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McCormick Crushed Its Fiscal 3Q17 Estimates, Stock Rose

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McCormick Crushed Its Fiscal 3Q17 Estimates, Stock Rose PART 3 OF 7

McCormick Beats 3Q17 Top-Line Estimate, Guides High

What’s behind McCormick’s strong sales?

McCormick (MKC) posted sales of $1.2 billion in fiscal 3Q17. Its sales surpassed analysts’ estimate and rose 8.6% on a YoY (year-over-year) basis. Higher sales reflected the company’s strong performance in the Americas and China (FXI). However, a challenging retail environment in Europe, the Middle East, and Africa due to retailers reducing the shelf space for packaged foods remained a drag.

The company’s stellar top-line performance sets it apart from other packaged food manufacturers in the US that are struggling to hold their ground due to sluggish demand. For instance, most of the food companies in the US including J.M. Smucker (SJM), Kraft Heinz (KHC), Conagra Brands (CAG), Kellogg (K) and General Mills (GIS) have seen lower sales in the past several quarters.

McCormick Beats 3Q17 Top-Line Estimate, Guides High

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Factors driving McCormick’s sales

McCormick’s sales benefited from increased volumes, higher pricing in response to rising input costs, and a favorable product mix. Favorable currency movement supported the sales growth in fiscal 3Q17. Through its portfolio of industry-leading brands, McCormick commands a significant share of the spices and seasonings market.

McCormick’s top line is driven by innovative new product launches and expanded distribution. Strategic acquisitions generate incremental sales.

Notably, acquisitions have been important for the company’s stellar sales. McCormick’s acquisition of Giotti, Gourmet Garden, and Cajun Injector strengthened its offerings by adding fast-growing and in-demand brands to its portfolio besides generating incremental sales. During the reported quarter, acquisitions contributed ~4% to the company’s sales—2% came from the recently acquired RB Foods.

Raised fiscal 2017 sales outlook

Following its strong fiscal 3Q17 sales, management remains upbeat and expects to generate higher sales in fiscal 2017 due to its higher volumes and favorable mix. The company’s expanded distribution and improved demand for new products will supplement the sales growth. McCormick expects sales to rise 9%–10% in fiscal 2017. The fiscal 4Q17 top line is expected to register 19%–23% growth. Earlier, the company expected its fiscal 2017 sales to rise 5%–7% on a constant currency basis.

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