We reaffirm our Neutral recommendation on
McCormick & Co, Inc
) following mixed results in the second quarter of fiscal
Why the Reiteration?
McCormick reported its second quarter results on Jun 27.
Earnings of 61 cents were in line with the Zacks Consensus
Estimate and increased only 1.7% year over year. Though sales
grew only 3% on a year-over-year basis, it lagged the Zacks
Consensus Estimate. The slowdown in the industrial segment due to
the sluggish demand from quick service restaurants is putting
pressure on sales.
However, McCormick's consumer business segment is doing well,
driven by the recent acquisition of the Chinese broth maker Wuhan
Asia-Pacific Condiments Co. Ltd. ("WAPC"). The WAPC acquisition
has enhanced McCormick's product portfolio with new flavors and
expanded the latter's presence in the central regions of China.
McCormick has also raised its sales projection for fiscal 2013 to
include the impact of the acquisition.
Following the release of its second quarter results, the Zacks
Consensus Estimate for fiscal 2013 went down 0.9% to $3.16 per
share. The Zacks Consensus Estimate for fiscal 2014 also declined
0.9% to $3.48 per share.
The company now has a Zacks Rank #3 (Hold).
Cause for Concern
McCormick's industrial segment has been under pressure due to
the slowdown in demand from quick service restaurants, primarily
in the U.S and Asia, over the last few quarters. In the U.S.,
quick service restaurant demand was soft due to promotional
emphasis on menu items not flavored by McCormick, while in Asia,
demand was impacted by consumer concern about bird flu in China.
In addition, low disposable income of consumers and a high
single-digit increase in raw material and packaging costs have
been hurting the margins of the company and therefore its
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
Other diversified food makers worth considering include
Pinnacle Foods Inc
Chiquita Brands International Inc
Dole Food Co.
). While Pinnacle and Chiquita carry a Zacks Rank #1 (Strong
Buy), Dole Food holds a Zacks Rank #2 (Buy).
CHIQUITA BR INT (CQB): Free Stock Analysis
DOLE FOOD CO (DOLE): Free Stock Analysis
MCCORMICK & CO (MKC): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
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