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McCormick: Weak Q4 Dragged the Stock Down

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McCormick stock fell more than 10%

McCormick (MKC) shares fell more than 10% and closed at $124.35 on January 24 following its weaker-than-expected fourth-quarter results. McCormick’s top line improved ~1% on a YoY (year-over-year) basis. We expected McCormick’s top-line growth rate to decelerate sequentially since the company annualized its RB Foods acquisition. However, the sales fell short of analysts’ estimate. Trade inventory reductions and currency volatility pressured the top-line growth rate.

McCormick’s margins were also disappointing. An unfavorable mix more than offset the benefits from cost savings. Investments in growth and higher distribution expenses also remained a drag.

McCormick’s bottom line benefited from a significant decline in the tax rate. However, lower operating margins and the increased outstanding share count restricted the bottom-line growth. McCormick’s fourth-quarter EPS missed analysts’ expectation.

McCormick’s fiscal 2019 guidance wasn’t impressive. The company’s sales and earnings are expected to improve on a YoY basis. However, the growth rate will likely remain low. Negative currency rates, tough YoY comparisons, and a higher effective tax rate could impact the growth rate.

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Stock performance

Including the decline on January 24, McCormick stock has fallen 10.7% in 2019. In comparison, General Mills (GIS), J.M. Smucker (SJM), and Kellogg (K) have risen 11.8%, 8.9%, and 1.1%. Hershey (HSY) and Conagra Brands (CAG) stock have fallen 1.7% and 1.0%.

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