McCormick & Co. Inc.
) is set to report fourth-quarter 2013 results before the opening
bell on Jan 29. Last quarter, this global leader in spices and
flavors posted in-line results. Let's see how things are shaping
up prior to the announcement.
Factors to Consider
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. We believe the WAPC acquisition will
contribute meaningfully in the coming quarter.
However, the company continues to expect weakness in
industrial products, while it expects improvement in the consumer
business in the fourth quarter. In addition, low disposable
income of consumers and a high single-digit increase in raw
material and packaging costs remain the headwinds.
During the third quarter, McCormick lowered its operating
income and earnings expectation for fiscal 2013 to reflect the
sluggishness in the industrial segment. 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%
increase. Also, the company now expects 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 Asia.
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 of #1, 2 or 3 for this to happen. That is
not the case here as you will see below.
The Expected Surprise Prediction or ESP for McCormick is 0.00% as
both the Zacks Consensus Estimate and Most Accurate Estimate
stand at $1.19 per share.
Zacks Rank #4 (Sell):
McCormick's Zacks Rank #4 when combined with a 0.00% ESP makes
surprise prediction difficult. 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 momentum.
Other Stocks to Consider
Other stocks in the consumer staples sector that have both a
positive earnings ESP and a favorable Zacks Rank are:
W D Forty Co.
), with an Earnings ESP of + 1.49% and a Zacks Rank #2 (Buy).
ConAgra Foods, Inc.
), with an Earnings ESP of +1.54% and a Zacks Rank #2.
Newell Rubbermaid Inc.
), with an Earnings ESP of +2.17% and a Zacks Rank #3 (Hold).
CONAGRA FOODS (CAG): Free Stock Analysis
MCCORMICK & CO (MKC): Free Stock Analysis
NEWELL RUBBERMD (NWL): Free Stock Analysis
WD 40 CO (WDFC): Free Stock Analysis Report
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