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Could McCormick’s Margins Expand in Fiscal 2017?

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McCormick outperforms peers on margins

McCormick’s (MKC) margins are expected to rise in fiscal 2017, which sets it apart from other packaged food manufacturers in the United States (SPY). Packaged food manufacturers are witnessing pressure on margins stemming from the rise in input costs. Soft sales and higher packaging and logistics costs are also a drag.

Margins for Hershey (HSY), Mondelēz (MDLZ), Conagra Brands (CAG), General Mills (GIS), and JM Smucker (SJM) fell during their last reported quarters. Margins for these companies are expected to remain muted due to challenges we looked at above.

McCormick’s gross margin fell in the previous quarter. However, it marked stellar growth in its operating margins. McCormick’s higher pricing in response to the rise in input costs, sales leverage, and cost and productivity savings is expected to drive its margins in the coming quarters.

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Outlook

Management remains upbeat and expects its margins to improve on a YoY (year-over-year) basis in fiscal 2017. It estimates its gross margin to increase 25–50 basis points in fiscal 2017. Higher pricing and strong sales are expected to drive its gross margin. Its adjusted operating profit is expected to see a YoY increase of 20%–21% in fiscal 2017, driven by higher cost savings. However, its planned hike in brand marketing to support new products and inflation in input costs are expected to remain a drag.

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