McCormick Crushed Its Fiscal 3Q17 Estimates, Stock Rose

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Part 4
McCormick Crushed Its Fiscal 3Q17 Estimates, Stock Rose PART 4 OF 7

Why McCormick’s Sales Rose across Its Business Segments

Factors that drove growth

McCormick (MKC) witnessed improved sales across both of its business segments. Higher volumes, especially in the Industrial segment, and increased pricing drove the top-line growth. McCormick acquired fast-growing businesses contributed to its top-line growth, as you can see in the following graph.

Notably, the company witnessed higher sales in the domestic market. In contrast, other food manufacturers are seeing lower demand for their products in this region. Kellogg (K), General Mills (GIS), Kraft Heinz (KHC), and J.M. Smucker (SJM) reported lower sales in the US.

Why McCormick’s Sales Rose across Its Business Segments

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Higher pricing in the Consumer segment

The Consumer segment’s sales rose 5.3% in fiscal 3Q17, which reflected higher pricing (+2.4%), improved volumes, and benefits (+1.9%) from acquisitions. Regionally, the segment’s sales rose 7% in the Americas due to increased pricing, new product launches, and expanded distribution. The region witnessed increased sales across most of its products including Lawry’s, Grill Mates, Gourmet Garden, and Stubb’s. Its namesake brands continued to generate higher sales. However, weak demand for Zatarain’s products remained a drag.

The segment’s sales fell 2% in constant currency in the EMEA (Europe, the Middle East, and Africa) region. Retailers destocking packaged food inventories continued to hurt its sales in the United Kingdom. Including the impact of favorable currency movement, sales rose 1.3% in this region.

McCormick’s consumer business witnessed an improvement in the Asia-Pacific region. Its top line rose 2.5% due to higher sales in China (FXI) and India.

What drove the Industrial segment?

The Industrial segment’s sales rose 13.8% in fiscal 3Q17 due to growth across all of the regions. The segment’s sales rose 9.9% in the Americas, which reflected strong momentum in branded foodservice and higher demand from quick service restaurants and packaged food companies. Meanwhile, Foods generated incremental sales of 4%.

In the EMEA region, the segment’s sales rose 26.6% due to a strong contribution from Giotti (+25%). The segment witnessed increased demand from packaged food companies and quick service restaurants. However, the company’s planned exit from low-margin businesses had a negative impact on its sales growth.

The Industrial segment’s sales rose 16.4% in the Asia-Pacific region. Elevated demand from quick service restaurants, driven by new products and promotions, benefited the top-line growth.


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