McCormick & Company, Incorporated (MKC - Free Report) is focused on boosting investors’ sentiments through several growth initiatives and shareholder-friendly moves. To this end, the company announced a 9.6% hike in its quarterly dividend, taking it from 52 cents a share to 57 cents. This is payable on Jan 14, 2019 to shareholders of record as on Dec 31.
McCormick has been committed toward boosting shareholders’ returns for quite a few years now. In fact, this marks the 33rd straight year of dividend hike for the food company. The company’s last hike of 11% was announced in November 2017. Further, during the third quarter of fiscal 2018, the company returned $205 million in cash to its shareholders through dividend payments.
Well, we appreciate McCormick’s efforts to consistently enhance long-term shareholder value. Markedly, dividend hikes not only enhance shareholder returns but also raise the market value of the stock. Through this strategy, companies try to win investors and persuade them to either buy or hold the scrip instead of selling it.
Apart from dividend hikes, McCormick also concentrates on other efficient capital allocation strategies, like prudent acquisitions and share buybacks. In fact, these endeavors along with the company’s focus on innovation, brand marketing and CCI program have helped its shares rally close to 20% in the past three months, against the industry’s decline of 3.8%.
Talking of acquisitions, these have helped McCormick strategically increase its presence, and grow its spices and seasonings portfolio. McCormick’s acquisition of the food division of RB Foods, a British consumer products company, in August 2017, is the largest deal for the company till date. With iconic brands like Frank's RedHot Hot Sauce, French's Mustard, French's Crispy Vegetables and Cattlemen's BBQ Sauce, RB Foods is likely to continue being an asset for McCormick’s spices portfolio. In fact, both Frank's RedHot and French's Mustard hold noteworthy positions in their respective categories in the United States and Canada. As a result, these brands position the company in the leading U.S. condiments category and place it well for international expansion.
Encouragingly, the acquisition of Frank’s and French’s brands drove McCormick’s sales by 10% in the third quarter. In fact, Frank’s and French’s brands boosted sales from the consumer and flavor solutions segments by 10% and 9%, respectively. Management expects such acquisition gains to continue bolstering performance in the forthcoming periods. In the past too, the company made significant acquisitions, including the acquisition of Italy-based Enrico Giotti SpA (Dec 2016) and Australia-based Botanical Food Company (April 2016). These buyouts have also led to augmenting the company’s portfolio strength.
Is it All Rosy for McCormick?
Unfortunately, this Zacks Rank #4 (Sell) company is exposed to volatile foreign currency translations, as it has a widespread global business and undertakes business expansion efforts frequently. In this regard, McCormick now expects less favorable impacts from foreign currency rates for fiscal 2018, and accordingly trimmed its sales projections. The company expects sales to grow 12-14%, reflecting a decline from the previous projection of 13-15% growth. We believe that volatility in exchange rates is a considerable threat to the company’s performance.
Also, McCormick continues to incur increased brand marketing and freight expenses. These factors somewhat weighed on operating profits in the consumer segment during the third quarter of fiscal 2018. McCormick continues to undertake increased brand marketing to further drive sales. Also, freight costs are expected to remain a headwind in fiscal 2018. Nonetheless, we expect McCormick’s shareholder-friendly moves and other strategic growth endeavors to help it counter these hurdles and spur momentum of the stock.
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