Will McCormick's beat and raise break it out of a tight trading range?
AInvestTuesday, Oct 1, 2024 8:21 am ET
2min read
MKC --
MKC.V --

McCormick & Company (MKC) exceeded expectations in its third-quarter earnings report, posting adjusted EPS of $0.83, well above the estimated $0.67, and significantly higher than the $0.65 reported a year ago. Net sales were in line with forecasts, coming in at $1.68 billion, slightly above the estimated $1.67 billion. Key metrics included a gross profit margin of 38.7%, outperforming last year’s 37% and beating the estimate of 37.9%. The company also reported strong performance in its Flavor Solutions segment, with net sales of $742.4 million, surpassing estimates.

Shares of MKC have traded between $82 to $86 since early September. The stock is testing the 20-day MA ($83.34) which will remain a key level for investors to watch. The results and outlook provided by MKC should allow it to hold this support level. The concern for investors is the 26.7x forward earnings, which is frothy for a staples stock.

McCormick’s management acknowledged a challenging macroeconomic environment, particularly in China, but highlighted the company’s ability to achieve volume growth across both its Consumer and Flavor Solutions segments. President and CEO Brendan Foley expressed confidence in McCormick’s strategic investments and initiatives, noting that the company delivered global volume growth, and he expects the momentum to continue into the fourth quarter. Foley emphasized that McCormick's focus on brand marketing, new products, and packaging, as well as cost savings initiatives, will help fuel future growth.

Regionally, McCormick’s performance varied. In the Americas, Consumer segment sales remained flat compared to the same period last year, with a 1% volume increase offset by a 1% decrease in pricing. In the Europe, Middle East, and Africa (EMEA) region, sales rose by 3%, driven by a 4% increase in volume and product mix, although partially offset by a 1% price decline. However, the Asia-Pacific (APAC) region saw a 1% decrease in sales, mainly due to slower demand in China.

Operating income for the third quarter increased to $287 million from $245 million in the year-ago period, reflecting a 14.9% rise in adjusted operating profit. This improvement was driven by gross margin expansion and lower selling, general, and administrative expenses. McCormick’s strong operational performance and strategic cost-saving initiatives, including its Comprehensive Continuous Improvement (CCI) program, contributed to the increase.

Looking ahead, McCormick raised its full-year adjusted EPS guidance to a range of $2.85 to $2.90, up from its previous range of $2.76 to $2.81, with an expectation of 9% to 11% growth in operating income. The company also anticipates minimal impact from currency fluctuations. Management reaffirmed its confidence in reaching the higher end of its projected sales growth for 2024, supported by strong business fundamentals and continued momentum across key markets.

The company’s strategic focus includes improving volume trends, particularly through its cost-saving initiatives, which are expected to expand operating margins. Additionally, McCormick continues to leverage its broad portfolio and consumer trends, which aligns with its long-term financial goals. Management remains optimistic about achieving its 2024 objectives, including driving shareholder value through profitable growth.

McCormick will host its Investor Day on October 22, 2024, in Hunt Valley, Maryland, where it plans to outline its strategic roadmap and long-term financial objectives. This event will provide more insight into the company’s plans for sustained growth and market leadership.

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