Yahoo Finance McCormick (MKC) Benefits From Strategic Buyouts & Cost Savings
McCormick & Company MKC has strategically increased its presence through acquisitions to grow its portfolio. With a global portfolio aligned with consumer trends and innovative product platforms, McCormick’s focus on growth areas and efficiency bolsters its market presence. Despite challenges like cost inflation and volume declines, the company’s efficiency programs promise margin expansion.
Let’s discuss this in detail.
Key Drivers in Place
McCormick’s commitment to achieving long-term objectives is evident from its proven track record, wide-reaching and competitive global portfolio, focus on high-growth, profitable areas, alignment with evolving consumer preferences and a distinctive heat platform. The company’s The company's effective pricing strategy and cost savings keep it well-positioned for growth. Such upsides drove the company’s first-quarter fiscal 2024 results, with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate.
Management is encouraged by its positive business momentum and anticipates some improvement in volume performance, which is expected to strengthen throughout fiscal 2024. Management is prioritizing investments to fuel profits for the fiscal 2024. McCormick expects adjusted operating income to grow 3-5% (up 4-6% at constant currency or cc) due to the gross margin expansion. Management envisions 2024 adjusted earnings per share (EPS) in the band of $2.80-$2.85, suggesting a 4-6% increase from the year-ago period’s levels and a 5-7% increase at cc.
Image Source: Zacks Investment Research
Expansion through Acquisitions
McCormick is on track with prudent buyouts to fuel growth. 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. McCormick believes that the buyout of Cholula accelerates its growth potential across the condiment platform and widens the product portfolio in the hot sauce category.
Cost-Savings on Track
McCormick focuses on saving costs and enhancing productivity through its Comprehensive Continuous Improvement (CCI) program. The company’s first-quarter fiscal 2024 gross profit margin expanded 140 basis points (bps). The upside can be attributed to positive pricing actions, product mix and cost savings from CCI and Global Operating Effectiveness (GOE) programs. For the fiscal 2024, management expects a gross margin expansion of 50-100 bps, reflecting favorable impacts from pricing, product mix as well as cost savings from the programs mentioned above.
Will hurdles be Countered?
The company has been grappling with cost inflation for a while now. In the first quarter of fiscal 2024, though the gross margin increased year over year, it was partly offset by escalated cost inflation. Selling, general and administrative (SG&A) expenses escalated 7.6% due to elevated brand marketing and investments in research and development. Management expects a low single-digit increase in cost inflation for fiscal 2024.
McCormick’s volume and mix inched down 1% in the fiscal first quarter. Consumer demand continues to remain challenging. The company observed that consumers are exhibiting value-seeking behavior as they continue to feel the pinch of food inflation. With the strength of its brands and targeted investments, McCormick aims to enhance volume trends.
Shares of the Zacks Rank #3 (Hold) company have increased 10.7% in the past three months against the industry’s 0.2% decline.
Appetizing Food Picks
Vital Farms Inc. VITL offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2 (Buy). VITL has a trailing four-quarter average earnings surprise of 155.4%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 18.7% and 30.5%, respectively, from the year-ago reported numbers.
Utz Brands Inc. UTZ manufactures a diverse portfolio of salty snacks, currently carrying a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2.6% on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 19.3% from the year-ago reported numbers.
Celsius Holdings CELH, which offers functional drinks and liquid supplements, currently carries a Zacks Rank #2. CELH has a trailing four-quarter earnings surprise of 67.4%, on average.
The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 41.6% each from the year-ago reported figures.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
McCormick & Company, Incorporated (MKC) : Free Stock Analysis Report
Celsius Holdings Inc. (CELH) : Free Stock Analysis Report
Vital Farms, Inc. (VITL) : Free Stock Analysis Report
Utz Brands, Inc. (UTZ) : Free Stock Analysis Report
