McCormick (MKC 122.13, -16.87), a manufacturer of condiments
and spices, holds losses of 12.14% at this point on Thursday in response to the
company’s worse than expected fourth quarter print and guide.
Even though Q4 sales were up – less than 1%, we might add – the growth wasn’t as robust as the market had expected. All told, MKC saw a 0.6% year/year increase in Q4 net sales to $1.499 bln, including a 1% unfavorable impact from currency, on adjusted earnings per share of $1.67.
The company clarified that the increase in adjusted EPS was driven primarily by a favorable adjusted income tax rate due to a lower U.S. federal tax rate and favorable discrete items, including the exercise of stock options during the quarter. The result this quarter marked an increase in adjusted EPS of 8%, which includes an unfavorable impact from foreign currency rates.
In the Americas, management noted, trade inventory reductions at retailers had some impact, but the company was, regardless, able to grow sales; new products and growth in the base business through brand marketing support, expanded distribution, and pricing actions drove performance. Both segments – Consumer and Flavor Solutions -- contributed to the constant currency sales increase with growth in each region. In constant currency, the company grew sales by 2%.
Adjusted gross profit margin decreased 30 basis points versus the year-ago period, to 45.5% from 45.8%, driven by unfavorable product mix partially offset by CCI-led cost savings. The unfavorable product mix was primarily driven by the Americas trade inventory reduction of higher margin holiday products.
Turning to the outlook for fiscal year 2019, McCormick expects continued global growth in consumer demand for great taste and healthy eating. The company highlighted its efforts to balance its resources and its efforts to drive sales with its work to lower costs with the aim of building fuel for continued growth and focusing on profit realization.
Specifically, in 2019 the company expects 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 1-3%, which in constant currency is a 3-5% projected growth rate. This increase consists entirely of organic growth as the company has no incremental sales impact from acquisitions in 2019.
- Sales growth is also expected to include the impact of pricing taken to offset an anticipated low-single digit increase in costs. McCormick has plans to achieve approximately $110 mln of cost savings and intends to use these savings to improve margins, fund investments to drive continued growth, and as a further offset to increased costs.
- Excluding an estimated $0.08 impact of special charges in 2019, the company projects that 2019 adjusted EPS will be in the range of $5.17-5.27.
- The aforementioned +1% to +3% growth rate expected in sales in FY19 equates to about $5.46-5.57 bln.
Soft sales growth in the Consumer segment, specifically in the Americas, wasn’t enough to offset weakness in the Flavor Solutions business. Shares of MKC fell through the 200-day simple moving average (125.56) at the open this morning but have since slightly pared early declines.