Why McCormick’s Stock Fell despite Strong 2Q Results



Stock fell 3.6%

McCormick (MKC) posted strong fiscal 2Q17 results on June 29, 2017. The company surpassed analysts’ estimates for both top and bottom line and remains on track to deliver healthy growth in the coming quarters on the back of new products, expansion of distribution channels, and pricing actions. Surprisingly, MKC stock fell 3.6% and closed at $95.36 following its quarterly results.

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What led to the decline?

McCormick, which until now has been generating industry-leading sales growth despite the challenging environment, is facing a growing threat from private label products. The price war among retailers has led to the growth of private label products, which is eating into the market share of McCormick and other players operating in this space.

The company reported better-than-expected results for fiscal 2Q17 and remains upbeat about the second half of the year, yet it reaffirmed its earlier guidance and didn’t increase it, which left investors a bit worried.

Meanwhile, the company is experiencing challenges in its European business, mainly in the UK, which is denting its financials. The situation likely won’t reverse soon. In addition, tepid margins on account of adverse currency movement pose further challenges.

However, all is not gloom and doom. In fact, McCormick remains one of the fastest growing companies in the food space and has successfully accelerated sales growth through its strong portfolio of brands. Meanwhile, the company remains well positioned to drive balanced growth in coming quarters through productivity and cost savings. Given the company’s strong 1H17 performance and healthy outlook, the stock might see a rebound.

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YTD performance

McCormick stock has underperformed the broader index on a YTD (year-to-date) basis. The company’s stock rose about 2% as of June 29, 2017. Comparatively, the S&P 500 Index (SPX) rose 8.1%. In the meantime, ConAgra Brands (CAG), General Mills (GIS), and J.M. Smucker (SJM) have seen their stocks fall 9%, 11%, and 8%, respectively.

Series overview

In this series, we’ll analyze McCormick’s quarterly performance. We’ll focus on the facts driving the company’s sales and EPS. We’ll also discuss analysts’ recommendations and valuations for MKC stock.


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