Many investors see McCormick (MKC +4.41%) as a simple business that produces impressive cash flow and allows the company to pay steadily rising dividends to its long-term shareholders. Yet hiding beneath that ordinary facade is a business that has high ambitions to take an even stronger leadership role in providing flavorings and spices throughout the consumer and commercial food industry.
Coming into Thursday's fiscal fourth-quarter financial report, McCormick investors fully expected that the company would be able to sustain its solid pace of growth. The spice maker managed to outpace those expectations slightly, and optimism for the coming year has shareholders thinking that even better times could be ahead in 2018. Let's take a closer look at McCormick and what its latest results say about its business.
Image source: McCormick.
Savory results at McCormick
McCormick's fiscal fourth-quarter results continued positive growth trends from past periods. Sales jumped more than 21% to $1.49 billion, which was slightly ahead of the $1.48 billion figure that most investors were looking to see. Net income of $175.7 million was higher by 12% from the year-ago quarter, and after making allowances for extraordinary items, adjusted earnings of $1.54 per share topped the consensus forecast of $1.52 on the bottom line.
A substantial portion of McCormick's gains have come from recent acquisitions. The company said that sales from RB Foods and Giotti added a total of 15 percentage points to the sales increase. However, McCormick pointed to new products and marketing-driven organic growth in helping to keep the top line moving higher, and price increases to offset higher ingredient costs also helped contribute to its success.
McCormick's fundamental business remained strong across its divisional structure. In the consumer segment, sales climbed 20%, with particular strength in the Americas, where the RB Foods transaction had the most impact. Sales of McCormick and Lawry's brand spices were strong, but the company also experienced growth in recipe mixes, breakfast products, and private-label spice offerings. Internationally, sales growth of 9% in Europe came almost exclusively from favorable currency movements, while the Asia-Pacific region saw slower growth of 6% due to good results in China and India. Segment profit was higher by nearly 30% from year-earlier levels.
In the industrial segment, sales climbed at an even higher 25% rate. Again, acquisitions helped drive much of that growth, especially in the Americas region. Higher sales of snack seasonings and savory flavor packets helped on the industrial side, but European and Asia-Pacific sales growth came in at double-digit percentages organically even as the integration of Giotti helped to add more than 20 percentage points to European growth rates. Operating income for the segment soared 70%.
CEO Lawrence Kurzius noted how important recent strategic moves have been. "2017 was a milestone year for McCormick," Kurzius said, "and we strengthened our flavor leadership further with the addition of the iconic French's and Frank's RedHot brands." He also noted that internal efficiency efforts have already paid off and have the potential to generate even more savings going forward.
What's ahead for McCormick?
McCormick is optimistic about its future. In Kurzius' words, "With our vision to bring the joy of flavor to life and our steadfast focus on growth, performance, and people, we are confident in our continuing momentum for growth in 2018 to deliver strong financial results."
That positive attitude showed up in McCormick's guidance for the coming 2018 fiscal year. The company said that it expects sales to rise 12% to 14% in 2018 compared to 2017 levels. Tax reform will help it post a one-time boost to earnings of $2.09 to $2.24 per share in the coming year, even after incorporating certain acquisition integration expenses as an offset to the tax-related gains. Guidance for adjusted earnings of $4.80 to $4.90 per share would work out to a growth rate of between 13% and 15% for fiscal 2018, benefiting slightly from favorable currency moves but also showing McCormick's ability to keep fostering organic growth in its core businesses.
Investors were generally happy with the report, and the stock climbed almost 3% in pre-market trading following the announcement. As long as the spice giant can manage to keep things interesting and spur sales and profit gains, McCormick will be in a greater position to see its overall business keep growing and take a greater share of the food flavoring market worldwide.
