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Here's All You Must Note Ahead of McCormick (MKC) Q4 Earnings

Zacks Equity Research

McCormick & Company, Incorporated MKC is slated to report fourth-quarter fiscal 2019 results on Jan 28. This spices and seasonings company delivered a positive earnings surprise of 13.2% in the last reported quarter. Further, its earnings have outperformed the Zacks Consensus Estimate by 5.9%, on average, in the trailing four quarters.

The Zacks Consensus Estimate for fourth-quarter earnings has been stable at $1.63 per share over the past 30 days. This suggests a decline of 2.4% from the year-ago period’s reported figure. Nonetheless, the consensus mark for revenues stands at $1,510 million, indicating a rise of 0.7% from the figure reported in the year-ago period.

The Zacks Consensus Estimate for fiscal 2019 earnings per share stands at $5.37, suggesting a rise of 8.1% from the year-ago period’s reported figure. The consensus mark for revenues stands at $5.37 billion.

McCormick & Company, Incorporated Price and EPS Surprise

McCormick & Company, Incorporated Price and EPS Surprise
McCormick & Company, Incorporated Price and EPS Surprise

McCormick & Company, Incorporated price-eps-surprise | McCormick & Company, Incorporated Quote

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Key Factors to Note

McCormick has been benefiting from constant innovation and product launches to tap the evolving consumer demand for new flavors, spices and herbs. Notably, the company’s performance in the first, second and third quarters of fiscal 2019 gained from new products along with advancements in the base business. In fact, new products have been boosting the company’s performance across some key market locations, such as the Americas and the Asia-Pacific regions.

Further, the company’s efforts to enhance marketing strategies have been yielding results. Markedly, McCormick has also been increasing spending on digital marketing. In fact, through digital marketing, the company tries to connect with consumers in a personalized way to deliver recipes, provide cooking advice and discover products. Apart from this, the company’s acquisition of the food division of RB Foods (in 2017) has been a driver, given the latter’s solid brands like Frank's RedHot Hot Sauce and French's Mustard, French's Crispy Vegetables and Cattlemen's BBQ Sauce. In fact, Frank's RedHot and French's Mustard hold noteworthy positions in the United States and Canada.

McCormick has also been focused on its Comprehensive Continuous Improvement (CCI) program to cut costs and enhance productivity. Cost savings through CCI and streamlined actions led to a record of $118 million in fiscal 2018. Moreover, cost savings from CCI boosted adjusted operating income in the first, second and third quarters of fiscal 2019. In its last earnings call, management guided cost savings of $110 million in fiscal 2019 from the CCI program. The company expects sales growth of 1-2% (up 3-4% at cc) in the fiscal. Further, management anticipates adjusted operating income growth of 6-7% (8-9% at cc). Adjusted earnings for fiscal 2019 are envisioned in a band of $5.3-$5.35 per share, suggesting 9-10% growth.

However, we cannot ignore the risks related to volatile currency movements. Evidently, adverse currency movements were a drag on McCormick’s top and bottom lines in the first, second and third quarters of fiscal 2019. Management had earlier predicted adverse impact of such headwinds on fiscal 2019 net sales, adjusted operating income and the bottom line.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for McCormick this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although McCormick carries a Zacks Rank #3, its Earnings ESP of -1.08% makes surprise prediction difficult.

Stocks With Favorable Combinations

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

Darling Ingredients DAR presently has an Earnings ESP of +6.38% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Procter & Gamble PG currently has an Earnings ESP of +2.19% and a Zacks Rank #2.

Altria MO currently has an Earnings ESP of +0.29% and a Zacks Rank #3.

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