McCormick Up 6% in 3 Months, Cost-Saving Efforts Add Sheen

McCormick & Company, Incorporated MKC, a renowned spices and condiments company, is in investors’ good books. This Zacks Rank #3 (Hold) company has gained 6.4% in the past three months compared with the industry’s rise of 1.1%. Prudent saving efforts and initiatives to strengthen brands have been favoring the company. However, adverse currency movements are a threat. Let’s take a look.

CCI Plan & Other Growth Moves

McCormick focuses on saving costs and enhancing productivity through the Comprehensive Continuous Improvement (CCI) program. The company is utilizing CCI savings to increase investments, which is driving sales and profits. Notably, cost savings from CCI boosted adjusted operating income in the first, the second and the third quarter of fiscal 2019. Going ahead, McCormick continues to expect gaining from its saving efforts. In fact, the company projects cost savings worth $110 million in fiscal 2019, which will be utilized for enhancing margins, sponsoring growth-oriented investments and offsetting high costs.

Additionally, strong brands are a key catalyst to McCormick’s growth. The company has undertaken prudent acquisitions to widen the portfolio.  The buyout of the food division of RB Foods has added iconic brands like Frank's and French's to its portfolio. These brands have positioned the company in the leading U.S. condiments category and placed it well for international expansion. Some of the other noteworthy acquisitions are Enrico Giotti SpA and Botanical Food Company. Going forward, management expects to continue exploring acquisition opportunities as such moves are integral to the company’s long-term growth strategies.

McCormick regularly enhances products through innovation to stay competitive and tap into evolving demand for new flavors, spices and herbs. Notably, the company’s performance in the first, the second and the third quarter of fiscal 2019 gained from new products along with advancement in the base business. In fact, new products are boosting the company’s performance across some key market locations, such as the Americas and Asia-Pacific regions. The company is also on track to boost marketing support for existing and new brands.

Can Upsides Cushion Currency Woes?

Adverse currency movements were a drag on McCormick’s top and the bottom line in the first, the second and the third quarter of fiscal 2019. Earlier, management had predicted that such headwinds will affect net sales, adjusted operating income and the bottom line in fiscal 2019.

Nevertheless, we expect the company’s prudent efforts to boost savings and brand offerings to provide sufficient cushion to adversities stemming from currency volatility. Wrapping up, we believe these upsides to continue aiding the company in maintaining strong footing in the food space.

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