McCormick & Co.
Inc. (MKC) is scheduled to announce its fourth quarter and
fiscal year 2011 results on January 26, 2012 and we don’t see any
major estimate revisions at this point. Currently, the Zacks
Consensus Estimate for the fourth quarter is 97 cents per share and
$2.78 per share for the fiscal year 2011.
Third Quarter
Overview
McCormick’s third-quarter 2011
operating earnings of 69 cents a share surpassed the Zacks
Consensus Estimate by 6.2%. However, the reported quarter’s
earnings lagged the year-ago earnings by 9.2%.
The quarterly earnings benefited
from favorable operating income and cost savings. Moreover, new
products, increased distribution and brand marketing were able to
offset business weaknesses.
Total revenue grew 16% year over
year to $920.4 million from the year-earlier quarter, benefiting
from McCormick’s favorable volume, product mix and pricing actions
which have effectively curtailed increased raw and packaging
material costs. Revenue also exceeded the Zacks Consensus Estimate
of $870 million.
For fiscal year 2011, management
reaffirmed its earnings per share guidance in the range of $2.74 to
$2.79, including the impact of the acquisitions and the joint
venture. Sales are expected to grow 6% to 8% in local currency,
with the impact of sales from favorable currency exchange rates at
2%.
Agreement with
Analysts
The analysts expect McCormick to
follow the trend of beating its earnings estimates, as it has been
doing for the last four quarters. Though the analysts have not
revised their estimates in the last one month for the current
quarter and fiscal year 2011, there is a slight downside trend in
the fiscal year 2012, which justifies a neutral sentiment on the
stock.
Out of the 13 analysts providing
estimates for the current year, none of the analysts changed their
estimates on the stock. However, only one of the 14 analysts
downgraded his estimate over the last 30 days for the fiscal year
2012. It means that analysts are neutral about the long-term
performance of McCormick.
The trend indicates no clear
directional movement for the upcoming quarters and signifies that
the analysts are circumspect about the long-term trend earnings of
the company.
Management believes that McCormick
has strong operating income, and is trying to save on increasing
costs.
Magnitude of Estimate
Revisions
Over the past 30 days, the
estimates for McCormick remained unchanged at 97 cents for the
current quarter and at 61 cents for the first quarter of 2012. The
estimates also remain unmoved for fiscal year 2011 at $2.78 per
share and for fiscal 2012 at $3.10 per share.
McCormick has a significant
presence in the international market. The company’s consumer brands
reach approximately 100 countries. The significant international
presence has boosted its growth, and we believe will continue doing
so in the coming years.
In addition, McCormick has made
multiple acquisitions that have contributed to growth. On September
12, McCormick consummated its joint venture with Kohinoor Foods
Ltd. India, to market and sell basmati rice and food products in
India. The venture was announced in June 2011 and will now be named
as Kohinoor Specialty Foods India Private Ltd.
McCormick had invested INR 5.2
billion ($113 million) in the deal and commands an 85% interest in
Kohinoor Specialty Foods India Private Ltd. Going ahead, McCormick
is also expected to bear approximately $4 million of fees and other
costs in the fourth quarter of 2011 related to the deal, which
would reduce earnings by 3 cents per share.
However, McCormick expects the
joint venture sales to be approximately $85 million in the first
year, and will be accretive to McCormick’s earnings per share in
2012.
McCormick also sealed the deal to
acquire Kamis S.A., which is a leader of spices, seasonings and
mustard in Poland. McCormick said it will record about $3 million
by way of fees and other costs related to the completion of the
deal in the fourth quarter of 2011, which is expected to reduce
earnings by 2 cents per share. In addition, McCormick expects the
business to add about 6 cents per share to the earnings of
2012.
Though the company has completed
multiple acquisitions that have expanded its product portfolio, we
believe that such a strategy has inherent risks. Additionally, the
competitive nature of McCormick's market is a matter of
concern.
Recently, McCormick has raised its
dividend by 3 cents to 31 cents a share in order to return value to
its shareholders.
The new dividend was paid on
January 13, 2012, to shareholders of record at the close of
business on December 30, 2011. McCormick, a global leader in
flavor, has successively increased its dividend 26 times.
McCormick, which competes with
ConAgra Foods, Inc. (CAG) and Kraft Foods
Inc. (KFT), currently holds a Zacks #4 Rank translating
into a short-term ‘Sell’ rating. Over the long term, we provide a
Neutral recommendation on the stock.
CONAGRA FOODS (CAG): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
MCCORMICK & CO (MKC): Free Stock Analysis Report
MCCORMICK & CO (MKC): Free Stock Analysis Report
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