McCormick's Enticing Brands & Saving Efforts Spur Growth

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McCormick & Company, Incorporated 's MKC portfolio comprises all the right flavors that keep luring consumers. This renowned manufacture of spices, seasonings and other flavor products has been witnessing growth in the top and the bottom lines for more than a year. To top it, the company's second-quarter fiscal 2018 results marked its sixth and fifth consecutive earnings and sales beat, respectively. Clearly, the company's impressive record has been a treat for investors, as its shares have rallied 30.5% in a year, against the industry 's decline of 5.6%.

That said, let's take a peek at some of the factors aiding this Zacks Rank #3 (Hold) company to whet investors' appetite. You can see  the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Lucrative Acquisitions & Innovations

McCormick has been strategically increasing its presence through acquisitions to enhance its spices and seasonings portfolio. 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. In fact, Frank's RedHot are in high demand, courtesy of millennials growing preference for spicy sauces. Markedly, the acquisition of Frank's and French's brands drove sales by 13% during second-quarter fiscal 2018. Additional sales from these acquired brands are expected to boost the top line by 8% in fiscal 2018. In the past too, the company made significant acquisitions, including the Italy-based Enrico Giotti SpA as well as Australia-based Botanical Food Company.

Further, McCormick constantly enhances products through innovation to stay competitive and tap the evolving demand for new flavors, spices and herbs. Aided 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. In fact, the company is well aligned to cater to consumers' demand for flavorful healthy eating. Evidently, in 2016, the company renovated its core products, with non-GMO labeling on everyday spices and seasonings.

Cost-Containment Efforts Bode Well

McCormick's has been strategically saving costs and enhancing productivity through its Comprehensive Continuous Improvement (CCI) program. Notably, cost savings from CCI aided in expanding the company's gross and adjusted operating income margins during the second quarter of fiscal 2018. 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 now plans to achieve cost savings of $105 million.

Will Efforts Offset Cost Woes

McCormick has been battling increased brand marketing and freight expenses for a while. These factors had a negative impact on margins in the second quarter. McCormick continues to undertake increased brand marketing to further drive sales. Also, freight costs are expected to remain a headwind for gross margin in fiscal 2018. 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 CCI program to cushion these hurdles. Also, McCormick's impressive sales drivers are likely to help the company maintain its stellar show. This also propelled management to issue a favorable view for fiscal 2018. The company expects sales to grow 13-15% in fiscal 2018 and earnings are expected in the range of $4.85-$4.95, reflecting a growth of 14-16% from the year-ago period's tally.

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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 , Stocks
Referenced Symbols: UNFI , SJM , MKC , THS

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