Is McCormick Too Hot to Handle?

On Thursday, McCormick (NYSE: MKC  ) will release its latest quarterly results. With a solid history of delivering regular dividend growth, McCormick shares got very popular during the bull market, but the rise in interest rates have caused some to question whether the stock has gotten ahead of its fundamentals.

McCormick is the premier maker of spices for the U.S. market, offering both its premium lines of name-brand spices as well as store-brand alternatives for cost-conscious grocery chains. Despite its impressive growth, valuations have risen to levels that suggest the potential for a pullback. Let's take an early look at what's been happening with McCormick over the past quarter and what we're likely to see in its quarterly report.

Stats on McCormick

Analyst EPS Estimate

$0.61

Change From Year-Ago EPS

1.7%

Revenue Estimate

$1.01 billion

Change From Year-Ago Revenue

2.3%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will McCormick's earnings spice things up this quarter?
Analysts have trimmed their views on McCormick's earnings in recent months, with a $0.04 per share drop for May-quarter estimates and a penny-per-share decline for the full 2013 fiscal year. The stock has held up fairly well, remaining roughly flat since late March despite having fallen back from higher levels in recent weeks.

McCormick has certainly been hitting it out of the park lately, with the stock rising to all-time highs in early April after the company announced positive earnings in its previous quarterly report. Between its solid balance sheet and its all-pervasive business model, McCormick has a stranglehold on its industry in a way that Fool analyst Jason Moser believes makes it a must-own for a long-term investor like Warren Buffett. Although the commercial side of the business, which supplies spices to companies like food giant General Mills (NYSE: GIS  ) and restaurant chain Yum! Brands (NYSE: YUM  ) , had relatively flat performance, the consumer side had strong growth.

One big growth area for McCormick is in emerging markets. With many of those markets having greater demand for spicy foods, McCormick has even greater potential to take advantage of the consumer opportunity overseas than it has already accomplished in the U.S. and in its other more mature markets.

To help it with those growth efforts, McCormick announced late last month that it had completed its acquisition of China's Wuhan Asia-Pacific Condiments. McCormick paid $147 million for the company, which has a strong presence in Central China and should help McCormick with its expansion plans in the emerging-market giant.

The biggest concern for investors in McCormick is the stock's fairly rich multiple, which currently exceeds 20 times forward earnings for next year. Yet even though the company's growth doesn't appear to justify that price, its consistency has investors willing to pay a premium for reliable results that have stood the test of time.

In McCormick's quarterly report, look closely at how the mix of the company's business segments perform this time around. Strength in its commercial business could point to better times not just for McCormick but also for General Mills, Yum! Brands, and the spice company's other corporate customers.

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