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Will McCormick Keep Dazzling on Strong Brands & Saving Plans?

Zacks Equity Research

McCormick & Company, Inc MKC appears to be an attractive pick for investors, courtesy of prudent efforts to enhance portfolio and boost savings. This renowned spices and condiments company’s shares have gained 18.9% in the past six months compared with the industry’s rise of 6.8%. Let’s take a look at some of the key aspects driving this Zacks Rank #3 (Hold) stock.

CCI Program to Drive Savings

McCormick focuses on saving costs and enhancing productivity through its ongoing Comprehensive Continuous Improvement (CCI) program. Savings through this program and other streamlining actions reached $118 million in fiscal 2018. Moreover, savings from the program aided operating income growth during the first and the second quarter of fiscal 2019.

Going ahead, the company continues to expect gaining from such efforts, which is likely to fuel overall profits. For fiscal 2019, the company expects cost savings worth $110 million, which is likely to aid a 25-75 basis points (bps) growth in gross profit margin.

Effective Moves to Boost Portfolio

Strong brands are a key catalyst to McCormick’s growth. Moreover, the company is strategically increasing its presence in the food space through acquisitions. The buyout of the food division of RB Foods has added iconic brands like Frank's and French's to McCormick’s portfolio. These brands have positioned the company in the leading U.S. condiments category and placed it well for international expansion.

Some of the other noteworthy acquisitions of the company are Italy-based Enrico Giotti SpA and Australia-based Botanical Food Company. These takeovers have also augmented portfolio strength. Going forward, management expects to continue exploring acquisition opportunities as such moves are vital part of the company’s long-term growth strategies.

Additionally, the company enhances portfolio offerings through innovation to stay competitive and tap into the evolving demand for new flavors, spices and herbs. Aided by a sturdy brand image, McCormick enjoys strong retail acceptance for its new products.

Further, McCormick has a strong pipeline of product launches for fiscal 2019. New launches are primarily concentrated in categories such as street tacos and meal seasonings. The company is also on track to boost marketing support for existing and new brands. 

Wrapping up, such well-chalked efforts have enabled McCormick to develop a strong base business. Moreover, we expect that the company’s portfolio strength along with moves to bolster savings will help in offsetting woes like adverse currency fluctuations. That said, we expect the company to maintain a strong footing in the food space.

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