McCormick Sketches Flat, Base-on-Base Pattern

August 30, 2012 /

Midcap stockMcCormick ‘s ( MKC ) chart is showing good action.

In recent weeks, the stock has sketched a flat, base-on-base pattern. The potential buy point is 61.89.

McCormick’s base count remains first stage, according to MarketSmith’s pattern recognition technology.

And the stock has outperformed the market so far this year, gaining 22% vs. about 12% for the S&P 500.

The good price performance developed despite a less-than-stellar fiscal 2011.

In fiscal 2011 ended in November, spice maker McCormick had somewhat of a bipolar year.

Earnings grew only 7%, the slowest in five years. However, revenue leapt 11%, the most in seven years.

What happened?

The company experienced a double-digit increase in raw material and packaging costs, which put downward pressure on profit as a percentage of sales.

The product and segment mix also hurt earnings. Demand for lower-margin ingredients rose as demand for higher-margin branded food service products fell. Meanwhile, the lower-margin industrial segment expanded faster while the higher-margin consumer segment expanded more slowly.

On the sales side, price increases were the chief drivers of the step-up in revenue.

However, that was last year. How are things shaping up now?

In fiscal Q2 ended in May, earnings advanced 9% as sales grew 11%.

The 11% revenue growth came despite a 1.5% hit from foreign currency exchange rates. Acquisitions drove about half of the sales growth.

Earnings benefited from the higher sales and cost savings.

McCormick’s long-term goals are to increase sales 4% to 6% and grow earnings per share 9% to 11%.

The three- and five-year earnings stability factors are near perfect. Both are 2 on a scale of 0 (calm) to 99 (wild).

The company has raised its dividend for 26 years in a row. During the past five years through 2011, the compounded annual growth rate in the dividend payout was 9.1%.

McCormick’s current yield is 2%.

 

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