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McCormick shares slide on China demand woes

 

Wednesday, October 04, 2023

Today’s headlines

What’s happening: Shares of McCormick & Company fell on Tuesday, after the company released results for its third quarter.

What happened: The maker of seasonings reported in-line earnings for its latest quarter and increased its annual profit outlook.

However, McCormick’s quarterly sales fell short of market expectations amid a slowdown in demand in China.

How were the results: The Hunt Valley, Maryland-based company reported a single-digit increase in its sales for the quarter ended August 31.

  • Sales grew by 6% year-over-year to $1.684 billion but missed the consensus estimates of $1.70 billion.
  • Adjusted earnings came in at 65 cents per share, in-line with Wall Street expectations.

Why it matters: McCormick has been steadily increasing prices to offset higher input costs due to inflation.

The company’s gross margins expanded by 150 basis points year-over-year due to the higher pricing. However, adjusted operating margins contracted by 10 basis points to 14.9%. Sales volumes fell 2% in the quarter, following a decline in Chinese demand.

The consumer segment’s volumes in the Asia-Pacific region fell as China’s economic recovery was slower than anticipated, the company said. McCormick’s overall sales were helped by more consumers refraining from eating out, which increased the demand for spices and salad dressings.

Operating cash flows came in at $660 million, up from $250 million in the year-ago quarter.

Management raised the guidance for adjusted earnings to between $2.62 and $2.67 per share, from the prior outlook of $2.60 to $2.65 per share. The company reaffirmed its sales growth guidance of 5% to 7% for the year.

How shares responded: McCormick’s shares fell 8.5% to close at $68.40 on Tuesday, following the release of quarterly results. The stock has lost 15% over the past month.

What to watch: Investors will watch the economic growth environment in China. Higher inflation will also remain in focus.

The markets today

The Japanese yen will be in focus today ahead of some major economic reports

Context: The JPY/USD forex pair rose sharply on Tuesday, with growing speculations of the Bank of Japan’s intervention in the currency market.

Details: The Japanese currency rebounded sharply versus the US dollar on Tuesday on some profit taking after the greenback climbed above the key 150 level.

Several experts believe the Bank of Japan may intervene in the currency market to avoid a further decline in the Japanese yen.

The country’s Finance Minister Shunichi Suzuki had earlier said that he was watching the currency market “cautiously” and is ready to respond. However, he added that the decision on intervention in the markets would be dependent on volatility, not specific to Japanese yen levels.

Other major currencies also moved lower versus the Japanese yen on Tuesday. Both the euro and the British pound fell to around two-month lows versus the yen.

The number of job openings in the US climbed by 690,000 to 9.61 million in August, topping market views of 8.8 million. This supported the greenback and sent the US dollar index, which measures the greenback’s performance versus a basket of major peers, meanwhile, higher by around 0.1% to 107.00.

Data also showed Japan’s services PMI improving to 53.8 in September, versus estimates of 53.3. The au Jibun Bank Japan composite PMI was also revised higher to 52.1 for September, from a flash reading of 51.8.

The USD/JPY pair fell to as low as 147.30 on Tuesday, after climbing to a one-year high of 150.165. Japan’s Nikkei 225 tumbled 1.64% to close at 31,237.94.

What to watch: Traders await the release of some major economic reports due later this week. Data on average cash earnings, household spending, foreign exchange reserves, coincident index and leading economic index will be released on Friday.

Average cash earnings in Japan, which increased by 1.3% year-over-year in July, are projected to increase 1.2% in August. Analysts expect household spending in Japan to decline by 2.1% year-over-year in August.

Other Markets: US trading indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 1.29%, 1.37% and 1.83%, respectively.

The news shaping the markets

NATO warned that western alliances are running out of ammunition to offer Ukraine for its war with Russia. The news sent the safe-haven US dollar index higher this morning.


The Reserve Bank of New Zealand held its official cash rate at 5.5% at its October meeting, exerting pressure on the NZD/USD forex pair.


South Korea’s S&P Global manufacturing PMI climbed to 49.9 in September, from 48.9 in the prior month, sending the KRW/USD pair higher in forex trading this morning.


Ireland’s AIB services PMI declined to 54.5 in September, from 55.0 in the prior month. This being the weakest expansion since January exerted pressure on the GBP/USD forex pair.


South Korea’s industrial production surged by 5.5% in August. This marked the strongest reading since June 2020 and sent the KRW/USD pair higher in forex trading this morning.

What else to watch today

Russia’s services PMI and composite PMI, South Africa’s S&P Global PMI, Spain’s services PMI, composite PMI and total vehicle sales, Italy’s services PMI, composite PMI and GDP growth rate, France’s services PMI and composite PMI, Germany’s services PMI, composite PMI and new passenger car registrations, Eurozone’s services PMI, composite PMI, producer prices and retail sales, UK’s services PMI and composite PMI, US MBA mortgage applications, ISM services PMI, ADP employment change, services PMI, composite PMI, factory orders, crude oil inventories, gasoline stocks change and distillate inventories, India’s money supply M3, Brazil’s services PMI and composite PMI, as well as Turkey’s balance of trade.


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