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McCormick Missed the Q4 EPS Estimate

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McCormick’s Q4 EPS 

McCormick (MKC) posted an adjusted EPS of $1.67 during the fourth quarter, which increased ~8% on a YoY (year-over-year) basis. However, the EPS fell short of analysts’ expectation of $1.70. Lower margins and increased outstanding shares limited the bottom-line growth during the fourth quarter. However, the lower effective tax rate supported the bottom-line growth.

A decline in the adjusted effective tax rate contributed $0.14 to the fourth-quarter EPS. However, lower operating income had a negative impact of $0.05. The higher outstanding share count lowered the EPS by $0.01.

McCormick’s adjusted gross margin decreased by 30 basis points. The adjusted operating margin contracted by 70 basis points.

Management expects the company’s adjusted EPS to be $5.17–$5.27 in fiscal 2019, which implies 4%–6% YoY growth. The tax rate will likely remain higher in fiscal 2019, which could hurt the EPS growth rate by 3%.

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Analysts’ rating and target price

Credit Suisse reduced its target price on McCormick stock to $130 from $150 per share after the fourth-quarter results. Among the 11 analysts providing recommendations on McCormick stock, ten recommended a “hold,” while one recommended a “buy.” Analysts have a consensus target price of $130.64 on McCormick, which implies an upside of 5.1% based on its closing price of $124.35 on January 24.

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