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McCormick (MKC) Down More Than 25% in 6 Months: Here's Why
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McCormick & Company (MKC - Free Report) is operating amid an inflationary environment, which has been hurting its performance. The global leader in flavor has been grappling with soft volumes. Also, a rising interest rate environment remains a threat to the company.
Shares of the Zacks Rank #4 (Sell) company have slumped 27.2% in the past six months compared with the industry’s 9.4% decline. The stock has underperformed the Zacks Consumer Staple sector’s 4.6% drop.
Let’s delve deeper.
Image Source: Zacks Investment Research
High Costs: A Major Concern
McCormick has been grappling with cost inflation for a while now. In the third quarter of fiscal 2023, though the gross margin increased year over year, it was partly offset by escalated cost inflation. In its last earnings call, management highlighted that it expects to witness a low-to mid-teens increase in cost inflation for fiscal 2023.
SG&A expenses also escalated year over year due to elevated employee incentive compensation expenses and increased distribution and brand marketing costs. Management expects to continue witnessing low single-digit increases in brand marketing for fiscal 2023.
Drab Volume Hurts
McCormick has been grappling with soft volumes for a while now. In the fiscal third quarter, volumes and mix fell 2%, stemming from the Kitchen Basics divestiture, softer-than-expected economic recovery in China, the exit of the Consumer business in Russia and a decline related to MKC’s decision to discontinue the low-margin business. Thanks to such factors, volumes also fell 4% in the Consumer business.
In its last earnings call, management highlighted that it divested the Giotti canning business. The company expects the divestiture to impact EMEA Flavor Solutions by nearly 3% starting in the fourth quarter up to third-quarter 2024. The divestiture will likely impact the overall Flavor Solutions segment by roughly 1% and the total company by less than 1%. Thus, the divestiture is likely to hurt the company’s volumes in the near term.
Rising Interest Rate Environment
McCormick is witnessing a rise in interest expenses, which is hampering its bottom-line performance. In fiscal 2023, management expects an 8% headwind to adjusted earnings per share (EPS) from higher interest expense stemming from a rising interest-rate environment, among other reasons.
Final Thoughts
McCormick focuses on saving costs and enhancing productivity through its Comprehensive Continuous Improvement (CCI) program. Further, the Global Operating Effectiveness (GOE) program aims to optimize the company’s supply chain and cost structure. Also, management strategically strengthened its presence through acquisitions to grow its portfolio. However, let’s see if these upsides can help MKC stay afloat amid such hurdles.
The Zacks Consensus Estimate for MGP Ingredients’ current financial year sales and earnings suggests growth of almost 6% and 14.2%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of 16.2% on average.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently has a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145% on average.
The Zacks Consensus Estimate for Vital Farms’ current financial year sales suggests growth of 29.4% from the year-ago reported figure.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year sales and earnings suggests growth of 1% and 6.5%, respectively, from the year-ago reported numbers.
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McCormick (MKC) Down More Than 25% in 6 Months: Here's Why
McCormick & Company (MKC - Free Report) is operating amid an inflationary environment, which has been hurting its performance. The global leader in flavor has been grappling with soft volumes. Also, a rising interest rate environment remains a threat to the company.
Shares of the Zacks Rank #4 (Sell) company have slumped 27.2% in the past six months compared with the industry’s 9.4% decline. The stock has underperformed the Zacks Consumer Staple sector’s 4.6% drop.
Let’s delve deeper.
Image Source: Zacks Investment Research
High Costs: A Major Concern
McCormick has been grappling with cost inflation for a while now. In the third quarter of fiscal 2023, though the gross margin increased year over year, it was partly offset by escalated cost inflation. In its last earnings call, management highlighted that it expects to witness a low-to mid-teens increase in cost inflation for fiscal 2023.
SG&A expenses also escalated year over year due to elevated employee incentive compensation expenses and increased distribution and brand marketing costs. Management expects to continue witnessing low single-digit increases in brand marketing for fiscal 2023.
Drab Volume Hurts
McCormick has been grappling with soft volumes for a while now. In the fiscal third quarter, volumes and mix fell 2%, stemming from the Kitchen Basics divestiture, softer-than-expected economic recovery in China, the exit of the Consumer business in Russia and a decline related to MKC’s decision to discontinue the low-margin business. Thanks to such factors, volumes also fell 4% in the Consumer business.
In its last earnings call, management highlighted that it divested the Giotti canning business. The company expects the divestiture to impact EMEA Flavor Solutions by nearly 3% starting in the fourth quarter up to third-quarter 2024. The divestiture will likely impact the overall Flavor Solutions segment by roughly 1% and the total company by less than 1%. Thus, the divestiture is likely to hurt the company’s volumes in the near term.
Rising Interest Rate Environment
McCormick is witnessing a rise in interest expenses, which is hampering its bottom-line performance. In fiscal 2023, management expects an 8% headwind to adjusted earnings per share (EPS) from higher interest expense stemming from a rising interest-rate environment, among other reasons.
Final Thoughts
McCormick focuses on saving costs and enhancing productivity through its Comprehensive Continuous Improvement (CCI) program. Further, the Global Operating Effectiveness (GOE) program aims to optimize the company’s supply chain and cost structure. Also, management strategically strengthened its presence through acquisitions to grow its portfolio. However, let’s see if these upsides can help MKC stay afloat amid such hurdles.
Top 3 Staple Bets
MGP Ingredients, Inc. (MGPI - Free Report) produces and markets ingredients and distillery products to the packaged goods industry. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial year sales and earnings suggests growth of almost 6% and 14.2%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of 16.2% on average.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently has a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145% on average.
The Zacks Consensus Estimate for Vital Farms’ current financial year sales suggests growth of 29.4% from the year-ago reported figure.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year sales and earnings suggests growth of 1% and 6.5%, respectively, from the year-ago reported numbers.