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McCormick's 1Q Earnings & Revs Beat

Zacks Equity Research

McCormick & Co. Inc. (MKC) delivered first quarter 2013 earnings of 57 cents per share, ahead of the prior-year quarter earnings of 55 cents by 3.6%. The results were driven by a favorable tax rate, higher income from unconsolidated operations and a lower share count. Earnings also beat the Zacks Consensus Estimate by a penny.

Total revenue in the quarter grew 3% year over year to $934 million, beating the Zacks Consensus Estimate of $918 million. The sales were driven by positive volume and product mix and pricing actions in response to high input costs, especially in the consumer business segment. Product innovation and brand marketing investments led to the increase in sales of the consumer business. However, McCormick witnessed sluggish demand from quick service restaurants in the industrial segment.

Operating income was almost flat at $112 million. Top-line growth and cost savings from McCormick's Comprehensive Continuous Improvement (‘CCI’) program were offset by higher material costs and an increase in retirement benefit expense.

Segment Details

Consumer Business:Segment revenues surged 7% year over year to $569.8 million in the reported quarter. Improved volume, increased product mix and higher pricing. Sales grew in all three geographic regions of Americas, Europe, Middle East and Africa (:EMEA) and Asia/Pacific, with particularly strong performance in emerging markets.

Like revenues, operating income of the segment also increased 8% to $88 million in the quarter supported by increases in sales and cost savings, which easily offset the declines from higher material costs and retirement benefit expenses.

Industrial Business:Segment revenue declined 2% year over year to $364.6 million in the first quarter of 2013, in line with management expectations of weak results in the quarter. Decline in volume and product mix, poor demand from quick service restaurants in U.S. and China and strong year ago comparisons led to the sales miss.. On a constant currency basis, sales declined 3% in the segment.

Operating income of this McCormick segment declined 22.6% to $24.0 million, primarily due to lower sales, an unfavorable mix and the impact of increased retirement benefit expenses.


McCormick expects earnings of 60 cents, flat year over year for the second quarter of 2013. In addition, the company expects higher material costs, increased retirement benefit expense and increase in its brand marketing investments to continue in the second quarter.

McCormick has re-affirmed its earnings and sales guidance for 2013. McCormick expects sales growth in the range of 3% to 5% in local currency, driven by higher volume and product mix coupled with minimal pricing and currency impact. The company reiterates its operating income growth in the range of 6% to 8%.

McCormick expects earnings in the range of $3.15 to $3.23, driven by higher sales and at least $45 million in CCI cost savings, offset by retirement benefit expenses.

McCormick currently holds a Zacks Rank #4 (Sell). Other specialty food companies which are better positioned and warrant a look include Flower Foods Inc (FLO), Conagra Foods Inc (CAG), and General Mills Inc (GIS). While Flower Foods holds a Zacks Rank #1 (Strong Buy), Conagra and General Mills hold a Zacks Rank #2 (Buy).

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