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Here's Why McCormick (MKC) Looks Well-Positioned for Growth

McCormick & Company, Incorporated MKC appears in solid shape as it has been benefiting from its Global Operating Effectiveness (“GOE”) and Comprehensive Continuous Improvement (“CCI”) programs. Gains from prudent acquisitions have also strengthened the portfolio of this manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors.

This Zacks Rank #2 (Buy) stock has rallied 27% in the past three months compared with the industry’s growth of 6.8%. The Zacks Consensus Estimate for the current fiscal-year earnings per share has risen by a penny to $2.62 in the past 30 days.

McCormick is expected to witness top-and-bottom-line growth when it reports second-quarter fiscal 2023 results later this month. The consensus mark for sales is pegged at nearly $1.7 billion, suggesting 8.1% growth from the year-ago period reported figure. The consensus estimate for second-quarter earnings currently stands at 56 cents a share, indicating a 16.7% increase from the year-ago period earnings. Let’s delve deeper.

McCormick & Company, Incorporated Price, Consensus and EPS Surprise

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

Factors Working Well

McCormick’s CCI program has been helping the company reduce costs and enhance productivity. Although MKC’s first-quarter fiscal 2023 adjusted gross profit margin contracted year over year, cost savings from the CCI and GOE programs and favorable pricing offered some respite. Such cost savings, coupled with effective pricing actions, are likely to continue enhancing the company’s profits in the future.

In addition, McCormick is on track with normalizing its supply-chain costs and increasing efficiencies while strengthening the ability to service customers. Management is also undertaking streamlining actions in its entire organization.

The company’s GOE program is yielding favorable results, with first-quarter savings in tandem with management’s expectations.  McCormick expects its GOE program to scale up as fiscal 2023 progresses.

The company is on track to generate cost savings of $75 million in 2023 through its actions to normalize supply-chain costs and streamline its organization. It envisions its 2023 adjusted gross margin to expand between 25 to 75 basis points year over year, reflecting a positive impact of pricing and cost savings from the CCI and GOE programs.

Further, McCormick has been strategically increasing its presence through acquisitions to grow its portfolio. In December 2020, the company bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories.

In November 2020, McCormick also completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. The buyout of Cholula accelerates McCormick’s growth potential across the condiment platform and widens the product portfolio in the hot sauce category.

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Future Looks Bright

For fiscal 2023, net sales are expected to increase 5-7% from the fiscal 2022 levels. Management expects sales growth to be fueled by pricing actions, which, along with cost savings, are likely to help it counter inflationary headwinds. The company anticipates seeing solid growth via brand strength, brand marketing, new products, category management and differentiated customer engagement.

The adjusted operating income is likely to increase 9-11%. Management expects adjusted earnings in the band of $2.56-$2.61 per share in fiscal 2023, suggesting 1-3% growth. The bottom line is likely to be fueled by a solid operating performance, partly offset by increased interest expenses and a higher projected adjusted effective tax rate.

Other Appetizing Stocks

Some other top-ranked food stocks are Lamb Weston LW, The Kraft Heinz Company KHC and Conagra Brands CAG.

Lamb Weston, which operates as a frozen potato product company, currently sports a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year EPS suggests an increase of 116.8% from the year-ago reported number.

The Kraft Heinz Company, a food and beverage product company, currently sports a Zacks Rank #1. KHC has a trailing four-quarter earnings surprise of 10.7%, on average.

The Zacks Consensus Estimate for The Kraft Heinz Company’s current fiscal-year sales and earnings suggests growth of 2.8% and 3.6%, respectively, from the year-ago reported figures.
Conagra Brands, which operates as a consumer-packaged goods food company, currently carries a Zacks Rank #2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average.

The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests growth of 7.1% and 16.5%, respectively, from the year-ago reported numbers.


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