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McCormick Flavors Up Its Business

By Dan Caplinger - Oct 1, 2019 at 11:39AM

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The spice maker boosted its full-year guidance and sees better times ahead.

If you like spices, then you probably know McCormick (MKC 1.30%) quite well. You'll find the spice maker's products on grocery store shelves across the nation, and its spices also go directly into many of the prepared foods that you can buy from restaurants, commercial food-service providers, and supermarkets.

Coming into Tuesday's fiscal third-quarter report, McCormick investors hoped that the company would be able to bounce back from a sluggish start to the year. McCormick didn't disappoint, and it believes that the best might be yet to come.

McCormick gets spicy

Fiscal third-quarter results kept showing continuing progress for the company. Sales climbed 1% to $1.33 billion, which was better than the break-even results that most of those following the stock had expected. Adjusted net income of $196.5 million was up almost 16% from year-ago levels, and that produced adjusted earnings of $1.46 per share. That outpaced the $1.29 consensus forecast among investors.

Bins containing raw spices of several different kinds.

Image source: Getty Images.

Looking more closely at McCormick's various segments, both the consumer division and the flavor solutions unit took hits from adverse currency impacts, ranging from 1 to 2 percentage points on the top line. The consumer segment saw a 3% rise in segment sales, lifted primarily from strength in the Asia-Pacific region as well as in the Americas. European weakness held back McCormick's consumer results, but the unit was quite profitable, seeing operating income climb 16% year over year.

The flavor solutions segment's numbers weren't as strong. Overall segment sales were down 2%, with roughly similar declines across the company's three key regions. McCormick did say that Asia-Pacific flavor solutions sales were down the most, falling 4% from year-ago levels. Operating income for the segment was down 2% year over year, with restructuring expenses hurting the unit's bottom line.

CEO Lawrence Kurzius was especially happy with how the consumer segment did. "New products and base business volume growth attributable to our category management initiatives and expanded distribution," Kurzius said, "as well as effective marketing support and merchandising execution, all contributed to our consumer segment's growth." He also pointed out that volatility in the flavor solutions business isn't unusual, dismissing short-term headwinds as being unimportant in predicting the segment's direction.

What's ahead for McCormick?

McCormick didn't share any reasons for concern in the near future. As Kurzius put it, "Our fundamentals remain strong, and we are confident the initiatives we have underway in 2019 position us to continue our growth trajectory." The executive pointed to rising interest among consumers around the world to use spices and other products to enhance flavor in healthy and sustainable ways, and McCormick is committed to delivering the products that those consumers want.

That view led the company to make some revisions to its guidance for the current year. On one hand, McCormick said that it sees revenue growth coming in at around 1% to 2% for the 2019 fiscal year, which is at the lower end of the company's previous guidance range. Some of that is due to currency impacts, which will cost the spice maker about 2 percentage points of top-line growth. Yet margin improvements should lift operating income by 8% to 9%, and McCormick boosted its earnings guidance to a new range of $5.30 to $5.35 per share on an adjusted basis, up from $5.20 to $5.30 per share three months ago.

McCormick investors seemed happy with that outlook, and the stock climbed 3% on Tuesday morning following the announcement. The spice maker still has plenty of room to accelerate growth, but producing these results even with the global economy sputtering is an achievement that's worthy of recognition.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.

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