What Awaits McCormick (MKC) as It Queues for Q3 Earnings?
McCormick & Company, Incorporated MKC is likely to register top-line growth when it reports third-quarter fiscal 2023 earnings on Oct 3. The Zacks Consensus Estimate for revenues is pegged at $1.7 billion, suggesting a rise of about 6% from the prior-year quarter’s reported figure.
The consensus mark for quarterly earnings has remained unchanged in the past 30 days at 65 cents per share, implying a decline of 5.8% from the year-ago quarter’s reported figure. McCormick has a trailing four-quarter earnings surprise of 4.2%, on average.
Factors to Note
McCormick has been grappling with cost inflation for a while now. In the second quarter of fiscal 2023, the adjusted gross margin was partly hurt by escalated cost inflation. Further, SG&A expenses increased year over year due to elevated employee incentive compensation expenses and increased distribution costs.
McCormick also witnessed a spike in brand marketing costs in the second quarter. It expects an even greater year-over-year rise in brand marketing costs in the third quarter, which is likely to increase the company’s SG&A expenses.
Moreover, MKC anticipates a significant rise in interest expenses in fiscal 2023. It expects interest expenses in the band of $200-$210 million in 2023, which is likely to be spread evenly throughout the year. Interest-related items are likely to dent bottom-line growth by 800 basis points in 2023. In 2023, management also expects its adjusted effective tax rate (of 22%) to serve as a 100-basis point headwind to the company’s earnings growth. These factors raise concerns for the third quarter.
However, a focus on saving costs and enhancing productivity through the company’s ongoing Comprehensive Continuous Improvement (“CCI”) program and the Global Operating Effectiveness (“GOE”) program bodes well. McCormick expects savings from its GOE program to scale up as fiscal 2023 progresses. It expects savings from the GOE program to have an 800-basis point impact on adjusted operating profit growth in fiscal 2023.
Savings from the CCI program are likely to be $85 million in fiscal 2023. Such cost savings, coupled with effective pricing actions, are likely to have worked well for the company in the quarter under review. Additionally, brand strength, backed by innovation and acquisitions, has been a driver.
What the Zacks Model Unveils
Our proven model doesn’t conclusively predict an earnings beat for McCormick this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here.
McCormick carries a Zacks Rank #4 (Sell) and has an Earnings ESP of -1.02%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks With the Favorable Combination
Here are three companies worth considering as our model shows that these have the correct combination to beat on earnings this time.
Flowers Foods FLO currently has an Earnings ESP of +1.54% and carries a Zacks Rank #2. The company is likely to register top-line growth when it reports second-quarter fiscal 2023 numbers. The Zacks Consensus Estimate for FLO’s quarterly revenues is pegged at $1.2 billion, indicating a jump of 5.2% from the figure reported in the prior-year quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Flowers Foods’ quarterly earnings per share of 28 cents suggests a drop of 6.7% from the year-ago quarter’s levels. FLO has a trailing four-quarter earnings surprise of 7.6%, on average.
Lamb Weston LW currently has an Earnings ESP of +4.24% and a Zacks Rank of 2. LW is likely to witness top-and-bottom-line growth when it reports first-quarter fiscal 2024 results. The Zacks Consensus Estimate for quarterly earnings is pegged at $1.08 per share, suggesting a 44% rise from the year-ago fiscal quarter’s reported number.
The consensus estimate for Lamb Weston’s quarterly revenues is pegged at $1.6 billion, implying a 41.2% increase from the figure reported in the prior-year fiscal quarter. LW delivered an earnings beat of 44.8%, on average, in the trailing four quarters.
Hershey HSY currently has an Earnings ESP of +2.21% and a Zacks Rank #3. The company is likely to register a top-and-bottom-line increase when it reports third-quarter 2023 numbers. The Zacks Consensus Estimate for the quarterly earnings per share of $2.48 suggests a 14.3% rise from the figure reported in the year-ago quarter.
The Zacks Consensus Estimate for Hershey’s quarterly revenues is pegged at about $3 billion, calling for growth of 9.2% from the figure reported in the prior-year quarter. HSY has a trailing four-quarter earnings surprise of 8.9%, on average.
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Hershey Company (The) (HSY) : Free Stock Analysis Report
McCormick & Company, Incorporated (MKC) : Free Stock Analysis Report
Flowers Foods, Inc. (FLO) : Free Stock Analysis Report
Lamb Weston (LW) : Free Stock Analysis Report
