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McCormick (MKC) Gains From Strong Brands & Savings Efforts

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Despite rising input costs affecting performance of most players in the food space, McCormick & Company, Incorporated (MKC - Free Report) has managed to stay afloat. Well, this leading spices and seasonings company is gaining from a robust brand portfolio as well as efforts to enhance savings. Let’s take a closer look.

Strong Brands Adorn Performance

Courtesy of popular brands, McCormick has become a cherished name in culinary. A significant chunk of the popularity is attributable to the acquisition of the food division of RB Foods. The deal, which is among the company’s largest, has added iconic brands such as Frank's and French's to the portfolio. These brands command popular products such as Frank's RedHot Sauce and French's Mustard. Indeed, such renowned products have positioned the company in the leading U.S. condiments category. Encouragingly, the Frank’s and French’s brands drove McCormick’s sales by 10% in the third quarter of fiscal 2018. Going ahead, management is on track with product launches under these banners.

Management expects gains from acquisitions to continue bolstering performance in the forthcoming periods. In the past as well, the company made important acquisitions, which include Italy-based Enrico Giotti SpA (Dec 2016) and Australia-based Botanical Food Company (April 2016). These takeovers have also fortified the company's portfolio. Other food companies like United Natural Foods (UNFI - Free Report) and Conagra Brands (CAG - Free Report) have also been gaining from well-chalked buyouts.

Apart from enhancing brand strength with strategic takeovers, the company is also resorting to innovation. Notably, innovations enable McCormick to benefit from the evolving demand for new flavors, spices and herbs. Aided by a sturdy brand image, McCormick enjoys strong retail acceptance for new products. In fact, newly-added products boosted sales in the consumer and flavor solutions segments during the third quarter. Health and wellness also continue to drive the innovation agenda.

Further, to ensure brand popularity, the company regularly engages in marketing. In fact, the company is consistently increasing spending on digital marketing. McCormick expects such moves to aid connecting with consumers in a more personalized manner and drive awareness for new products.

Saving Efforts Bodes Well

McCormick focuses on saving costs and enhancing productivity through the Comprehensive Continuous Improvement (CCI) program. Savings generated through this initiative is utilized for making investments, which generates higher sales and profits. Cost savings through CCI and streamlining actions reached $117 million in fiscal 2017. Moreover, savings from CCI expanded the company’s gross and adjusted operating income margins during the third quarter of fiscal 2018. This also marked the company’s 11th consecutive quarter of adjusted operating margin expansion. Going ahead, the company expects to achieve cost savings worth $105 million for fiscal 2018. Apart from McCormick, robust savings efforts have also been aiding the performance of General Mills (GIS - Free Report) , another renowned player in the food industry.

Wrapping Up

Buoyed by robust brand development and savings strategies, McCormick flaunts a stellar top- and bottom-line growth record. We expect the company to continue delivering strong performances and maintain its position as a prominent player in the food space.

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