McCormick (MKC) Tops Q4 Earnings Estimates, Issues '18 View
McCormick & Co. Inc. MKC posted solid fourth-quarter fiscal 2017 results, with earnings and revenues outpacing the Zacks Consensus Estimate and improving year over year. The quarterly performance was mainly driven by synergies from acquisitions, strong marketing and pricing actions as well as efforts to expand distribution network. Encouraged by the impressive results, management provided an upbeat outlook for fiscal 2018.
McCormick’s steady business expansion and savings initiatives have also been boosting investor confidence. Shares of the company have gained almost 6% in the past year, against the industry’s decline of 1.9%.
Adjusted earnings of $1.54 per share beat the Zacks Consensus Estimate of $1.52. Adjusted earnings were also 21.3% higher year over year owing to increased gross profit and operating income. Further, the bottom-line results were aided by higher sales and cost savings.
McCormick & Company, Incorporated Price, Consensus and EPS Surprise
McCormick & Company, Incorporated Price, Consensus and EPS Surprise | McCormick & Company, Incorporated Quote
Revenues and Profits
In the quarter under review, the global leader in flavors and spices generated revenues of approximately $1,491 million, exceeding the Zacks Consensus Estimate of $1,476 million. Revenues grew about 21.5% from the prior-year quarter, including a favorable 1% impact from currency. Encouragingly, the acquisitions of Reckitt Benckiser Group (RB Foods) and Enrico Giotti SpA drove sales by 15%. On a constant currency basis, sales grew 20%.
Top-line results were also buoyed by strong growth in the base business and new product additions. Revenues also benefitted from strong marketing initiatives, augmented distribution network and efficient pricing actions for offsetting material cost inflation. Sales growth in the quarter was broad-based, with improvement in the consumer and industrial segments.
Gross profits in the fourth quarter went up 23.7% to $668.2 million. Gross margin expanded 80 basis points (bps) from the prior-year figure, primarily gaining from the company’s shift to more value-added products and savings from the CCI program. The positives were partially offset by transaction expenses stemming from the RB Foods acquisition. Adjusted gross profit in the quarter rose 26.4% to $683.2 million, while adjusted gross margin increased 180 bps from the year-ago figure.
Adjusted operating income grew 36.4% to $307.4 million in the quarter under review. On a constant currency basis, operating income increased 36%.
Segment Details
Consumer Business: Revenues grew 19.9% to $978.3 million. On a constant currency basis, sales improved 18%, primarily driven by growth in the Americas, EMEA and the Asia/Pacific regions.
Solid performance in the Americas was driven by the acquisition of RB Foods as well as strong pricing, new products and expanded distribution. Sales in the EMEA region gained from the RB Foods buyout as well as efficient pricing and higher sales volumes of the branded products. Further, sales in the Asia/Pacific region were driven by growth in India and China.
Operating income grew 28% at constant currency, buoyed by sales growth and cost savings, which more than offset the impact of higher material costs and brand marketing expenses.
Industrial Business: Sales grew 24.6% from the prior-year quarter to $512.6 million. On a constant currency basis, sales increased 23% on improved performance across all three regions.
Meanwhile, sales in the Americas were led by higher sales of seasonings, savory flavored products and continued growth momentum in branded foodservice. Incremental sales from RB Foods were also witnessed in the region.
Sales in the EMEA region were mainly driven by the Giotti acquisition. Additionally, sales to both quick-service restaurants and packaged food companies increased in the quarter. Industrial sales in the Asia/Pacific region rose on strong results in China, stemming from product launches and promotional activities at quick-service restaurants.
Operating income rose 70% year over year, driven by favorable impact of higher sales, product mix and savings initiatives, which more than offset the unfavorable impact of higher material costs. The segment witnessed a minimal impact from currency in the quarter.
2017 Results
McCormick’s sales in fiscal 2017 increased 9.6% from the prior year to $4,834 million, courtesy of the Giotti, RB Foods and Gourmet Garden acquisitions. Sales also gained from expansion in base businesses, product introductions, augmented distribution channels and efficient pricing actions to offset the rise in material costs. At constant currency, sales grew 10%.
Gross profit in the year increased 9.8% to $2,010.2 million. Adjusted operating income came in at $786 million, reflecting growth of 19.6% from a year ago. On a constant currency basis, adjusted income went up 21%.
Financial Update
McCormick exited the quarter with cash and cash equivalent of $186.8 million, long-term debt of $4.4 billion and shareholders’ equity of $2.6 billion.
During fiscal 2017, net cash flow from operations was $815 million, up almost 24% from the prior year on solid improvement in working capital.
We note that the company had announced an 11% hike in quarterly dividend last November.
Fiscal 2018 Guidance
The company expects sales to grow approximately 12-14% in fiscal 2018, mainly driven by improved business performance stemming from acquisitions. Brand marketing efforts and product launches are expected to aid sales. Additionally, the company expects low-single digit increase in material costs. These are anticipated to be offset by efficient pricing action.
Earnings for fiscal 2018 are expected in the range of $4.80 to $4.90, reflecting 13-15% growth year over year. This includes an expected positive impact of nearly one percentage point from currency fluctuations. Estimated earnings take into consideration the reduction in effective tax rates in accordance with the recent U.S. tax policies. The company also expects currency to drive the company’s performance throughout the year.
This Zacks Rank #3 (Hold) company projects adjusted operating income growth in the range of 23% to 25%, taking a 1% favorable impact of currency into consideration. The company also plans to achieve cost savings of $100 million. Additionally, McCormick plans to continue focusing on brand marketing, pricing actions, product launches and expansion of distribution channels in order to maintain business growth momentum.
Greedy for Consumer Staples Stocks? Check These
Investors interested in the same sector may consider the likes of United Natural Foods UNFI, Estee Lauder Companies EL and Sysco SYY, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..
United Natural came up with an average positive earnings surprise of 2.3% for the trailing four quarters. It has a long-term earnings growth rate of 6.2%.
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Sysco delivered an average positive earnings surprise of 2.6% in the trailing four quarters. It has a long-term earnings growth rate of 9%.
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