McCormick & Company, Inc. (MKC Quick QuoteMKC - Free Report) has been gaining momentum of late driven by its efforts to boost its portfolio. Though rising material costs, sluggish sales in the U.K. and higher brand marketing expenses have raised concerns for sustaining the company’s performance, its acquisitions and innovation initiatives bode well for the company. Moreover, its cost-saving initiatives has significantly aided profitability.

The company also posted upbeat third-quarter fiscal 2017 results recently and raised its fiscal year outlook. Let’s delve deeper into the earnings performance as well as other factors which are providing an impetus to the Zacks Rank #1 (Strong Buy) company to scale higher.

Robust Third-Quarter Results

McCormick outpaced the Zacks Consensus Estimate for both earnings and revenues in third-quarter fiscal 2017. In fact, the company delivered positive earnings surprise in 13 of the last 15 quarters. Earnings grew on the back of cost savings as well as lower currency impacted earnings, while acquisition of food division of Reckitt Benckiser Group (RB Foods) and Enrico Giotti SpA and a shift in the portfolio to more value added products boosted sales. Despite higher brand marketing expenses and material costs, the company delivered double-digit adjusted operating income growth and expanded its adjusted operating income margin, marking seven consecutive quarters of margin expansion.

The company also raised its sales, operating income and earnings guidance to reflect the acquisition of RB Foods. Moreover, the company expects lower currency impact on fiscal 2017 earnings. The company expects higher brand marketing, increased pricing, new products, expanded distribution and acquisitions to contribute to growth. Further, the company anticipates pricing actions to offset higher material costs, which are anticipated to rise by mid-single digits.

Better-than-expected third-quarter results also pulled up shares of the company. We observed that the stock has outperformed the industry on a year-to-date basis. While the stock yielded around 7%, the industry declined 9.7% in the said time frame.

Estimates Rising

The Zacks Consensus Estimate for the fourth quarter as well as for fiscal 2017 and fiscal 2018 has been moving north over the last seven days. The Zacks Consensus Estimate for the fourth quarter climbed 4.9%. Estimates increased 3.7% for fiscal 2017 and 2.2% for fiscal 2018, respectively.

McCormick & Company, Incorporated Price, Consensus and EPS Surprise

 

McCormick & Company, Incorporated Price, Consensus and EPS Surprise | McCormick & Company, Incorporated Quote

Acquisitions Boosting Sales

McCormick has been strategically increasing its presence through acquisitions in order to grow its spices and seasonings portfolio. In the emerging markets too, the company has extended its reach where it had little or no distribution. The recent acquisition of RB Foods in August is the largest deal for the company till date. The deal has added iconic brands like Frank's RedHot Hot Sauce, French's Mustard, French's Crispy Vegetables and Cattlemen's BBQ Sauce to the company’s robust spices portfolio. These brands will position the company in the leading U.S. condiments category and will strengthen and expand McCormick's business presence internationally. Further, these brands will perfectly suit McCormick’s plan of offering healthy and flavored foods to consumers.

In the past too, the company has made significant acquisitions, including the buyout of Italy-based Enrico Giotti SpA (December 2016), Australia-based Botanical Food Company (April 2016), Austin, TX-based One World Foods, Inc., the seller of Stubb's barbeque sauces (August 2015), New Jersey-based Brand Aromatics (March 2015) and Drogheria & Alimentari (February 2015), which significantly contributed to sales.

Product Innovation & Shift Toward Healthy Products

McCormick regularly enhances products through innovation to remain competitive and tap the rising demand for new flavors, spices and herbs. The company also focuses to fulfill consumer demand for flavored foods.

McCormick has strong retail acceptance on new products, including McCormick and Lawry's brand spice and seasonings, Gourmet Garden and Stubb's products and McCormick brand recipe mixes. The company is also looking to offer innovative flavors in breakfast platform and ready-to-serve gravies. McCormick is also shaping up its portfolio with gluten-free, non-GMO and organic products to satisfy the evolving needs of consumers. In fact, the company in 2016 has renovated its core products, with non-GMO labeling on everyday spices and seasonings.

Cost Management and Productivity Improvement

McCormick focuses on saving costs and enhancing productivity through its ongoing Comprehensive Continuous Improvement (CCI) program. Started in 2009, McCormick’s CCI program has helped the company to focus on reducing costs and enhancing productivity. The company has used CCI savings to increase its investments, thereby leading to higher sales and profits. The company is also divesting low margin businesses in EMEA region to further improve productivity across the organization.

McCormick expects to deliver cost savings of at least $105 million in fiscal 2017, up from at least $100 million expected previously. It expects savings of around $400 million by Nov 30, 2019.

Better Returns

We note that the company has delivered better returns than the industry as well as S&P 500.

Further, a low beta of 0.53, a dividend yield of 1.92%, and a long-term earnings growth rate of 9.4% also makes the stock attractive.

Looking for More Consumer Staples Stocks? Check These

Investors interested in the same space may also consider stocks such as Estee Lauder Companies, Inc. (EL Quick QuoteEL - Free Report) , Sanderson Farms, Inc. and Constellation Brands, Inc. (STZ Quick QuoteSTZ - Free Report) . While Estee Lauder and Sanderson Farms carry a Zacks Rank #1, Constellation Brands holds a Zacks Rank #2 (Buy) for valuable returns. You can see the complete list of today’s Zacks Rank #1 stocks here.

Estee Lauder delivered an average positive earnings surprise of 13.7% in the trailing four quarters. It has a long-term earnings growth rate of 12.0%.

Sanderson Farms delivered an average positive earnings surprise of 14.0% in the trailing four quarters.

Constellation Brands delivered an average positive earnings surprise of 11.7% in the trailing four quarters. It has a long-term earnings growth rate of 18.2%.

4 Stocks to Watch after the Massive Equifax Hack

Cybersecurity stocks spiked on recent news of a data breach affecting 143 million Americans. But which stocks are the best buy candidates right now? And what does the future hold for the cybersecurity industry?

Equifax is just the most recent victim. Computer hacking and identity theft are more common than ever. Zacks has just released Cybersecurity! An Investor’s Guide to inform Zacks.com readers about this $170 billion/year space. More importantly, it highlights 4 cybersecurity picks with strong profit potential.

Get the new Investing Guide now>>