Management remains upbeat
Barring the recent hiccup of soft fiscal 1Q17 results for the quarter ended February 28, 2017, McCormick (MKC) remains upbeat for the rest of the current fiscal year. It projects a meaningful improvement in both of its business segments: Consumer and Industrial.
McCormick expects sales to rise 5.0%–7.0% for fiscal 2017 on a currency neutral basis. That’s in line or slightly above its long-term projection. EPS (earnings per share) is expected to rise 9.0%–11.0%. Strong sales, productivity savings, and margin expansion are expected to boost investor confidence in the stock.
The recent past
McCormick’s fiscal 1Q17 adjusted earnings of $0.76 surpassed Wall Street’s expectation and rose 2.7% YoY (year-over-year). Its top line rose 1.3% to $1.0 billion but remained shy of the consensus estimate. A fall in volumes and an adverse currency movement were more than offset by price increases and a positive impact from acquisitions.
Let’s take a look now at McCormick’s segments. Sales for the Consumer segment rose 1.0%, benefiting from the acquisitions of Gourmet Garden and Cajun Injector, coupled with a strong performance in the Asia-Pacific region. That was partially offset by a weakness in the EMEA (Europe, the Middle East, and Africa) region, where sales fell about 7.0% due to increased competition.
The Industrial segment, on the other hand, saw a 2.0% rise in sales for fiscal 1Q17. Double-digit growth in branded food service and savory flavor products was partially offset by a lower demand from quick service restaurants in the United States (SPY). There was also a positive impact on its top line from a strong performance in the Asia-Pacific region, mainly China, and the Giotti acquisition.
An adverse currency movement and low demand are taking their toll on food manufacturers. Recently, ConAgra Brands (CAG) reported its fiscal 3Q17 results. Its sales fell 9.9% YoY due to the negative impact from foreign exchange.
In fiscal 3Q17, General Mills’ (GIS) revenue fell ~5.0% YoY, reflecting a fall in volume. JM Smucker (SJM) reported a 5.0% fall in fiscal 3Q17 sales. In February, Kellogg (K) reported a 1.4% fall in its top line due to a weakness in its flagship products.
Going forward, McCormick’s sales will most likely be impacted by adverse currency movements. However, new products, expanded distribution (including e-commerce), improved marketing, and cost savings are likely to boost the company’s financials.