Earnings Preview: McCormick - Analyst Blog

Spice maker, McCormick & Company, Inc. (MKC) is all set to report its fiscal third quarter 2012 results before the market opens on September 27, 2012. The Zacks Consensus Estimate for the third quarter is pegged at 76 cents (estimated year-over-year increase of 10.2%) on revenues of $991 million (year-over-year increase of 7.7%).

Second Quarter Recap

McCormick delivered strong second quarter 2012 earnings of 60 cents, which beat the prior-year quarter’s earnings by 9%. The results were driven by favorable operating income and tax rate, offset by lower income from unconsolidated operations and higher interest expense. Earnings in the quarter, however, lagged the Zacks Consensus Estimate by a penny.

Total revenue in the quarter grew 11% year over year to $984 million. Revenue also exceeded the Zacks Consensus Estimate of $968.0 million. On a constant currency basis, revenue increased 13%, half of which was contributed by acquisitions completed in 2011. McCormick’s price increase in response to high input costs, volume growth and favorable product mix also contributed to the overall revenue growth.

Agreement of Estimate Revisions

There has been no estimate revision for the current quarter or the fiscal year over the last 7 days. However, over the last 30 days, 1 of 13 estimates has moved up for the fiscal 2012. None of the estimates has been revised downwards. There has been no estimate revision for the current quarter over the last 30 days.

Magnitude of Estimate Revisions

Given the limited estimate revisions, the consensus estimates for the third quarter as well as for full year 2012 have remained static over the last 7 as well as 30 days at 76 cents and $3.05, respectively.

At the second quarter conference call, management had maintained its sales and earnings guidance which was again later reaffirmed at an investor conference held in early September. There have been no major new updates since then, which explain the lack of estimate revisions.

Surprise History

Over the past four quarters, McCormick has surpassed estimates thrice and missed once, thereby resulting in an average earnings estimate of 3.62%. The company recorded a maximum positive surprise of 6.19% in the fourth quarter of 2011.

Our Recommendation

McCormick, which competes with ConAgra Foods, Inc. (CAG) and Kraft Foods Inc. (KFT), currently has a Neutral recommendation. The stock carries a Zacks #3 Rank (a short-term ‘Hold’ rating).

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