On June 27, McCormick (MKC) shares closed 3.5% higher due to the company’s better-than-expected bottom-line performance in the second quarter. McCormick increased its fiscal EPS outlook, which supported its stock.
McCormick posted mixed second-quarter results for the three months ending on May 31. McCormick’s net sales were flat and missed analysts’ expectation. The benefits from improved volumes and pricing were offset by currency volatility. Tough YoY (year-over-year) comparisons limited the sales growth rate.
McCormick’s base business stayed strong due to new products, a favorable mix, and expanded distribution. The margins improved sequentially and on a YoY basis, which is encouraging.
Margin expansion and the lower effective tax rate supported McCormick’s bottom line, which recorded double-digit growth and beat analysts’ expectations.
A strong performance in the first half of 2019 and an expected increase in the operating income prompted McCormick’s management to increase the adjusted EPS outlook for 2019.
We expect McCormick’s base business to continue to benefit from higher volumes due to new product launches and distribution gains. Price restructuring initiatives taken to offset cost headwinds are expected to support the company’s organic sales and margins. However, McCormick’s high valuation could restrict the upside in its stock.
McCormick stock has risen 11.9% on a YTD (year-to-date) basis as of June 27 due to sustained momentum in its organic sales, margin expansion, and double-digit EPS growth.