McCormick & Company (NYSE:MKC) stock has been caught up in the recent stock market volatility as fears about the coronavirus have investors worrying about a global recession that might have already started. The spice and flavorings giant should have some important context to contribute on that point, given its worldwide sales base that caters both to at-home cooks and major restaurant chains.
With that bigger picture in mind, let's look at a few metrics investors will want to watch when McCormick announces its fiscal first-quarter results on Tuesday, March 31.
This report covers sales through the end of February, which will include much of the coronavirus disruption that swept through China but none of the impact in the U.S. that started in early March. As a result, look for global growth to hold steady at around 3%, or roughly equal to last quarter's result. That's significantly below management's annual target of 5% gains, but consistent with McCormick's reduced short-term expectations.
The spice giant has been highlighting key wins in this slower-growth environment, including market share gains and the popularity of new McCormick-branded products. Both of these factors likely pushed sales moderately higher this past quarter.
The early COVID-19 impact
McCormick gets roughly 40% of its sales and 31% of its earnings from its flavor solutions segment, which serves the restaurant and food service industry. That niche has been rocked in recent weeks by an unprecedented national slowdown in the U.S. and by closures last quarter in places like Asia and Europe. Look for CEO Lawrence Kurzius and his team to spend some time on Tuesday outlining the impact of this slump on sales volumes, along with management's plans to adjust to the massive disruption.
The good news is that the majority of sales and profits come from McCormick's consumer-focused division, which counts Walmart as its biggest partner. That retailing business is booming these days as consumers stock up on food for at-home meal preparation. As the leading spice and flavorings producer, McCormick is likely benefiting from that shift in spending habits, but only to the extent that it can satisfy the demand by keeping its manufacturing and distribution chains humming.
Looking further out
The coronavirus outbreak will likely add significant uncertainty to McCormick's outlook. That forecast in December called for a second straight year of below-average sales growth this year, plus flat earnings, before the company returned to its normal growth posture in 2021.
Management won't have much concrete information to give investors about that outlook, given the rapidly changing sales environment. Restaurant chains in China, for example, have mostly reopened and are starting to see customer traffic levels return to normal after shutdowns through most of February.
In addition to any rebounding growth trends, the company might reveal some important data on McCormick's cash and debt position and its readiness to navigate through this challenging period of plunging restaurant sales and spiking consumer demand.