McCormick & Co. (NYSE: MKC) reported Q1 EPS of $0.76, $0.01 better than the analyst estimate of $0.75. Revenue for the quarter came in at $1.04 billion versus the consensus estimate of $1.06 billion.

• Sales rose 1% in the first quarter from the year-ago period. In constant currency, the company grew sales 4%, with increases in both the consumer and industrial segments.
• McCormick increased gross profit margin to 39.6% from 39.3% in the first quarter of 2016. Operating income was $134 million in the first quarter compared to $129 million in the year-ago period. Adjusted operating income was $138 million, a 5% increase from $131 million in the first quarter of 2016, and an 8% increase in constant currency.
• Earnings per share was $0.74 in the first quarter compared to $0.73 in the year-ago period, with higher operating income offset in part by a higher tax rate and the impact of unfavorable currency on income from unconsolidated operations. Adjusted earnings per share increased to $0.76 from $0.74.
• For the 2017 fiscal year, the company updated its financial outlook to reflect a higher impact from special charges. Excluding this impact, the company reaffirmed its expected constant currency growth rate for sales, adjusted operating income and adjusted earnings per share.

Lawrence E. Kurzius, Chairman, President and CEO, stated, "Our first quarter financial results were a solid start to the year delivering profit results in line with our expectations. Sales in our consumer segment were up from the year ago period, with strong momentum in China and the benefit of acquisitions, partially offset by the impact of a challenging retail environment in the U.K. Our industrial business delivered solid sales growth driven by our foodservice brands and customized flavors in the Americas and demand from quick service restaurants in the Asia/Pacific region. Both segments achieved an increase in operating income and higher operating income margins.

""Taste continues to rank #1 in deciding what consumers choose to eat. We are aligned with today's move toward more flavorful, healthy food and are confident in our plans to drive growth through brand marketing, innovation across both our consumer and industrial segments, and opportunities to expand distribution. We are balancing our resources and efforts to drive sales with our work to lower costs, and are on-track to achieve approximately $100 million in 2017 in cost savings led by our Comprehensive Continuous Improvement (CCI) program.

"Around the world, McCormick employees are driving momentum and I thank them for their efforts and engagement. With our steadfast focus on growth, performance and people, we are well-positioned to deliver strong financial results and shareholder return in 2017."

2017 Financial Outlook

For the 2017 fiscal year, McCormick updated its financial outlook to reflect a higher impact of special charges. Excluding this impact, the company reaffirmed its expected constant currency growth rates for sales, adjusted operating income and adjusted earnings per share.

In 2017, McCormick expects to grow sales 3% to 5% compared to 2016. Excluding the impact of unfavorable currency rates, the projected growth remains 5% to 7%. The company expects to drive sales with brand marketing, new products, expanded distribution and the incremental sales impact of acquisitions completed in fiscal year 2016 and from Giotti, acquired in December 2016. Sales are also expected to be driven by pricing actions that are intended to offset an anticipated mid-single digit increase in material costs. The company has plans to achieve approximately $100 million of cost savings and intends to use these savings to improve margins, fund a high-single digit increase in brand marketing, and as a further offset to increased material costs.

Operating income in 2017 is expected to grow 9% to 11% from $641 million of operating income in 2016. The company has organization and streamlining actions underway and has increased its 2017 projection of related special charges to approximately $11 million from $4 million. Excluding the impact of special charges in 2017 and 2016, the company expects to grow adjusted operating income 8% to 10% from adjusted operating income of $657 million in 2016. Excluding the estimated impact of unfavorable currency rates, the expected year to year increase in adjusted operating income remains 9% to 11%.

McCormick projects 2017 earnings per share to be in the range of $3.98 to $4.06 compared to $3.69 of earnings per share in 2016. Excluding an estimated $0.07 impact of special charges in 2017, the company reaffirms projected adjusted earnings per share of $4.05 to $4.13 (*** consensus is $4.09). This is an increase of 7% to 9% from adjusted earnings per share of $3.78 in 2016. This range of growth includes an estimated unfavorable impact of 2 percentage points from unfavorable currency rates. For the second quarter of 2017, the company expects earnings per share to be down slightly from earnings per share of $0.73 in the second quarter of 2016, due in part to a projected increase in the impact of special charges. Other factors affecting earnings per share in the second quarter include a higher tax rate, both the translation and transaction impact of unfavorable currency exchange rates, and a planned increase in brand marketing. Excluding the impact of special charges, adjusted earnings per share in the second quarter of 2017 is expected to be comparable to adjusted earnings per share of $0.75 in the second quarter of 2016. For fiscal year 2017, the company projects another year of strong cash flow, with plans to return a significant portion to McCormick\'s shareholders through dividends and share repurchases, absent any acquisitions.

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