McCormick Down 2% Despite Strong 3Q Earnings, Reinstates Guidance

McCormick (MKC) shares are down 2% in pre-market trading even as the spices and flavoring products company announced better-than-expected results for the third quarter of fiscal 2020, which ended Aug. 31. The company also announced a 2-for-1 stock split.

Amid the pandemic, McCormick experienced robust demand for its products as people started cooking more at home. The company’s 3Q sales grew 7.6% Y/Y to $1.43 billion with the Consumer segment sales rising 14.7%, partially offset by a 2.9% decline in the Flavor solutions segment sales due to lower demand from restaurants and other foodservice customers.

Adjusted EPS grew 4.8% to $1.53 as higher sales and improved gross margin were partially offset by a higher adjusted income tax rate. Analysts expected EPS of $1.52 on sales of $1.40 billion.

The strong 3Q results helped McCormick reinstate its fiscal 2020 guidance, which the company withdrew in March due to the uncertainty resulting from the pandemic. McCormick now expects its fiscal 2020 revenue at the upper end of a 4% to 5% growth range. It anticipates sustained demand for home cooking, new products, brand marketing and expanded distribution to boost the top line. McCormick predicts fiscal 2020 EPS growth between 5% to 7%.

Recently, Argus analyst John Staszak initiated coverage of McCormick with a Buy rating and a price target of $215. The analyst noted that the company’s “well-known brands” are preferred by retailers and also cited management’s efforts to reduce costs and improve profitability, which should continue to boost its margins and earnings.

Staszak believes that McCormick should be able to grow its earnings by about 7% annually over the next 5 years, with strong grocery and supermarket sales driven by increased at-home dining during the pandemic in the near term. (See MKC stock analysis on TipRanks)

McCormick stock has risen 15.1% year-to-date and the average analyst price target of $207.50 indicates an additional upside potential of 6.3%. With two recent Buy ratings, the Street has a Moderate Buy consensus for McCormick.

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