Friday, September 30, 2016

Costco & McCormick Earnings

In the last 24 hours we received good earnings from two picks - Costco(COST) and McCormick(MKC).

Costco reported it's fiscal year 2016 Q4 and 52 week results last night. Diluted EPS came in at $1.77 on revenues of $36.5 billion. For the year the company reported EPS of $5.33 on revenues of $116 billion. The company is trading at a premium with a trailing PE of 28. Total sales for the year were up 2% while EPS was actually down $0.04 from $5.37 in 2015. The stock is currently up 4%

I'm a Costco customer and I was actually just there this week. The place is always packed. Granted sales are showing slow growth and the company is facing stiff competition not only from other retailers but online channels. Yet they still continue to open new stores and operate successfully.  I think the worries about Amazon taking a big bite out of their business are a bit overblown. Costco is one of the more unique brick & mortar retailers out there. Still we should not ignore the pressures they are applying.

McCormick(MKC) reported Q3 results with EPS of $1.00 on revenues up 3% to $1.09 billion. Another bright spot was the increase in gross profit margin from 39.8% to 41.6% in the quarter from last year. The company also continues to do a great job increasing it's cash flow. This is one of my favorite picks. The stock is currently up 3% on the news. here is the CEO statement

Lawrence E. Kurzius, President and CEO, stated, "Our strong third quarter financial results demonstrate the effective execution of our strategy. We are driving both sales growth and significant productivity improvements, and expect 2016 to be a record year for McCormick. The efforts and engagement of employees throughout the company are driving this performance.

"Consumer demand for healthy and high quality flavors continues to grow in markets around the world. In both our consumer and industrial segments, we are meeting this demand with a broad portfolio of on-trend products in our base business, innovative new products and through acquisitions. All of these factors contributed to our third quarter sales increase of 3%, which was 6% in constant currency, and we achieved particularly strong growth in our consumer business in the U.S. and in China. We are balancing these strategies to grow sales with our actions to improve productivity and lower costs. Led by our Comprehensive Continuous Improvement (CCI) program, we expect to achieve cost savings of $100 million to $110 million in 2016. We are investing a portion of these savings in brand marketing and other growth initiatives and also driving greater profitability for our business, as demonstrated by the strong increase in third quarter operating income."

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