2023-06-29 11:01:07 ET
McCormick & Company ( NYSE: MKC ) slipped in morning trading on Thursday after the Maryland-based company posted a mixed earnings report and guidance that only matched expectations.
The spice and seasonings seller reported 8% sales growth in Q2. Sales were up 10% in constant currency, which reflected an 11% increase from pricing actions partially offset by a 1% volume and mix decline. The company noted the volume decline included a net 1% increase from lapping prior year COVID-related disruption in China, the Kitchen Basics divestiture, and the exit of the consumer business in Russia. The volume drop also included a 1% decline from the company's strategic decision to discontinue low margin businesses.
Gross profit margin expanded 310 basis points during the quarter compared to a year ago. The margin expansion was driven by pricing actions, favorable product mix, and cost savings led by the company's Comprehensive Continuous Improvement and Global Operating Effectiveness programs partially offset by cost inflation. Selling, general, and administrative expenses increased from the year-ago period driven by an increase in employee incentive compensation expense as well as higher distribution costs partially offset by CCI-led and GOE cost savings.
Adjusted operating income increased 36% to $235M in constant currency, driven by the favorable impact of higher sales and gross margin expansion partially offset by higher selling, general, and administrative expenses.
Weighing in on the MKC report, Bank of America said the raised outlook still appears conservative given the magnitude of the gross margin beat and the implied margin outlook ahead. The firm maintain its Buy rating on MKC and price objective of $100, which is based on a 2024 P/E multiple of 34.5X off BofA's estimates, comfortably within the five-year historical valuation range of 19X to 42X.
More on McCormick & Company:
- McCormick & Company earnings call presentation
- Growth metrics on McCormick
- Seeking Alpha's Quant Rating for McCormick
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McCormick & Company trades lower after issuing cautious guidance