Update on McCormick's Long-Term Plans


McCormick & Co. Inc. (MKC) recently discussed its growth strategies and updated its long-term financial objectives at the annual conference of the Consumer Analyst Group of New York (:CAGNY).

The leader in spices and flavors stated that it will continue to target long term growth rates of 4-6% in sales, 7-9% in operating income and 9-11% in earnings per share. In addition, the company expects to continue to generate strong cash flow and boost shareholder value through dividends and share buybacks.

The company also maintained its financial expectations for fiscal year 2014 at the CAGNY conference. For full year 2014, McCormick expects its sales to increase in the range of 3% to 5%, driven by higher volume, pricing and the incremental impact of the Wuhan Asia-Pacific Condiments Co. Ltd. (:WAPC) (acquired in May 2013). The company projected adjusted operating income growth rate in the range of 6% to 8%.

Based on this outlook for operating income growth, McCormick expects 2014 earnings in the range of $3.22 to $3.29, an increase of 3% to 5% from adjusted earnings per share of $3.13 in 2013. This includes the impact of a significant increase in 2014 tax rate when compared to 2013.

Recently, the company delivered fourth quarter 2013 adjusted earnings of $1.20 per share, beating the Zacks Consensus Estimate by a penny. In fact, the company has beaten estimates in three out of the last four quarters, while meeting estimates in one quarter. Earnings increased 8% from the year-ago figure on the back of higher adjusted operating income, lower interest expense and lower share count in the quarter.

Total revenue of $1.17 billion lagged the Zacks Consensus Estimate of $1.215 billion due to weak demand from quick service restaurants in the Americas. However, it grew 2% year over year from $1.146 billion, primarily driven by favorable pricing and sales of WAPC.

We are encouraged by the company’s ability to reach customers worldwide owing to the rising demand for its flavors.  McCormick is also expanding its footprint in the emerging markets, owing to the growing demand for branded packaged spices. McCormick also believes in growing sales through brand marketing investments, innovation and acquisitions.

The company’s Comprehensive Continuous Improvement (CCI) program is expected to yield annual cost savings of at least $45 million for 2014. McCormick currently holds a Zacks Rank #4 (Sell).

Better-ranked stocks in the consumer staples sector include Post Holdings Inc. (POST), J&J Snack Foods Corp. (JJSF) and Hain Celestial Group Inc (HAIN), all of which carry a Zacks Rank #2 (Buy).

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