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McCormick (MKC) Gains on Pandemic-Led Demand, Saving Efforts

Zacks Equity Research
·3 mins read

McCormick & Company MKC looks well placed on the back of its robust growth strategies. In this regard, the company is gaining from its product innovations. Also, McCormick’s effective costs saving efforts and acquisitions are yielding. Apart from these, the company is witnessing higher demand in the Consumer segment stemming from escalated at home consumption and cooking more at home amid the coronavirus pandemic.

Notably, shares of the company have gained 19.7% on a year-to-date basis against the industry’s decline of 0.7%. Let’s discuss the factors that are likely to keep driving the company’s growth.

Factors Narrating McCormick’s Growth Story

McCormick regularly enhances products through innovation to remain competitive and tap evolving demand for new flavors, spices and herbs. Aided by a sturdy brand image, the company enjoys strong retail acceptance for its new products. New and renovated products drove the company’s performance during the second quarter of fiscal 2020. In June, McCormick re-launched its Old Bay hot sauce. The company plans to expand its Frank’s brand portfolio to offer frozen appetizers, chicken bites and dips later this year.


 

McCormick focuses on product launches to boost revenue prospects. In February 2019, McCormick entered into a partnership with IBM to boost artificial intelligence capabilities surrounding new product development. Additionally, the company is on track to augment robust marketing support for its products. Management is well aligned with consumer demand for flavorful healthy eating and has developed a range of natural as well as organic offerings. In this regard, the company’s Flavor Real platform offers organic, non-GMO and gluten free products.

Further, McCormick is focused on saving costs and enhancing productivity through its ongoing Comprehensive Continuous Improvement (“CCI”) program. Started in 2009, the CCI program has helped the company reduce costs and enhance productivity. Cost savings from CCI boosted gross margin, which expanded 230 basis points to 41.4% in the fiscal second quarter.

Apart from these, McCormick strategically increased its presence through acquisitions to strengthen its spices and seasonings portfolio. The company’s acquisition of the food division of RB Foods (concluded in August 2017) is noteworthy. With iconic brands like Frank’s RedHot, French’s and Cattlemen’s, RB Foods is likely to continue being a profitable asset for McCormick’s flavor portfolio. These brands position the company in the leading U.S. condiments category and place it well for international expansion.

Wrapping up

The company’s Flavor Solution segment is witnessing sluggishness thanks to coronavirus-induced hurdles. Moreover, adverse impacts of unfavorable foreign currency movements cannot be ignored.

Nevertheless, the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company to stay in investors’ good books.

3 Solid Food Stocks

TreeHouse Foods THS, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

B&G Foods BGS, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 6.9%, on average.

Flowers Foods FLO, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 8.2%, on average.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

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Today, See These 5 Potential Home Runs >>


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McCormick Company, Incorporated (MKC) : Free Stock Analysis Report
 
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Zacks Investment Research