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McCormick's (MKC) Q1 Earnings Beat Estimates, Sales Up Y/Y

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Zacks Equity Research
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McCormick & Company, Incorporated MKC posted first-quarter fiscal 2021 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Moreover, sales and earnings increased year over year, reflecting strength across both the segments. Also, management increased its fiscal 2021 outlook.

Quarter in Detail

Adjusted earnings of 72 cents per share increased 33% from 54 cents reported in the year-ago quarter, mainly due to increased adjusted operating income. This was somewhat offset by rise in adjusted income tax rate. Moreover, the metric beat the Zacks Consensus Estimate of 57 cents per share.

This global leader of flavors and spices generated sales of $1,481.5 million, up 22% year over year. This includes favorable impact from currency translation of 2%. The uptick was driven by sales growth in both the segments. On a constant-currency (cc) basis, sales surged 20% on the back of strength in both the segments. Moreover, sales in the quarter surpassed the Zacks Consensus Estimate of $1,384.9 million.

McCormick & Company, Incorporated Price, Consensus and EPS Surprise

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

McCormick & Company, Incorporated price-consensus-eps-surprise-chart | McCormick & Company, Incorporated Quote


Gross profit margin expanded 20 basis points to 39% on the back of favorable product mix and cost savings from the Comprehensive Continuous Improvement (CCI) program. These were partially negated by pandemic-induced costs among others.

Operating income rose from $194 million to $236 million during the quarter. The upside can be attributed to increased sales as well as gross margin expansion. However, increased brand marketing expenses as well as some transaction and integration expenses were a drag on the metric.

Segment Details

Consumer: Sales increased 35% (up 32% in cc) to $946.8 million, with the Cholula buyout contributing 3% to growth. The segment gained on the back of sustained shift to cook-at-home trend amid the pandemic. Sales in the Americas surged 30% owing to growth across most categories and brands, especially strength in the McCormick, French's, Frank's RedHot, Zatarain's, Lawry's, Simply Asia and Gourmet Garden brands as well as Cholula acquisition gains. In the Europe, Middle East and Africa (EMEA) region, sales increased 34% on the back of double digit growth across all countries and categories, with particular strength in branded spices and seasonings as well as homemade dessert products. Further, sales in the Asia-Pacific region rallied 65% driven by recovery in consumption across China. Also, double digit growth in the region, thanks to at home and away from home products led to this increase.

Flavor Solutions: Sales in the segment increased 4% (up 3% at cc) to $534.7 million from the prior-year quarter’s figure to $512.5 million, driven by sales growth from packaged food companies which was somewhat offset by reduced demand from restaurant and other foodservice customers, primarily in the Americas and EMEA regions. Also, contribution from acquisitions was a driver. Sales in the Americas increased 2%, while the metric inched up 1% in the EMEA region. Sales in Asia-Pacific region rose 26% driven by increased sales to quick service restaurants in China and Australia.

Financial Update

McCormick exited the quarter with cash and cash equivalents of $256.1 million, long-term debt of $4,739.2 million and total shareholders’ equity of $4,164.7 million. For the three months ended Feb 28, net cash used by operating activities was $32.2 million.

Fiscal 2021 Outlook

Based on the strong first-quarter performance as well as the favorable impact of its recent bond issuance to optimize its long-term financing, management has raised its sales, operating income and earnings per share (EPS) view for fiscal 2021. Additionally, the company continues to anticipate a two-percentage point positive impact from currency rates on these metrics during fiscal 2021.

The company now expects to achieve sales growth of 8-10% (up 6-8% at cc) compared with the prior-year’s figure. Earlier, management had expected to achieve sales increase of 7-9% (up 5-7% at cc). The view takes into account additional impact of the Cholula and FONA buyouts. Moreover, the company expects to witness organic sales growth in both the segments, backed by new products, brand marketing, category management as well as differentiated customer engagement. Apart from this, management expects to see sustained shift in consumer demand to at-home consumption when compared with the pre-pandemic levels. It also expects to see gradual recovery in the demand from restaurant and other foodservice customers.

Further, adjusted operating income is now expected to increase in the band of 9-11% (up 7-9% at cc). Earlier, the metric was projected to grow in the band of 8-10%, (up 6-8% at cc). Adjusted EPS are now expected in the range of $2.97-$3.02, reflecting a rise of 5-7%. Earlier, management had expected the metric to be in the range of $2.91-$2.96. The outlook suggests solid growth in base business as well as contributions from acquisitions. This is likely to be somewhat offset by impact from incremental 2021 business transformation and pandemic-related costs among others.

Price Performance

This Zacks Rank #3 (Hold) stock has declined 5.7% in the past three months against the industry’s growth of 6.4%.

Better-Ranked Food Stocks

The Hain Celestial HAIN, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 26.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United Natural Foods, Inc. UNFI — currently carrying a Zacks Rank #2 — has a trailing four-quarter earnings surprise of 13.6%, on average.

The J. M. Smucker Company SJM, currently carrying a Zacks Rank #2, has a long-term earnings growth rate of 1.7%.

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