McCormick & Co, Inc - Growth & Income

McCormick & Co (MKC) recently reported third quarter earnings that beat the Zacks Consensus Estimate by 12%. The company saw double-digit sales growth in Asia.

You probably have several of McCormick's products sitting in your kitchen cupboard. The company, founded in 1889, sells spices all around the world.

Gross Margin Expansion Drives Earnings Growth

Earnings per share for the third quarter was 66 cents, an increase of 16% over the same period in 2009. Earnings beat the Zacks Consensus Estimate by 7 cents. Earnings increased 16% over the same period in 2009.

Total sales increased just 0.4%, but its gross margin expanded from 40.3% to 42.1%. The increase was driven by cost savings from its Comprehensive Continuous Improvement program and a favorable product mix.

Its Consumer Business segment saw sales growth of 0.8%, but operating income grew by 7.6% as the margin improved from 19.8% to 21.1% of sales. Consumer sales in the Asia/Pacific region grew 11%, marked by a 15% gain in China.

Sales of McCormick's Industrial Business segment decreased 0.2%. Operating income grew by 6.0%, however, as the company benefited from a more profitable product mix. Industrial sales in the Asia/Pacific region increased 10%.

Outlook

McCormick raised guidance following the strong quarter. The company expects earnings per share for 2010 between $2.67 and $2.71. The 2010 Zacks Consensus Estimate is currently below this range at $2.60.

The 2011 consensus estimate is $2.75, representing 6% annual growth. The expected five-year growth EPS rate is 9.5% per annum.

Fundamentals

McCormick trades at 16.2x forward earnings, a premium to the industry average of 14.6x.

It superior return on equity of 25.1% trumps the industry average of 13.4%. This justifies its higher price to book value multiple of 4.4, compared to the peer group average of 2.1.

McCormicks has a history of steadily increasing dividend payments. Since 2000, the company has raised its dividend at an average clip of 10.6%. It currently yields 2.4%.

McCormicks has a market cap of $5.6 billion. It is a Zacks #2 Rank (Buy) stock.

Read the August 20 article here.

Last Week's Growth & Income Zacks Rank Buy Stocks:

Comcast Corp (CMCSK) is seeing double-digit growth in several of its divisions. The company continues to produce excellent free cash flow...and has been returning large amounts to shareholders as a result. Read the full article.

Aflac (AFL) and its ubiquitous white duck may be popular in the U.S., but he is a superstar in the Land of the Rising Sun. Read the full article.

Archer Daniels Midland (ADM) has been soaring lately after a strong quarter and upward estimate revisions. Valuation still remains attractive, however, with a PEG ratio around 1.0. Read the full article.

Wipro Ltd (WIT) has seen strong demand for its IT services and has increased guidance and rapidly hired more employees. Read the full article.

 
MCCORMICK & CO (MKC): Free Stock Analysis Report
 
Zacks Investment Research