McCormick Seeks Improved Margins in Fiscal 2Q17
Input costs to pressure margins
McCormick (MKC) is streamlining its operations and plans to generate $100 million in cost savings in an effort to boost its margins. Its strategic measures are intended to drive sales and incremental benefits arising from acquisitions, which could supplement its margins.
However, a rise in material costs and unfavorable currency movement could weigh on its gross margin performance.
Interested in GIS? Don't miss the next report.
Receive e-mail alerts for new research on GIS
McCormick plans to offset the negative impact of an increase in input costs through price restructuring. The company guided 0–50 basis points of improvement in its gross margin for fiscal 2017.
During fiscal 1Q17, McCormick’s gross margin expanded 30 basis points, driven by strategic acquisitions that lifted sales.
In comparison, J.M. Smucker’s (SJM) adjusted gross margin contracted 20 basis points during its last reported quarter. SJM’s greater-than-expected decline in volumes more than offset the benefits arising from its cost-cutting program.
Marketing spending to pressure operating margin
Apart from the rise in input costs and unfavorable currency movement, McCormick’s (MKC) planned increase in brand marketing spending could pressure its operating margins in fiscal 2Q17. As for fiscal 2017, MKC’s management expects its adjusted operating profits to increase 8%–10%, including the negative impact of currency.
General Mills (GIS) projects a minimum improvement of 120 basis points in its adjusted operating margin for fiscal 2017. The company could benefit from its expansion in gross margins and lower SG&A (selling, general, and administrative) expenses.
- fiscal 3Q17 ended February 26, 2017 ↩