Did McCormick End Its Fiscal 2015 on a Positive Note?
Will Acquisitions Drive McCormick’s Fiscal 1Q16 Performance?
Revenue rose, beating estimates
McCormick & Company (MKC) ended its fiscal 2015 with an increase in sales of 6% compared to fiscal 2014 in constant-currency terms. Product innovation, a $241 million investment in brand building, and three strategic acquisitions completed in 2015 drove the increase in sales. Higher volume and product mix also contributed 4% to the sales growth for the year. For fiscal 4Q15, the company saw its revenue grow by 2.4% to $1,201.9 million as compared to fiscal 4Q14. The growth came from acquisitions with a 5% rise in base business led by higher volumes.
Enhanced operating profit
In fiscal 4Q15, McCormick’s adjusted operating income grew by 6% and by 10% on a constant-currency basis. Factors that affected operating profit were higher employee benefit expenses, a $9 million expense for brand marketing, and material cost inflation. However, these factors were offset by higher sales and cost savings. For fiscal 2015, operating profit also rose by 1% and by 5% on a constant-currency basis driven by the above-mentioned factors.
Higher operating profit drove the earnings increase
In fiscal 4Q15, McCormick’s EPS (earnings per share) rose 1.7% year-over-year. Higher adjusted operating income, though offset slightly by a higher tax rate, contributed to EPS. For fiscal 2015, adjusted EPS rose 3.2% compared to fiscal 2014. This excludes special charges. The growth in EPS was mostly driven by higher adjusted operating income, increased income from unconsolidated operations, and lower shares outstanding. The company expected its tax rate to be around 29%, and it did have an impact on fiscal 4Q15 EPS.
Peers’ performances
McCormick’s competitors in the industry include J.M. Smucker (SJM), Snyder’s-Lance (LNCE), and Pinnacle Foods (PF). They posted revenues of $2.0 billion, $406 million, and $722 million, respectively, for their last reported quarters. The Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS) and the iShares Morningstar Mid-Cap ETF (JKG) invest 3% of their combined holdings in MKC.
In the last two parts of this series, we’ll see what Wall Street recommends for MKC before the earnings release. We’ll also compare McCormick’s valuation with its peers’ valuations. Lastly, we’ll discuss how McCormick and its peers are trading compared to their moving averages.
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