McCormick Spices Up Its Bottom Line

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When it comes to making spices, McCormick (NYSE: MKC) is among the global leaders of the food industry. Whether it's selling spices directly to consumers through grocery stores or providing the flavorings that go into the commercial food products that millions of people buy, McCormick has done a good job of taking advantage of every opportunity it has to build market share and boost its presence worldwide.

Coming into Tuesday's fiscal first-quarter financial report, McCormick investors were prepared to see fairly sluggish gains on the top and bottom lines. Sales growth did come in slow, but the spice maker was able to generate solid earnings growth that showed how it's been able to make its operations more efficient and take advantage of favorable trends in its industry.

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A solid bottom-line start to 2019

McCormick's fiscal first-quarter results were mixed in many investors' eyes. Revenue was higher by just 1% to $1.23 billion, which was roughly in line with what those following the stock had expected to see from the spice maker. However, although net income fell sharply due to one-time positive impacts from tax reform in the year-earlier period, adjusted earnings of $1.12 per share were up 12% from the fiscal first quarter of last year and topped the consensus forecast among investors for $1.03 per share.

Some of the same factors that McCormick has seen in recent periods held back the company yet again. Unfavorable currency movements took a bigger toll on the spice maker than in the recent past, costing it 3 full percentage points of sales growth. In addition, with McCormick having paused in its acquisition efforts, its sales are no longer getting a boost from bringing new businesses into the fold.

From a segment perspective, McCormick saw some mild disparities. The consumer segment had to deal with flat sales, with strength in the Americas getting fully offset by declines in the Europe/Middle East/Africa segment and the Asia/Pacific region. However, operating income for the consumer segment picked up 4%, with cost-saving initiatives helping to boost the bottom line. Meanwhile, in the flavor solutions business, sales rose 3%, with exceptionally strong growth in the Americas helping to cover flat performance in Europe and decreases in Asia. Again, cost savings played a key role in pushing operating income for that segment higher as well.

CEO Lawrence Kurzius was generally happy with how the company did. "McCormick's strong first quarter results were a great start to the year," Kurzius said, "reflecting the successful execution of our strategies." The CEO also pointed to strong fundamentals in helping the spice specialist's business build momentum coming into 2019.

What's ahead for McCormick?

McCormick tried to state its case for how 2019 could continue to be an important year for the company's growth. As Kurzius pointed out, "We continue to win with our customers through new products, expanded distribution, and promotional activities," and so far, that's been a recipe that looks like it should continue to bring improving results for the foreseeable future.

None of what McCormick has seen, however, has made it willing to change its outlook for the full fiscal year. McCormick reiterated its call for sales to climb 1% to 3% in 2019, with currency impacts cutting 2 percentage points off the growth rate. Perhaps more disappointing was the fact that McCormick kept its guidance for adjusted earnings in fiscal 2019 at $5.17 to $5.27 per share. With the better bottom-line figures in the first quarter, some had hoped that the spice giant would be willing to project those good results forward throughout the remainder of the year.

Even without a positive move on guidance, though, McCormick investors seemed generally happy with the report, and the stock was higher by 1% to 2% Tuesday morning following the announcement. A challenging global economy could keep sales growth muted in the near future, but McCormick's impressive positioning within the spice market should pay off with long-term success.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.