We reaffirm our Neutral recommendation on
McCormick & Co, Inc
) following mixed results in the third quarter of 2013.
Why the Reiteration?
McCormick reported third quarter results on Sep 26. Earnings
of 78 cents per share were in line with the prior-year quarter
and the Zacks Consensus Estimate. Higher operating income and
lower share count were largely offset by a tax rate increase in
However, sales lagged the Zacks Consensus Estimate though it
grew 4% year over year. The slowdown in the industrial segment
due to sluggish demand from quick service restaurants is
pressurizing sales, primarily in the U.S and Asia over the last
In the U.S., quick service restaurants witnessed lower traffic
and emphasized on menu items that do not use McCormick flavors.
In Asia, demand was impacted by consumer concern about bird flu
in China. We do not expect the pressure on industrial business
sales to ease until the end of this fiscal year.
However, McCormick's consumer business segment is doing well,
driven by the acquisition of the Chinese broth maker Wuhan
Asia-Pacific Condiments Co. Ltd. (WAPC) in May 2013. The WAPC
acquisition has enhanced McCormick's product portfolio with new
flavors and expanded its presence in the central regions of
We are also impressed with McCormick's increasing focus on
saving costs and enhancing productivity through its ongoing
initiative, Comprehensive Continuous Improvement (CCI) program,
which started in 2009. Last month, the company included Europe,
Middle East and Africa (EMEA) into its CCI program and introduced
several initiatives in that region.
These initiatives will help in achieving annual cost savings
of approximately $10 million by 2015. McCormick has now raised
its long-term projected cost savings to at least $45 million from
$40 million projected earlier.
Though McCormick focuses on cost savings, productivity
improvements, product innovation and expansion in emerging
markets, we believe that currency headwinds, slow economic
recovery in the U.S. and pressure on industrial business sales
create an overhang.
Following the release of its third quarter results, the Zacks
Consensus Estimate for fiscal 2013 went down 0.9% to $3.13 per
share. The Zacks Consensus Estimate for fiscal 2014 also declined
1.4% to $3.43 per share. The company now has a Zacks Rank #3
Other diversified food makers worth considering include
Omega Protein Corp.
Pinnacle Foods Inc
The J. M. Smucker Co.
). While Omega holds a Zacks Rank #1 (Strong Buy), Pinnacle and
Smucker carry a Zacks Rank #2 (Buy).
MCCORMICK & CO (MKC): Free Stock Analysis
OMEGA PROTEIN (OME): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
SMUCKER JM (SJM): Free Stock Analysis Report
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