McCormick & Co., Inc. :MKC-US: Earnings Analysis: Q2, 2017 By the Numbers : July 4, 2017

McCormick & Co., Inc. reports financial results for the quarter ended May 31, 2017.

We analyze the earnings along side the following peers of McCormick & Co., Inc. – Conagra Brands, Inc. (CAG-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 1,114.30 million, Net Earnings of USD 100 million.
  • Gross margins narrowed from 40.53% to 39.84% compared to the same period last year, operating (EBITDA) margins now 14.79% from 14.68%.
  • Year-on-year change in operating cash flow of -1.41% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-05-31 2017-02-28 2016-11-30 2016-08-31 2016-05-31
Relevant Numbers (Quarterly)
Revenues (mil) 1114.3 1043.7 1227 1091 1063.3
Revenue Growth (%YOY) 4.8 1.31 2.09 2.93 3.83
Earnings (mil) 100 93.5 157.4 127.7 93.8
Earnings Growth (%YOY) 6.61 0.11 5.5 30.84 11.27
Net Margin (%) 8.97 8.96 12.83 11.7 8.82
EPS 0.79 0.74 1.24 1 0.73
Return on Equity (%) 5.65 5.55 9.22 7.2 5.36
Return on Assets (%) 8.31 7.97 13.46 10.91 8.3

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Market Share Versus Profits

Revenues History
Earnings History

MKC-US‘s change in revenue this period compared to the same period last year of 4.80% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that MKC-US is holding onto its market share. Also, for comparison purposes, revenues changed by 6.76% and earnings by 6.95% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from 14.68% to 14.79%. For comparison, gross margins were 39.47% and EBITDA margins were 16.04% in the last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

MKC-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to -29.76 days from 14.78 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

MKC-US‘s change in operating cash flow of -1.41% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s operating (EBIT) margins contracted from 12.18% to 12.12%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 10.53% to 10.67%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

McCormick & Co., Inc. manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the retail outlets, food manufacturers and foodservice businesses. The company operates its business through the following business segments: Consumer and Industrial. The Consumer business segment operates through the following brands McCormick, Lawry’s, Zatarain’s, Simply Asia, Thai Kitchen, Ducros, Vahine, Schwartz, Club House, Kamis, Kohinoor and DaQiao. The Industrial business segment sells to food manufacturers and the foodservice industry both directly and indirectly through distributors. McCormick was founded by Willoughby M. McCormick in 1889 and is headquartered in Sparks, MD.

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