McCormick (MKC) is scheduled to announce its second-quarter results on June 27. We expect the base business to benefit from expanded distribution and new product launches. However, tough YoY (year-over-year) comparisons in the absence of any incremental sales from acquisitions are expected to pressure the company’s top line. In the second quarter of 2018, McCormick rose 19.1% due to acquisitions—mainly RB Foods.
Major food companies’ top-line growth is expected to slow down as they annualize their acquisitions. General Mills (GIS), Campbell Soup (CPB), and J.M. Smucker (SJM) will likely witness a sequential deceleration in sales in fiscal 2020 as they face tough YoY comparisons.
McCormick’s improved volumes and mix and cost-saving initiatives are expected to support its profit margins. However, investments in growth initiatives could hurt McCormick’s margins. We expect the company’s bottom line to continue to grow. The growth rate will likely stay low and decelerate on a sequential basis.
What’s in the offing for McCormick stock?
So far, McCormick stock has risen 11.9% in 2019 due to better underlying sales and better-than-expected earnings during the last reported quarter. We expect McCormick to benefit from new products, distribution gains, and cost-savings. However, the company’s high valuation and low sales and earnings growth projection could limit the upside in the stock.