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Will McCormick (MKC) Q3 Earnings Beat on Acquisitions?

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We expect McCormick & Co., Inc.MKC to beat expectations when it reports fiscal third-quarter 2015 results before the opening bell on Oct 1.

Last quarter, this global leader in spices and flavors delivered a positive surprise of 10.29%. In fact, McCormick has delivered positive surprises in the last four quarters, translating to an average positive surprise of 9.68%.

Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that McCormick is likely to beat earnings this quarter because it has the right combination of two key ingredients.

Positive Zacks ESP:Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.15%. This is meaningful and a leading indicator of a likely positive earnings surprise.

Zacks Rank: McCormick carries a Zacks Rank #3 (Hold), which when combined with +1.15% ESP makes us confident about an earnings beat.

Note that stocks with a Zacks Rank #1, #2 or #3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

What is Driving the Better-Than-Expected Earnings?

McCormick has been witnessing rising demand for spices, herbs and seasonings over the last few years. Further, its focus on building sales through brand marketing investments and acquisitions has been driving its earnings. So far this year, the company has acquired Austin, TX - based One World Foods, Inc., the seller of Stubb's barbeque sauces (Stubb's) in August, Drogheria & Alimentari (D&A) in May and Brand Aromatics in March . The company expects its recent acquisitions to boost revenues in the soon-to-be reported quarter.

Further, McCormick has also been regularly launching new products in order to remain competitive. Its increasing focus on higher pricing and cost savings and enhancing productivity through its ongoing initiative, the Comprehensive Continuous Improvement ('CCI') program is also encouraging. The company expects to report cost savings through CCI of at least $65 million in 2015, well above the $50 million target in 2014.

However, sluggish industrial segment sales due to continued slowdown in demand from quick service restaurants in the Americas and the Asia-Pacific region remain a concern. Currency headwinds and higher input costs continue to remain concerns in the to-be reported quarter.

Other Stocks to Consider

Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Flower Foods, Inc. FLO with an Earnings ESP of +4.17% and a Zacks Rank #2 (Buy).

Cott Corporation COT with an Earnings ESP of +44.44% and a Zacks Rank #2.

Constellation Brands, Inc. STZ with an Earnings ESP of +3.05% and a Zacks Rank #3.

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CONSTELLATN BRD (STZ): Free Stock Analysis Report

MCCORMICK & CO (MKC): Free Stock Analysis Report

FLOWERS FOODS (FLO): Free Stock Analysis Report

COTT CORP QUE (COT): Free Stock Analysis Report

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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.


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

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