McCormick (NYSE: MKC) has cashed in on rising demand for spices and flavorings for foods, and a successful corporate strategy has made the company a leader in its niche. Consumers buy McCormick's brand-name products at countless retail locations, and institutions in the commercial food space also turn to McCormick to get its flavorings and spices for the products on their menus.
Coming into Thursday's fiscal third-quarter financial report, McCormick investors wanted evidence that the spice maker could keep generating solid growth in sales and profits. The company delivered on that front, and its recent acquisition of RB Foods stands to help McCormick boost its growth throughout the rest of the fiscal year and beyond. Let's look more closely at how McCormick did and what's ahead for the flavor specialist.
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McCormick gets tasty
McCormick's fiscal third-quarter results saw accelerating gains in key business metrics. Sales were up 9%, to $1.19 billion, outpacing expectations among those following the stock by about 1 percentage point. GAAP net income of $108.2 million was down from year-ago levels, due largely to acquisition-related expenses, but adjusted earnings of $1.12 per share easily topped the consensus forecast for $1.05.
One remarkable thing about McCormick's results was that the adverse impact of currency fluctuations that investors have seen in past quarters disappeared. In fact, sales growth was a bit slower on a constant-currency basis, and the hit to operating earnings from the dollar's performance amounted to just 1 percentage point.
From a segment perspective, McCormick saw growth on both sides of its business. Consumer sales were up 5%, with slightly faster rates of revenue gains coming in the Americas region due to roughly 3 percentage points of growth coming from the RB Foods acquisition. Internationally, consumer sales in Europe were up 1%, while the Asia-Pacific region saw a 2% boost from strength in China and India.
Overall, the McCormick and Lawry's brands performed well, with Zatarain's holding back the company's gains. Segment operating income jumped 10% from year-ago levels, with cost-savings initiatives bearing fruit and offsetting rising ingredient costs and marketing expenses.
The industrial segment saw faster growth, with a 14% rise in revenue leading to a gain of more than two-fifths in adjusted operating income. Acquisitions accounted for 4 out of the 10 percentage points of sales increases in the Americas, and 25 out of the 27 percentage points of revenue gains in Europe. Industrial sales in the Asia-Pacific region were up more sharply on an organic basis, with 16% gains stemming only from continuing business opportunities. Operating income for the segment was up 43% from where they were a year ago.
CEO Lawrence Kurzius highlighted the gains throughout McCormick's business. In addition, he said strategic moves have been critical, noting that "the RB Foods acquisition is an exciting milestone for McCormick that strengthens our flavor leadership with the addition of the iconic French's and Frank's RedHot brands to our portfolio." By capitalizing on consumer demand for healthier, more flavorful food, McCormick is finding avenues for growth across the globe.
Can McCormick keep spicing things up?
McCormick expects that various initiatives will help the company move forward. On one hand, new products will help increase interest in the company's lineup. Yet McCormick is also looking to cut costs, expand distribution, and improve its market presence throughout the industry. That balanced approach has the capacity to make McCormick more successful in the years to come.
Because of its solid results, McCormick increased its guidance for the full year. The company now thinks that sales will grow 9% to 10%, which is roughly double its previous expectation prior to the RB Foods transaction. Adjusted earnings per share of $4.20 to $4.24 per share is about $0.10 to $0.15 per share higher than McCormick's previous guidance, although GAAP earnings will be weaker due to transaction-related expenses and other extraordinary items.
Investors celebrated the news, and McCormick stock finished higher by 5% on Thursday following the announcement. The spice giant is doing a good job of growing its business, and McCormick stands to keep benefiting from its efforts to make the world a tastier place.
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