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McCormick (MKC) Thrives on Strategic Buyouts & Efficiency Plans
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McCormick & Company (MKC - Free Report) has strategically fortified its market presence through acquisitions, which have been effectively enhancing its product portfolio. Brand strength, robust marketing and innovative initiatives have also proven fruitful.
Moreover, McCormick's Global Operating Effectiveness ("GOE") and Comprehensive Continuous Improvement (“CCI”) programs are a testament to its commitment to operational excellence. Efficient pricing actions have been working well for the company and are likely to help it cover cost inflation.
The combination of these factors propelled McCormick's performance in the second quarter of 2023, wherein earnings and sales increased year over year, and the former beat the Zacks Consensus Estimate.
Robust year-to-date results, the expectations of solid demand and a focus on the cost structure encouraged management to raise its adjusted operating income and earnings per share (EPS) view for fiscal 2023 while keeping the sales view unchanged.
Image Source: Zacks Investment Research
Acquisitions – a Major Growth Catalyst
McCormick has strategically increased its presence through acquisitions to grow its portfolio. In December 2020, MKC bought 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 also completed the acquisition of the parent company of Cholula Hot Sauce, a premium Mexico-based hot sauce brand.
MKC believes that 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. Some of the other noteworthy acquisitions of McCormick are Italy-based Enrico GiottiSpA (December 2016) as well as Australia-based Botanical Food Company (April 2016).
CCI & GOE Initiatives Aid Margins
McCormick focuses on saving costs and enhancing productivity through its ongoing CCI program. Started in 2009, McCormick’s CCI program helped the company reduce costs and enhance productivity. It has used CCI savings to increase investments, thereby leading to higher sales and profits. The company’s second-quarter fiscal 2023 adjusted gross profit margin expanded 310 basis points due to efficient pricing, an improved product mix and cost savings from the CCI and GOE programs.
The GOE program aims at optimizing MKC’s supply chain and cost structure. McCormick expects savings from its GOE program to scale up as fiscal 2023 progresses. It expects savings from the GOE program to have an 800-basis point impact on adjusted operating profit growth in fiscal 2023. Savings from the CCI program are likely to be $85 million in fiscal 2023. Such cost savings, coupled with effective pricing actions, are likely to continue enhancing the company’s profits in the future.
Cost Challenges
McCormick has been grappling with cost inflation for a while now. In the second quarter of fiscal 2023, though the adjusted gross margin increased year over year, it was partly offset by escalated cost inflation. Further, SG&A expenses increased year over year due to elevated employee incentive compensation expenses and increased distribution costs.
McCormick also witnessed a spike in brand marketing costs in the second quarter. It expects an even greater year-over-year rise in brand marketing costs in the third quarter, which is likely to increase the company’s SG&A expenses. MKC also anticipates a significant rise in interest expenses in fiscal 2023.
Encouraging Guidance
For fiscal 2023, net sales are expected to increase 5-7% from the fiscal 2022 levels. Management expects sales growth to be fueled by pricing actions, which, along with cost savings, are likely to help it counter inflationary headwinds. The company anticipates seeing solid growth via brand strength, brand marketing, new products, category management and differentiated customer engagement.
The adjusted operating income is likely to grow 10-12%. Management envisions fiscal adjusted EPS in the band of $2.60-$2.65. The bottom-line view suggests growth from $2.53 recorded in fiscal 2022. The bottom-line growth is likely to be fueled by a solid operating performance, partly offset by increased interest expenses and a higher projected adjusted effective tax rate. Shares of this Zacks Rank #3 (Hold) company have rallied 11% in the past six months against the industry’s decline of 2.6%.
The Zacks Consensus Estimate for Post Holdings’ current fiscal year sales and earnings suggests growth of 13.5% and 184.5%, respectively, from the corresponding year-ago reported figures.
Helen of Troy (HELE - Free Report) , a provider of several consumer products, currently has a Zacks Rank #2 (Buy). HELE’s expected EPS growth rate for three to five years is 8%.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year sales suggests a decline of 2.9% from the year-ago reported numbers. HELE has a trailing four-quarter earnings surprise of 8.1%, on average.
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently carries a Zacks Rank #2. IPAR has an expected EPS growth rate of 15% for three to five years.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.
