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What Could Limit McCormick’s Top Line Growth Rate?

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Wall Street expectations

Analysts expect McCormick & Company (MKC) to post net sales of $1.2 billion in the first quarter of fiscal 2019, which implies a YoY (year-over-year) rise of a mere 0.6%. McCormick’s top line grew 18.5% in the first quarter of the previous year. The steep deceleration in its sales growth rate indicates that McCormick will no longer see incremental sales from its acquisitions. McCormick’s previous year’s quarter benefited from its acquisition of RB Foods. Currency volatility is also likely to hurt the company’s top line growth rate.

We expect expanded distribution, new product launches, brand marketing investments, and price-restructuring initiatives taken to offset the negative impact of cost headwinds to drive the company’s top line growth.

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The top line growths of other major food companies, including General Mills (GIS), Conagra Brands (CAG), and the J.M. Smucker Company (SJM), are likely to accelerate, reflecting incremental sales from their recent acquisitions. However, their sales growth rates are expected to slow as they gradually annualize the benefits of their acquisitions. Persisting base business challenges and currency volatility are also expected to pressure their top line growth.

Full-year outlook

McCormick’s management expects its top line to increase in the range of 1%–3% in fiscal 2019. This guidance includes an adverse impact of ~2% from unfavorable currency rates. However, its underlying sales are expected to sustain momentum resulting from new innovation-led products, the expansion of its distribution channel, and brand marketing.

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