McCormick & Company, Incorporated MKC posted first-quarter fiscal 2020 results, with the bottom line surpassing the Zacks Consensus Estimate and the top line missing the same. Both earnings and revenues declined year over year. Given the current situation related to the outbreak of coronavirus and its unpredictable impact on consumer demand globally, McCormick is withdrawing its fiscal 2020 guidance that was issued on Jan 28.
Quarter in Detail
Adjusted earnings of $1.08 per share dropped 3.6% on a year-over-year basis. The decline was caused by lower adjusted operating income and increased adjusted income tax rate. Fall in interest expenses failed to compensate the decline. Nevertheless, the metric surpassed the Zacks Consensus Estimate of $1.03 per share.
This global leader of flavors and spices generated sales of $1,212 million, down 2% year over year and including currency headwinds of 1%. On a constant-currency (cc) basis, sales declined 1%. The impact of the COVID-19 outbreak in China reduced the company's sales growth by 3% during the quarter.Also, sales in the quarter fell short of the Zacks Consensus Estimate of $1,229 million.
Gross margin expanded 90 basis points (bps) to 38.8% on savings from the Comprehensive Continuous Improvement (CCI) program.
Adjusted operating income declined 1.9% to $195.2 million and 1.7% at cc. Further, the adjusted operating margin contracted 10 bps to 16.1%. The downside can be attributable to adverse impact from lower China operating income due to the impact of coronavirus outbreak.
McCormick & Company, Incorporated Price, Consensus and EPS Surprise
McCormick & Company, Incorporated price-consensus-eps-surprise-chart | McCormick & Company, Incorporated Quote
Consumer Business: Sales declined 6% to $699.5 million due to weakness in the Asia Pacific region. Sales in the Americas declined 2% due to trade inventory reductions. Sales in the Asia-Pacific region declined 29% due to adverse impact from the COVID-19 outbreak in China. In the EMEA region, sales dipped 1%. In cc, sales inched up 1% mainly driven by improved pricing and timing of promotional activities in the region.
Flavor Solutions: Sales in the segment climbed 5% from the prior-year quarter’s figure to $512.5 million backed by strength in the Americas and EMEA region. Sales in the Americas advanced 6% owing to growth in the base business, contributions from new products and sustained momentum in the snacks seasoning and branded foodservice categories. Also, improved pricing also led the growth in the Americas. Sales in the EMEA region improved 9% year over year, driven by volume growth and favorable product mix. Sales in the Asia-Pacific region declined 4% owing to coronavirus outbreak in China.
McCormick exited the quarter with cash and cash equivalents of $170.8 million, long-term debt of $3,627.9 million and shareholders’ equity of $3,574.6 million. For three months ended Feb 29, net cash provided by operating activities was $44.8 million.
McCormick’s net debt-to-adjusted EBITDA ratio stood at 3.5x at the end of first-quarter fiscal 2020.
In the consumer segment, the company is anticipating an overall increase in consumer demand during periods of pantry stocking. For its flavor segment, McCormick expects surge in demand from packaged food companies. However, the company is excepting lower demand from restaurant and other foodservice customers in the flavor segment.
To maximize flexibility amid the coronavirus crisis, management decided to moderate the pace of its business transformation investments and postponed its ERP system replacement program. Further, McCormick expects to resume fiscal 2020 guidance when it reports fiscal second-quarter results in June 2020.
This Zacks Rank #3 (Hold) stock has dropped 4.8% in a year compared with the industry’s decline of 13.4%.
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