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What’s Backing McCormick’s Stellar Sales Growth?

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Recent performance

McCormick (MKC) has impressed with its top line performance in the past four quarters, with its net sales increasing at an average rate of 22.4% in the period. Incremental sales from its acquired brands, continued strength in its core business, new products, and a mix shift toward value-added products supported the company’s top line growth.

McCormick’s acquisitions contributed 9.6%, 12.9%, and 12.4% to its net sales growth in the third quarter, the second quarter, and the first quarter, respectively. Meanwhile, higher pricing, innovation-led new products, an improved mix, and expanded distribution further supported its top line growth rate.

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Besides McCormick, other food companies have also managed to accelerate their net sales growth rates led by acquisitions. Conagra Brands’ (CAG) recent acquisitions contributed 2.0% to its net sales growth during its last reported quarter. Meanwhile, General Mills’ (GIS) Blue Buffalo acquisition added ~9% to its top line growth during the last quarter. The Kellogg Company (K), the Hershey Company (HSY), and the J.M. Smucker Company (SJM) are reporting improved top line growth thanks to the incremental sales from their acquired brands.

Outlook

We expect McCormick to report healthy net sales growth during the fourth quarter led by its Frank’s and French’s brand acquisitions. Meanwhile, higher pricing, a favorable mix, and improved volumes should further drive its top line. However, adverse currency rates could remain a drag.

There could be a sequential slowdown in McCormick’s top line growth in 2019 as it annualizes its RB Foods acquisition and faces a tough YoY comparison. Analysts expect McCormick’s top line to grow 13.1% in 2018, but they expect its rate of growth to slow to 3.4% in 2019.

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