We reaffirm our Neutral recommendation on McCormick
& Co. ( MKC ) following an
appraisal of its fourth quarter fiscal 2012.
Why the Reiteration?
McCormick reported its fourth quarter results on Jan 24, 2013.
Its earnings grew 13.3% year-over-year, driven by top-line growth,
improved operating income, higher income from unconsolidated
operations and favorable tax rate. Positive volume, improved
product mix and pricing actions in response to high input costs
drove the top line. McCormick's deals completed in the year 2011
(acquisition of Poland-based Kamis S.A. and Kitchen Basics, a
leading brand of liquid stock; and a joint venture with India-based
Kohinoor Foods Ltd.) contributed to overall revenue growth in the
fourth quarter. However, both sales and earnings lagged the Zacks
Following the release of fourth quarter results, the Zacks
Consensus Estimate for fiscal 2013 has gone down 0.3% to $3.21 per
share. The Zacks Consensus Estimate for fiscal 2014 has also
declined 0.3% to $3.55 per share. With the Zacks Consensus
Estimates for both fiscal 2013 and 2014 going down, McCormick now
has a Zacks Rank #4 (Sell).
McCormick has been suffering from high material costs over the
last few years. Higher prices for raw materials have adversely
impacted the company's gross margins in fiscal 2012. In addition,
low disposable income of consumers and a high single-digit increase
in raw material and packaging costs in fiscal 2012 have hurt the
margins of the company and thereby its profitability. Though the
company has taken pricing actions to combat rising material costs,
the company still expects modest input cost inflation of
approximately 3% in fiscal 2013.
Though McCormick focuses on saving cost, enhance productivity,
expand its presence in the emerging markets and product innovation,
we believe that currency headwinds, slow economic recovery in the
U.S. and persistently sluggish European economic conditions also
create an overhang.
Other Stocks to Consider
Other diversified food makers worth considering include
Flower Foods Inc ( FLO ), Chiquita
Brands International Inc ( CQB ) and
Conagra Foods Inc ( CAG ), each of them
carrying a Zacks Rank #1 (Strong Buy).CONAGRA FOODS (CAG): Free Stock Analysis ReportCHIQUITA BR INT (CQB): Free Stock Analysis
ReportFLOWERS FOODS (FLO): Free Stock Analysis ReportMCCORMICK & CO (MKC): Free Stock Analysis
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