inflation and supply chain pressures escalated during the fiscal second quarter, affecting its results. For 2022, the company projects adjusted gross profit margin to be down 150-200 bps year over year. The outlook considers the impact of high teens increase in cost inflation and the unfavorable impact of sales mix between segments.
Wrapping Up
McCormick is on track to capitalize on healthy and flavorful cooking, increased digital engagement and purpose-minded practices. It is well-placed to capitalize on the demand for great taste fueled by an impressive global flavor portfolio. The company focuses on saving costs and enhancing productivity through its Comprehensive Continuous Improvement (CCI) program. That being said, let’s see if these upsides can help MKC counter the earlier-mentioned hurdles.
Chef’s Warehouse, a distributor of specialty food products in the United States, currently flaunts a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Chef Warehouse’s current financial-year sales suggests growth of 40.7%from the year-ago reported numbers.
United Natural Foods distributes natural, organic, specialty, produce and conventional grocery and non-food products. UNFI currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for UNFI’s current financial year sales suggests 7.6% growth from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 29.9%, on average.
General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank of 2. GIS has a trailing four-quarter earnings surprise of 6.5%, on average.
The Zacks Consensus Estimate for General Mills’ current financial year sales and EPS suggests growth of almost 2% and 1.5%, respectively, from the corresponding year-ago reported figures.
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McCormick (MKC) Hurt by Cost Inflation & Supply Chain Issues
Escalated cost inflation has been marring McCormick & Company’s (MKC - Free Report) performance for a while. The global leader in flavor is battling supply chain-related issues. These were reflected in MKC’s second-quarter fiscal 2022 results, with the top and the bottom line declining year over year and missing the Zacks Consensus Estimate.
Shares of the Zacks Rank #4 (Sell) company have decreased 4.6% in the past three months against the industry’s 4.6% growth. Let’s delve deeper.
Image Source: Zacks Investment Research
Dismal Q2 Numbers
In the second quarter of fiscal 2022, McCormick battled a challenging global environment, including the ongoing cost inflation and supply chain issues. Major disruption across China owing to COVID-related lockdowns and the conflict in Ukraine were also hurdles. Quarterly adjusted earnings of 48 cents per share declined from 69 cents reported in the year-ago quarter. The downside stemmed from reduced adjusted operating income. McCormick generated sales of $1,536.8 million, down 1%. This includes an unfavorable impact from currency translation of 1%. Constant currency (cc) sales were in line with the year-ago quarter, reflecting a 7% positive impact from pricing actions countered by a 7% decline in volume and product mix. Volume and product mix were hurt by the lapping of the year-ago quarter’s U.S. trade inventory replenishments and disruption related to COVID-induced restrictions in China. The exit of low-margin business in India and the conflict in Ukraine also hurt the metric.
Cost Hurdles
McCormick has been grappling with cost inflation for a while now. During second-quarter fiscal 2022, the company’s gross profit margin contracted 550 basis points (bps) to 34%, thanks to increased material and transportation cost inflation and an adverse product mix. In the fiscal second quarter, the company’s operating income was $157 million, down from $237 million reported in the year-ago quarter. The downside was caused by gross margin contraction and increased distribution expenses.
In its last earnings call, management highlighted that cost inflation and supply chain pressures escalated during the fiscal second quarter, affecting its results. For 2022, the company projects adjusted gross profit margin to be down 150-200 bps year over year. The outlook considers the impact of high teens increase in cost inflation and the unfavorable impact of sales mix between segments.
Wrapping Up
McCormick is on track to capitalize on healthy and flavorful cooking, increased digital engagement and purpose-minded practices. It is well-placed to capitalize on the demand for great taste fueled by an impressive global flavor portfolio. The company focuses on saving costs and enhancing productivity through its Comprehensive Continuous Improvement (CCI) program. That being said, let’s see if these upsides can help MKC counter the earlier-mentioned hurdles.
Solid Food Bets
Some better-ranked stocks are The Chef's Warehouse (CHEF - Free Report) , General Mills, Inc. (GIS - Free Report) and United Natural Foods (UNFI - Free Report) .
Chef’s Warehouse, a distributor of specialty food products in the United States, currently flaunts a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Chef Warehouse’s current financial-year sales suggests growth of 40.7%from the year-ago reported numbers.
United Natural Foods distributes natural, organic, specialty, produce and conventional grocery and non-food products. UNFI currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for UNFI’s current financial year sales suggests 7.6% growth from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 29.9%, on average.
General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank of 2. GIS has a trailing four-quarter earnings surprise of 6.5%, on average.
The Zacks Consensus Estimate for General Mills’ current financial year sales and EPS suggests growth of almost 2% and 1.5%, respectively, from the corresponding year-ago reported figures.