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McCormick (MKC) Thrives on Strategic Buyouts & Efficiency Plans
McCormick & Company (MKC - Free Report) has strategically fortified its market presence through acquisitions, which have been effectively enhancing its product portfolio. Brand strength, robust marketing and innovative initiatives have also proven fruitful.
Moreover, McCormick's Global Operating Effectiveness ("GOE") and Comprehensive Continuous Improvement (“CCI”) programs are a testament to its commitment to operational excellence. Efficient pricing actions have been working well for the company and are likely to help it cover cost inflation.
The combination of these factors propelled McCormick's performance in the second quarter of 2023, wherein earnings and sales increased year over year, and the former beat the Zacks Consensus Estimate.
Robust year-to-date results, the expectations of solid demand and a focus on the cost structure encouraged management to raise its adjusted operating income and earnings per share (EPS) view for fiscal 2023 while keeping the sales view unchanged.
Image Source: Zacks Investment Research
Acquisitions – a Major Growth Catalyst
McCormick has strategically increased its presence through acquisitions to grow its portfolio. In December 2020, MKC bought 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 also completed the acquisition of the parent company of Cholula Hot Sauce, a premium Mexico-based hot sauce brand.
MKC believes that 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. Some of the other noteworthy acquisitions of McCormick are Italy-based Enrico GiottiSpA (December 2016) as well as Australia-based Botanical Food Company (April 2016).
CCI & GOE Initiatives Aid Margins
McCormick focuses on saving costs and enhancing productivity through its ongoing CCI program. Started in 2009, McCormick’s CCI program helped the company reduce costs and enhance productivity. It has used CCI savings to increase investments, thereby leading to higher sales and profits. The company’s second-quarter fiscal 2023 adjusted gross profit margin expanded 310 basis points due to efficient pricing, an improved product mix and cost savings from the CCI and GOE programs.
The GOE program aims at optimizing MKC’s supply chain and cost structure. McCormick expects savings from its GOE program to scale up as fiscal 2023 progresses. It expects savings from the GOE program to have an 800-basis point impact on adjusted operating profit growth in fiscal 2023. Savings from the CCI program are likely to be $85 million in fiscal 2023. Such cost savings, coupled with effective pricing actions, are likely to continue enhancing the company’s profits in the future.
Cost Challenges
McCormick has been grappling with cost inflation for a while now. In the second quarter of fiscal 2023, though the adjusted gross margin increased year over year, it was partly offset by escalated cost inflation. Further, SG&A expenses increased year over year due to elevated employee incentive compensation expenses and increased distribution costs.
McCormick also witnessed a spike in brand marketing costs in the second quarter. It expects an even greater year-over-year rise in brand marketing costs in the third quarter, which is likely to increase the company’s SG&A expenses. MKC also anticipates a significant rise in interest expenses in fiscal 2023.
Encouraging Guidance
For fiscal 2023, net sales are expected to increase 5-7% from the fiscal 2022 levels. Management expects sales growth to be fueled by pricing actions, which, along with cost savings, are likely to help it counter inflationary headwinds. The company anticipates seeing solid growth via brand strength, brand marketing, new products, category management and differentiated customer engagement.
The adjusted operating income is likely to grow 10-12%. Management envisions fiscal adjusted EPS in the band of $2.60-$2.65. The bottom-line view suggests growth from $2.53 recorded in fiscal 2022. The bottom-line growth is likely to be fueled by a solid operating performance, partly offset by increased interest expenses and a higher projected adjusted effective tax rate. Shares of this Zacks Rank #3 (Hold) company have rallied 11% in the past six months against the industry’s decline of 2.6%.
Solid Consumer Staple Bets
Post Holdings (POST - Free Report) , a consumer-packaged goods holding company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 59.6% on average. You can see the complete list of today’s Zacks #1 Rank stocks here
The Zacks Consensus Estimate for Post Holdings’ current fiscal year sales and earnings suggests growth of 13.5% and 184.5%, respectively, from the corresponding year-ago reported figures.
Helen of Troy (HELE - Free Report) , a provider of several consumer products, currently has a Zacks Rank #2 (Buy). HELE’s expected EPS growth rate for three to five years is 8%.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year sales suggests a decline of 2.9% from the year-ago reported numbers. HELE has a trailing four-quarter earnings surprise of 8.1%, on average.
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently carries a Zacks Rank #2. IPAR has an expected EPS growth rate of 15% for three to five years.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.