The Zacks Analyst Blog Highlights: Family Dollar Stores, Wal-Mart Stores, Dollar General, McCormick & Co. and Kraft Foods

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Sep 29, 2011, 09:30 ET

CHICAGO, Sept. 29, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Family Dollar Stores Inc. (NYSE: FDO), Wal-Mart Stores Inc. (NYSE: WMT), Dollar General Corporation (NYSE: DG), McCormick & Co. Inc. (NYSE: MKC) and Kraft Foods Inc. (NYSE: KFT).

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Here are highlights from Wednesday's Analyst Blog:

Family Dollar Outpaces Estimates

Amid the global economic turmoil, Family Dollar Stores Inc. (NYSE: FDO) posted better-than-expected fourth-quarter 2011 results. The quarterly earnings of 66 cents a share outpaced the Zacks Consensus Estimate of 64 cents, and jumped 17.9% from 56 cents earned in the prior-year quarter on the heels of healthy sales witnessed in the Consumables, and Seasonal and Electronics categories.

The company had earlier guided earnings in the range of 62 cents to 70 cents for the quarter under review. Management now expects first-quarter 2012 earnings between 65 cents and 73 cents, and fiscal 2012 earnings between $3.50 and $3.75.

The current Zacks Consensus Estimates for the first quarter and fiscal 2012 are 66 cents and $3.59 per share, respectively. Following better-than-expected results a positive sentiment may be palpable among the analysts and we could witness a rise in the Zacks Consensus Estimates in the coming days with analysts tweaking their estimates to better align with management's guidance range.

We observe that Family Dollar's strategic initiatives to improve merchandising and store operations have helped grow the top and bottom lines. The company now plans to open 50% more stores in fiscal 2012 compared with the prior-year.

The operator of self-service retail discount store chains posted a 9.1% increase in revenue to $2,134.3 million from the prior-year quarter, and reflected sales growth across Consumables categories (up 12%), Seasonal and Electronics (up 9.2%), Apparel and Accessories (up 0.5%) and Home Products (up 0.1%). Total revenue also came ahead of the Zacks Consensus Estimate of $2,122 million.

Family Dollar, which faces stiff competition from Wal-Mart Stores Inc. (NYSE: WMT) and Dollar General Corporation (NYSE: DG), forecasts fiscal 2012 net sales to jump by 8% to 10%. We believe effective price and inventory management, private label offering, expanded operating hours and merchandise initiatives should drive sales.

McCormick Beats, Reaffirms Outlook

McCormick & Co. Inc. (NYSE: MKC) posted results for the third quarter of 2011 with operating earnings of 69 cents a share, surpassing the Zacks Consensus Estimate of 64 cents. The quarterly earnings benefited from higher operating income, as well as cost savings.

Further, new product innovation, distribution gains and increased investment in brand marketing also led to the growth. However, earnings lagged the prior-year quarter's 76 cents.

The prior-year quarter experienced a reversal of $14 million on account of a significant tax accrual, which added 10 cents to earnings per share. Excluding this impact from the year-ago period, earnings per share increased 3 cents in the third quarter of 2011.

For fiscal year 2011, management reaffirmed its earnings per share guidance in the range of $2.74 to $2.79, including the impact of the acquisitions and the joint venture. Sales are expected to grow 6 to 8% in local currency, with the sales impact from favorable currency exchange rates at 2%.

Acquisition

Acquisitions and joint ventures have remained a top priority for McCormick. Recently in September, McCormick consummated its joint venture with Kohinoor Foods Ltd., India to market and sell basmati rice and food products in India.

The venture, which was announced in June 2011, will now be named as Kohinoor Specialty Foods India Private Ltd. McCormick had invested INR 5.2 billion ($113 million) in the deal for an 85% interest in Kohinoor Specialty Foods India Private Ltd.

Recently, McCormick also sealed the deal to acquire Kamis S.A., which is a leader of spices, seasonings and mustard in Poland.

McCormick recorded $1 million of transaction costs in the quarter related to the acquisition of Kamis and the Kohinoor joint venture. Further, the company expects to record total transaction costs of $11 million related to Kamis and Kohinoor, which will lower 2011 earnings per share by 7 cents per share.

Through the end of the third quarter, $4 million of these costs had been recorded, which lowered earnings per share by 2 cents. In addition, $7 million of these costs will be recorded in the fourth quarter based on the September 2011 closing dates of the Kamis and Kohinoor transactions, which will lower earnings per share during this period by 5 cents per share.

Besides, McCormick continued to invest in its brands in the third quarter of 2011, while increasing marketing support by 27% which includes an emphasis on brand value, a U.S. campaign for Hispanic products and advertising for Zatarain's brand.

Though the company has completed multiple acquisitions that have expanded its product portfolio, we believe that such a strategy has inherent risks. Additionally, the competitive nature of McCormick's market is a matter of concern.

McCormick, which competes with Kraft Foods Inc. (NYSE: KFT), currently holds a Zacks #3 Rank translating into a short term 'Neutral' rating. Over the long term, we provide a Neutral recommendation on the stock.

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