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Category: Stock Market and McCormick & Company
Date: 1 October 2019 Stock Price: $156.30 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of McCormick & Company, a company that manufactures, markets and distributes spices, seasoning mixes, condiments and other flavor products.
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About McCormick & Company
McCormick & Company, Incorporated is a global leader in flavor. With $5.3 billion in annual sales, the company manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the entire food industry – retail outlets, food manufacturers and foodservice businesses. Every day, no matter where or what you eat, you can enjoy food flavored by McCormick. McCormick Brings the Joy of Flavor to Life™.
The image below shows a snapshot of McCormick & Company
The image below shows a snapshot of McCormick & Company
Overview of McCormick's latest earnings report
- Net sales: $1.329 billion (up from $1.318 billion for the same quarter of the previous year
- Revenue increased by 0.83% over the last 12 months
- Cost of goods sold: $789.3 million (down from $795.7 million for the same quarter of the previous year)
- Cost of goods sold decreased by -0.8% over the last 12 months
- Net earnings $191.9 million (up from $173.5 million for the same quarter of the previous year)
- Diluted earnings per share: $1.43 (up from $1.30 for the same quarter of the previous year)
- PE ratio: 29.2
- Quarterly dividend declared: $0.57
- Dividend yield: 1.45%
- Diluted weighted-average shares outstanding: 134.2 million (up from 133.2 million for the same quarter of the previous year)
- Cash and cash equivalents: $162.9 million
- Cash and cash equivalents per share: $1.21
- Cash and cash equivalents makes up 0.77% of McCormick's market capital
- Cash and cash equivalents makes up 1.57% of McCormick's total assets
- Trade accounts receivable: $494.6 million
- Trade accounts receivable makes up 4.77% of McCormick's total assets
- Inventories: $846.9 million
- Inventories makes up 8.16% of McCormick's total assets
- Stockholders equity in McCormick's: $3.48 billion
- Stockholders equity per McCormick stock: $25.93
- McCormick is trading at 6.03 times its stockholders equity which is outside the expected range of between 2 and 4 times stockholders equity which most firms tend to trade at.
- Cash provided by operating activities: $494.6 million
- Cash provided by operating activities per share: $3.68
McCormick's management commentary on the results and earnings guidance
HUNT VALLEY, Md., Oct. 1, 2019 /PRNewswire/ -- McCormick & Company, Incorporated (NYSE: MKC), a global leader in flavor, today reported financial results for the third quarter ended August 31, 2019 and provided its latest financial outlook for fiscal year 2019.
Lawrence E. Kurzius, Chairman, President and CEO, stated, "Our strong third quarter and year to date results reflect the successful execution of our strategies. We delivered strong sales and operating profit growth while also making investments for the future. In addition to sales growth in the third quarter, we drove strong adjusted operating profit growth and 160 basis points of adjusted operating margin expansion. Our fundamentals remain strong and we are confident the initiatives we have underway in 2019 position us to continue our growth trajectory.
"Our third quarter growth in the consumer segment accelerated versus our first half and was driven by our Americas and Asia Pacific regions. New products and base business volume growth attributable to our category management initiatives and expanded distribution, as well as effective marketing support and merchandising execution, all contributed to our consumer segment's growth. After a strong first half, our flavor solutions segment's sales were flat in constant currency compared to last year. While demand from our flavor solutions' customers remains strong, this segment tends to have some quarter to quarter volatility. We have delivered strong year to date flavor solutions results and are confident in our growth projection for the fourth quarter.
"McCormick is a global leader in flavor with a broad and advantaged global portfolio which continues to grow and position us to fully meet the demand for flavor around the world. We are continuing to capitalize on the global and growing consumer interests in healthy, flavorful eating, the source and quality of ingredients, and sustainable practices. In 2019, we expect to deliver another strong year of profitable growth while continuing to make targeted investments and fuel our growth to build the McCormick of the future.
"I want to recognize McCormick employees around the world for their efforts and engagement which drive our momentum and make us successful. With our vision to bring the joy of flavor to life and our relentless focus on growth, performance, and people, we are confident we are well positioned to drive future growth, continue our forward momentum and build value for our shareholders in 2019.
Fiscal Year 2019 Financial Outlook
For the 2019 fiscal year, based on its year-to-date performance, McCormick narrowed its projected growth ranges for sales, operating income and earnings per share as well as increased its earnings per share outlook. The company continues to expect another year of strong performance driven by its broad and advantaged flavor portfolio, effective growth strategies and focus on profit realization.
In 2019, the company continues to expect a two-percentage point unfavorable impact from currency rates on net sales, adjusted operating income and adjusted earnings per share.
In 2019, the company expects to grow sales compared to 2018 by 1% to 2%, which in constant currency is a 3% to 4% projected growth rate. This increase consists entirely of organic growth as the company has no incremental sales impact from acquisitions in 2019. The company expects to drive sales growth with new products, brand marketing and expanded distribution. Sales growth is also expected to include the impact of pricing taken to offset an anticipated low-single digit increase in costs. The company has plans to achieve approximately $110 million of cost savings and intends to use these savings to fund investments to drive continued growth and improve margins.
Operating income in 2019 is expected to grow 8% to 9% from $891 million of operating income in 2018. Special charges of approximately $20 million are currently projected for 2019 and relate to previously announced organization and streamlining actions. Excluding the impact of special charges, as well as in 2018 transaction and integration expenses, the expected growth in adjusted operating income is 6% to 7%, which in constant currency is an 8% to 9% projected growth rate, from adjusted operating income of $930 million in 2018.
