McCormick & Co. Inc.
) delivered third quarter fiscal 2013 earnings of 78 cents per
share, in line with the Zacks Consensus Estimate. Earnings also
met the company's expectation and were flat year over year.
Higher operating income and lower share count were largely offset
by a tax rate increase in the quarter.
Revenues and Profits
Total revenue in the quarter lagged the Zacks Consensus
Estimate of $1.042 billion. However, it grew 4% year over year to
$1.016 billion, primarily driven by the sales of Wuhan
Asia-Pacific Condiments Co. Ltd. ("WAPC") (acquired in May 2013),
which offset lower industrial sales in the Americas region.
The consumer business in the Americas region also suffered in
the early part of the third quarter, but improved later during
the quarter. Revenues benefited from the shift of sales from the
fourth quarter into the third due to positive response to its
U.S. holiday display program and early purchases apprehending a
McCormick's sales industrial segment sales were pressurized
due to the sluggish demand from quick service restaurants,
primarily in U.S. and Asia. In the U.S., quick service restaurant
demand was soft due to focus on menu items not flavored by
McCormick, while in Asia demand was adversely impacted by bird
flu concerns in China. However, sales of snack seasonings and
other flavors grew in the quarter.
Consolidated operating income improved 3% to $148 million as
top-line growth and cost savings from McCormick's Comprehensive
Continuous Improvement ('CCI') program more than offset the
retirement benefit costs and increase in brand marketing
Segment revenues increased 8% to $612.4 million, driven by WAPC
acquisition and shift in sales. Sales increased in all three
geographic regions of Americas, Europe, Middle East and Africa
(EMEA) and Asia/Pacific. However, on an organic basis, segment
revenues declined 3% year over year due to sluggish sales in the
Operating income of the segment climbed 9% to $118.7 million
in the quarter as the favorable impact of higher sales and CCI
cost savings more than offset the higher retirement benefit
costs, increased material costs and increase in brand marketing
: Segment revenues declined 1% year over year to $404.0 million
in the third quarter of fiscal 2013. However, sales remained flat
on a local currency basis as lower volumes and product mix offset
the slight improvement in pricing. Industrial sales in Americas
and the EMEA region declined in the quarter but improved 1% in
the Asia-Pacific region owing to some recovery in demand from
quick service restaurants.
Operating income of this McCormick segment declined 15.9% to
$29.7 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.
Fourth Quarter Guidance
McCormick expects its sales and adjusted earnings to increase
approximately 7% for the fourth quarter fiscal 2013. The company
continues to expect weakness in the industrial products, while it
expects improvement in the consumer business in the fourth
McCormick expects tax rate to be 29% for the fourth quarter
compared with its previous expectation of 29.5%.
Fiscal 2013 Guidance
On the basis of third quarter results and fourth quarter
expectations, the company now expects its sales to increase at
the lower end of the range of 4% to 6%. This guidance includes
the impact of the WAPC acquisition.
The company expects to achieve at least $55 million in CCI
cost savings during fiscal 2013. The company has lowered its
adjusted operating income growth rate expectation to a range of
3% to 5%, compared with the previous expectation of a 5% to 7%
Based on this outlook for operating income growth, McCormick
now expects its fiscal 2013 earnings at the lower end of the
guided range of $3.13 to $3.19 per share due to the slowdown in
demand from quick service restaurants, primarily in the U.S and
McCormick currently holds a Zacks Rank #4 (Sell). Other
specialty food companies which are better positioned and warrant
a look include
Green Mountain Coffee Roasters, Inc
Pinnacle Foods Inc
Boulder Brands Inc
). While Green Mountain and Pinnacle Foods carry a Zacks Rank #1
(Strong Buy), Boulder Brands holds a Zacks Rank #2 (Buy).
BOULDER BRANDS (BDBD): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
MCCORMICK & CO (MKC): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
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