The new outlook for 2016
McCormick & Company (MKC) provided its latest financial outlook for fiscal 2016 after adjusting for a lower impact from unfavorable foreign currency exchange rates. In this article, we’ll discuss what McCormick expects to drive its performance in fiscal 2016.
McCormick expects base business increases, new products, pricing, and acquisitions completed in 2015 to drive sales growth of 4%–6% in constant-currency terms. The estimated sales growth including the impact from currency translation is 1%–3%. Wall Street expects sales to increase by 2% in fiscal 2016.
Operating profit projections
Operating income is estimated to rise 17%–20% from $548 million in fiscal 2015. Adjusted operating income is also expected to increase 6%–8% from $614 million in fiscal 2015. An estimated $7 million of special charges that relate to previously announced organization and streamlining actions is not included in the projected adjusted operating income for 2016. Excluding the estimated impact of currency translation, the year-over-year expected increase in adjusted operating income is 9%– 11%. Margins are also expected to improve with at least $95 million in cost savings. The company also plans to increase brand marketing expenses by ~$20 million.
For fiscal 2016, EPS (earnings per share) are expected to be in the range of $3.65–$3.72. Adjusted EPS are projected to come in at $3.68–$3.75. This excludes the impact of special charges and represents an increase of 6%–8% from adjusted EPS of $3.48 in fiscal 2015. Fiscal 2016 EPS are expected to grow by 9%–11% excluding the estimated impact of currency translation.
2Q16 EPS projections
Adjusted EPS in fiscal 2Q16 are expected to be slightly below adjusted EPS of $0.75 in fiscal 2Q15. McCormick expects strong sales growth and further enhancement in its gross profit margin. However, additional brand marketing is also planned in the second quarter. The year-over-year increase in the tax rate to 28% and unfavorable foreign currency rates are also expected to add some pressure to fiscal 2Q16 earnings.
McCormick & Company’s main competitors are The Campbell Soup Company (CPB), Pinnacle Foods (PF), and Mondelez International (MDLZ). CPB and PF have risen 22% and 5%, respectively, so far in 2016, but MDLZ has fallen 10%. The Guggenheim Defensive Equity ETF (DEF) invests 1.1% of its holdings in CPB, and the Vanguard Consumer Staples ETF (VDC) invests 0.59% of its holdings in CPB.