McCormick shares slide on downbeat Q2

The news shaping the markets today

A strike by Russia on a residential building in Ukraine’s city of Mykolaiv killed two and left three people injured. With no end to the war in sight, WTI crude oil prices rose this morning.

Japan’s industrial production contracted by 7.2% in May, following a 1.5% decline in the previous month. This being the second straight month of decline in industrial output exerting pressure on the JPY/USD forex pair.

New Zealand’s ANZ Business Outlook Index fell to -62.6 in June, from the previous month’s reading of -55.6. Despite this being the lowest figure since April 2020, the NZD/USD pair rose in forex trading this morning.

China’s official NBS non-manufacturing PMI rose to 54.7 in June, from 47.8 in May. The latest reading signalled the first expansion in the country’s services sector in four months, lending support to the CNY/USD forex pair.

Australia’s private sector credit increased by 0.8% in May, following 0.9% growth a month ago, which sent the AUD/USD pair higher in forex trading this morning.

What’s happening: Shares of McCormick & Company edged lower on Wednesday, after the company reported downbeat results for its second quarter.

What happened: Apart from reporting disappointing quarterly results, McCormick trimmed its earnings forecast for the full year.

The company said that the updated guidance reflected several unfavourable factors.

How were the results: The Hunt Valley, Maryland-based company reported a decline in both sales and earnings for the second quarter ended May 31.

• Sales declined by 1.3% to $1.54 billion, falling short of market expectations of $1.61 billion.
• Earnings plummeted more than 35% to $118.5 million, from $183.7 million in the year-ago quarter.
• Adjusted earnings declined to 48 cents per share, from 69 cents per share in the same quarter last year, and missed the consensus estimate of 65 cents per share.

Why it matters: McCormick said its domestic sales were impacted by supply chain disruptions of packaging products, while its international sales were affected by pandemic-related restrictions and the ongoing crisis in Ukraine.

McCormick was forced to suspend its operations in Shanghai for around two weeks following strict covid-related restrictions in the region. The company’s Shanghai facility generates around 40% of its overall sales in China. The company also exited the Russian market due to the attack on Ukraine.

Domestic consumer sales fell 4%, while sales in both EMEA (Europe, Middle East and Africa) and Asia/Pacific contracted by 18%.

McCormick was forced to raise prices due to inflation, but could not do so in the Chinese market, which significantly impacted its bottom line. Adjusted operating margins shrank 530 basis points year-over-year to 11.3% last quarter.

The board declared a quarterly dividend of 37 cents per share to shareholders of record on July 11, 2022. Management guided to sales growth of 3%-5% for fiscal 2022. The company also lowered its adjusted earnings forecast for the year to $3.03-$3.08 per share, from its previous projection of $3.17-$3.22 per share.

How shares responded: McCormick’s shares declined 1.4% to close at $85.63 on Wednesday, following the release of quarterly results. The stock has lost around 10% over the past six months.

What to watch: Investors will keep an eye on rising inflation, supply chain issues, covid-restrictions in China and the Russia-Ukraine crisis.

The markets today

The Canadian dollar will be in focus today ahead of the GDP report from the country

Context: The CAD/USD forex pair settled lower on Wednesday, after recording gains for three straight days.

Details: The loonie fell against the US dollar on Wednesday, after recording gains earlier in the week, as traders remained concerned over prospects of a global economic slowdown.

Sentiment for the Canadian dollar was supported by experts projecting Canada’s economic growth to surpass other G7 nations this year, amid rising oil prices. However, WTI crude oil futures fell 1.8% to settle at $109.78 per barrel on Wednesday.

Continued strength in the safe-haven US dollar exerted some pressure on the loonie. The US dollar index, which measures the greenback’s performance against a basket of major currencies, breached the major resistance level of 105 on Wednesday.

The CAD/USD forex pair settled lower by 0.2% at 1.2894, following three consecutive sessions of gains. The loonie had surged to its highest intraday level in more than two weeks on Tuesday.

What to watch: Traders await the release of GDP data, which is expected to provide insight into the Bank of Canada’s upcoming policy decision. The country’s central bank had raised interest rates by half a percentage point to 1.5% on June 1. The Canadian economy is projected to grow by 0.2% month-over-month in April, following a 0.7% expansion in the previous month.

The release of Canada’s CFIB’s Business Barometer long-term index will also remain in focus. Projections are for the index to decline to 60 in June, from 61.6 in May.

Other Markets: European trading indices closed lower on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.15%, 0.73%, 0.90% and 0.67%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Germany’s retail sales, unemployment rate, unemployed persons and import prices, South Africa’s private sector credit, money supply M3, balance of trade and producer price inflation, UK’s current account, GDP growth rate, nationwide house price index and business investment, France’s inflation rate, household spending and producer prices, Turkey’s balance of trade, foreign exchange reserves and Central Bank of Turkey’s MPC meeting summary, Italy’s unemployment rate and producer price inflation, Spain’s current account, Eurozone’s unemployment rate, India’s infrastructure output, money supply M3, external debt and central government budget value, Brazil’s unemployment rate, value of loans and government budget value, US personal income, personal spending, personal consumption expenditure price index, initial jobless claims, continuing jobless claims, Chicago PMI and natural gas stocks change, Russia’s money supply M2 and monthly GDP, Argentina’s consumer confidence indicator and monthly economic activity estimator, OPEC and non-OPEC ministerial meeting as well as NATO summit.