![](http://midgardfinance.com/companies/M/MKC/logo_MKC.png)
McCormick [MKC] has issued a press release on its third quarter earnings. The company increased its full year earnings per share outlook. Strong growth was shown in volume/mix and net sales despite currency headwinds and weaknesses in the flavor solutions segment and the EMEA consumer segments. The headlines of the quarter were as follows.
- McCormick Reports Strong Third Quarter Performance And Increases Full Year Earnings Per Share Outlook
- Earnings per share was $1.43 in the third quarter as compared to $1.30 in the year-ago period. Adjusted earnings per share rose 14% to $1.46 from $1.28 in the year-ago period.
- Operating income was $254 million in the third quarter compared to $230 million in the year-ago period. Adjusted operating income was $261 million, a 9% increase from $239 million in the third quarter of 2018, and a 10% increase in constant currency.
- Sales rose 1% in the third quarter from the year-ago period with gross margin expansion of 100 basis points. In constant currency, the company grew sales 2%.
- For fiscal year 2019, McCormick continues to expect strong growth and based on its year-to-date performance raised its earnings per share outlook.
![](http://midgardfinance.com/companies/M/MKC/photo2.jpeg)
Growth
The consumer segment fueled growth, whereas the flavor solutions segments was a small drag on growth.
![](http://midgardfinance.com/companies/M/MKC/MKC2019Q3_slide10.png)
Growth in the EMEA segment was tempered by extreme high temperatures in Europe.
![](http://midgardfinance.com/companies/M/MKC/MKC2019Q3_growth_sales.png)
![](http://midgardfinance.com/companies/M/MKC/MKC2019Q3_volume.png)
![](http://midgardfinance.com/companies/M/MKC/MKC2019Q3_price.png)
Operating margin
The operating margin expanded to 19.1% and 17.8% on a TTM basis, which is very high compared to industry peers. The improved operating margin also follows the divestiture of low margin businesses.
![](http://midgardfinance.com/companies/M/MKC/MKC2019Q3_slide19.png)
![](http://midgardfinance.com/companies/M/MKC/MKC2019Q3_margins.png)
![](https://www.midgardfinance.com/plot/fundamentals/_/food10_operatingMargin_sumFalse_2019-10.png)
Revised financial outlook
The slide below summarises the revised financial outlook. This revised outlook comes at the back of earnings from other S&P500 companies that almost entirely involved lowered estimates.
![](http://midgardfinance.com/companies/M/MKC/MKC2019Q3_slide24.png)
Expanded multiples
Given the revised financial outlook and the improved margins the acquisition of RB Foods comes across as a master stroke. But McCormick remains very richly valued compared to other businesses in the sector. Kraft Heinz [KHC] might be the better choice at a forward P/E of 10.7 compared to a forward P/E of 27.6 for McCormick.
![](https://www.midgardfinance.com/plot/price/_/food10_evo_2010-01-01.png)