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McCormick (MKC) Tops Q3 Earnings, View Up on Acquisitions
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McCormick & Co. Inc. (MKC - Free Report) posted third-quarter fiscal 2017 results, wherein both the company’s earnings and revenues outpaced the Zacks Consensus Estimate. The company has also raised its sales, operating income and earnings guidance to reflect the acquisition of RB Foods and lower currency impact on earnings.
Adjusted earnings of $1.12 per share beat the Zacks Consensus Estimate of $1.05 by 6.7%. We note that the company has delivered positive earnings surprise in 13 of the last 15 straight quarters, excluding the current quarter. In the third quarter, adjusted earnings were also 9% higher year over year owing to higher operating income. Further, the favorable impact of higher sales and cost savings were offset by an increase in brand marketing and material costs and currency headwinds.
Revenues and Profits
In the reported quarter the global leader in flavors and spices generated revenues of $1,185 million, which exceeded the Zacks Consensus Estimate of $1,146 million by 3.4%. Revenues grew about 9% from the prior-year quarter, including currency tailwinds of 1%. Sales were driven by strong base business and impressive product portfolio growth.
The acquisitions (food division of Reckitt Benckiser Group (RB Foods) in August 2017 and Enrico Giotti SpA in December 2016) also contributed to higher sales by 4%. Excluding currency headwinds, revenues grew 7%, driven by both the consumer and industrial segments.
The company’s adjusted operating income grew 18.6% to $204 million in the third quarter. On a constant currency basis, it increased 19% due to higher sales, cost savings and lower selling, general & administrative costs. A shift in the portfolio to more value added products also boosted sales.
McCormick & Company, Incorporated Price, Consensus and EPS Surprise
Consumer Business: Segment revenues grew 5%, primarily driven by strong base business and new product sales compared with the year-ago period. Solid performance in the Americas was driven by the acquisition of RB Foods as well as strong pricing, new products and expanded distribution. Sales also grew in China and India, which were partially offset by weak sales in the United Kingdom, where the retail environment suffers from stiff competition.
Adjusted operating income grew 9%, on a constant currency basis, driven by the favorable impact of sales growth and cost savings more than offsetting the impact of higher material costs and brand marketing expenses.
Industrial Business: Industrial segment sales grew 14% with minimum impact from currency, driven by increased sales across all three of its regions. While sales in the Americas were led by continued growth momentum in branded foodservice, as well as incremental sales from RB Foods, sales in EMEA region was driven by sales from Giotti acquisition.
Sales to both quick service restaurants and packaged food companies also increased during the quarter. Industrial sales in the Asia/Pacific region increased in the quarter driven by new products and promotional activities of quick service restaurants.
On a constant currency basis, adjusted operating income rose 44% year over year, driven by favorable impact of higher sales, product mix and CCI-led cost savingsand favorable selling, general and administrative costs, more than offset the unfavorable impact of increases in material costs and an increase in brand marketing.
Fiscal 2017 Guidance Raised
For fiscal 2017, the company has revised its guidance reflecting the acquisition of RB Foods and lower currency impact on earnings. The company now expects sales to grow approximately 9–10% in fiscal 2017, in comparison with approximately 4–6% announced earlier. Excluding currency, McCormick expects sales to grow approximately 10–11% in fiscal 2017, in comparison with approximately 5–7% announced previously.
The company expects higher brand marketing, increased pricing, new products, expanded distribution and acquisitions to contribute to the growth. Further, the company anticipates pricing actions to offset higher material costs, which are anticipated to rise by mid-single digits. In addition, the company has raised its cost savings target to at least $105 million, compared with the earlier goal of approximately $100 million.
The company now expects 2017 adjusted operating income to grow approximately 20–21%, from adjusted operating income of $657 million in 2016. Previously, the company anticipated adjusted operating income growth of 8–10%. On constant currency basis, adjusted operating income is now expected to grow 21–22%.
Driven by higher sales and operating income, McCormick now expects 2017 adjusted earnings in the range of $4.20–$4.24 per share, compared with $4.05–$4.13 per share estimated previously. This marks an increase of 11–12% compared with $3.78 in 2016. Also, currency will unfavorably impact earnings by 1%, compared to 2 percentage points previously. The Zacks Consensus Estimate for fiscal 2017 is $4.09 per share, which is below the guidance range.
Our Take
Overall, McCormick is focusing on driving revenues through acquisitions and expects the momentum to continue in fiscal 2017. Its cost-saving initiative is also appealing. However, earnings growth is likely to be hurt by higher input costs as well as brand-marketing expenses.
Share Price Movement
If we look into the year-to-date performance, McCormick’s shares have outperformed the industry. The stock increased 3.3% against the industry’s decline of 10.2%.
Zacks Rank & Key Picks
McCormick currently carries a Zacks Rank #3 (Hold).
While Nomad Foods has a Zacks Rank #1 (Strong Buy) and has an average positive earnings surprise of 8.75% in the last four trailing quarters, Ingredion and Chefs’ Warehouse, both carrying a Zacks Rank #2 (Buy) have average positive earnings surprises of 4.98% and 0.08%, respectively. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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McCormick (MKC) Tops Q3 Earnings, View Up on Acquisitions
McCormick & Co. Inc. (MKC - Free Report) posted third-quarter fiscal 2017 results, wherein both the company’s earnings and revenues outpaced the Zacks Consensus Estimate. The company has also raised its sales, operating income and earnings guidance to reflect the acquisition of RB Foods and lower currency impact on earnings.
