McCormick & Company, Incorporated (MKC Free Report) benefits from lucrative acquisitions and cost reduction efforts. In addition, a shift in consumer demand towards home consumption from pre-pandemic levels favors the business. It anticipates a gradual recovery in demand from restaurateurs and other catering customers.

In the last call for results, management updated the 2021 sales view upwards. The company now expects sales growth of 12-13% (or 9-10% at constant exchange rates) year-over-year. Previously, management expected sales to increase by 11-13% (or 8-10% at cc).

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Acquisitions drive growth

McCormick has strategically increased its presence through acquisitions, which have strengthened its portfolio. In December 2020, McCormick purchased a 100% stake in FONA International, LLC and some of its subsidiaries. FONA’s diverse portfolio helps McCormick strengthen its value-added offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick completed the acquisition of the parent company of Cholula Hot Sauce, a premium hot sauce brand based in Mexico. The takeover of Cholula accelerates McCormick’s growth potential on the condiment platform and expands the product portfolio in the hot sauces category.

Several other companies in the food sector are benefiting from acquisitions such as Post Holdings, Inc. (PUBLISH Free report), Hormel Food Company (HRL Free report) and The Hershey Company (HSY Free report). In the fourth quarter of fiscal 2021, Post Holdings’ revenue included $ 99.8 million in net sales from acquisitions made through fiscal 2021. Buybacks include the ready-to-eat cereal business brand, the Egg Beaters liquid egg brand, Almark Foods business and related assets. and the Peter Pan brand of nut butter.

Hormel Foods strengthens its activities through strategic acquisitions. In June of this year, the company acquired the Planters snack food portfolio from The Kraft Heinz Company. Previously, the company acquired Sadler’s Smokehouse, a Texas-based smoked meats company based in Texas, in March 2020. The buyout is in line with Hormel Foods initiatives to strengthen its position in the restaurant industry.

Hershey has entered into a definitive agreement to acquire Dot’s Pretzels LLC. The addition of Dot’s Pretzels is in line with the company’s initiative to increase the savory snacks portfolio. The company also announced its intention to acquire Pretzels Inc. from a subsidiary of Peak Rock Capital. The acquisition will further expand Hershey’s snacking and production capabilities. Management plans to close the deals by the end of 2021.

Cost savings drive growth

McCormick is focused on reducing costs and improving productivity through the Comprehensive Continuous Improvement (“CCI”) program. Launched in 2009, the CCI program has helped the company reduce costs and improve productivity. He used CCI’s savings to increase investments, which resulted in increased sales and profits. McCormick achieved savings of $ 113 million in fiscal 2020 through the CCI program. Management, in its latest earnings call, stressed that it expects to achieve cost savings of nearly $ 110 million from CCI in fiscal 2021.

Wrap

McCormick is struggling with higher costs due to the coronavirus outbreak. The company is faced with widespread inflation of raw materials and packaging as well as transport costs. Apart from that, McCormick bears the brunt of supply chain bottlenecks resulting from restricted transportation capacity and labor shortages.

That being said, the aforementioned cost reduction efforts, coupled with gains from strategic buyouts, are likely to drive growth.

Shares of Zacks Rank # 3 (Hold) have risen 0.6% in the past three months, compared to an industry decline of 1.1%. You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.


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