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Why Is McCormick (MKC) Down 2.5% Since the Last Earnings Report?
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It has been more than a month since the last earnings report for McCormick & Company, Incorporated (MKC - Free Report) . Shares have lost about 2.5% in that time frame.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
McCormick Tops Q3 Earnings, View Up on Acquisitions
McCormick posted third-quarter fiscal 2017 results, wherein both the company’s earnings and revenues outpaced the Zacks Consensus Estimate. The company raised its sales, operating income and earnings guidance to reflect the acquisition of food division of Reckitt Benckiser Group (RB Foods) and lower currency impact on earnings.
Adjusted earnings of $1.12 per share beat the Zacks Consensus Estimate of $1.05 by 6.7%. We note that the company has delivered positive earnings surprise in 13 of the last 15 quarters, excluding the current quarter. In the third quarter, adjusted earnings were also 9% higher year over year owing to higher operating income. Further, the favorable impact of higher sales and cost savings were offset by an increase in brand marketing and material costs and currency headwinds.
Revenues and Profits
In the reported quarter the global leader in flavors and spices generated revenues of $1,185 million, which exceeded the Zacks Consensus Estimate of $1,146 million by 3.4%. Revenues grew about 9% from the prior-year quarter, including currency tailwinds of 1%. Sales were driven by strong base business and impressive product portfolio growth.
The acquisitions (RB Foods in August 2017 and Enrico Giotti SpA in December 2016) also contributed to higher sales by 4%. Excluding currency impact, revenues grew 7%, driven by both the consumer and industrial segments.
The company’s adjusted operating income grew 18.6% to $204 million in the third quarter. On a constant currency basis, it increased 19% due to higher sales, cost savings and lower selling, general & administrative costs. A shift in the portfolio to more value added products also boosted sales.
Segment Details
Consumer Business: Segment revenues grew 5%, primarily driven by strong base business and new product sales compared with the year-ago period. Solid performance in the Americas was driven by the acquisition of RB Foods as well as strong pricing, new products and expanded distribution. Sales also grew in China and India, which were partially offset by weak sales in the United Kingdom, where the retail environment suffers from stiff competition.
Adjusted operating income grew 9%, on a constant currency basis, driven by the favorable impact of sales growth and cost savings more than offsetting the impact of higher material costs and brand marketing expenses.
Industrial Business: Industrial segment sales grew 14% with minimum impact from currency, driven by increased sales across all three of its regions. While sales in the Americas were led by continued growth momentum in branded foodservice, as well as incremental sales from RB Foods, sales in EMEA region was driven by sales from Giotti acquisition.
Sales to both quick service restaurants and packaged food companies also increased during the quarter. Industrial sales in the Asia/Pacific region increased in the quarter driven by new products and promotional activities of quick service restaurants.
On a constant currency basis, adjusted operating income rose 44% year over year, driven by favorable impact of higher sales, product mix and CCI-led cost savings and favorable selling, general and administrative costs, more than offset the unfavorable impact of increases in material costs and an increase in brand marketing.
Fiscal 2017 Guidance Raised
For fiscal 2017, the company has revised its guidance reflecting the acquisition of RB Foods and lower currency impact on earnings. The company now expects sales to grow approximately 9-10% in fiscal 2017, in comparison with approximately 4-6% announced earlier. Excluding currency, McCormick expects sales to grow approximately 10-11% in fiscal 2017, in comparison with approximately 5-7% announced previously.
The company expects higher brand marketing, increased pricing, new products, expanded distribution and acquisitions to contribute to the growth. Further, the company anticipates pricing actions to offset higher material costs, which are anticipated to rise by mid-single digits. In addition, the company has raised its cost savings target to at least $105 million, compared with the earlier goal of approximately $100 million.
The company now expects 2017 adjusted operating income to grow approximately 20-21%, from adjusted operating income of $657 million in 2016. Previously, the company anticipated adjusted operating income growth of 8-10%. On constant currency basis, adjusted operating income is now expected to grow 21-22%.
Driven by higher sales and operating income, McCormick now expects 2017 adjusted earnings in the range of $4.20-$4.24 per share, compared with $4.05-$4.13 per share estimated previously. This marks an increase of 11-12% compared with $3.78 in 2016. Also, currency will unfavorably impact earnings by 1%, compared to 2 percentage points previously.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter.
McCormick & Company, Incorporated Price and Consensus
At this time, McCormick's stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that investors will probably be better served looking elsewhere.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We expect above average returns from the stock in the next few months.
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Why Is McCormick (MKC) Down 2.5% Since the Last Earnings Report?
