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McCormick (MKC) Looks Solid on Innovation & Saving Efforts

Zacks Equity Research

McCormick & Company MKC is a preferred pick for investors, courtesy of its robust growth strategies. The company is on track with innovations and is benefiting from initiatives to shift toward healthy product launches. Moreover, McCormick has undertaken prudent acquisitions to widen its brand portfolio. This apart, management is on track with its cost-saving plans.

On the back of these upsides, shares of the company have surged 17.8% in the past year compared with the industry’s growth of 13.1%. Further, this Zacks Rank #3 (Hold) company’s long-term earnings growth rate of 8% highlights its inherent strength.



Let’s take a closer look.

Factors Narrating McCormick’s Growth Story

McCormick regularly enhances products through innovation to stay competitive and tap into the evolving market for new flavors, spices and herbs. Moreover, health and wellness are also driving the innovation agenda. The company is well aligned with consumers’ demand for flavored healthy eating and has developed a range of natural as well as organic offerings. Also, the company has relaunched the Flavor Real platform to introduce organic, non-GMO and better-for-you products.

Moreover, McCormick — which owns more than 250 brands — continues to improve brand performances through well-chalked marketing strategies. It has also been raising spending on digital marketing. In fact, through digital marketing, the company tries to connect with consumers in a personalized way to deliver recipes, provide cooking advice and discover new products.

Additionally, continued focus on product launches is a key catalyst to McCormick’s growth. Moreover, the company enjoys strong retail acceptance for its new products, courtesy of robust brand image, which has been driving its performance for a while. In fact, new products are boosting its performance across some key market locations, such as the Americas and Asia-Pacific regions.

Further, the company has undertaken prudent acquisitions to widen its brand portfolio.  For instance, the buyout of the food division of RB Foods in August 2017 has added iconic brands like Frank's RedHot Hot Sauce and French's Mustard, French's Crispy Vegetables and Cattlemen's BBQ Sauce to its portfolio. These brands have positioned the company to expand its presence in the United States and other international markets. Management expects to continue exploring new opportunities via acquisitions, as such moves are integral to long-term growth strategies.

This apart, McCormick is focusing on saving costs and enhancing productivity through its Comprehensive Continuous Improvement (CCI) program. Notably, cost savings from CCI continued to boost adjusted operating income in the third quarter of fiscal 2019, with the metric increasing nearly 9% year on year. This, in turn, boosted the bottom line that improved year on year in the quarter. Moreover, management expects to generate savings worth $110 million in fiscal 2019, which will be utilized for enhancing margins, sponsoring growth-oriented investments and offsetting high costs.

Wrapping up

Adverse currency movements have been denting McCormick’s top and the bottom line for a while. Also, McCormick operates in the highly-competitive food industry, which is a threat to its business.

Nevertheless, we expect that prudent efforts to boost savings and brand offerings will enable the company to overcome the aforementioned hurdles. Wrapping up, we believe these upsides will continue to help the company maintain a strong footing in the food space.

Other Top Picks

Helen of Troy Limited HELE, which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 9.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Procter & Gamble Company PG, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7.5%.

e.l.f. Beauty Inc ELF, which carries a Zacks Rank #2, has a long-term earnings growth rate of 3.8%.

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