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McCormick & Company (MKC - Free Report) leverages a strong brand portfolio that aligns with consumer trends and innovative product platforms to strengthen its market presence. MKC projects continued growth, prioritizing strategic investments, expansions and cost-saving programs. However, cost inflation and soft volumes continue to cloud the company’s performance.
Let’s discuss this in detail.
Key Growth Drivers in Place
McCormick’s commitment to achieving long-term objectives is evident from its proven track record, wide-reaching and competitive global portfolio, focus on high-growth, profitable areas, alignment with evolving consumer preferences and a distinctive heat platform. Management continues to prioritize investments in key areas and growth drivers, like brand promotion, product and packaging innovation, category management and proprietary technology. MKC’s cost-saving programs position it well to support investments and drive operating margin growth.
Expansion through Acquisitions
The company strategically increased its presence through acquisitions to grow its portfolio. In December 2020, it 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, MKC 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 its last reported quarter, 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.
Image Source: Zacks Investment Research
Streamlined Savings Initiatives
McCormick's Comprehensive Continuous Improvement (CCI) program, launched in 2009, has been instrumental in reducing costs and boosting productivity. This initiative, along with their Global Operating Effectiveness (GOE) programs, contributed to a 60-basis points (bps) increase in the company's gross profit margin for second-quarter fiscal 2024. It expects the fiscal 2024 gross margin to rise 50-100 bps from 2023 levels, driven by cost savings from CCI and GOE, pricing adjustments and improved product mix. These factors are anticipated to continue driving future profitability.
What’s Hurting McCormick?
McCormick has been facing ongoing 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. Management expects a low single-digit increase in cost inflation for the fiscal 2024. In addition, the company anticipates a high-single-digit increase in brand marketing expenditures for the fiscal 2024, reflecting a double-digit rise in investments.
Wrapping Up
Despite challenges, management is encouraged by its positive business momentum, which is expected to strengthen throughout the year. Volume trends are likely to improve and revert to growth due to solid brands and targeted investments. The company is optimistic about its innovation plans for 2024. McCormick anticipates a 3-5% increase in adjusted operating income for the fiscal 2024 (4-6% at cc or constant currency) due to gross margin expansion. The company projects adjusted earnings per share to be between $2.80 and $2.85, suggesting a 4-6% rise from the previous year’s tally or 5-7% at cc.
The Zacks Rank #3 (Hold) company’s shares have surged 17.6% in the past six months compared with the industry’s growth of 0.6%.
The Zacks Consensus Estimate Vital Farms’ current financial-year earnings indicate growth of 72.9% from the year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) Inc., a pet food company, has a trailing four-quarter earnings surprise of 132.9%, on average. FRPT currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 26.1% and 251.4%, respectively, from the prior-year reported level.
Nomad Foods (NOMD - Free Report) , carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 3.1%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales and earnings indicates growth of 4.3% and 11.5%, respectively, from the prior-year reported level.
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McCormick's (MKC) Solid Brands & Cost Savings Propel Growth
McCormick & Company (MKC - Free Report) leverages a strong brand portfolio that aligns with consumer trends and innovative product platforms to strengthen its market presence. MKC projects continued growth, prioritizing strategic investments, expansions and cost-saving programs. However, cost inflation and soft volumes continue to cloud the company’s performance.
Let’s discuss this in detail.
Key Growth Drivers in Place
McCormick’s commitment to achieving long-term objectives is evident from its proven track record, wide-reaching and competitive global portfolio, focus on high-growth, profitable areas, alignment with evolving consumer preferences and a distinctive heat platform. Management continues to prioritize investments in key areas and growth drivers, like brand promotion, product and packaging innovation, category management and proprietary technology. MKC’s cost-saving programs position it well to support investments and drive operating margin growth.
Expansion through Acquisitions
The company strategically increased its presence through acquisitions to grow its portfolio. In December 2020, it 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, MKC 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 its last reported quarter, 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.
Image Source: Zacks Investment Research
Streamlined Savings Initiatives
McCormick's Comprehensive Continuous Improvement (CCI) program, launched in 2009, has been instrumental in reducing costs and boosting productivity. This initiative, along with their Global Operating Effectiveness (GOE) programs, contributed to a 60-basis points (bps) increase in the company's gross profit margin for second-quarter fiscal 2024. It expects the fiscal 2024 gross margin to rise 50-100 bps from 2023 levels, driven by cost savings from CCI and GOE, pricing adjustments and improved product mix. These factors are anticipated to continue driving future profitability.
What’s Hurting McCormick?
McCormick has been facing ongoing 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. Management expects a low single-digit increase in cost inflation for the fiscal 2024. In addition, the company anticipates a high-single-digit increase in brand marketing expenditures for the fiscal 2024, reflecting a double-digit rise in investments.
Wrapping Up
Despite challenges, management is encouraged by its positive business momentum, which is expected to strengthen throughout the year. Volume trends are likely to improve and revert to growth due to solid brands and targeted investments. The company is optimistic about its innovation plans for 2024. McCormick anticipates a 3-5% increase in adjusted operating income for the fiscal 2024 (4-6% at cc or constant currency) due to gross margin expansion. The company projects adjusted earnings per share to be between $2.80 and $2.85, suggesting a 4-6% rise from the previous year’s tally or 5-7% at cc.
The Zacks Rank #3 (Hold) company’s shares have surged 17.6% in the past six months compared with the industry’s growth of 0.6%.
Top-Ranked Staple Bets
Vital Farms (VITL - Free Report) offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2 (Buy). VITL has a trailing four-quarter earnings surprise of 82.5%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate Vital Farms’ current financial-year earnings indicate growth of 72.9% from the year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) Inc., a pet food company, has a trailing four-quarter earnings surprise of 132.9%, on average. FRPT currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 26.1% and 251.4%, respectively, from the prior-year reported level.
Nomad Foods (NOMD - Free Report) , carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 3.1%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales and earnings indicates growth of 4.3% and 11.5%, respectively, from the prior-year reported level.