Many businesses find niches that they can dominate, and McCormick (MKC +1.69%) has made itself a giant in the spice industry. Not only does the company provide bottles of popular spices to consumers in supermarkets and other grocery locations, but it also has industrial customers to which it sells a wide variety of spice products as well.
Coming into Thursday's fiscal second-quarter financial report, McCormick investors were looking for relatively modest growth in sales and profit from the spice maker. The company managed to do better than those expectations with healthier gains, and investors liked what they saw in terms of future guidance as well. Let's take a closer look at McCormick to see how it did and what its future holds.
Image source: McCormick.
McCormick heats up
McCormick's fiscal second-quarter results picked up speed compared to recent periods. Revenue of $1.11 billion was up nearly 5% from the year-ago quarter, which was quite a bit faster than the 3% growth rate that most of those following the stock were expecting. Similarly, net income was up nearly 7% to $100 million, and after making allowances for extraordinary items, adjusted earnings of $0.82 per share were quite a bit better than the consensus forecast among investors for $0.76 per share on the bottom line.
A closer look at McCormick's report reveals that some of the factors that have affected the company's results in past quarters continued playing a role during the period. Adverse foreign currency movements cost McCormick about 2 percentage points' worth of revenue growth, both in terms of the overall business and in the consumer segment. The industrial segment of the business took a 3-percentage-point hit from the strong dollar.
Overall, the industrial segment outperformed the consumer segment. Sales on the industrial side were up 9% from year-ago levels, due in large part to the acquisition of Italian flavor manufacturer Giotti in December. McCormick saw sales increase in all three of its regions in its industrial business, with the strongest gains in Europe on strength in fast-food restaurant sales and business from packaged food companies. Industrial sales in the Americas gained 6% on strength in savory flavor products, snack seasonings, and food service growth, while revenue was flat from the Asia-Pacific region. Adjusted operating income for the segment rose 8%.
The consumer segment had slower top-line growth of just 2%, with weakness in the U.K. hitting European consumer sales by 9%. However, the Asia-Pacific region was particularly strong, posting 10% gains overall and particularly strong results in China and India. Sales of the company's Gourmet Garden products were responsible for a substantial portion of McCormick's gains in the area. Consumer sales in the Americas climbed 5% on strength from new products.
CEO Lawrence Kurzius was pleased with McCormick's sales gains. "We are continuing to capitalize," Kurzius said, "on the global and growing consumer interest in healthy, flavorful eating, the source and quality of ingredients, and sustainable and socially responsible practices." The CEO also noted that new products and cost-cutting are key components of McCormick's efforts to maximize both revenue and profit.
What's ahead for McCormick?
Going forward, McCormick sees plenty of opportunities. The company's acquisitions in particular present new pathways for expansion, and the spice maker also thinks that its efforts to boost internal efficiency have more room to run.
McCormick's guidance for the year reflected greater confidence in the direction of the currency markets and an increase in the number of extraordinary items that will affect its bottom line. The company boosted its sales growth projection by a percentage point to a new range of 4% to 6%, but all of that gain will come from smaller hits from foreign exchange effects. GAAP earnings projections for $3.94 to $4.02 per share reflect a greater amount of special-charge impact, and the company kept its adjusted earnings guidance for $4.05 to $4.13 per share steady from its previous prediction.
Investors were generally pleased with McCormick's results, and the stock climbed 1% in pre-market trading following the announcement. With encouraging results throughout its global market, McCormick hopes that it can keep spicing up consumers' palates and build on its impressive track record of growth around the world.
