McCormick Shares Rise on Solid Q3 Earnings & Raised View
Share price of McCormick & Co. Inc. (MKC) rose 1.5% since the company delivered better-than-expected earnings and revenues in the third quarter of fiscal 2014 on Oct 2. The company also raised its earnings outlook for 2014.
Earnings of 94 cents per share beat the Zacks Consensus Estimate of 81 cents by 16% and increased 21% from the year-ago earnings of 78 cents per share. Top-line growth, cost saving initiative, higher operating income, higher income from unconsolidated operations and lower tax rate contributed to earnings in the quarter. Lower shares outstanding owing to share buybacks also contributed to the bottom line.
Revenues and Profits
The global leader in flavors and spices posted revenues of $1,042.8 million in the quarter, which grew 3% year over year. On a local currency basis, sales increased 2%.
Both the consumer and industrial business segments witnessed positive results in the quarter, aided by the company’s product innovation, brand building and distribution program. Sales marginally exceeded the Zacks Consensus Estimate of $1032 million by 1%.
Adjusted operating income improved 7.5% to $159.6 million driven by higher sales in both the segments and cost savings from McCormick's Comprehensive Continuous Improvement (CCI) program.
Segment Details
Consumer Business: Segment revenues increased 2% to $621.9 million, mainly driven by higher pricing offset by a decline in volume and product mix. On a local currency, it increased 1%. Sales increased in the geographic regions of Europe, Middle East and Africa (:EMEA) and Asia/Pacific.
Sales, however, declined 1% in the Americas, mainly due to shift in sales which lowered consumer segment sales by 5%. However, the company made good progress with its growth initiatives that drove sales of grilling products, recipe mixes and a number of new products. Higher pricing also favorably impacted the quarter. Going ahead, the company anticipates strong customer response in its upcoming holiday season. Also, the shift in sales are expected to positively impact the fourth quarter 2014.
Operating income of the segment was $122 million, 3% higher than the prior-year quarter, due to favorable impact of higher sales and CCI cost savings offset by increase in brand marketing expenses.
Industrial Business: Segment revenues grew 4% year over year to $420.9 million in the third quarter of fiscal 2014. Sales increased 3% on a local currency basis owing to higher volumes, pricing and favorable product mix. In the industrial business, higher sales were led by the EMEA and Americas regions. Asia/Pacific region, however, witnessed a decline in the quarter due to the on-going weakness in demand from quick service restaurants.
Operating income of this segment shot up 26% in the quarter to $38 million. The upside was driven by higher sales, CCI cost savings and increased margins within the product portfolio..
Fiscal 2014 Guidance
McCormick raised its outlook for adjusted earnings per share to $3.30 to $3.37 per share, higher than the prior range of $3.22 to $3.29 per share, based on the favorable tax rate recorded in the third quarter 2014. This marks an increase of 5.4% to 7.7% from adjusted earnings per share of $3.13 in 2013.
The company continues to expect sales to increase in the range of 3% to 5%, with rapid growth in the international markets. For the upcoming holiday season, the company will re-launch the premium gourmet line in the U.S. The company also plans to increase its brand marketing support to at least 15% from the fourth quarter of 2013. The company expects to achieve at least $50 million in CCI cost savings during 2014 versus prior expectation of at least $45 million.
McCormick currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the food industry include Aramark (ARMK), The Hain Celestial Group, Inc. (HAIN) and Pinnacle Foods Inc (PF). While Aramark sports a Zacks Rank #1 (Strong Buy), Hain Celestial and Pinnacle Foods hold a Zacks Rank #2 (Buy).
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