Markets
CPB

McCormick (MKC) Q4 Earnings Meet, Sales Miss Estimates

McCormick & Co. Inc.MKC posted fourth-quarter 2016 results, wherein the company reported in-line earnings, but revenues lagged the Zacks Consensus Estimate.

Adjusted earnings of $1.27 per share matched the Zacks Consensus Estimate. It was 8% higher year over year, owing to higher operating income and lower share count. Further, the favorable impact of higher sales and cost savings were offset by an increase in brand marketing and material costs, and currency headwinds.

Revenues and Profits

The global leader in flavors and spices delivered fourth quarter revenues of $1.227 billion, which lagged the Zacks Consensus Estimate by 0.7%. Revenues grew about 2% from the prior-year quarter, driven by acquisitions (Gourmet Garden in Apr 2016 and Cajun Injector in Sep 2016), which improved sales by 2%. Product innovation, brand marketing support and expanded distribution along with pricing actions led to the sales growth, offsetting the negative impact of material costs and currency. Excluding currency headwinds, revenues grew 4%.

The company's adjusted operating income grew 4.7% to $225 million in the fourth quarter. On a constant currency basis, it increased nearly 6%, owing to higher sales, favorable pricing and cost savings more than offsetting material cost inflation.

McCormick & Company, Incorporated Price, Consensus and EPS Surprise

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

Segment Details

Consumer Business: Segment revenues grew 5% on a constant currency basis, driven by acquisition gains, increased volume, better product mix as well as pricing actions. Sales increased on a constant currency basis in Americas and Asia/Pacific, while it declined in Europe, Middle East and Africa (EMEA).

Adjusted operating income grew 8%, with minimal impact of currency, driven by the favorable impact of sales growth and cost savings more than offsetting the impact of higher material costs.

Industrial Business: Segment revenues increased 2% year over year on a constant currency basis in the fourth quarter, driven by higher pricing in response to higher material costs. Sales increased on a constant currency basis in all the regions of Americas and EMEA. Sales were flat in Asia/Pacific region.

On a constant currency basis, adjusted operating income declined 2% year over year, due to sales mix across regions, customers and products.

Fiscal 2016 Results

Adjusted earnings of $3.78 per share missed the Zacks Consensus Estimate of $3.79 by 0.3%. It was however 9% higher year over year, including currency headwinds.

Revenues were $4.412 billion in fiscal 2016, which marginally lagged the Zacks Consensus Estimate of $4.423 billion by 0.2%. Revenues grew about 3% from the prior year, driven by acquisitions, which improved the sales by additional 2%. Product innovation, brand marketing support and expanded distribution, as along with pricing actions led to the sales growth, offsetting the negative impact of material costs and currency. Excluding currency headwinds, revenues grew 6%.

The company exceeded $100 million in cost savings in 2016 and is on track to reach its four-year $400 million goal of cost savings by 2019.

Fiscal 2017 Guidance

The company has provided its earnings and sales growth outlook for 2017.

The company expects sales to grow approximately 3- 5% compared with 2016. Excluding the estimated impact of unfavorable currency rates, the projected growth rate is 5-7%. The company expects higher brand marketing, new products, expanded distribution and acquisitions to contribute to this growth rate.

The company has plans to achieve approximately $100 million of cost savings.

The company expects 2017 adjusted operating income to grow approximately 8-10% from adjusted operating income of $657 million in 2016. In constant currency, adjusted operating income is expected to grow 9-11%.

McCormick expects 2017 adjusted earnings in a range of $4.05 to $4.13 per share, which marks an increase of 7-9% compared with $3.78 in 2016. The guidance also includes unfavorable currency headwinds of 2 percentage points. The Zacks Consensus Estimate for fiscal 2017 stands at $4.12 per share, which is at the higher end of the guidance.

Our Take

Overall, McCormick is focusing on building sales through acquisitions, and expects strong sales momentum to continue in fiscal 2017. Its cost saving initiative is also appealing. The company expects currency headwinds to continue in 2017. However, earnings growth might get hurt by higher brand marketing expenses.

If we look into past one year's performance, McCormick's shares have outperformed the Zacks categorized Consumer Staples sector. The stock increased 13.6% in comparison to the sector's growth of just 5.7%. The broader Consumer Staples sector is placed at the bottom most of the Zacks Classified sectors (16 out of 16).

Zacks Rank

Currently, McCormick carries a Zacks Rank #4 (Sell).

Better-ranked consumer staple companies include B&G Foods, Inc. BGS , Campbell Soup Company CPB and ConAgra Foods, Inc. CAG .

B&G Foods has an average positive earnings surprise of 12.16% in the trailing four quarters and also has a long-term earnings growth rate of 8.00%, while Campbell Soup Company and ConAgra Foods have a long-term earnings growth rate of 5.56% and 8.00%, respectively. All of them carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Zacks' Top Investment Ideas for Long-Term Profit

How would you like to see our best recommendations to help you find today's most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>

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

ConAgra Foods Inc. (CAG): Free Stock Analysis Report

Campbell Soup Company (CPB): Free Stock Analysis Report

B&G Foods, Inc. (BGS): Free Stock Analysis Report

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

To read this article on Zacks.com click here.

Zacks Investment Research

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


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

In This Story

CPB CAG BGS MKC

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More