McCormick & Co.
) hit a fresh 52-week high of $63.91 on September 12; about 2 weeks
before its solid third-quarter results. This global leader in
spices and flavors announced a positive earnings surprise and
year-over-year revenue growth for the period. With a decent
dividend yield of 2.0%, upward estimate revisions and year-to-date
return of 21.7%, this Zacks #2 Rank (Buy) is a solid pick for
investors seeking both growth and income.
Strong Third Quarter
On September 27, McCormick announced third quarter earnings of 78
cents per share, beating the Zacks Consensus Estimate by more than
2.6% and improving on last year's performance by 13%.
Total revenue grew 6% year over year to $978 million. Half of the
increase was contributed by acquisitions completed in 2011.
McCormick's price increase in response to high input costs also
contributed to overall revenue growth. On a constant currency
basis, revenue advanced 9%.
Despite high material costs, gross margin expanded 50 basis points
to 40.1% in the reported quarter, owing to higher sales. Operating
income increased 12% to $144.0 million, driven by favorable impact
of higher sales and cost savings under the company's Comprehensive
Continuous Improvement (CCI) program.
McCormick paid a dividend of 31 cents per share in the third
quarter, reflecting a decent annual dividend yield of 2.0%.
McCormick increased its quarterly dividend per share to 31 cents
from 28 cents in November 2011, representing its 26th consecutive
year of dividend hike.
McCormick expects to grow sales, generate cost savings, invest in
brand marketing support and deliver solid profit growth, despite a
difficult global economic situation and volatility in material
For fiscal year 2012, management expects earnings between $3.03 and
$3.08 per share. Sales are expected to grow by 9% to 11%, which
includes an expected 4% tailwind from the acquisitions completed in
2011. The company, however, expects foreign currency exchange rates
to lower sales growth by 2%. McCormick also reaffirmed its
operating income growth range of 9% to 11%.
Over the past 60 days, the Zacks Consensus Estimate for fiscal 2012
increased 0.98% to $3.08 per share, indicating year-over-year
growth of 8.3%. The Zacks Consensus Estimate for fiscal 2013
remained static at $3.35 over the same period, representing growth
Expensive, Yet Justified, Valuation
McCormick currently trades at a price-to-book (P/B) multiple of
4.73x, reflecting a 154.3% premium to the peer group average of
1.86x. The P/S multiple for the stock is 2.05x, which is at a
slight premium of 133.0% to the peer group average of 0.88x.
However, the stock is justified as it has a trailing 12-month
return on equity (ROE) of 23.8%, which is above its peer group
average of 11.8%.
Chart Showing Consistent Advance
Shares of McCormick have been consistently rising since May 2012,
given its strong brand portfolio coupled with acquisition benefits.
Moreover, the stock is currently trading above its 200-day moving
average, which stands at $56.78. It is slightly below its 50-day
moving average of $62.09. Volume is strong, averaging roughly 369K
daily. McCormick has outperformed the S&P 500 in the last 6
months. The year-to-date return for the stock is 21.7% compared
with the S&P 500 return of 12.7%.
Based in Sparks, Maryland, McCormick & Co. engages in the
manufacture, marketing, and distribution of spices, seasoning
mixes, condiments, and other flavorful products to retail outlets,
food manufacturers, and foodservice businesses. The company
currently has a market cap of $8.15 billion.
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