Adjusted earnings of $1.12 per share beat the Zacks Consensus Estimate of $1.05 by 6.7%. We note that the company has delivered positive earnings surprise in 13 of the last 15 straight quarters, excluding the current quarter. In the third quarter, adjusted earnings were also 9% higher year over year owing to higher operating income. Further, the favorable impact of higher sales and cost savings were offset by an increase in brand marketing and material costs and currency headwinds.
Revenues and Profits
In the reported quarter the global leader in flavors and spices generated revenues of $1,185 million, which exceeded the Zacks Consensus Estimate of $1,146 million by 3.4%. Revenues grew about 9% from the prior-year quarter, including currency tailwinds of 1%. Sales were driven by strong base business and impressive product portfolio growth.
The acquisitions (food division of Reckitt Benckiser Group (RB Foods) in August 2017 and Enrico Giotti SpA in December 2016) also contributed to higher sales by 4%. Excluding currency headwinds, revenues grew 7%, driven by both the consumer and industrial segments.
The company’s adjusted operating income grew 18.6% to $204 million in the third quarter. On a constant currency basis, it increased 19% due to higher sales, cost savings and lower selling, general & administrative costs. A shift in the portfolio to more value added products also boosted sales.
McCormick & Company, Incorporated Price, Consensus and EPS Surprise
McCormick & Company, Incorporated Price, Consensus and EPS Surprise | McCormick & Company, Incorporated Quote
Segment Details
Consumer Business: Segment revenues grew 5%, primarily driven by strong base business and new product sales compared with the year-ago period. Solid performance in the Americas was driven by the acquisition of RB Foods as well as strong pricing, new products and expanded distribution. Sales also grew in China and India, which were partially offset by weak sales in the United Kingdom, where the retail environment suffers from stiff competition.
Adjusted operating income grew 9%, on a constant currency basis, driven by the favorable impact of sales growth and cost savings more than offsetting the impact of higher material costs and brand marketing expenses.
Industrial Business: Industrial segment sales grew 14% with minimum impact from currency, driven by increased sales across all three of its regions. While sales in the Americas were led by continued growth momentum in branded foodservice, as well as incremental sales from RB Foods, sales in EMEA region was driven by sales from Giotti acquisition.
Sales to both quick service restaurants and packaged food companies also increased during the quarter. Industrial sales in the Asia/Pacific region increased in the quarter driven by new products and promotional activities of quick service restaurants.
On a constant currency basis, adjusted operating income rose 44% year over year, driven by favorable impact of higher sales, product mix and CCI-led cost savingsand favorable selling, general and administrative costs, more than offset the unfavorable impact of increases in material costs and an increase in brand marketing.
Fiscal 2017 Guidance Raised
For fiscal 2017, the company has revised its guidance reflecting the acquisition of RB Foods and lower currency impact on earnings. The company now expects sales to grow approximately 9–10% in fiscal 2017, in comparison with approximately 4–6% announced earlier. Excluding currency, McCormick expects sales to grow approximately 10–11% in fiscal 2017, in comparison with approximately 5–7% announced previously.
The company expects higher brand marketing, increased pricing, new products, expanded distribution and acquisitions to contribute to the growth. Further, the company anticipates pricing actions to offset higher material costs, which are anticipated to rise by mid-single digits. In addition, the company has raised its cost savings target to at least $105 million, compared with the earlier goal of approximately $100 million.
The company now expects 2017 adjusted operating income to grow approximately 20–21%, from adjusted operating income of $657 million in 2016. Previously, the company anticipated adjusted operating income growth of 8–10%. On constant currency basis, adjusted operating income is now expected to grow 21–22%.
Driven by higher sales and operating income, McCormick now expects 2017 adjusted earnings in the range of $4.20–$4.24 per share, compared with $4.05–$4.13 per share estimated previously. This marks an increase of 11–12% compared with $3.78 in 2016. Also, currency will unfavorably impact earnings by 1%, compared to 2 percentage points previously. The Zacks Consensus Estimate for fiscal 2017 is $4.09 per share, which is below the guidance range.
Our Take
Overall, McCormick is focusing on driving revenues through acquisitions and expects the momentum to continue in fiscal 2017. Its cost-saving initiative is also appealing. However, earnings growth is likely to be hurt by higher input costs as well as brand-marketing expenses.
Share Price Movement
If we look into the year-to-date performance, McCormick’s shares have outperformed the industry. The stock increased 3.3% against the industry’s decline of 10.2%.
Zacks Rank & Key Picks
McCormick currently carries a Zacks Rank #3 (Hold).
Some better-ranked food companies include Nomad Foods Ltd. (NOMD - Free Report) , Ingredion Inc. (INGR - Free Report) and The Chefs’ Warehouse, Inc. (CHEF - Free Report) .
While Nomad Foods has a Zacks Rank #1 (Strong Buy) and has an average positive earnings surprise of 8.75% in the last four trailing quarters, Ingredion and Chefs’ Warehouse, both carrying a Zacks Rank #2 (Buy) have average positive earnings surprises of 4.98% and 0.08%, respectively. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>