McCormick (NYSE:MKC) & Company, Inc. MKC is gaining from high demand stemming from the coronavirus-led higher at-home consumption. Apart from this, the company’s lucrative acquisitions and capacity enhancement initiatives are impressive. Also, effective saving plans bode well amid rising costs. Let’s delve deeper.
Pandemic-led Demand, Impressive Outlook
Escalated at-home cooking trend has been driving McCormick’s growth for a while. In fact, burgeoning demand amid the pandemic bolstered its fourth-quarter fiscal 2020 results, with sales rising 5% year over year. Sustained shift in consumers’ behavior toward increased at-home cooking and consumption amid the coronavirus outbreak fueled demand in the Consumer segment. Moreover, increased sales to packaged food companies drove growth in the Flavor Solutions segment.
For fiscal 2021, the company expects to achieve sales increase of 7-9% compared with the prior year’s figure. Growth is expected to be organic in the segments, backed by new products, brand marketing, category management as well as differentiated customer engagement. Also, the growth projection takes into account additional impacts of the Cholula and FONA buyouts.
Moreover, the company expects at-home consumption trends to remain favorable, owing to the ongoing pandemic. In fact, it expects to see gradual rebound in the demand from restaurant and other food-service customers. Adjusted earnings per share are expected in the range of $2.91-$2.96, reflecting a rise of 3-5% for fiscal 2021.
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What Else Is Driving Growth?
McCormick has strategically increased its presence through acquisitions to grow its portfolio. Recently, the company announced that it has bought 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio will help McCormick bolster its value-added offerings and expand the flavor solutions segment into attractive categories. In Dec 2020, McCormick completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. McCormick believes that the buyout of Cholula accelerates its growth potential across the condiment platform and widens its product portfolio in the hot sauce category.
Further, the company's acquisition of the food division of RB Foods (concluded in Aug 2017) is noteworthy. With iconic brands like Frank’s RedHot, French’s and Cattlemen’s, RB Foods is likely to continue being an asset for McCormick’s flavor portfolio.
Apart from these, the company is on track to make investments to expand its infrastructure worldwide. Management, in its fiscal fourth-quarter earnings call, stated that it is on track to construct a state-of-the-art Northeast Distribution Center in Maryland to optimize its distribution network.
The company is also making a new Flavor Solutions production unit in the United Kingdom to support its growing customer base in the region. In China, it is investing in flavor capabilities to enhance Flavor Solutions growth.
Is all Rosy for McCormick?
During the fourth quarter of fiscal 2020, McCormick’s adjusted operating income declined 4%. The downtick was caused by coronavirus-induced expenses, increased employee benefit expenses and higher planned brand marketing investments.
Moreover, reduced adjusted operating income put pressure on adjusted earnings that declined to 79 cents per share from 81 cents reported in the year-ago quarter. In fact, management expects to incur pandemic-related costs of nearly $60 million during fiscal 2021 majorly due to third-party manufacturing expenses.
Nevertheless, McCormick’s cost-saving endeavors, along with the aforementioned upsides, are likely to help this Zacks Rank #3 (Hold) company stay afloat amid such hurdles. Notably, McCormick focuses on saving costs and enhancing productivity through its ongoing Comprehensive Continuous Improvement (“CCI”) program, courtesy of which it achieved cost savings of $113 million in fiscal 2020. Further, the company expects to achieve CCI-led cost savings of nearly $110 million in fiscal 2021.
Shares of McCormick have increased 44.3% in a year compared with the industry’s growth of 45.7%.
3 Key Food Picks
The Hain Celestial (NASDAQ:HAIN) HAIN, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 26.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Medifast (NYSE:MED), Inc. MED, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 17.4%, on average.
The J. M. Smucker Company SJM, currently carrying a Zacks Rank #2, has a long-term earnings growth rate of 1.7%.
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