McCormick & Company MKC looks well-placed on the back of robust product innovations. Moreover, the company’s lucrative acquisitions have been yielding. Its robust cost-saving efforts also bode well.
McCormick is witnessing higher demand in its Consumer segment stemming from escalated at home consumption and cooking more at home amid the coronavirus pandemic. This was seen in second-quarter fiscal 2020 results, with sales increasing 26% year over year in the segment. In fact, the company is anticipating an overall increase in consumer demand in this segment during periods of greater cooking at home.
Moreover, analysts are optimistic regarding the stock’s performance. The Zacks Consensus Estimate for fiscal 2020 earnings inched up 1.2% to $5.76 per share in the past seven days. Clearly, these upsides have boosted investors’ sentiments. Shares of McCormick have gained 21.7% in the past three months compared with the industry’s growth of 10.2%.
Factors Driving McCormick
McCormick regularly enhances products through innovation to remain competitive and tap the evolving demand for new flavors, spices and herbs. Aided by a sturdy brand image, McCormick enjoys strong retail acceptance for its new products. New and renovated products drove the company’s performance during the second quarter of fiscal 2020. In June, McCormick re-launched its Old Bay hot sauce. The company plans to expand its Frank’s brand portfolio to offer frozen appetizers, chicken bites and dips later this year.
McCormick focuses on product launches to boost revenue prospects. In February 2019, McCormick entered into a partnership with IBM to boost artificial intelligence capabilities surrounding new product development. Additionally, the company is on track to augment robust marketing support for its products. Management remains well aligned with consumer demand for flavorful healthy eating and has developed a range of natural and organic offerings. In this regard, the company’s Flavor Real platform offers organic, non-GMO and gluten free products.
Further, McCormick strategically increased its presence through acquisitions to grow its spices and seasonings portfolio. McCormick’s acquisition of the food division of RB Foods (concluded in Aug 2017) is noteworthy in this regard. With iconic brands like Frank’s RedHot, French’s and Cattlemen’s, RB Foods is likely to continue being a profitable asset for McCormick’s flavor portfolio. Notably, Frank's RedHot and French's Mustard hold important positions in the company’s condiment portfolio. These brands position the company in the leading U.S. condiments category and place it well for international expansion.
Will the Hurdles be Countered?
The coronavirus pandemic marred the company’s Flavor Solution unit. During second-quarter fiscal 2020, sales in the segment fell 18%, thanks to weakness across all regions. Moreover, adverse currency movements were a drag on McCormick’s top line by 2% during the second quarter.
Nevertheless, McCormick’s aforementioned upsides, together with its cost saving and productivity enhancement endeavors are likely to help this Zacks Rank #3 (Hold) company remain in investors’ good books.
Incidentally, McCormick is focused on saving costs and enhancing productivity through its ongoing Comprehensive Continuous Improvement (CCI) program. Started in 2009, the CCI program has helped the company to focus on reducing costs and enhancing productivity. Cost savings from CCI boosted gross margin which expanded 230 basis points to 41.4% in second-quarter fiscal 2020.
Top 3 Picks
United Natural Foods, Inc. UNFI currently has an Earnings ESP of +12.00% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Conagra Brands CAG has a long-term earnings growth rate of 7% and a Zacks Rank #2 (Buy).
Kimberly-Clark KMB has a long-term earnings growth rate of 5.1%and a Zacks Rank #2.
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