Spice maker McCormick & Co. beats profit expectations in first quarter

McCormick & Co. Inc. beat profit expectations for the first quarter and said it boosted sales with the help of new products and expanded distribution.

Sales rose 1 percent to $1.23 billion in the three months that ended Feb. 28, compared with the first quarter of 2018, the Hunt Valley-based spice and flavorings maker said Tuesday.

Earnings fell to $1.11 per share, compared with earnings in the first quarter 2018 of $3.18 per share, which had included the favorable impact of federal tax legislation.

But on an adjusted basis, earnings climbed 12 percent to $1.12 per share, driven in part by a lower tax rate. Wall Street analysts expected earnings of $1.06 per share, a 6 percent increase, according to Zacks Equity Research. Shares closed up $1.50 each at $145.36 in Tuesday trading.

“This was a solid, no drama quarter for us,” Lawrence E. Kurzius, McCormick’s chairman, president and CEO, said during a conference call with analysts. “We had good sales growth at over 4 percent [when taking currency fluctuations into account]… in line with our expectations… It’s a solid start to 2019 and we’re confident in our outlook.”

The company reaffirmed its financial outlook for the current fiscal year, with sales expected to grow between 3 percent and 5 percent.

Results were strong both in the consumer and the food service industry segments, the company said.

“Growth was broad-based across segments and geographies,” Brittany Weissman, a consumer staples analyst for Edward Jones, said in a report Tuesday. “The consumer segment benefited from new product innovation, more products being sold in stores, and increased marketing and promotions.”

The spice maker also befitted from strong growth across the globe at quick-service restaurants and from increased demand from packaged-food companies, she said. She noted that profit margins improved from a year ago, thanks to higher sales and cost savings.

“In all, McCormick is doing a good job leaning into consumer flavor trends to drive above-peer sales,” Weissman said. “We remain positive on the solid long-term growth of the spice and seasoning categories.”

McCormick has been paying down debt on its acquisition of Reckitt Benckiser, former parent company of Frank’s RedHot and French’s, and is positioned for its next acquisition, Kurzius said during the conference call.

“It is time for us to start taking a look at opportunities again,” Kurzius said.

McCormick is well-positioned in a seasonings industry with above-average growth potential and profitability compared with the broader packaged food industry, Weissman had said in a Feb. 25 research note. McCormick’s recent acquisition of the Frank’s and French’s brands should add to the growth potential, she noted.

But Weissman has a hold rating on the company’s stock because of “a slowdown in the spice and seasoning category, and/or poorly integrated acquisitions, both of which could lower the company's long-term growth potential,” she wrote in that report.



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