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McCormick Glimmers on Savings & Portfolio Boosting Efforts

Zacks Equity Research

McCormick & Company, Inc MKC, a renowned name in spices and condiments, is quite an attractive pick for investors. Well, this Zacks Rank #2 (Buy) stock has gained 10.5% in the past three months compared with the industry’s rise of 7%. Let’s take a look at some of the key aspects driving the company.

Savings Strategies: Key Catalyst

McCormick focuses on saving costs and enhancing productivity through the ongoing Comprehensive Continuous Improvement (CCI) program. Initiated in 2009, the program has enabled the company to focus on reducing costs and enhancing productivity. It has used CCI savings to increase investments, which has led to higher sales and profits. Cost savings through CCI and streamlining actions reached a record of $118 million in fiscal 2018, up from $117 million in fiscal 2017, $109 million in fiscal 2016, $98 million in 2015 and $69 million in 2014. Notably, cost savings from CCI boosted adjusted operating income in the first quarter of fiscal 2019.

Going ahead, McCormick expects to keep gaining from its saving efforts. In fact, the company expects cost savings worth $110 million in fiscal 2019. Savings from the program are likely to aid a 25-75 bps growth in gross profit margin.



Efforts to Broaden Portfolio  

McCormick regularly enhances products through innovation to stay competitive and cater to the evolving demand for new flavors, spices as well as herbs. Aided by a sturdy brand image, McCormick enjoys strong retail acceptance for its new products. Notably, in the first quarter of fiscal 2019, the top line gained from new products along with advancement in the base business. In fact, during the said quarter, new products boosted performance across some key market locations of the company.

Further, McCormick has a strong pipeline of product launches for fiscal 2019. Markedly, in February 2019, the company entered into a partnership with IBM to boost artificial intelligence capabilities surrounding new product development. Health and wellness also continue to drive the innovation agenda. In sync with this, it has relaunched the Flavor Real platform to introduce organic, non-GMO and better-for-you products.

Acquisitions are also a key element toward boosting the company’s portfolio strength. Markedly, the buyout of the food division of RB Foods in August 2017 is its largest deal till date. With iconic brands like Frank's RedHot Hot Sauce and French's Mustard, French's Crispy Vegetables and Cattlemen's BBQ Sauce, RB Foods is expected to continue being an asset for McCormick’s spices portfolio. Some of the other noteworthy acquisitions of the company are Italy-based Enrico Giotti SpA as well as Australia-based Botanical Food Company.

Wrapping Up

The aforementioned efforts have aided McCormick in developing a strong base business, which have been driving year-on-year growth in earnings and revenues for a while. That said, we expect the company to continue maintaining a strong footing in the food space.

Interested in Consumer Staples Stocks? Check These

Estee Lauder EL, with a long-term earnings per share (EPS) growth rate of 12.5%, sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

United Natural Foods, Inc UNFI has a long-term EPS growth rate of 7.4% and holds a Zacks Rank #2 (Buy) at present.

General Mills, Inc. GIS, also with a Zacks Rank #2, has long-term EPS growth rate of 7.5%.

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