How MKC Will Contribute To Consumer Staples' Q4 Earnings Trend

The Q4 earnings season is in full swing, with more than 250 companies, including 81 S&P 500 members, releasing quarterly results this week. Moreover, the earnings picture so far has been encouraging. Per the latest Earnings Outlook released on Jan 19, 53 S&P 500 members have already released quarterly results. Earnings of these companies increased 11.7% and revenues rose 7.5%.

The Zacks Consumer Staples sector is yet to witness major releases. Of the 16 Zacks sectors, Consumer Staples is among the top 44%. Per the Earnings Outlook, the sector is likely to witness earnings growth of 4.6% and revenue increase of 2.6% this earnings season.

The sector seems to be faring well, courtesy of rising consumer optimism, which received boost from an improving economy. Also, efforts such as focus on innovations, strategic buyouts and product launches are likely to drive players in this space. Additionally, aggressive cost-saving initiatives and attempts to keep pace with changing consumer patterns bode well for the stocks in the space.

Such endeavors seem appropriate considering the heightened competition, price wars, input cost inflation and promotional environment. Notably, the Consumer Staples sector has gained 11.8% in a year, whereas the S&P 500 market rallied 23.7%.

Let’s see what awaits McCormick & Company Inc. (NYSE:MKC) , which is set for earnings release on Jan 25.

Per our research, stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP are likely to post a positive earnings surprise. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter .

What to Expect from McCormick This Earnings

McCormick is a leading distributor of spices, seasonings and other specialty food products. The company is poised to beat earnings this season, as it now has an Earnings ESP of +0.49% and a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s look into some of the factors which are likely to impact McCormick’s performance this season.

Acquisitions & Costs Saving Efforts Bode Well For McCormick

McCormick’s performance is expected to gain from positive acquisition synergies, particularly from the buyout of Reckitt Benckiser Group. Consequently, the Zacks Consensus Estimate for year-on-year sales growth for the fourth quarter related to consumer and industrial business segments are currently pegged at 0.18% and 0.25%, respectively. Further, the company raised its guidance for fiscal 2017, which indicates the positive impacts from the acquisition of Reckitt Benckiser Group and lower currency.

Additionally, McCormick’s cost-saving and productivity-enhancing initiatives through the Comprehensive Continuous Improvement (CCI) program are expected to boost profits. The company expects to deliver cost savings of at least $105 million in fiscal 2017, up from the previous expectation of at least $100 million.

Increasing Costs: A Worry

Although the company has been progressing well with savings and business expansion plans, higher input costs have been hurting McCormick’s margins. Prices of raw materials like cinnamon, oregano and rice along with packaging costs have been rising for a while. In fiscal 2017, the company expects material cost inflation in mid-single digits. The company’s increased spending on brand marketing also poses adequate threats to profits. (Read More: Will McCormick's (MKC) Q4 Earnings Gain From Acquisitions?)

Wrapping Up

McCormick’s performance in the fourth quarter is likely to benefit from business expansion and cost-saving efforts. We also expect that the company’s efficient pricing strategies will help it tide over cost-related hurdles.

Notably, expected earnings for the quarter under review and the fiscal 2017 grew 19.7% and 11.6%, respectively, from the year-ago figure. Further, analysts polled by Zacks expect net sales of $1,475 million for the fourth quarter, up 20.2% from the year-ago quarter. Also, the Zacks Consensus Estimate for fiscal 2017 sales is pegged at $4.82 billion, up 9.3% from fiscal 2016 sales.

All said, we expect McCormick to deliver impressive results in the upcoming release.

Other Stocks With Favorable Combinations

Here are some more companies which, per our model, have the right combination of elements to deliver earnings beat.

The Estee Lauder Companies, Inc. (NYSE:EL) has an Earnings ESP of +0.56% and a Zacks Rank #2.

United Natural Foods, Inc. (NASDAQ:UNFI) has an Earnings ESP of +5.67% and a Zacks Rank #2.

Church & Dwight Company, Inc. (NYSE:CHD) has an Earnings ESP of +0.07% and a Zacks Rank #3.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>