McCormick & Co. Inc.
) delivered strong third quarter 2012 earnings of 78 cents, ahead
of the prior-year quarter earnings by 13% or 9 cents per share. The
results were driven by a favorable operating income and tax rate,
offset by lower income from unconsolidated operations. Earnings in
the quarter beat the Zacks Consensus Estimate by 2 cents.
Sales and Margin Details
Total revenue in the quarter grew 6% year over year to $978
million. Revenue, however, lagged the Zacks Consensus Estimate of
On a currency basis, revenue increased 9%. Half of the increase
was contributed by acquisitions completed in 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.). McCormick's price increase in response to high input costs
also contributed to overall revenue growth.
Gross margin expanded 50 basis points to 40.1% in the reported
quarter, owing to higher sales. Operating income increased 12% in
the third quarter of 2012 to $144.0 million, driven by favorable
impact of higher sales and cost savings under the company's
Comprehensive Continuous Improvement (CCI) program. However, the
results were negatively impacted by a sharp rise in material
Segment revenue surged 9% year over year to $568.3 million in the
reported quarter. On a currency basis, revenue increased 12%,
mainly driven by benefit from acquisitions and contribution from
price increases. However, results were partially offset by higher
raw material costs.
Like revenues, operating income of the segment also increased 8%
to $109.0 million in the quarter, supported by increases in sales,
pricing actions, and cost savings, offset by higher material
Segment revenue climbed 3% year over year to $409.4 million in the
third quarter of 2012. On a currency basis, segment revenue
increased 6% attributable to increased prices in response to high
Operating income of this McCormick segment increased 27% to
$35.0 million, mainly from increased sales growth, higher CCI cost
savings and operating expense leverage.
Guidance for Fiscal 2012
The global leader in flavors, McCormick continues to forecast a
difficult global economic situation and volatility in material
costs. However, the company expects to grow sales, generate cost
savings, invest in brand marketing support and deliver solid profit
McCormick reiterated its sales guidance growth range of 9% to
11%, which includes an expected 4% tailwind from the acquisitions
completed in 2011. The company, however, expects foreign currency
exchange rates to lower sales growth by 2%. McCormick also
reaffirmed its operating income growth range of 9% to 11%, which
includes approximately $15 million of incremental brand marketing
For fiscal year 2012, management has raised its earnings
guidance in a range of $3.03 to $3.08 per share, owing to a
favorable tax rate.
McCormick, which competes with
ConAgra Foods, Inc.
Kraft Foods Inc.
) currently holds a Zacks #3 Rank (a short-term Hold rating). Over
the long term, we provide a Neutral recommendation on the
MCCORMICK & CO (MKC): Free Stock Analysis
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