McCormick Up More Than 16% YTD: What's Next for the MKC Stock?
McCormick & Company MKC demonstrated impressive performance in the stock market year to date. MKC outperformed the Zacks Food - Miscellaneous industry's growth of 2.3% in the said period, registering a gain of 16.9%. It has also surpassed the broader Consumer Staples sector’s increase of 9% in the same time frame.
McCormick’s recent success stems from its effective strategic initiatives. With a global portfolio aligned with consumer trends and innovative product platforms, the company’s focus on growth areas and efficiency bolsters its market presence. Also, MKC fortified its business with solid investments and cost-saving programs. Management is encouraged by its positive business momentum, which is expected to strengthen throughout the fiscal 2024.
The Zacks Consensus Estimate for MKC’s current financial-year sales and earnings indicates year-over-year growth of 0.1% and 5.6%, respectively, reflecting a positive sentiment among analysts. Let’s discuss.
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Decoding McCormick’s Growth Strategy
McCormick demonstrates a strong commitment to long-term goals through its successful track record and competitive global portfolio. It focuses on high-growth and profitable areas, aligns with changing consumer preferences and leverages its unique heat platform. MKC prioritizes investments in brand promotion, product innovation, packaging improvements, category management and proprietary technology. Its cost-saving initiatives are set to support investments and enhance operating margins.
To expand its portfolio, the company strategically pursued acquisitions. In December 2020, it acquired a 100% stake in FONA International, LLC and its affiliates, enhancing its flavor solutions and value-added offerings. In November 2020, McCormick also acquired Cholula Hot Sauce, a premium Mexican brand, boosting its presence in the hot sauce market. In the latest quarter, MKC invested $130 million in capital expenditures to increase capacity, advance digital transformation and optimize its cost structure.
The Comprehensive Continuous Improvement (CCI) program, launched in 2009, has been key in reducing costs and increasing productivity. Alongside the Global Operating Effectiveness (GOE) programs, these initiatives contributed to a 60-basis point (bps) increase in gross profit margin for second-quarter fiscal 2024. It expects a 50-100 bps rise in the fiscal 2024 gross margin, driven by CCI and GOE cost savings, pricing adjustments and a better product mix, supporting future profitability.
McCormick’s Roadblocks: What You Need to Know
McCormick is currently grappling with persistent challenges related to soft volumes. Consumer demand remains weak due to value-seeking behaviors driven by heightened financial stress, particularly among mid-to-low-income households in the U.S. Additionally, inflation within the foodservice sector is impacting food-away-from-home consumption and reducing restaurant traffic, especially at quick-service restaurants across various regions.
Retail volumes, especially in core store categories, are underperforming as consumers focus on essential purchases. MKC anticipates a modest single-digit increase in cost inflation for the fiscal 2024. The company expects brand marketing expenditures to rise by a high-single-digit percentage for the same fiscal year, reflecting a significant boost in investment.
Investor’s Handbook for MKC Stock
Its strategic focus on aligning its global portfolio with consumer trends, coupled with significant investments in acquisitions and cost-saving initiatives, has bolstered its market presence. Despite facing challenges such as weak consumer demand and inflationary pressures, its positive financial outlook, supported by a Zacks Rank #2 (Buy), reflects confidence in its growth potential. As MKC continues to navigate these hurdles, its robust strategic initiatives and strong performance metrics make it a compelling investment opportunity for those looking to capitalize on its future growth.
Other Solid Food Stocks
Here, we have highlighted three other top-ranked food stocks, namely, The Chef's Warehouse CHEF, Pilgrim’s Pride PPC and Ollie's Bargain Outlet OLLI.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimated figure for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank #1. PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average.
The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings indicates growth of 183.43%, respectively, from the prior-year reported level.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, currently carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average.
The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.1% and 12.71%, respectively, from the year-earlier levels.
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McCormick & Company, Incorporated (MKC) : Free Stock Analysis Report
Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report