McCormick increased its projected 2019 earnings per share to be in the range of $5.20 to $5.25 compared to $7.00 of earnings per share in 2018. Excluding an estimated $0.10 net impact of special charges and an adjustment associated with the non-recurring impact of the U.S. Tax Act in 2019, the company projects 2019 adjusted earnings per share to be in the range of $5.30 to $5.35.
This is an increase from previously reported guidance of $5.20 to $5.30 and, as compared to $4.97 of adjusted earnings per share in 2018, represents an expected increase of 7% to 8%, or in constant currency 9% to 10%. This increase reflects the reduction of the company's fiscal 2019 projected adjusted effective tax rate to approximately 20%. For fiscal year 2019, the company projects another year of strong cash flow, with plans to return a significant portion to McCormick's shareholders through dividends and to pay down debt.
Lawrence E. Kurzius, Chairman, President and CEO, stated, "Our strong third quarter and year to date results reflect the successful execution of our strategies. We delivered strong sales and operating profit growth while also making investments for the future. In addition to sales growth in the third quarter, we drove strong adjusted operating profit growth and 160 basis points of adjusted operating margin expansion. Our fundamentals remain strong and we are confident the initiatives we have underway in 2019 position us to continue our growth trajectory.
"Our third quarter growth in the consumer segment accelerated versus our first half and was driven by our Americas and Asia Pacific regions. New products and base business volume growth attributable to our category management initiatives and expanded distribution, as well as effective marketing support and merchandising execution, all contributed to our consumer segment's growth. After a strong first half, our flavor solutions segment's sales were flat in constant currency compared to last year. While demand from our flavor solutions' customers remains strong, this segment tends to have some quarter to quarter volatility. We have delivered strong year to date flavor solutions results and are confident in our growth projection for the fourth quarter.
"McCormick is a global leader in flavor with a broad and advantaged global portfolio which continues to grow and position us to fully meet the demand for flavor around the world. We are continuing to capitalize on the global and growing consumer interests in healthy, flavorful eating, the source and quality of ingredients, and sustainable practices. In 2019, we expect to deliver another strong year of profitable growth while continuing to make targeted investments and fuel our growth to build the McCormick of the future.
"I want to recognize McCormick employees around the world for their efforts and engagement which drive our momentum and make us successful. With our vision to bring the joy of flavor to life and our relentless focus on growth, performance, and people, we are confident we are well positioned to drive future growth, continue our forward momentum and build value for our shareholders in 2019.
Fiscal Year 2019 Financial Outlook
For the 2019 fiscal year, based on its year-to-date performance, McCormick narrowed its projected growth ranges for sales, operating income and earnings per share as well as increased its earnings per share outlook. The company continues to expect another year of strong performance driven by its broad and advantaged flavor portfolio, effective growth strategies and focus on profit realization.
In 2019, the company continues to expect a two-percentage point unfavorable impact from currency rates on net sales, adjusted operating income and adjusted earnings per share.
In 2019, the company expects to grow sales compared to 2018 by 1% to 2%, which in constant currency is a 3% to 4% projected growth rate. This increase consists entirely of organic growth as the company has no incremental sales impact from acquisitions in 2019. The company expects to drive sales growth with new products, brand marketing and expanded distribution. Sales growth is also expected to include the impact of pricing taken to offset an anticipated low-single digit increase in costs. The company has plans to achieve approximately $110 million of cost savings and intends to use these savings to fund investments to drive continued growth and improve margins.
Operating income in 2019 is expected to grow 8% to 9% from $891 million of operating income in 2018. Special charges of approximately $20 million are currently projected for 2019 and relate to previously announced organization and streamlining actions. Excluding the impact of special charges, as well as in 2018 transaction and integration expenses, the expected growth in adjusted operating income is 6% to 7%, which in constant currency is an 8% to 9% projected growth rate, from adjusted operating income of $930 million in 2018.
McCormick increased its projected 2019 earnings per share to be in the range of $5.20 to $5.25 compared to $7.00 of earnings per share in 2018. Excluding an estimated $0.10 net impact of special charges and an adjustment associated with the non-recurring impact of the U.S. Tax Act in 2019, the company projects 2019 adjusted earnings per share to be in the range of $5.30 to $5.35.
This is an increase from previously reported guidance of $5.20 to $5.30 and, as compared to $4.97 of adjusted earnings per share in 2018, represents an expected increase of 7% to 8%, or in constant currency 9% to 10%. This increase reflects the reduction of the company's fiscal 2019 projected adjusted effective tax rate to approximately 20%. For fiscal year 2019, the company projects another year of strong cash flow, with plans to return a significant portion to McCormick's shareholders through dividends and to pay down debt.
McCormick (NYSE: MKC) stock price history
The image below, obtained from Google, shows the stock price history of McCormick & Company (NYSE: MKC) over the last 5 years. And it's been a very good time for McCormick stockholders. 5 years ago the stock was trading at around $68.50 and it is currently trading at $156.30 a stock. So over a 5 year period the stock of McCormick returned 128.17% to stockholders. The stock is trading at closer to its 52 week high of $171 than it is to its 52 week low of $119, which to us is a indication that the short term sentiment and momentum of McCormick & Company is positive.
McCormick & Company (NYSE: MKC) latest stock valuation
So what is McCormick & Company (NYSE: MKC) stock worth based on the release of their latest earnings report and their fiscal outlook provided. All things considered our valuation model provides a target (full value) price on McCormick stock of $111.20 . We therefore believe the stock of McCormick is overvalued and we would not recommend that long term fundamental or value investors buy into the stock at its current price. We recommend looking to enter the stock at least 10% below our target (full value) price, which in this case is $111.20. A good entry point would therefore be at $100 or below.