McCormick & Co. Inc. (MKC) posted results for the first quarter and fiscal 2011. Quarterly earnings came in at 57 cents a share, which surpassed the Zacks Consensus Estimate by 5.5% and the year-ago earnings by 12%. The quarterly earnings benefited from higher operating income, as well as the increase in income from unconsolidated operations.
Quarterly Sales Details
For the first quarter total revenue grew 2% year-over-year to $782.8 million from the year-earlier quarter, benefiting from pricing actions taken in response to increased raw and packaging material costs. Revenues missed the Zacks Consensus Estimate of $850 million.
Segments and Margins
Quarterly revenue for the consumer segment remained flat at $454.1 million year over year due to increased pricing, largely offset by unfavorable volume and product mix.
For the industrial segment, fourth quarter sales surged 6% annually in the quarter, benefiting from favorable volume and product mix with strong increases in all the three regions; namely Europe, the Middle East and Africa (EMEA) region and China.
Gross margin expanded 13 bps to 41.9% in the quarter compared with 40.6% in the year-ago quarter.
For the first quarter, operating income increased by 10% to $87 million as a result of higher sales and CCI cost savings. This result was backed by the company’s joint venture in Mexico which commenced in 2011.
Outlook
For fiscal year 2011, management reaffirmed its earnings per share guidance in the range of $2.80 to $2.85. Sales are expected to grow 5 to 7% in local currency, with an additional 1% growth from favorable foreign currency exchange rates based on prevailing rates.
Underlying the 5 to 7% sales increase is an estimated 3% from pricing actions to help offset higher material costs, and 2 to 4% from favorable volume and product mix. Management also expects profit growth in 2011 through CCI cost savings which are expected to be at least $40 million.
Cash and Balance Sheet
Exiting the year, the company had cash and cash equivalents of $40.6 million, up 85.4% compared with $21.9 million in the prior year. However, the company’s cash outflow from operating activities was $23.1 million in the year compared with $5.1 million in the prior year. The lower cash flows from operation can be attributed to the seasonality of the company’s business.
McCormick which competes with ConAgra Foods, Inc. (CAG) and Krafts Food Inc. (KFT) currently holds a Zacks #2 Rank translating into a short term ‘Buy’ rating.
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