What happened

Shares of McCormick (NYSE:MKC) were going bad today after the spice specialist turned in weaker-than-expected fourth-quarter results and issued an underwhelming outlook for 2019. As a result, the normally reliable stock was down 11.6% at 10:59 a.m. EST.

So what 

The supermarket staple and parent of much-loved brands like Old Bay and Frank's Red Hot said sales rose just 1%, or 2% in constant currency, to $1.5 billion, short of estimates at $1.55 billion. Bottom-line growth was stronger, as adjusted earnings per share increased 8% to $1.67, though that was also shy of expectations at $1.70.

A selection of different spices in teaspoons.

Image source: McCormick.

Management noted challenges from trade inventory reductions at retailers in the Americas as gross margin decreased 30 basis points in the quarter. Growth also slowed due to the lapping of the 2017 acquisition of RB Foods, which gave the company control of brands like French's Mustard and Frank's Red Hot, so investors should get used to slower growth from here on out.

Now what 

Looking ahead to 2019, CEO Lawrence Kurzius said, "We expect to deliver another strong year while continuing to make targeted investments and fuel our growth to build the McCormick of the future." However, investors were disappointed with McCormick's guidance. It forecast sales growth of 1% to 3%, or 3% to 5% in constant currency, which compares to the consensus at a 3.3% increase. 

Due to its cost-cutting program, McCormick sees adjusted operating income increasing 7% to 9% and adjusted earnings per share up from $4.97 to between $5.17 and $5.27, which accounts for headwinds from a higher expected tax rate, but that was also below analyst estimates at $5.40.

McCormick shares surged 36% last year, boosted by the successful RB Foods acquisition, but this is really a slow-growth defensive stock, as there's little secular growth in spices and flavorings. Considering the stock trades at a P/E of 23.6 even after today's sell-off, it still looks overvalued.

Check out the latest McCormick earnings call transcript.