A promising portfolio combined with robust initiatives are seen to be favoring McCormick & Company, Incorporated MKC. This is evident from the stock’s 6.1% increase in the last six months, compared with the Zacks categorized Food–Miscellaneous/Diversified industry’s decline of 6.8%.
Let’s delve deeper into some of the factors that have been aiding McCormick’s performance.
A Strong Earnings History
The company has delivered positive earnings surprise in 12 of the last 14 quarters. In second-quarter 2017, adjusted earnings came in at 82 cents, gaining 9% year over year. Earnings were benefitted by higher sales, favorable operating income and cost savings but were offset by higher brand marketing and material costs and currency headwinds. The company has used its ongoing Comprehensive Continuous Improvement program to generate cost savings and enhance productivity.
In fact, these positives have led adjusted earnings to grow 2.7% and 8% on a year-over-year basis, for the first-quarter 2017 and fourth-quarter 2016, respectively.
Positive Impact of Acquisitions
McCormick has been strategically increasing its presence through acquisitions with the aim to expand its spices and seasonings portfolio. The acquisitions, which include Gourmet Garden in Apr 2016 and Enrico Giotti SpA in Dec 2016, contributed toward a 3% increase in sales during the second quarter of 2017. The company has also extended its reach in emerging markets where it has little or no distribution.
Portfolio Strength & Innovations
The company owns more than 250 brands that are sold in the domestic and international markets. In order to strengthen its portfolio, drive brand growth and augment its sales, McCormick has been undertaking brand marketing initiatives. This has enabled the company to invest more in digital marketing.
McCormick also regularly enhances its products through innovation in order to remain competitive and tap into the rising demand for new flavors, spices and herbs. These materials are fast replacing demand for sugar, salt and fat. McCormick is also partnering with the government and trade agencies to bring healthy products to consumers who are inclined toward fresh food items. Health and wellness continues to drive innovation agenda.
Negative impact of material costs and currency has been affecting the company’s performance of late. Currency headwinds of approximately 2% dented second-quarter results. These factors are likely to remain throughout fiscal 2017.
Nevertheless, McCormick is expected to overcome these challenges on the back of sustained cost savings efforts and the growth arising out of strategic acquisitions.
Given the pros and cons, McCormick currently carries a Zacks Rank #3 (Hold). The company has a long term growth rate of 9%.
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Some better-ranked stocks in the same sector include Constellation Brands, Inc. STZ and Newell Brands Inc. NWL each carrying a Zacks Rank #2 (Buy) as well as Energizer Holdings, Inc. ENR sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Constellation Brands has an average positive earnings surprise of 11.7% for the past four quarters, with a long-term earnings growth rate of 18.2%.
Newell Brands generated an average positive earnings surprise of 7.7% over the trailing four quarters and has a long-term earnings growth rate of 12.1%.
Energizer Holdings as an average positive earnings surprise of 21.6% over the trailing four quarters and has a long-term earnings growth rate of 10%.
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