We have reiterated our Neutral rating on
McCormick & Company, Inc.
) following second quarter results, where earnings of 60
cents per share fell shy of the Zacks Consensus Estimate by a
penny, However, the result topped the prior-year quarter's earnings
of 55 cents on the back of robust sales and efficient cost
The company also reported encouraging sales growth due to its
strong brand portfolio that includes McCormick, Lawry's,
Zatarain's, Thai Kitchen, Simply Asia and Club House in the US; as
well as Ducros, Vahine, Schwartz and Kamis in Europe and the Middle
East and Africa (EMEA).
New product innovations like Zatarain's Frozen Meals for Two,
Grill Mates Blends, Marinades and Barbeque sauces as well as new
McCormick Gourmet and McCormick Recipe Mixes were launched
Moreover, McCormick is strategically increasing its presence in
emerging markets to meet the growing demand for spices in these
fast growing nations. In 2011, the company completed the
acquisitions of US-based Kitchen Basics, Inc. and Poland-based
Kamis S.A. The company also completed the joint venture with
India-based Kohinoor Foods Ltd.
However, McCormick has been suffering from high material costs
since last few years. The increase in price of raw materials such
as dairy products, pepper, wheat, onion, capsicums, soybean oil and
garlic adversely impacts the company's gross margins.
To combat the above mentioned difficulty, McCormick has
undertaken a program, namely, Comprehensive Continuous Improvement
('CCI') program to increase its investments, thereby leading to
increased sales, operating income and profit. The company expects
to generate cost savings of at least $45 million under the CCI
program in fiscal 2012.
McCormick experienced a difficult macroeconomic environment in
fiscal 2011, and expects the same to persist in fiscal 2012. The
company remains exposed to unfavorable foreign currency
translations as it has a considerable international presence. The
company also faces interest rate risk due to fluctuation in these
rates. With increased investments in emerging markets, McCormick is
exposed to the economic and political risks of these countries.
Further, the company faces intense competition from its rivals,
Procter & Gamble Company
Currently McCormick holds a Zacks #3 Rank, implying a short term
MCCORMICK & CO (MKC): Free Stock Analysis
PROCTER & GAMBL (PG): Free Stock Analysis
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