Shares of McCormick (NYSE: MKC), the king of the spice aisle, were moving higher today after the company posted better-than-expected results on the bottom line in its fourth-quarter earnings report.
While guidance for 2024 implied weak growth, the stock had fallen to multiyear lows in October following its third-quarter earnings report, showing that expectations were low coming into the report.
As a result, the stock was up 3.6% as of 10:29 a.m. ET.
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McCormick adds some spice
For the fourth quarter, revenue rose 3%, 2% in constant currency, to $1.75 billion, which missed estimates of $1.79 billion.
Management noted pressure from more value-seeking behavior from consumers, a sign that customers are beginning to push back on price hikes in products like Cholula hot sauce.
Its flavor solutions segment, which supplies restaurants, delivered solid results with revenue of up 7% to $704.2 million, while its consumer segment struggled with 1% revenue growth to $1.05 billion, which included a 4% pricing increase and a 4% volume decline.
It did deliver solid improvements in profitability as gross margin rose 320 basis points to 40% due to its cost-saving programs. Selling, general, and administrative expenses rose 13% to $390 million, but operating income still rose 13% to $297 million.
On the bottom line, it reported adjusted earnings per share of $0.85, up from $0.73 in the quarter a year ago and better than the consensus at $0.79 a share.
What's next for McCormick
Looking ahead, McCormick expects revenue growth of between flat and down 2%, or breakeven on a constant-currency basis, which was below the analyst consensus.
However, its cost-savings programs and decisions to discontinue low-margin businesses and sell a small canning business would help drive adjusted earnings per share up from $2.70 in 2023 to $2.80-$2.85, which was also below the consensus at $2.87.
Given the weak guidance, today's gains are surprising, but investors seem to believe the stock has gotten cheap enough after its earlier decline.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.
