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McCormick’s EPS Growth Rate Will Likely Moderate

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Updated

Consensus estimates

Analysts expect McCormick (MKC) to post an adjusted EPS of $1.08 in the second quarter, which implies 5.9% growth YoY (year-over-year).  The projected growth rate indicates a steep slow down sequentially and on a YoY basis.

McCormick’s adjusted earnings increased 24.4% in the second quarter of 2018. The company’s adjusted EPS increased 12.0% in the first quarter. On average, McCormick’s adjusted EPS has grown 18.7% in the last six quarters. The stellar sales growth, margin expansion, and lower effective tax rate drove McCormick’s earnings in the past several quarters.

For the second quarter, McCormick’s bottom line will likely benefit from improved organic volumes, a favorable mix, and cost-saving initiatives. However, softness in the top line, the higher effective tax rate, and tough comparisons will likely hurt the company’s bottom line in the second quarter.

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Other major food companies’ bottom lines are expected to stay low, which reflects continued pressure on the profit margins, increased interest expenses, and a higher outstanding share count. Analysts expect General Mills’ bottom line to fall 2.5% in the fourth quarter. Conagra Brands’ (CAG) EPS in the fourth quarter is projected to fall 18% YoY.

Fiscal 2019 outlook

McCormick’s fiscal 2019 adjusted EPS is expected to be $5.17–$5.27, which implies 4%–6% growth on a YoY basis. The higher effective tax rate will likely restrict the bottom-line growth. McCormick’s management expects the higher effective tax rate to hurt its earnings growth rate by 3% in fiscal 2019.

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