McCormick & Co. Inc.
) is set to report second-quarter 2014 results before the opening
bell on Jun 26. Last quarter, this global leader in spices and
flavors posted a positive surprise of 6.9%. 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 customers have faced lower restaurant
traffic, while in Asia, demand was impacted by consumer concern
about bird flu in China.
Industrial segment sales improved in the first quarter of 2014
as higher sales to food and beverage companies made up for a
decline in quick service restaurants. However, we do not expect any
improvement in quick service restaurant trends through the rest of
On the contrary, McCormick's consumer business segment has done
well, driven by the acquisition of the Chinese broth maker Wuhan
Asia-Pacific Condiments Co. Ltd. ("WAPC") in May 2013. We continue
to expect the WAPC acquisition to add to the revenues in the coming
However, the company expects the difficult consumer spending
environment to persist globally for some more time. Weak spending
from budget-constrained consumers might hurt the company's sales.
The company also remains exposed to unfavorable foreign currency
translations as it has a considerable international presence. The
company expects currency headwind to reduce sales by approximately
1 percentage point in 2014. In addition, low disposable income of
consumers and a high single-digit increase in raw material and
packaging costs remain headwinds.
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 ESP for McCormick is 0.00% as both the Zacks Consensus Estimate
and Most Accurate Estimate stand at 62 cents per share.
McCormick's Zacks Rank #4 (Sell) 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:
Hain Celestial Group Inc.
), with an Earnings ESP of +1.12% and a Zacks Rank #1 (Strong
Post Holdings Inc.
), with an Earnings ESP of +4.00% and a Zacks Rank #3 (Hold).
Keurig Green Mountain Inc.
), with an Earnings ESP of +1.14% and a Zacks Rank #3.
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