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McCormick Blew Past 2Q17 Estimates, but Stock Fell 3.6%

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McCormick Blew Past 2Q17 Estimates, but Stock Fell 3.6% PART 2 OF 7

Here’s What Drove McCormick’s Fiscal 2Q17 Earnings

EPS surpasses estimate

McCormick (MKC) reported strong results for fiscal 2Q17 (the period ended May 31, 2017) that blew past analyst estimates. The company’s fiscal 2Q17 adjusted EPS (earnings per share) of $0.82 handily surpassed analysts’ estimate of $0.76 and jumped 9.3% YoY (year-over-year). Strong sales amid a tough operating environment, cost savings, lower taxes, and reduction in outstanding shares supported the company’s better-than-expected EPS.

Here’s What Drove McCormick’s Fiscal 2Q17 Earnings

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The company has exceeded analyst estimates in the past five out of six quarters thanks to its strong sales, which is in contrast to what other food manufacturers in the US (SPY) are witnessing. For instance, companies like General Mills (GIS), Conagra Brands (CAG), and Kellogg (K) are relying on cost cutbacks to drive EPS growth as sales remain sluggish on account of volume declines.

General Mills, which reported its fiscal 4Q17 (period ended May 28, 2017) results on June 28, marked a 10.6% growth in its adjusted EPS. Conagra Brands posted its fiscal 4Q17 (period ended May 28, 2017) results on June 29. It witnessed a 15.6% YoY growth in its bottom line, driven by cost-cutting measures.

Outlook

Going forward, the company’s bottom line results are expected to benefit from healthy sales growth. Plus, the company’s restructuring initiatives aimed at reducing costs will further cushion the bottom line. Management reiterated its fiscal 2017 adjusted EPS guidance and projects adjusted EPS to be in the range of $4.05–$4.13, representing growth of 7%–9%.

McCormick plans to increase its investments in brand marketing in fiscal 2017 to support the launch of its new products, which could restrict EPS growth. Moreover, increased material costs pose further challenges. However, management remains upbeat and expects to mitigate this through a projected $100 million in cost savings.

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