McCormick & Co. (MKC, Financial) released the results for its third quarter of fiscal 2020, which ended Aug. 31, before the market opened on Sept. 29. Both earnings and revenue surpassed Wall Street's expectations as the coronavirus pandemic boosted customer demand for packaged food.
By the numbers
The spices and condiments maker reported third quarter adjusted earnings per share of $1.53, which exceeded the $1.46 reported last year. Revenue of $1.43 billion was up 8% on a year-over-year basis. Analysts had predicted EPS of $1.52 on $1.39 billion in revenue.
Reflecting on the latest quarter, President and CEO Lawrence E. Kurzius commented:
"Our results for the third quarter continued to be significantly impacted by the sustained consumer preference for cooking more at home. Our outstanding consumer segment growth was driven by the substantial increase in demand reflecting the change in consumer behavior and fueled by our brand marketing, strong consumer digital connections and new products. In our flavor solutions segment, lower demand from our restaurant and other foodservice customers improved sequentially from the second quarter and were almost fully offset by increased sales to packaged food companies. Taken together, these impacts continue to demonstrate the strength and diversity of our offering."
The gross profit margin jumped 70 basis points as the coronavirus-related expenses were offset by favorable product mix and CCD-led (Comprehensive Continuous Improvement program) cost savings.
Segment performance
Sales in the consumer segment surged 15% in the third quarter to roughly $911 million, which reflected growth in the Americas as well as the Europe, Middle East and Africa (EMEA) segments, thanks to robust consumer food demand. Sales decline of 9% in the Asia/Pacific region only partially negated the overall segment growth. Operating income, barring special charges, amounted to $209 million, up 18%, driven by fixed cost leverage as a result of higher sales.
In the flavour solutions segment, sales came in at $519.4 million, which was below $535 million reported last year. In the Americas and EMEA regions, the company suffered from lower demand from restaurants as well as branded foodservice customers. This was partially offset by strong sales to packaged food companies. By contrast, flavour solution sales in the Asia/Pacific region were up 5% courtesy of higher sales to quick restaurant customers in China and Australia. Operating income in the segment, special charges excluded, stood at $64 million, reflecting a decline of 24%. The decline was attributable to deleveraging of fixed costs as a result of lower sales.
Company announces stock split
The Board of Directors of the company approved a 2-for-1 stock split. The stock-split would apply to common stock and common stock non-voting shares. Additional shares will be distributed on Nov. 30.
Guidance
McCormick has issued guidance for full fiscal year 2020. While sales are expected to grow "at the upper end of a 4% to 5% range," adjusted EPS is projected to fall within the range of $5.60 to $5.68.
Disclosure: I do not hold any positions in the stocks mentioned.
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