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Will McCormick Sustain Its Sales Momentum in Fiscal 1Q18?

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Analysts expect strong growth

Analysts expect McCormick (MKC) to sustain its stellar growth momentum in fiscal 1Q18 and project the company will post sales of $1.2 billion, up 18.7% on a YoY (year-over-year) basis. Strength in its base business, new product launches, and incremental sales from the RB Foods acquisition is likely to drive the company’s top-line growth. Also, McCormick is witnessing improved sales trends across all geographies, particularly in North America and China.

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McCormick’s top line is expected to benefit from improved volumes, driven by new product launches, strength in its branded product portfolio, and expanded distribution. Besides, demand from packaged food manufacturing companies and fast food restaurants is further expected to support its sales growth.

Favorable currency rates and incremental sales from RB Foods, Giotti, and Gourmet Garden products should drive the company’s sales higher. Also, the company’s efforts to raise pricing amid inflation in commodity prices support its sales growth rate.

However, McCormick’s planned exit from low margin businesses and a key retailer reducing shelf space in the UK are likely to have an adverse impact on its sales growth rate.

Favorable outlook

McCormick’s management remains upbeat and expects to generate 12%–14% growth in its top line in fiscal 2018, driven by improved volumes and pricing. The company’s focus on bolt-on acquisitions has been the key revenue driver for McCormick. The company expects its RB Foods acquisition to contribute about 8% to its top line growth rate in fiscal 2018.

Notably, packaged food manufacturers are acquiring fast-growing brands to expand their product offerings and align their portfolio according to consumer preferences. For instance, companies like Hershey (HSY), Campbell Soup (CPB), Kellogg (K), Conagra Brands (CAG), and General Mills (GIS) followed the acquisition route to expand into fast-growing avenues and revamp their product portfolio.

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