McCormick & Company, Incorporated MKC has seen its shares rally 18.3% in the past year, surpassing the industry’s growth of 4.9% as well as the Zacks Consumer Staples sector’s increase of 7.4%. This performance stems from the company’s solid strategic initiatives, which have helped it bolster its position in key markets and core categories.
Let’s take a closer look at the company’s drivers and see if it can continue its growth story.
Strategic Initiatives Driving MKC’s Growth
McCormick’s strategic investments in innovation and distribution expansion are yielding positive results. The company continues to bolster its position across major markets and core categories by focusing on growth levers such as brand marketing, product and packaging innovation, category management and proprietary technology. This innovation-led growth strategy aligns with McCormick’s long-term goal of capturing increased market share in high-growth segments. Apart from this, the company expects its cost-saving initiatives to help fund future investments and drive operating margin expansion.
The company’s year-to-date results, combined with strategic growth plans, reinforce confidence in achieving the mid-to-high range of projected sales growth for 2024, per the third-quarter fiscal 2024 earnings release.
McCormick focuses on saving costs and enhancing productivity through its Comprehensive Continuous Improvement (CCI) program. Starting in 2009, McCormick’s CCI program helped the company to reduce costs and improve productivity. It has used CCI savings to increase investments, leading to higher sales and profits. The company’s third-quarter fiscal 2024 gross profit margin expanded 170 basis points (bps). The upside can be attributed to the improved mix and cost savings from the CCI program.
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 GOE are driving growth investments and operating margin expansion. Management expects adjusted operating income to grow 4%-6% in fiscal 2024, including minimal currency impacts. This is likely to be driven by gross margin expansion, somewhat offset by a major rise in brand marketing investments. The company 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.
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McCormick Sees Volume Recovery in Key Markets
McCormick achieved a significant milestone by delivering overall global positive volume growth in the third quarter of fiscal 2024, indicating improving trends across both business segments. In the Consumer segment, the company recorded solid volume growth despite facing a challenging macroeconomic environment in China. Meanwhile, in the Flavor Solutions segment, sequential volume improvements were realized, driven by strong growth in Branded Foodservice.
Specifically, McCormick delivered 1% volume growth in constant currency across both the Consumer and Flavor Solutions segments, signaling a recovery from prior stagnation. This rebound highlights McCormick’s ability to navigate complex macroeconomic conditions, driven by improvements in key regions like the Americas and EMEA. In the Americas, this marks the third consecutive quarter of volume growth, with particular strength in spices, seasonings and recipe mixes. In the Asia-Pacific region, McCormick’s new consumer-preferred packaging for core spices and seasonings has driven further growth outside of China, showcasing the effectiveness of its product innovation strategies.
The return to volume-led growth is critical for McCormick’s long-term objectives of maintaining its leadership in the flavor industry and gaining market share. Management expects this positive momentum to carry into the fourth quarter.
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, the company’s decision to discontinue the low-margin business and sell the canning business, though crucial for the long run, is likely to put some pressure on volume during 2024.
Final Words on MKC
McCormick has positioned itself well to navigate challenging macroeconomic conditions and continue its recovery in volume growth across key regions. With the momentum seen in its third-quarter results, the company remains optimistic about achieving its fiscal 2024 targets, despite some near-term volume pressures from portfolio adjustments. As it leverages its CCI and GOE programs to fuel long-term profitability, McCormick appears well-equipped to sustain its leadership in the flavor industry and capture further market share. The company currently flaunts a Zacks Rank #2 (Buy).
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