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McCormick's (MKC) Buyouts & Savings to Boost Q4 Earnings

Zacks Equity Research

McCormick & Company, Incorporated MKC is slated to release fourth-quarter fiscal 2018 results on Jan 24, before market opens. This Midland-based company’s earnings have surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 5.2%. In the preceding quarter, the bottom line was in line with the consensus mark. Further, the company has been witnessing year-over-year growth in the top and the bottom line for more than a year. That said, lets take a look at what’s in store for the company this time around.

Efforts to Boost Sales

This global leader in flavors and spices is strategically expanding portfolio through acquisitions. In fact, the acquisition of the food division of RB Foods has added iconic brands such as Frank's RedHot Hot Sauce and French's Mustard to McCormick’s portfolio, which have boosted sales. Gains from the RB buyout is expected to bolster performance in the impending quarter as well.

In the past, the company made significant acquisitions, including Italy-based Enrico Giotti SpA and Australia-based Botanical Food Company. These takeovers have augmented McCormick’s portfolio strength. Further, the company focuses on innovation to stay competitive as well as tap the evolving demand for new flavors, spices and herbs. We note that newly-added products boosted sales in the consumer and flavor solutions segments during the third quarter of fiscal 2018. Going ahead, the company is on track with product launches under the Frank’s banner. Health and wellness also continue to drive the innovation agenda.

McCormick & Company, Incorporated Price, Consensus and EPS Surprise


McCormick & Company, Incorporated Price, Consensus and EPS Surprise | McCormick & Company, Incorporated Quote


Can Savings Plans Offset Cost Woes?

Apart from endeavors to strengthen the top line, McCormick also pays attention to boost profitability through cost saving. In this respect, the Comprehensive Continuous Improvement (CCI) program is noteworthy. The company utilizes savings from this program for making growth-oriented investments. We note that savings through CCI and streamlining actions reached $117 million in fiscal 2017. Notably, cost savings from CCI expanded the company’s gross and adjusted operating income margins during the third quarter of fiscal 2018. This also marked the company’s 11th consecutive quarter of adjusted operating margin expansion.

Going ahead, McCormick expects to continue gaining from savings efforts, which is likely to fuel profits in the upcoming quarterly release. Such efforts are also expected to counter the negative impacts from higher freight and marketing expenses. Apart from McCormick, other food companies like United Natural Foods UNFI, J. M. Smucker SJM and TreeHouse Foods THS have been grappling with rising freight expenses.

Estimates Unveil a Bright Picture

Backed by the aforementioned upsides, we expect McCormick to deliver robust performance in the fourth quarter. Incidentally, the Zacks Consensus Estimate for earnings for the quarter under review is pegged at $1.69, which shows a 9.7% rise from $1.54 in the year-ago quarter. The estimate has remained unchanged in the past 30 days. Also, the Zacks Consensus Estimate for sales for the fourth-quarter is pegged at $1,550 million, depicting a rise of almost 4% from the prior-year quarter’s tally.

Zacks Model

Our proven model doesn’t show that McCormick is likely to beat estimates in the to-be-reported quarter. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though McCormick carries a Zacks Rank #1, its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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