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Analyzing McCormick’s Fiscal Q3 2018 Sales

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Sep. 28 2018, Published 11:22 a.m. ET

Sales missed estimates

On September 27, McCormick (MKC) reported mixed results for the fiscal third quarter.[1. fiscal Q3 2018 ended August 31] Although the company sustained its double-digit sales, its net sales fell marginally short of analysts’ expectations.

McCormick reported net sales of $1.35 billion in the fiscal third quarter for a 13.5% year-over-year increase. However, its net sales missed Wall Street’s estimate of $1.36 billion. However, McCormick’s top line benefited from the incremental sales from its acquired brands. During the quarter, the company’s acquisition of the Frank’s RedHot and French’s brands contributed ~10.0% to its top-line growth rate.

Food companies are relying on acquisitions to accelerate their sales growth rates. General Mills (GIS), J.M. Smucker (SJM), Conagra Brands (CAG), Kellogg (K), and Hershey (HSY) have benefited from their recent acquisitions. 

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General Mills saw its top line jump 8.6% during the last reported quarter, reflecting a significant contribution from its Blue Buffalo acquisition. J.M. Smucker’s top line rose ~9.0% during the last reported quarter, as its Ainsworth acquisition added most of the gains. However, these companies’ organic sales growth rates have disappointed, indicating persistent challenges in their respective base businesses.

McCormick relies heavily on acquired brands that drive its top-line growth. However, the company’s underlying sales also remain healthy. McCormick’s strength in its base business, distribution gains, and new products provide meaningful support to its top-line growth.

Outlook

McCormick (MKC) lowered its fiscal 2018 net sales growth outlook, anticipating a less favorable impact from currency rates. McCormick’s top line is currently projected to increase by 12.0%–14.0% in fiscal 2018, down from its earlier growth guidance of 13.0%–15.0%.

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