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Will McCormick Sustain Double-Digit EPS Growth in Q4?

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What analysts expect

McCormick (MKC) has reported strong growth in its bottom line in the past several quarters. Higher sales and margin expansion has helped the company to exceed analysts’ expectations in the past seven quarters. Moreover, McCormick’s EPS have grown at a strong double-digit rate in the past four quarters. In the fourth quarter, analysts expect McCormick to post adjusted earnings of $1.70 per share, which implies a YoY increase of 10.4%.

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Growth drivers

McCormick’s bottom line is expected to benefit from continued strength in its underlying sales led by growth in volumes and pricing. Plus, cost-saving measures and a lower effective tax rate are likely to support McCormick’s fourth-quarter EPS growth rate further.

However, the graph shows that McCormick’s EPS growth rate has decelerated sequentially. Moreover, the projected Q4 EPS growth rate is lower than in the third quarter. Analysts expect deceleration in the sales growth rate, higher interest expenses, and increased outstanding share count to restrict the bottom-line growth rate.

The bottom lines of the packaged food companies including Kellogg (K), General Mills (GIS), Conagra Brands (CAG), and J.M. Smucker (SJM) have benefited from the lower effective tax rate. However, increased interest expenses led by higher debt taken to finance their recent acquisitions remain a drag. Also, cost headwinds further pose challenges.

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