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Will Acquisitions Drive McCormick’s Revenue in Fiscal 1Q16?

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Revenue contributors

McCormick & Company (MKC) earns its revenue through its two segments: the Consumer Business and Industrial Business segments. The Consumer Business segment accounts for 60%–65% of McCormick’s revenue every quarter. Acquisitions completed in 2015 and product innovations are expected to drive revenue growth in fiscal 2016.

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Revenue expectations for upcoming quarters

Analysts are expecting McCormick’s revenue to come in at $1.0 billion for fiscal 1Q16, which represents an increase of 2% compared to fiscal 1Q15 revenue of $1.0 billion. The company surpassed estimates in the last two quarters. For fiscal 2Q16, 3Q16, and 4Q16, analysts expected revenue to grow by 2%, 1%, and 1%, respectively. For fiscal 2016, analysts expect revenue to come in at approximately $4.4 billion, a rise of 1%.

Revenue growth drivers

In 2015, McCormick completed three strategic acquisitions that, along with product innovation, are expected to drive sales in 2016. The company expects around one-third of its long-term sales growth will come from acquisitions. Currency translation might hurt sales in the upcoming quarter. A strong US dollar compared to most currencies has been a headwind lately for US companies with international operations, and McCormick also suffered the impact of the strong dollar in 2015.

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Outlook for 2016

Now let’s look at what McCormick expects for fiscal 2016 regarding sales. It expects sales to rise 4%–6% in constant-currency terms. The increase in the base business, new products pricing, and 1%–2% of sales growth from acquisitions completed in 2015 are expected to drive sales in fiscal 2016. The company projects sales growth, including the impact of currency headwinds, will come in at 0%–2%.

Revenue estimates for peers

McCormick’s peers in the packaged food industry include Campbell Soup (CPB), J.M. Smucker (SJM), and Snyder’s-Lance (LNCE).

  • Campbell Soup’s revenue for its fiscal 3Q16 is expected to remain in line with revenue in fiscal 3Q15.
  • J.M. Smucker’s revenue for its fiscal 4Q16 is expected to grow by 20%.
  • Snyder’s-Lance’s revenue for its fiscal 1Q16 is expected to increase by 17%.

To gain exposure to these stocks, you can invest in ETFs such as PowerShares Dynamic Food & Beverage Portfolio (PBJ), which invests ~12% of its holdings in these three stocks combined, as of March 23.

In the next part of this series, we’ll look at what Wall Street is expecting from McCormick’s 1Q16 earnings and what could affect earnings.

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