McCormick Deals With a Long Winter

A slow start to grilling season weighed slightly on sales.

Dan Caplinger
Dan Caplinger
Jun 27, 2019 at 11:17AM
Consumer Goods

Everyone likes a little spice in their lives, and McCormick (NYSE:MKC) specializes in helping everyday consumers and industrial businesses add flavor to their foods with a wide variety of spice products. Not only can you find McCormick products in kitchen cabinets around the world, but you'll also discover that the spice giant plays a key role at many restaurants and institutional food service providers.

Coming into Thursday's fiscal second-quarter financial report, McCormick investors wanted to see bottom-line growth even though they foresaw some challenges on the sales front. McCormick didn't live up to everyone's expectations, due in part to weather conditions that weren't optimal for some of its key products. Yet the company remains optimistic that it can keep growing into the future.

Two jars of McCormick brand cinnamon and black pepper on a wood table, with spoons full of various spices and some raw herbs.

Image source: McCormick.

How McCormick made the most of a tough season

McCormick's fiscal second-quarter results showed both strengths and weaknesses. Revenue of $1.30 billion was flat from year-ago levels, but it was just slightly less than the $1.31 billion figure that most of those following the stock were looking to see. Adjusted net income was higher by 14% to $154.8 million, and the resulting adjusted earnings of $1.26 per share topped the consensus forecast among investors by $0.18 per share.

Currency impacts once again hurt McCormick's results, costing it what would have been a 3% rise in revenue on a neutral-currency basis. The flavor solutions segment had slightly better performance, posting a 1% rise even including the 3 percentage point hit from foreign exchange. McCormick said that new products, greater volume, and a more favorable product mix helped lift segment results, especially in Europe. Increased sales to quick-service restaurants were particularly important in driving the segment higher.

Meanwhile, the consumer segment suffered a 1% sales decline, but the spice maker said that all three of its regions saw growth once you take foreign exchange impacts out of the equation. Higher volumes of products like Zatarain's frozen foods, Frank's RedHot sauces, and branded extracts and Hispanic products helped overcome the negative impact on spices and seasonings that resulted from a delayed beginning to the grilling season.

CEO Lawrence Kurzius praised the company for its ability to capitalize on a big opportunity. "McCormick is a global leader in flavor," Kurzius said, "with a broad and advantaged global portfolio which continues to grow and position us to fully meet the demand for flavor around the world." The CEO noted the company's fundamental strength in driving profits higher despite mixed economic conditions across the globe.

Can McCormick get even hotter?

McCormick's also enthusiastic about its future. In Kurzius' words, "As we enter the second and most significant half of our year, we are confident the initiatives we have under way in 2019 position us to continue on our growth trajectory."

Indeed some of that optimism showed up in McCormick's updated guidance for the full fiscal year. The spice maker still believes that sales growth will be modest at just 1% to 3% in 2019, as adverse currency impacts aren't showing any signs of slowing soon. However, McCormick gave a $0.03 per share boost to its adjusted earnings expectations for fiscal 2019, resulting in a new range of $5.20 to $5.30 per share. Strong cash flow should let McCormick pay down debt while continuing to meet its obligations to shareholders through dividend payments.

McCormick investors weren't entirely pleased with the report, especially given the pressure on sales, and the stock was down slightly on Thursday morning following the announcement. Yet even with revenue growth temporarily facing headwinds, McCormick still seems convinced that it's following the right strategic path to spice things up for shareholders both now and for years to come.


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