Sales and earnings growth could slow

McCormick & Company (MKC) is expected to announce its earnings results for the first quarter of fiscal 2019 on March 26. We expect the company to sustain the momentum in its sales and earnings in the quarter. However, its projected growth rate could slow significantly.

New product launches, brand marketing investments, and expanded distribution are expected to drive the company’s top line. However, tough YoY (year-over-year) comparisons are expected to limit its growth rate. McCormick’s previous year’s year quarter benefited significantly from its acquisition of RB Foods.

What to Expect from McCormick’s First-Quarter Results

An unfavorable mix and increased costs are expected to hurt McCormick’s fiscal 2019 first-quarter margins. However, price increases and cost-saving initiatives are likely to support its margins. McCormick’s adjusted earnings are expected to mark low-single-digit growth as benefits from higher pricing and cost savings are likely to be offset by an increase in its effective tax rate.

The top lines of packaged food companies have benefited from their recent acquisitions. US tax reforms drove their bottom line growth despite pressures on their margins from inflation in input and logistics costs.

However, as these companies begin to annualize the benefits of acquisitions and lower taxes, their sales and earnings growth rates are expected to decelerate significantly.

Stock performance

An anticipated slowdown in McCormick’s sales and earnings growth took a toll on its stock price. McCormick shares are trading roughly flat on a YTD (year-to-date) basis as of March 15.

In comparison, the stock prices of General Mills (GIS), the J.M. Smucker Company (SJM), the Campbell Soup Company (CPB), and Conagra Brands (CAG) are up 22.0%, 12.9%, 9.2%, and 8.1%, respectively, YTD. However, anticipated sales slowdowns, base business weakness, earnings pressure, and high valuations could hurt the stock prices of these packaged food makers going forward.

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