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McCormick (MKC) Benefits From Prudent Buyouts & Innovations

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Prudent acquisitions and solid product innovations have been working favorably for McCormick & Company, Incorporated MKC. The company is focusing on effective saving initiatives. Apart from this, McCormick is benefiting from rising demand stemming from consumers’ elevated at-home consumption, in spite of leniency in pandemic-induced restrictions. That said, impressive recovery from away-from-home customers is also yielding.

Factors Working for McCormick

McCormick has strategically increased its presence through acquisitions to expand portfolio. In December 2020, McCormick announced that it has bought 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio will help McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. McCormick believed that the buyout of Cholula will boost growth potential across the condiment platform and broaden the hot sauce category. Management, in its call, highlighted that it expects sales contributions from both the aforementioned buyouts at the high end of 3.5-4% rangein fiscal 2021.

The company is on track to make investments and expand its infrastructure worldwide. McCormick is investing in its supply chain to enhance capacity and capabilities. Management, in its last earnings call, highlighted that it is increasing the condiment and seasoning capacity. It is on track to optimize its distribution network for the new Northeast U.S. distribution center. The company is progressing toward the completion of its U.K. Flavor Solutions manufacturing facility.

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McCormick regularly enhances products through innovation to remain competitive and tap the evolving demand for new flavors, spices and herbs. Aided by a sturdy brand image, it enjoys strong retail acceptance for new products and is gaining from momentum arising from recent product launches. The company is on track to augment robust marketing support for its products. Apart from this, management remains well aligned with consumer demand for flavorful healthy eating and developed a range of natural and organic offerings.

Will Hurdles be Countered?

McCormick has been grappling with higher costs stemming from the coronavirus outbreak. Management expects to incur pandemic-related costs of nearly $60 million in fiscal 2021. In fiscal second-quarter earnings call, management highlighted that it is witnessing broad-based inflation across several commodities, packaging materials and transportation costs.

That being said, we believe that focus on cost savings along with aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company tide over such hurdles. The company is committed toward saving costs and enhancing productivity through the Comprehensive Continuous Improvement (“CCI”) program. McCormick achieved cost savings of $113 million in fiscal 2020, courtesy of the CCI program. It will likely achieve CCI-led cost savings of nearly $110 million in fiscal 2021.

McCormick’s stock has increased 4.7% in the past six months against the industry’s decline of 1.5%.

Some Better-Ranked Food Picks

Darling Ingredients Inc. DAR, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 39.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. MED, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 16%, on average.

Sysco Corporation SYY, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 13.3%, on average.


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