A month has gone by since the last earnings report for McCormick (MKC). Shares have lost about 5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is McCormick due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
McCormick Q3 Earnings Top Estimates, MKC Volumes Improve Y/Y
McCormick reported solid third-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate, and earnings increased year over year.
Adjusted earnings of 83 cents per share increased from 65 cents reported in the year-ago quarter. The metric came above the Zacks Consensus Estimate of 68 cents per share, representing a surprise of 22.1%. The year-over-year upside can be attributed to greater operating profit, the timing of a specific tax benefit and increased income from unconsolidated operations, fueled by robust performance from McCormick de Mexico, the company's largest joint venture.
This global leader in flavor generated sales of $1,679.8 million, flat year over year, including minimum impacts from currency movements. Impacts from the company’s strategic decision to divest its canning business were offset by a 1% increase in volume backed by the Consumer segment, somewhat negated by pricing. The top line exceeded the Zacks Consensus Estimate of $1,664 million.
McCormick’s gross profit margin expanded 170 basis points. The upside can be attributed to improved mix and cost savings from the Comprehensive Continuous Improvement (CCI) program. The adjusted operating income came in at $288 million, up 15% year over year, reflecting gross margin expansion and reduced SG&A expenses.
Decoding MKC’s Segmental Performance
Consumer: Sales remained flat year over year at $937.4 million, with a negligible impact on currency movements. Sales were hurt by a 1% decline from pricing actions, offset by 1% volume growth. Volume growth in the Americas and the Europe, Middle East, and Africa (“EMEA”) regions was partly negated by declines in the Asia-Pacific region (APAC). Sales remained flat year over year in the Americas while moving up 3% in the EMEA region. Segment sales dipped 1% in the APAC.
Flavor Solutions: Sales in the segment inched down 1% to $742.4 million. On a constant-currency basis, sales were flat year over year as a 1% rise in pricing was countered by the company’s strategic move to sell off its canning business. Flavor Solutions’ sales in the Americas grew 2%. Flavor Solutions’ sales in the EMEA fell by 8%. Sales in the APAC market fell 1% year over year.
What to Expect From MKC in 2024?
For fiscal 2024, McCormick is focused on strengthening its volume trends and prioritizing investments to fuel profits. The company’s CCI and Global Operating Effectiveness programs are driving growth investments and operating margin expansion. Management anticipates currency movements to have a minimal impact on 2024 results.
For 2024, management expects sales to range between a 1% decline and 1% growth, including minimal currency impacts. The company anticipates witnessing a favorable impact of pricing actions undertaken in the prior year. Volume trends are likely to improve due to solid brands and targeted investments. However, its decision to discontinue the low-margin business and sell the canning business is likely to put some pressure on volume during 2024.
Management expects adjusted operating income to grow 4-6%, including minimal currency impacts. This is likely to be driven by gross margin expansion, somewhat offset by a major rise in brand marketing investments.
Management envisions 2024 adjusted EPS in the band of $2.85-$2.90, which suggests a 5-7% increase from the year-ago period, including minimal currency impacts. On a GAAP basis, McCormick projects 2024 earnings in the range of $2.81- $2.86 per share compared with the year-ago period figure of $2.52.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -10.67% due to these changes.
VGM Scores
Currently, McCormick has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, McCormick has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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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.
