Financial Performance

McCormick Posts 9% Sales Gain, Earnings Beat

"McCormick is increasing its marketing spending and innovation, along with increasing prices, to help drive sales growth."
Matthew HellerSeptember 29, 2017

Shares in McCormick jumped more than 5% after the spice company posted better-than-expected earnings on continued strength in its consumer and industrial businesses.

The acquisition of Reckitt Benckiser Foods, the maker of Frank’s RedHot sauce and French’s mustard, helped fuel a 9% gain in McCormick’s overall third-quarter sales. Organic sales rose 4.4%, following a 4% gain in the year-ago period.

Adjusted operating income came in at $204 million, an 18% increase from in the third quarter of 2016, while adjusted earnings per share rose 9% to $1.12. Analysts had expected EPS of $1.05.

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“Our strong third quarter financial results continue our growth momentum and reflect the effectiveness of our strategies and engagement of our employees around the world,” CEO Lawrence E. Kurzius said in a news release. “We are driving both sales growth and significant productivity improvements resulting in adjusted operating margin expansion.”

Consumer segment sales increased 5% to $696.8 million, with growth across the portfolio including McCormick and Lawry’s brand spices and seasonings, Grill Mates, Gourmet Garden and Stubb’s products as well as McCormick brand recipe mixes.

On the industrial side, sales rose 14% to $488.4 million on continued growth in branded foodservice in addition to sales growth with packaged food companies and quick service restaurants.

Brittany Weissman, an analyst with Edward Jones, noted that McCormick had posted solid growth in the Americas while many of its rivals in packaged foods are struggling to grow sales.

“McCormick is increasing its marketing spending and innovation, along with increasing prices, to help drive sales growth and we believe this quarter highlighted McCormick’s early success with this strategy,” she said in a client note.

At Morningstar, analyst Erin Lash said McCormick is facing such headwinds as accelerating cost inflation and intense competition from other branded operators, small niche peers, and lower-priced private-label fare.

“But to weather these challenges,” she said, “McCormick is funneling even more resources behind its brands (with ad and promotional spend up 15% in the quarter), which we view positively as a means to support its leading edge (despite the potential hit to profits).”