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What You Should Know Before McCormick (MKC) Q2 Earnings

Zacks Equity Research

McCormick & Company, Incorporated MKC is slated to report second-quarter fiscal 2017 results on Jun 29 before the opening bell. The company’s earnings have outpaced the Zacks Consensus Estimate in 12 of the last 14 quarters, with an average beat of 3.1% for the trailing four quarters.

In fact, the current Zacks Consensus Estimate for the quarter under review has been stable in the last 30 days. The estimate currently pegged at 77 cents reflects about 2% growth from the year-ago quarter. Analysts polled by Zacks expect revenues of $1,099 million, up 3.4% from the prior-year period. Well, the obvious question that comes to mind is that will McCormick be able to pull off positive earnings surprise in the to-be-reported quarter.

Let’s delve deeper and see how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model shows that McCormick is unlikely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

McCormick & Company, Incorporated Price and Consensus

McCormick & Company, Incorporated Price and Consensus | McCormick & Company, Incorporated Quote

McCormick has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 77 cents. Also, the company has a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Factors Influencing the Quarter

McCormick has a strong brand portfolio and regularly innovate its products in order to remain competitive and tap the rising demand for new flavors. Moreover, the company continues to improve its brands through increased brand marketing to boost sales.

We note that McCormick’s focus on building sales through buyouts has been driving earnings for the last many quarters now.  Evidently, the company completed the acquisition of Italy-based Enrico Giotti SpA (Giotti) in Dec 2016 and Australia-based Botanical Food Company in Apr 2016. These acquisitions have boosted McCormick’s business and strengthened its portfolio.

Furthermore, McCormick’s focus on saving costs and enhancing productivity through its ongoing Comprehensive Continuous Improvement (CCI) program seems encouraging. Going forward, management expects cost savings of roughly $100 million in fiscal 2017 and is on track to achieve its $400 million target by 2019. With these cost savings and higher sales, the company expects to grow adjusted operating income 9% to 11% in constant currency for fiscal 2017, which is ahead of the company’s long-term objective of 7% to 9%.

Driven by these strategies, shares of McCormick have outperformed the Zacks categorized Food – Miscellaneous/Diversified industry in the last six months. The stock has gained 7.2% against the industry’s decline of 4.1%.

However, McCormick’s top line has missed the Zacks Consensus Estimate for the last two quarters. Also, the company expects earnings in the fiscal second quarter to be slightly down from the year-ago period due to higher taxes and greater marketing costs. Furthermore, the impact of unfavorable currency exchange rates is expected to be particularly high in the fiscal second quarter of 2017. Higher material costs and unfavorable currency also remain concerns for the company.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Tupperware Brands Corporation TUP has an Earnings ESP of +0.83% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cott Corporation COT has an Earnings ESP of +6.25% and a Zacks Rank #3.

Philip Morris International Inc. PM has an Earnings ESP of +2.44% and a Zacks Rank #3.

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