Tuesday, March 31, 2020

McCormick’s Q1 Results Could Be Spicy

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What’s happening: McCormick is scheduled to report its first-quarter results before the opening bell on Tuesday, March 31.

What happened: Shares of McCormick have held up, despite the wider market selloff this month. The stock spiked 8.21% yesterday to close at $143.15. Although a part of the business of this spice and flavouring company is severely hit by the global lockdown and social distancing, investors are focusing on the segment of the business that is poised to benefit from people being homebound.

Details: Amid the ongoing coronavirus crisis, estimates for McCormick’s first-quarter results have been reduced over the past three months.

  • The company’s revenue is expected to remain flat at $1.23 billion.
  • The estimate for earnings is $1.03 per share, representing an 8% decline from the same quarter in the previous year.

Why it matters: The Hunt Valley, Maryland-based company has gained market share and the popularity of its branded products have increased over the past few months.

McCormick has a global customer base and serves large restaurant chains as well as people cooking at home. While the part of its business serving the restaurant and food service industry has been hurt by the coronavirus outbreak, this accounts for only around 40% of McCormick’s sales. Moreover, this is also a lower-margin segment, accounting for roughly 30% of the company’s earnings.

The spice and flavourings giant generates most of its sales and earnings from the higher-margin consumer segment, catering to at home cooks. This business is booming, with people stocking up to prepare meals at home.

McCormick’s first-quarter results will include sales through February. So, the results will incorporate the impact of the lockdown in China, but not in the US or most other parts of the world. As the US extends social distancing, the Chinese market is getting back on its feet, with restaurant chains reopening. Investor sentiment is positive as the company’s business has a wide geographic footprint and is highly diversified with a variety of brands.

McCormick has announced some positive initiatives for its employees, including an additional payment of $2 per hour for its US employees working on-site during the outbreak.

How the shares have performed so far: McCormick’s shares have gained investor attention in the recent days. The stock has surged around 26% over the past five trading days. Despite the market volatility and selloff, the company’s shaves have lost only 2% this month.

What to watch: Investors will keep an eye on McCormick’s outlook. However, the main concern is whether the company can navigate through recent supply chain disruptions to maintain its inventories in supermarkets. The market will also watch the S&P 500, where McCormick is a major constituent.

The Markets Today

     

Investors will be watching UK indices today, ahead of some major economic reports scheduled for release later in the day.

Context: UK stocks closed higher on Monday after spending most of the session in the red. The rebound in stocks was supported by a positive open in the US markets.

Details: After trading as low as 5,351.84 previously in the session, the FTSE 100 closed higher by 1% at 5,563.74. London stocks had declined on Friday following news of Prime Minister Boris Johnson testing positive for coronavirus. The country’s health secretary has also tested positive for COVID-19.

London’s FTSE 250, which mostly includes domestic-focused stocks, closed 1% lower on Monday as the country’s medical officers expected the lockdown to continue for months.

There have been more than 20,000 deaths in Europe from the coronavirus. The UK has reported over 22,400 COVID-19 cases, with 1,400 deaths.

In corporate news, Kier Group announced plans to reduce wages for around 6,500 employees by up to 25% for three months. Shares of easyJet tumbled around 7% after the airline disclosed that it had grounded its entire fleet of airlines.

In forex news, the British pound last traded at $1.2404 at the close of London markets, versus $1.2427 on Friday.

What to watch: Investors will be keeping an eye on the coronavirus numbers, hoping for a decline. Markets also await a basket of economic reports from the country, including GDP, business investment, current account and house price index.

Britain's GDP is expected to remain flat in the fourth quarter, versus a revised 0.5% expansion in the prior three-month period. Business investment is likely to fall 1% in the fourth quarter. The current account deficit, which shrank to £15.86 billion in the third quarter, is projected to contract further to £7 billion in the fourth quarter. The Nationwide's House Price Index is expected to decline by 0.1% in March.

Other Markets: US indices closed higher on Monday, with the Dow, S&P 500 and Nasdaq 100 up 3.19%, 3.35% and 3.62%, respectively.

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German unemployment rate, import prices, household consumption and producer prices, Spain’s GDP growth rate and current account, Turkey’s balance of trade, Eurozone core inflation rate, Italian inflation rate, Indian infrastructure output, central government budget value and total external debt, Brazil’s unemployment rate, net payrolls, Federal tax revenues and government budget value, South African balance of trade, Canada’s GDP, producer prices and raw materials prices, US Redbook index, S&P Case-Shiller home price index, CB consumer confidence and Chicago PMI.