McCormick Q1 Earnings – How Will It Go?

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Mar 23, 2015
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McCormick & Co. Inc. (MKC, Financial) is slated to reveal its first quarter earnings report on March 24. The company is a global leader in the spices and flavors market, competing with businesses such as the privately held ACH Food Companies Inc. and Adams Extract & Spice LLC. McCormick has witnessed growth in revenues for the last two quarters of fiscal 2014 in a row. While growth in the third quarter was 3%, the company logged 18% year-over-year revenue growth in the fourth quarter to $1.17 billion. Moreover, the company has logged earnings growth for the last three consecutive quarters, from 7% year-over-year growth in the second quarter of fiscal 2014 to a 17% rise for the third quarter and a whopping 79% year-over-year growth for the fourth quarter. The company had projected a 4%-6% growth in sales in local currency for fiscal 2015, with EPS expected to be in the range of $3.41-$3.48 a share. Excluding the impact of any one-time charges, McCormick also projected adjusted EPS for the first quarter of fiscal 2015 to grow slightly from the prior-year quarter’s $0.62 a share.

Acquisitions, Cost-saving Strategies Likely to Boost Revenues

Over the last few years, McCormick has seen a growing demand for its spices, seasonings and herbs. As per Euro Monitor International, the global retail sales of spices and herbs are likely to grow by a mid-single digit compound annual rate through 2019. Consequently, with an over 20% global market share, McCormick expects to help drive this growth and enhance its sales of spices and herbs, along with other flavour products through product innovation, acquisitions, expanded distribution and investments in brand marketing. Experts believe that McCormick’s recent acquisitions of the Italian business Drogheria & Alimentari and New Jersey-based Brand Aromatics will contribute significantly to the company’s fiscal 2015 revenues. The company has also been actively improving productivity and saving costs through its enduring Comprehensive Continuous Improvement initiative that is likely to help McCormick report cost savings to the tune of $85 million in fiscal 2015, much higher than the 2014 target of $50 million.

Sluggish Sales, Strong Dollar Might Put a Spanner in the Works

McCormick, however, might face sluggish sales owing to the enduring softness in demand from quick-service restaurants across Asia-Pacific and the Americas, with the company foreseeing continued slowdown in demand in the Americas region during the first two quarters of fiscal 2015. Moreover, the company expects only a gradual recovery for demand from quick-service restaurants based in China. Another proverbial spanner in the company’s works could be in the form of foreign currency headwinds, with a strong dollar affecting revenues of businesses across the US. Finally, McCormick’s greater input expenses continue to remain a challenge for the upcoming quarter.

Final Thoughts

With McCormick’s steady revenue and earnings growth over the last 2-3 quarters, the market is optimistic about the company’s Q1 2015 showing. While the company expects to post earnings slightly better than the year-ago quarter’s $0.62 a share and consensus estimates peg the figure at $0.64 a share, there is a possibility that McCormick outperforms both the estimates. However, it would be prudent to note that the consensus estimate has decreased from the fourth quarter of 2014, when it stood at $0.71 a share. Further, experts foresee a 1% year-over-year drop in revenues to $984.8 million for the first quarter. For the full fiscal, experts project revenues of around $4.27 billion and earnings of $3.53 a share. McCormick shares have mostly traded in the $70-$77 range in the last three months, hitting a 52-week high of $77.08 in December 2014. The McCormick stock carries a price estimate of $72.83 a share, and although market sentiments point to a ‘buy’ guidance for the stock, experts have pegged it at a ‘hold’ for now.