Goldman Sachs Reiterates Sell Rating on McCormick & Company (MKC)
Goldman Sachs analyst Adam Samuelson reiterated a Sell rating and $67.00 price target on McCormick & Company (NYSE: MKC).
The analyst comments "MKC reported adjusted FY3Q24 (Aug) EPS of $0.83, above GSe/Refinitiv consensus of $0.67. Sales of $1.68bn were 2.0% above our estimate, with constant currency sales growth of 0.0% 40bps above our -0.4% forecast and a smaller FX headwind (-0.4% vs. GSe -1.9%) the primary driver of the sales upside. Adjusted EBIT of $288mn was 9.1% above our forecasts (+$0.07), with stronger margins in both segments contributing. Gross margins of 38.7% were 30bps above our forecast and +170bps y/y. Consumer EBIT of $187mn was 7.3% above our forecast (+$0.04) on constant currency revenue growth of +0.2% (vs. GSe of flat y/y), which featured slightly lower-than-expected volumes (+1.0% vs. GSe +1.2%) offset by a smaller pricing headwind (-0.8% vs. GSe -1.2%). Flavor Solutions EBIT of $101mn was 12.7% above our forecast (+$0.03). Below-the-line items were a $0.09 tailwind vs. our model, largely on a notably lower-than-expected tax rate (16.8% vs. GSe 24.0%, or a $0.07 EPS variance), and higher income from unconsolidated (+$0.02). FCF of $103mn was above our $18mn forecast. MKC updated its FY24 outlook, with expected constant currency sales and adjusted operating income growth of -1% to +1% and +4-6% unchanged, with FX no longer expected to be a ~100bps headwind. Adjusted EPS guidance was raised by $0.05 to $2.85-$2.90 (GSe/Consensus $2.88/$2.86), which management largely attributes to a lower effective tax rate (21% vs. 22%), with other elements of guidance unchanged. For FY4Q, full-year guidance implies adjusted EPS in a range of $0.70-$0.75 vs. GSe/Consensus of $0.89/$0.87. Guidance implies FY4Q operating profit of -3% to +4%, vs. 15% in FY3Q and +7% YTD. Our take: Overall, we expect shares to react positively to the FY3Q sales and EPS beat, which could be tempered by the implied deceleration in profit growth in FY4Q. We expect focus on the 8am ET conference call to center on updates on MKC volume trends by region/category, including the impact of select pricing actions and innovation on velocities and branded market share, drivers of profit growth deceleration implied in FY4Q, and capital allocation priorities."
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Shares of McCormick & Company closed at $84.09 yesterday.