It has been more than a month since the last earnings report for McCormick & Company, Incorporated (MKC - Free Report) . Shares have lost about 2.5% in that time frame.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
McCormick Tops Q3 Earnings, View Up on Acquisitions
McCormick posted third-quarter fiscal 2017 results, wherein both the company’s earnings and revenues outpaced the Zacks Consensus Estimate. The company raised its sales, operating income and earnings guidance to reflect the acquisition of food division of Reckitt Benckiser Group (RB Foods) and lower currency impact on earnings.
Adjusted earnings of $1.12 per share beat the Zacks Consensus Estimate of $1.05 by 6.7%. We note that the company has delivered positive earnings surprise in 13 of the last 15 quarters, excluding the current quarter. In the third quarter, adjusted earnings were also 9% higher year over year owing to higher operating income. Further, the favorable impact of higher sales and cost savings were offset by an increase in brand marketing and material costs and currency headwinds.
Revenues and Profits
In the reported quarter the global leader in flavors and spices generated revenues of $1,185 million, which exceeded the Zacks Consensus Estimate of $1,146 million by 3.4%. Revenues grew about 9% from the prior-year quarter, including currency tailwinds of 1%. Sales were driven by strong base business and impressive product portfolio growth.
The acquisitions (RB Foods in August 2017 and Enrico Giotti SpA in December 2016) also contributed to higher sales by 4%. Excluding currency impact, revenues grew 7%, driven by both the consumer and industrial segments.
The company’s adjusted operating income grew 18.6% to $204 million in the third quarter. On a constant currency basis, it increased 19% due to higher sales, cost savings and lower selling, general & administrative costs. A shift in the portfolio to more value added products also boosted sales.
Segment Details
Consumer Business: Segment revenues grew 5%, primarily driven by strong base business and new product sales compared with the year-ago period. Solid performance in the Americas was driven by the acquisition of RB Foods as well as strong pricing, new products and expanded distribution. Sales also grew in China and India, which were partially offset by weak sales in the United Kingdom, where the retail environment suffers from stiff competition.
Adjusted operating income grew 9%, on a constant currency basis, driven by the favorable impact of sales growth and cost savings more than offsetting the impact of higher material costs and brand marketing expenses.
Industrial Business: Industrial segment sales grew 14% with minimum impact from currency, driven by increased sales across all three of its regions. While sales in the Americas were led by continued growth momentum in branded foodservice, as well as incremental sales from RB Foods, sales in EMEA region was driven by sales from Giotti acquisition.
Sales to both quick service restaurants and packaged food companies also increased during the quarter. Industrial sales in the Asia/Pacific region increased in the quarter driven by new products and promotional activities of quick service restaurants.
On a constant currency basis, adjusted operating income rose 44% year over year, driven by favorable impact of higher sales, product mix and CCI-led cost savings and favorable selling, general and administrative costs, more than offset the unfavorable impact of increases in material costs and an increase in brand marketing.
Fiscal 2017 Guidance Raised
For fiscal 2017, the company has revised its guidance reflecting the acquisition of RB Foods and lower currency impact on earnings. The company now expects sales to grow approximately 9-10% in fiscal 2017, in comparison with approximately 4-6% announced earlier. Excluding currency, McCormick expects sales to grow approximately 10-11% in fiscal 2017, in comparison with approximately 5-7% announced previously.
The company expects higher brand marketing, increased pricing, new products, expanded distribution and acquisitions to contribute to the growth. Further, the company anticipates pricing actions to offset higher material costs, which are anticipated to rise by mid-single digits. In addition, the company has raised its cost savings target to at least $105 million, compared with the earlier goal of approximately $100 million.
The company now expects 2017 adjusted operating income to grow approximately 20-21%, from adjusted operating income of $657 million in 2016. Previously, the company anticipated adjusted operating income growth of 8-10%. On constant currency basis, adjusted operating income is now expected to grow 21-22%.
Driven by higher sales and operating income, McCormick now expects 2017 adjusted earnings in the range of $4.20-$4.24 per share, compared with $4.05-$4.13 per share estimated previously. This marks an increase of 11-12% compared with $3.78 in 2016. Also, currency will unfavorably impact earnings by 1%, compared to 2 percentage points previously.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter.
McCormick & Company, Incorporated Price and Consensus
McCormick & Company, Incorporated Price and Consensus | McCormick & Company, Incorporated Quote
VGM Scores
At this time, McCormick's stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that investors will probably be better served looking elsewhere.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We expect above average returns from the stock in the next few months.