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McCormick (MKC) Benefits From Brand Strength & Cost Savings
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McCormick & Company’s (MKC - Free Report) commitment to achieving long-term objectives is evident from its proven track record and wide-reaching and competitive global portfolio with a focus on high-growth, profitable areas. The worldwide leader in flavors is focused on increasing its presence through acquisitions. The company is on track with its cost-saving amid a high-cost environment.
Let’s discuss this in detail.
Key Growth Drivers in Place
McCormick continues to prioritize investments in key areas and growth drivers, like brand promotion, product and packaging innovation, category management and proprietary technology. The company’s cost-saving programs position it well to support investments and drive operating margin growth. Management is encouraged by its positive business momentum, which is expected to strengthen throughout the year. For the fiscal 2024, McCormick is focused on strengthening its volume trends and prioritizing investments to fuel profits. Management anticipates witnessing a favorable impact of pricing actions undertaken in the prior year. The company is optimistic about its innovation plans for 2024.
For the fiscal 2024, management expects adjusted operating income to grow 3-5% (up 4-6% at constant currency or cc) due to the gross margin expansion. Management envisions 2024 adjusted earnings per share (EPS) in the band of $2.80-$2.85, which suggests a 4-6% increase from the year-ago period’s figure and a 5-7% increase at cc.
Image Source: Zacks Investment Research
Strategic Expansion Efforts
MKC strategically increased its presence through acquisitions to grow its portfolio. In December 2020, the company bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, the company also completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. It believes that the buyout of Cholula accelerates its growth potential across the condiment platform and widens the product portfolio in the hot sauce category. In the second quarter of fiscal 2024, the company incurred $130 million as capital expenditures for projects to increase capacity and capabilities to meet growing demand, advance digital transformation and optimize the cost structure.
Hurdles on the Way
MKC is facing persistent challenges with soft volumes. Consumer demand remains difficult, driven by their persistent value-seeking behavior amid heightened financial anxiety, especially among mid-to-low-income households in the United States. Furthermore, inflation in the foodservice sector is reducing food away-from-home consumption and affecting restaurant traffic, particularly among QSRs across multiple regions. Retail volumes, particularly in core store sections, are subdued as consumers continue to prioritize essential purchases.
In addition, the company has been grappling with cost inflation for a while now. Management expects a low single-digit increase in cost inflation for the fiscal 2024. The company also anticipates a high-single-digit increase in brand marketing expenditures for the fiscal 2024.
Wrapping Up
Despite facing challenges such as soft volumes and cost inflation, McCormick is steadfast in its commitment to long-term growth and profitability. The positive effects from pricing adjustments, product mix enhancements and cost savings derived from Comprehensive Continuous Improvement (CCI) and Global Operating Effectiveness (GOE) initiatives are likely to continue enhancing its profits in the future.
The Zacks Rank #3 (Hold) company’s shares have increased 6.4% year to date against the industry’s decline of 4.4%.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
BRF (BRFS - Free Report) , which engages in raising, producing and slaughtering poultry and pork for processing, production and sale of fresh meat, processed products, pasta, margarine, pet food and other products, currently sports Zacks Rank #1.
The Zacks Consensus Estimate for BRF’s current financial-year sales and earnings suggests growth of 7.5% and 210%, respectively, from year-ago reported figures.
Treehouse Foods (THS - Free Report) is a manufacturer of packaged foods and beverages. The company currently has a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Treehouse Foods’ current financial-year sales and earnings indicates a decline of 1.6% and 8.5%, respectively, from the prior-year reported level. THS has a negative trailing four-quarter average earnings surprise of 4.5%.
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McCormick (MKC) Benefits From Brand Strength & Cost Savings
McCormick & Company’s (MKC - Free Report) commitment to achieving long-term objectives is evident from its proven track record and wide-reaching and competitive global portfolio with a focus on high-growth, profitable areas. The worldwide leader in flavors is focused on increasing its presence through acquisitions. The company is on track with its cost-saving amid a high-cost environment.
Let’s discuss this in detail.
Key Growth Drivers in Place
McCormick continues to prioritize investments in key areas and growth drivers, like brand promotion, product and packaging innovation, category management and proprietary technology. The company’s cost-saving programs position it well to support investments and drive operating margin growth. Management is encouraged by its positive business momentum, which is expected to strengthen throughout the year. For the fiscal 2024, McCormick is focused on strengthening its volume trends and prioritizing investments to fuel profits. Management anticipates witnessing a favorable impact of pricing actions undertaken in the prior year. The company is optimistic about its innovation plans for 2024.
For the fiscal 2024, management expects adjusted operating income to grow 3-5% (up 4-6% at constant currency or cc) due to the gross margin expansion. Management envisions 2024 adjusted earnings per share (EPS) in the band of $2.80-$2.85, which suggests a 4-6% increase from the year-ago period’s figure and a 5-7% increase at cc.
Image Source: Zacks Investment Research
Strategic Expansion Efforts
MKC strategically increased its presence through acquisitions to grow its portfolio. In December 2020, the company bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, the company also completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. It believes that the buyout of Cholula accelerates its growth potential across the condiment platform and widens the product portfolio in the hot sauce category. In the second quarter of fiscal 2024, the company incurred $130 million as capital expenditures for projects to increase capacity and capabilities to meet growing demand, advance digital transformation and optimize the cost structure.
Hurdles on the Way
MKC is facing persistent challenges with soft volumes. Consumer demand remains difficult, driven by their persistent value-seeking behavior amid heightened financial anxiety, especially among mid-to-low-income households in the United States. Furthermore, inflation in the foodservice sector is reducing food away-from-home consumption and affecting restaurant traffic, particularly among QSRs across multiple regions. Retail volumes, particularly in core store sections, are subdued as consumers continue to prioritize essential purchases.
In addition, the company has been grappling with cost inflation for a while now. Management expects a low single-digit increase in cost inflation for the fiscal 2024. The company also anticipates a high-single-digit increase in brand marketing expenditures for the fiscal 2024.
Wrapping Up
Despite facing challenges such as soft volumes and cost inflation, McCormick is steadfast in its commitment to long-term growth and profitability. The positive effects from pricing adjustments, product mix enhancements and cost savings derived from Comprehensive Continuous Improvement (CCI) and Global Operating Effectiveness (GOE) initiatives are likely to continue enhancing its profits in the future.
The Zacks Rank #3 (Hold) company’s shares have increased 6.4% year to date against the industry’s decline of 4.4%.
Key Staple Picks
Freshpet, Inc. (FRPT - Free Report) , a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
BRF (BRFS - Free Report) , which engages in raising, producing and slaughtering poultry and pork for processing, production and sale of fresh meat, processed products, pasta, margarine, pet food and other products, currently sports Zacks Rank #1.
The Zacks Consensus Estimate for BRF’s current financial-year sales and earnings suggests growth of 7.5% and 210%, respectively, from year-ago reported figures.
Treehouse Foods (THS - Free Report) is a manufacturer of packaged foods and beverages. The company currently has a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Treehouse Foods’ current financial-year sales and earnings indicates a decline of 1.6% and 8.5%, respectively, from the prior-year reported level. THS has a negative trailing four-quarter average earnings surprise of 4.5%.