McCormick (MKC) Q3 Earnings: Buyouts & Savings Key Catalysts

Shutterstock photo

McCormick & Company, Inc.MKC is slated to release third-quarter fiscal 2018 results on Sep 27, before the market opens. This Midland-based company boasts robust surprise history, with the top and the bottom line beating estimates in the trailing six and five quarters, respectively. Moreover, the company has been witnessing year-over-year growth in the top and the bottom lines for more than a year. Let's see if the company can maintain its stellar performance in the upcoming quarterly results.

Product Augmenting Efforts to Boost Sales

McCormick has been able to expand the spices and seasonings portfolio through well-chalked acquisitions. In this respect, the company's buyout of the food division of RB Foods has added iconic brands like Frank's RedHot Hot Sauce and French's Mustard. Markedly, the acquisition of Frank's and French's brands drove sales by 13% during second-quarter fiscal 2018. Additional sales from these brands are expected to boost the top line by 8% in fiscal 2018. Other noteworthy acquisitions of the company in the past include Italy-based Enrico Giotti SpA and Australia-based Botanical Food Company.

Innovation is another vital strategy by McCormick, which remains focused on augmenting product offerings. This aids the company to stay competitive and tap the evolving demand for new flavors, spices and herbs. Backed by a sturdy brand image, McCormick enjoys strong retail acceptance for new products. This provides greater impetus to the company that facilitates new product developments. Health and wellness also continue to drive the innovation agenda.

McCormick has also been resorting to effective marketing strategies to popularize new and existing products. Digital marketing has been a vital component of the company's brand marketing efforts. Additionally, efficient pricing, improved volumes and product mix have been boosting the top line. Well, such upsides have been driving growth for the company's Consumer Business and Flavor Solutions segments.

McCormick & Company, Incorporated Price, Consensus and EPS Surprise

McCormick & Company, Incorporated Price, Consensus and EPS Surprise | McCormick & Company, Incorporated Quote

Savings Effort Likely to Offset Cost Woes

McCormick has been battling increased marketing and freight expenses for a while. These headwinds are likely to put pressure on the company's performance in the third quarter. Apart from McCormick, other food companies like United Natural Foods UNFI , J. M. Smucker SJM and TreeHouse Foods THS have been grappling with rising freight expenses.

Nevertheless, we expect the company's Comprehensive Continuous Improvement ("CCI") program to cushion these hurdles. Notably, McCormick has been strategically saving costs and enhancing productivity through the CCI program. In fact, cost savings from CCI helped in expanding gross and adjusted operating income margins during the second quarter. This also marked the company's 10th consecutive quarter of adjusted operating margin expansion. The company projects adjusted operating income growth in the range of 23-25% in fiscal 2018, wherein it plans to achieve cost savings of $105 million.

Estimates Unveil a Bright Picture  

Going ahead, management expects to continue gaining from the aforementioned factors and drive sales growth of approximately 13-15% in fiscal 2018. Moreover, earnings for fiscal 2018 are expected in the range of $4.85-$4.95, reflecting growth of 14-16% from the year-ago quarter's tally.

Such positive projections combined with yielding strategies boost our expectations for the upcoming quarterly earnings. Incidentally, the Zacks Consensus Estimate for the quarter under review is pegged at $1.26, which shows a 12.5% rise from $1.12 recorded in the year-ago quarter. The estimate has remained unchanged in the past 30 days. Also, the Zacks Consensus Estimate for sales for the third-quarter is pegged at $1,351 million, depicting a rise of almost 14% from the prior-year quarter's figure.

Zacks Model

To top it, our proven model shows that McCormick is likely to beat estimates this quarter. A stock needs to have a positive  Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they're reported with our  Earnings ESP Filter .

McCormick's Earnings ESP of +0.99% combined with the company's Zacks Rank #3 make us confident of an earnings beat. You can see  the complete list of today's Zacks #1 Rank stocks here .

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

United Natural Foods, Inc. (UNFI): Free Stock Analysis Report

TreeHouse Foods, Inc. (THS): Free Stock Analysis Report

The J. M. Smucker Company (SJM): Free Stock Analysis Report

McCormick & Company, Incorporated (MKC): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: UNFI , THS , SJM , MKC

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?