Wall Street expects McCormick & Company (MKC) to post adjusted EPS of $1.03 in the first quarter of fiscal 2019, a YoY (year-over-year) growth rate of 3.0%. This projected growth rate indicates a steep slowdown in growth both sequentially and YoY.
McCormick’s bottom line marked 31.6% growth in the previous year’s quarter. Meanwhile, on average, its adjusted EPS marked 19.7% growth in the last four quarters.
McCormick’s bottom line benefited from its stellar sales growth. Higher pricing, cost savings, and value-added products cushioned its margins and, in turn, its EPS growth. Also, lower taxes following US tax reforms further drove the company’s bottom line growth.
However, McCormick annualized its acquisitions in the third quarter of fiscal 2018, which is likely to result in the continued slowdown in its sales growth rate and, in turn, its EPS in the first quarter of fiscal 2019. The tax rate is also expected to remain high compared to the previous year, which could further lower its EPS growth rate. An increase in costs and higher interest expenses could also remain a drag.
We expect an increase in pricing and cost-saving initiatives tied to the company’s comprehensive continuous improvement program to support its bottom line growth in the first quarter. However, adverse currency rates and tough YoY comparisons are likely to hurt its bottom line.
The majority of packaged food companies are expected to disappoint with their earnings in the coming quarters. We expect continued inflation in raw materials, packaging, and logistics costs to take a toll on their earnings growth rates.
General Mills (GIS), Conagra Brands (CAG), the J.M. Smucker Company (SJM), the Campbell Soup Company (CPB), and the Kellogg Company (K) are seeing increased cost pressures, which is expected to hurt their bottom lines. Increased interest expenses driven by higher debt taken on to finance their recent acquisitions and rising outstanding share counts are likely to suppress their earnings further.