What to expect
McCormick (MKC), which is set to report its fiscal 3Q17 earnings on Thursday, September 28, 2017, is projected to report balanced top- and bottom-line growth, which we’ll cover in detail in this series. Until now, the company has impressed investors with its strong top-line performance and remains on track to deliver healthy sales growth in coming quarters. The company’s focus on reducing costs and generating efficiency, and the anticipated reduced impact from currency fluctuations, are expected to drive its bottom-line growth.
However, the food industry has seen sluggish demand recently, and rising input costs pose a threat to margins. Also, increased competition from private-label players, a challenging retail landscape, and higher promotional spending to support new product launches and drive sales are likely to impact margins.
Investors are dumping food stocks as volumes continue to decline, and rising input costs are impacting food companies’ sales and profitability. Retailers are shunning packaged foods and focusing on in-demand and healthy foods to accelerate sales growth, which is adversely affecting US (SPY) food manufacturers’ top line. Meanwhile, price wars among retailers could squeeze these companies’ margins. It’s no wonder that major food stocks are trading in the red and have significantly underperformed the benchmark index YTD (year-to-date).
As for McCormick, the company’s stock has performed better than most peers, and has risen 2.9% YTD. However, food stock took a beating last week after the release of General Mills’ sluggish 1Q18 results, which further reduced investors’ confidence in food stocks and strengthened the view that the industry’s weakness is unlikely to abate in the near term.
In comparison, J.M. Smucker (SJM), General Mills (GIS), Conagra Brands (CAG), Kraft Heinz (KHC), and Kellogg (K) stock has fallen 18.3%, 17.1%, 16.2%, 11.2%, and 14.0%, respectively, YTD. Meanwhile, the S&P 500 (SPX-INDEX) has risen 11.8%.