HomeMost PopularInvestingMcCormick (MKC) Benefits From Strategic Buyouts & Cost Savings

McCormick (MKC) Benefits From Strategic Buyouts & Cost Savings

Actionable Trade Ideas

always free

McCormick & Company MKC has strategically increased its presence through acquisitions to grow its portfolio. With a global portfolio aligned with consumer trends and innovative product platforms, McCormick’s focus on growth areas and efficiency bolsters its market presence. Despite challenges like cost inflation and volume declines, the company’s efficiency programs promise margin expansion.

Let’s discuss this in detail.

Key Drivers in Place

McCormick’s commitment to achieving long-term objectives is evident from its proven track record, wide-reaching and competitive global portfolio, focus on high-growth, profitable areas, alignment with evolving consumer preferences and a distinctive heat platform. The company’s The company’s effective pricing strategy and cost savings keep it well-positioned for growth. Such upsides drove the company’s first-quarter fiscal 2024 results, with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate.

Management is encouraged by its positive business momentum and anticipates some improvement in volume performance, which is expected to strengthen throughout fiscal 2024. Management is prioritizing investments to fuel profits for the fiscal 2024. McCormick expects adjusted operating income to grow 3-5% (up 4-6% at constant currency or cc) due to the gross margin expansion. Management envisions 2024 adjusted earnings per share (EPS) in the band of $2.80-$2.85, suggesting a 4-6% increase from the year-ago period’s levels and a 5-7% increase at cc.

Zacks Investment Research
Image Source: Zacks Investment Research

Expansion through Acquisitions

McCormick is on track with prudent buyouts to fuel growth. In December 2020, the company bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick also completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. McCormick believes that the buyout of Cholula accelerates its growth potential across the condiment platform and widens the product portfolio in the hot sauce category.

Cost-Savings on Track

McCormick focuses on saving costs and enhancing productivity through its Comprehensive Continuous Improvement (CCI) program. The company’s first-quarter fiscal 2024 gross profit margin expanded 140 basis points (bps). The upside can be attributed to positive pricing actions, product mix and cost savings from CCI and Global Operating Effectiveness (GOE) programs. For the fiscal 2024, management expects a gross margin expansion of 50-100 bps, reflecting favorable impacts from pricing, product mix as well as cost savings from the programs mentioned above.

Will hurdles be Countered?

The company has been grappling with cost inflation for a while now. In the first quarter of fiscal 2024, though the gross margin increased year over year, it was partly offset by escalated cost inflation. Selling, general and administrative (SG&A) expenses escalated 7.6% due to elevated brand marketing and investments in research and development. Management expects a low single-digit increase in cost inflation for fiscal 2024.

McCormick’s volume and mix inched down 1% in the fiscal first quarter. Consumer demand continues to remain challenging. The company observed that consumers are exhibiting value-seeking behavior as they continue to feel the pinch of food inflation. With the strength of its brands and targeted investments, McCormick aims to enhance volume trends.

Shares of the Zacks Rank #3 (Hold) company have increased 10.7% in the past three months against the industry’s 0.2% decline.

Appetizing Food Picks

Vital Farms Inc. VITL offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2 (Buy). VITL has a trailing four-quarter average earnings surprise of 155.4%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 18.7% and 30.5%, respectively, from the year-ago reported numbers.

Utz Brands Inc. UTZ manufactures a diverse portfolio of salty snacks, currently carrying a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2.6% on average.

The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 19.3% from the year-ago reported numbers.

Celsius Holdings CELH, which offers functional drinks and liquid supplements, currently carries a Zacks Rank #2. CELH has a trailing four-quarter earnings surprise of 67.4%, on average.

The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 41.6% each from the year-ago reported figures.

Where Will Stocks Go…

If Biden Wins? If Trump Wins?

The answers may surprise you.

Since 1950, even after negative midterm years, the market has never had a lower presidential election year. With voters energized and engaged, the market has been almost unrelentingly bullish no matter which party wins!

Now is the time to download Zacks’ free Special Report with 5 stocks that offer extreme upside for both Democrats and Republicans…

1. Medical manufacturer has gained +11,000% in the last 15 years.

2. Rental company is absolutely crushing its sector.

3. Energy powerhouse plans to grow its already large dividend by 25%.

4. Aerospace and defense standout just landed a potentially $80 billion contract.

5. Giant Chipmaker is building huge plants in the U.S. 

Hurry, Download Special Report FREE >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

McCormick & Company, Incorporated (MKC) : Free Stock Analysis Report

Celsius Holdings Inc. (CELH) : Free Stock Analysis Report

Vital Farms, Inc. (VITL) : Free Stock Analysis Report

Utz Brands, Inc. (UTZ) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Swing Trading Ideas and Market Commentary

Need some new swing ideas? Get free weekly swing ideas and market commentary from Jonathan Bernstein here: Swing Trading.

Explore More

Weekly In-Depth Market Analysis and Actionable Trade Ideas

Get institutional-level analysis and trade ideas to take your trading to the next level, sign up for free and become apart of the community.