Please ensure Javascript is enabled for purposes of website accessibility

McCormick Earnings: What to Watch

By Demitri Kalogeropoulos - Jan 24, 2021 at 12:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The spice and flavorings giant reports its latest operating results in just a few days.

McCormick (MKC -1.55%) is about to answer a few big questions for investors. In a few days, the spice and flavorings giant will announce fiscal fourth-quarter results that might confirm management's optimistic outlook for the business as it turns the corner into 2021.

Let's take a closer look at the report set for Jan. 28.

Growing the customer base

The first three quarters of the year included lots of noise thanks to those dramatic COVID-19-related shifts in demand between restaurants and at-home cooks. Yet the broader picture appears to show higher overall growth.

A home chef seasons a steak.

Image source: Getty Images.

CEO Lawrence Kurzius and his team in late September lifted their outlook and now predict 2020 sales will rise by about 6% after currency exchange rate shifts are adjusted for. Their original forecast predicted a 3% uptick, and management was feeling cautious even in late June. But the tune changed by October, when executives posted surging earnings and announced a stock split.

That report showed robust growth in the consumer segment and roughly flat results in its flavorings segment that caters to restaurants and packaged food providers. Ideally, McCormick this week will show that its diverse portfolio paid off again by keeping overall organic growth above about 5%.

Handling those costs

McCormick struggled even through Q3 with production and supply bottlenecks. That's no surprise given the unprecedented global spike in demand for products like vanilla extract. But the challenges harmed profitability last quarter.

MKC Operating Margin (TTM) Chart

MKC Operating Margin (TTM) data by YCharts

Investors are expecting a quick return to form for the business over the next few quarters, with the margin rebound perhaps starting in Q4. Operating earnings might just slightly outpace the sales growth this quarter, with bigger gains on tap in 2021 as the restaurant segment recovers.

Outlook and cash returns

Some of the biggest questions for investors heading into a new year involve cash returns. McCormick is a Dividend Aristocrat, and there's no threat to that status as it prepares for its 35th annual raise. But management's aggressive acquisition strategy means it might be a while before shareholders see robust stock repurchases. The company paused that spending after it spent $4 billion on the French's and Frank's brands in 2017. Its latest $800 million purchase of Cholula hot sauce fits right in with that strategy of adding on high-growth, margin-boosting franchises.

The good news is that McCormick has plenty of cash to direct toward acquisitions while still paying down debt in 2021. Those priorities might not leave much excess funds for stock purchases or aggressive dividend boosts. But it's a proven strategy for long-term growth.

As for the next year, it will be interesting to see where McCormick's initial 2021 growth outlook lands as compared to management's long-term targets of annual sales gains between 4% and 6% and a profit increase of 7% to 9%. Hitting the higher ends of those ranges would mean the company has expanded its customer base through the pandemic. Add the benefit of new acquisitions and improving profitability, and the stock looks attractive heading into the new fiscal year.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

McCormick & Company, Incorporated Stock Quote
McCormick & Company, Incorporated
MKC
$91.96 (-1.55%) $-1.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
332%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.