Reckitt's Food Division Now Under McCormick's (MKC) Wings
Zacks Investment Research | Aug 17, 2017 10:33PM ET
McCormick & Company Inc. (NYSE:MKC) recently announced that it has completed the acquisition of Reckitt Benckiser Group plc’s food division. The company revealed its buyout plan on Jul 18.
The $4.2-billion deal was subject to certain purchase price adjustments, which included a combination of new debt and equity. In order to fund the purchase, the company had recently undertaken a public offering which realized net proceeds of approximately $482 million after estimated underwriting discounts. McCormick met the remaining fund requirement through debt financing that included pre-payable term loans and senior unsecured notes. Both equity and debt offerings were completed on Aug 11.
Reckitt: A Promising Inclusion
The acquisition of Reckitt’s food division has been McCormick’s primary strategy for quite a while. The buyout has added iconic brands like Frank's RedHot Hot Sauce, French's Mustard, French's Crispy Vegetables and Cattlemen's BBQ Sauce to McCormick’s portfolio. Both Frank's RedHot and French's Mustard hold top positions in their respective categories in the United States and Canada. As a result, these brands will aid McCormick position itself as one of the leading companies in the domestic condiments category. It will also strengthen and expand the company’s business presence, internationally. Moreover, these brands would enable the company to take advantage of the rising trend of flavorful dining with high quality and natural ingredients.
As stated in the company’s press release previously, the acquisition is anticipated to generate cost synergies of approximately $50 million. This is expected to be achieved by 2020, with significant margin and earnings accretion in 2017.
Strategic Efforts Boosts Performance
McCormick has been strategically increasing its presence through acquisitions in order to grow its spices and seasonings portfolio. In the past, the company has made significant acquisitions, including Italy-based Enrico Giotti SpA and Botanical Food Company (both carried out in 2016). The buyouts contributed toward increasing sales by 3% during the second quarter of 2017.
Product innovation, brand marketing support, expanded distribution and pricing actions have also been aiding McCormick to deliver a strong performance. The company has been focusing on saving costs and enhancing productivity through its ongoing Comprehensive Continuous Improvement program.
A promising portfolio combined with robust initiatives has been favoring this Zacks Rank #2 (Buy) company, that has delivered positive earnings surprise in six out of the trailing eight quarters.
Share Performance
Of late McCormick has been battling with the negative impacts of material costs and currency, which has pressurized company’s shares since past many quarters. However, if we look into the company’s stock price performance over the past month, we note that the stock has outperformed the industry as well as the broader sector, owing to the strategic efforts of the company to boost its sales and profits. Over the past month, shares of the company have increased 5%, against the Zacks Investment Research
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