On Wednesday, Goldman Sachs reiterated its Sell rating on McCormick (NYSE:MKC) & Company, with a price target of $67.00. The firm's stance remained unchanged despite McCormick's third-quarter earnings surpassing expectations. The spice and flavorings company reported an adjusted earnings per share (EPS) of $0.83 for the third quarter ending in August, which was higher than the consensus estimate of $0.67.
McCormick's sales reached $1.68 billion, a slight 2.0% increase over Goldman Sachs' estimates. The company experienced no growth in constant currency sales, which was slightly better than the firm's forecast of a 0.4% decline. A smaller foreign exchange headwind than expected contributed to the sales beat. Adjusted earnings before interest and taxes (EBIT) came in at $288 million, 9.1% higher than projected, with both consumer and flavor solutions segments seeing stronger margins.
The consumer segment reported an EBIT of $187 million, exceeding forecasts by 7.3%, driven by a modest constant currency revenue growth and smaller-than-anticipated volume increases. The flavor solutions segment's EBIT was $101 million, surpassing expectations by 12.7%. Additional factors contributing to the earnings beat included a notably lower tax rate and higher income from unconsolidated operations, leading to a free cash flow of $103 million, well above the $18 million forecast.
Looking ahead, McCormick updated its full-year 2024 outlook, maintaining its expected growth rates for constant currency sales and adjusted operating income. The company now anticipates a reduced impact from foreign exchange headwinds. Adjusted EPS guidance for the fiscal year was slightly increased to a range of $2.85-$2.90, mainly due to a lower expected effective tax rate.
Despite the positive third-quarter results, Goldman Sachs anticipates that the market reaction might be muted by the forecasted deceleration in profit growth for the fourth quarter. The company's guidance suggests an operating profit range of -3% to +4% for the final quarter, which contrasts with the 15% growth seen in the third quarter and a 7% increase year-to-date. The focus is expected to shift to the company's conference call, where discussions will likely revolve around regional volume trends, the impact of pricing actions and innovation, as well as capital allocation priorities.
In other recent news, McCormick & Company reported a significant beat in third-quarter earnings per share (EPS), leading to upward adjustments in its annual sales and EPS forecasts. This positive performance is primarily attributed to favorable foreign exchange impacts and steady volume growth. Notably, the company's organic sales growth shows signs of consistent improvement, a trend that McCormick anticipates will extend into the fourth quarter and beyond into 2025.
Citi, maintaining a Neutral rating on McCormick, highlighted the company's potential to surpass the sales and profit growth of many of its large-cap counterparts over time. However, the firm also noted McCormick's high market valuation as a factor in maintaining this rating. Despite challenges in the quick-service restaurant sector, McCormick reported a 1% volume growth in its Consumer segment, stable sales in its Flavor Solutions segment, and an increase in adjusted EPS to $0.83.
Looking ahead, McCormick expects a 1% decline to 1% growth in constant currency net sales for 2024, with adjusted earnings per share forecasted between $2.85 and $2.90. The company plans to focus on strategic investments, such as digital transformation, brand marketing, and innovation to drive long-term growth.
InvestingPro Insights
McCormick's recent financial performance aligns with several key metrics and insights from InvestingPro. The company's market capitalization stands at $22.59 billion, reflecting its significant presence in the spice and flavorings industry. McCormick's P/E ratio of 27.99 indicates that investors are willing to pay a premium for the company's earnings, which is consistent with its strong brand and market position.
InvestingPro Tips highlight McCormick's impressive dividend history, having raised its dividend for 38 consecutive years and maintained payments for 54 years. This underscores the company's financial stability and commitment to shareholder returns, which is particularly noteworthy given the challenging economic environment.
The company's revenue for the last twelve months as of Q3 2024 was $6.68 billion, with a modest growth of 1.11%. This aligns with the article's mention of slight sales increases and no growth in constant currency sales. McCormick's gross profit margin of 38.48% and operating income margin of 16.23% reflect its ability to maintain profitability despite market challenges.
It's worth noting that McCormick is trading near its 52-week high, with a strong return of 20.43% over the last three months. This positive momentum could be attributed to the company's better-than-expected earnings and its ability to navigate through economic headwinds.
For investors seeking more comprehensive analysis, InvestingPro offers 13 additional tips for McCormick, providing a deeper understanding of the company's financial health and market position.
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