McCormick & Company, Inc.
) is set to report fiscal third quarter 2013 results before the
opening bell on Sep 26. Last quarter, this global leader in
flavors posted in-line results. Let's see how things are shaping
up prior to the announcement.
Factors to Consider This Quarter
McCormick's industrial business segment has been under
pressure over the last few quarters due to the slowdown in demand
from quick service restaurants, primarily in the 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. Also, the
unfavorable mix of businesses affected industrial segment
operating income in the quarter.
On the contrary, 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") in Jun
2013. The WAPC acquisition has enhanced McCormick's product
portfolio in central China.
McCormick raised its sales projection for fiscal 2013 to
include the impact of the acquisition. However, it has lowered
its operating income growth rate and thereby earnings projection
for fiscal 2013 to reflect the continued sluggishness in the
industrial segment in the upcoming quarters.
We believe that the sluggish performance from the industrial
business will take a toll in the third quarter as well. In
addition, low disposable income of consumers and a high
single-digit increase in raw material and packaging costs are
expected to hurt margins and thereby its profitability. This
along with currency headwinds and slow economic recovery in the
U.S. is expected to more than offset the positive impact from
acquisition in the third quarter.
Our proven model does not conclusively show that McCormick is
likely to beat earnings this quarter. That is because a stock
needs to have both a positive
and a Zacks Rank #1, #2 or #3 for this to happen. That is not the
case here as shown below.
Positive Zacks ESP:
The Most Accurate estimate stands at 79 cents while the
Zacks Consensus Estimate is at 78 cents. That is a difference of
Zacks Rank #4 (Sell):
We caution against stocks with Zacks Rank #4 and #5 (Sell
rated stocks) going into the earnings announcement, especially
when the company is seeing negative estimate revisions
Other Stocks to Consider
Here are some other companies in the consumer staple sector
that can be considered as our model shows they have the right
combination of elements to post an earnings beat this
Treehouse Foods Inc.
), Earnings ESP of +1.30% and a Zacks Rank #2 (Buy)
Hormel Foods Corp
), Earnings ESP of +1.85% and a Zacks Rank #3 (Hold)
), Earnings ESP of +1.11% and a Zacks Rank #3.
HORMEL FOODS CP (HRL): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
MCCORMICK & CO (MKC): Free Stock Analysis
TREEHOUSE FOODS (THS): Free Stock Analysis
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