Sales and profit growth were almost entirely driven by stronger-than expected sales of grocery store products.
“This was a solid quarter,” with a good portion of sales growth linked to coronavirus-related lockdowns and bad weather in parts of the U.S., said John Boylan, a senior equity analyst with Edward Jones. “We believe some of this demand will be retained over the longer term because we continue to think people will work and eat at home more often than they did previous to the pandemic.”
McCormick, which gets its supply of spices from all over the world, has managed to avoid problems with tightened global supply chain because it has streamlined operations and expanded its manufacturing capacity, Boylan said.
Edward Jones maintained a hold rating on McCormick’s shares, believing that the strong performance already is reflected in the stock price.
McCormick on Tuesday also boosted its sales outlook for the current fiscal year, calling for growth of 8% to 10%. It also raised its outlook for earnings per share growth.
“Our differentiated results prove the strength of our business model, the value of our products and our capabilities as a company,” Lawrence E. Kurzius, McCormick’s chairman, president and CEO, said in a statement.
Sales to retailers that serve consumers showed a continuing preference for cooking more at home, a trend that accelerated during the coronavirus pandemic, Kurzius said.
Sales to food manufacturers and restaurants in the U.S., which rose 4%, also were helped by acquisitions of both Cholula and FONA, which McCormick bought in December, as well as strong performance in the Asia Pacific region. Industrial sales also got a boost from higher demand from packaged food companies.
But fewer people eating out continued to hurt sales to restaurants and food service companies in the U.S., Europe, the Middle East and Africa, McCormick said.
“This will likely continue for the rest of the year since retail inventory is still low and [McCormick] is beginning to resume production for products suspended last year due to supply chain constraints,” Sundaram said in a research note.