McCormick & Co. Inc.
) delivered second quarter 2013 earnings of 61 cents per share,
in line with the Zacks Consensus Estimate. Earnings were ahead of
both the company's expectation and the prior-year quarter
earnings of 60 cents by a penny. The results were driven by
top-line growth and higher income from unconsolidated
Revenue and Profits
Total revenue in the quarter grew 2% year over year to $1.003
billion. However, it lagged the Zacks Consensus Estimate of
$1.005 billion. On a local currency basis, sales increased 3%, in
line with the lower end of the company guided range of 3% to 5%.
We believe that sluggish demand from quick service restaurants in
the industrial segment is pressurizing sales even though
McCormick's consumer business segment is doing well.
Consolidated operating income declined 4.1% to $116 million as
top-line growth and cost savings from McCormick's Comprehensive
Continuous Improvement ('CCI') program were more than offset by
transaction costs related to the completion of the Wuhan
Asia-Pacific Condiments Co. Ltd. ("WAPC") acquisition, retirement
benefit costs, increase in brand marketing support, and material
In early-Jun 2013, this global leader in spices completed the
acquisition of the assets of Chinese broth maker Wuhan
Asia-Pacific Condiments Co. Ltd, a privately-held company which
manufactures and markets brands like DaQiao and ChuShiLe.
The addition of these brands will enhance McCormick's product
portfolio with new flavors. The deal will also help McCormick to
expand its presence in the central regions of China through
WAPC's strong positioning in the country.
The acquisition is expected to accelerate McCormick's earnings
in 2014 and will be fully accretive to earnings in 2015. In 2013,
the company anticipates the deal to be slightly dilutive to
earnings per share due to integration and financing costs of $4
million, related to the acquisition.
Segment revenues increased 4% to $591 million. On a local
currency basis, segment revenues surged 5% year over year, mainly
driven by improved volume and increased product mix. Sales on a
constant currency basis grew in all three geographic regions of
Americas, Europe, Middle East and Africa (EMEA) and
Operating income of the segment declined 1% to $88 million in
the quarter as the favorable impact of higher sales and CCI cost
savings were more than offset by acquisition costs, higher
retirement benefit costs, increased material costs and increase
in brand marketing support.
: Segment revenues declined 1% year over year to $411.6 million
in the second quarter of 2013, in line with management
expectations of posting weak results in the quarter. However,
sales improved slightly on a local currency basis on the back of
improved pricing offset by lower volumes and product mix. The
segment is witnessing poor demand from quick service restaurants
in the U.S. and China due to concerns of bird flu among
Operating income of this McCormick segment declined 15.2% to
$28.0 million, primarily due to lower sales, an unfavorable
business mix, higher input costs and the impact of increased
retirement benefit expenses partly offset by cost savings.
McCormick has re-visited its sales guidance for 2013 to
include the impact of WAPC. McCormick has raised its sales
projection by one percentage point to a range of 4% to 6%,
compared with the prior expectation of 3% to 5%.
However, transaction costs related to the WAPC acquisition,
along with a sluggish industrial business will lower operating
income growth in 2013. The company expects its operating income
to increase in the range of 5% to 7%, compared with the previous
expectation of a 6% to 8% increase.
Based on this outlook for operating income growth, McCormick
lowered its projecting earnings guidance to the range of $3.13 to
$3.19 per share compared with $3.15 to $3.23 per share expected
McCormick expects earnings of 78 cents per share, flat year
over year, for the third quarter of 2013. In addition, the
company expects increased retirement benefit expense, higher tax
rate and increase in its brand marketing investments to impact
the third quarter, which will offset the favorable impact of
higher sales and cost savings.
McCormick currently holds a Zacks Rank #3 (Hold). Other
specialty food companies which are better positioned and warrant
a look include
Flower Foods Inc
Omega Protein Corp
B&G Foods Inc
), all of them holding a Zacks Rank #1 (Strong Buy).
B&G FOODS CL-A (BGS): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
MCCORMICK & CO (MKC): Free Stock Analysis
OMEGA PROTEIN (OME): Free Stock Analysis
To read this article on Zacks.com click here.