Please ensure Javascript is enabled for purposes of website accessibility

McCormick Earnings: 3 Trends to Watch

By Demitri Kalogeropoulos - Mar 27, 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 will announce its latest earnings results in just a few days.

Investors' opinion about McCormick (MKC 1.07%) has soured in recent months. The spice and flavorings giant outperformed the market through the early stages of the pandemic, but that trend has shifted. Heading into the company's fiscal first-quarter report, the stock is down over the last six months compared to a sharp rally for the wider market.

Those low expectations set the foundation for a potential rebound if McCormick can show that it can maintain some of the extra momentum it gained in mid-2020. Let's look at where those successes might show up in the company's upcoming earnings report set for Tuesday, March 30.

A range of spices.

Image source: Getty Images.

Maintaining the momentum

McCormick's 2020 year was a good one. Sales gains sped up by 5% to outpace management's initial outlook. The growth was powered by surging demand for cook-at-home products, which offset slumps in its sales to restaurants and other foodservice partners.

The new fiscal year will look much different as both of these trends revert back toward normal as the pandemic threat fades. But shareholders are hoping that McCormick's wider portfolio, bolstered by the recent addition of the Cholula and FONA franchises, can support solid growth.

Most investors who follow the stock are expecting sales to rise by 8% this year and by 13% in the fiscal first quarter. "Heading into 2021," CEO Lawrence Kurzius said in late January, "I'm confident our operating momentum will continue."

Allocating capital

Kurzius and his team don't have much control over how demand will shift as COVID-19 vaccines become more widespread. But they're in the driver's seat when it comes to cutting costs.

Management cleaved more than $100 million of annual expenses from the budget in 2020. Look for a similar pace of cuts this year, which should pave the way for extra spending in high-return areas like marketing.

MKC Cash from Operations (Annual) Chart

MKC cash from operations (annual) data by YCharts.

McCormick is also earning its position in the exclusive club of Dividend Aristocrats, having just announced its 35th consecutive annual payout raise. And after cash flow rose 10% last year, there's every reason to expect another solid dividend increase in late 2021.

A soft landing ahead?

The biggest question heading into Tuesday's report is how demand trends will respond following this past year's volatile swings. McCormick in January predicted robust sales growth because at least some of the pandemic-related shifts in home-cooking behavior are expected to be permanent. Executives late in 2020 made an aggressive bet aimed at amplifying those gains by purchasing the Cholula and FONA brands.

The company will give investors its latest expectations for the growing portfolio on Tuesday. But even if McCormick signals steady sales trends ahead, the stock could generate attractive returns from here. The slump in shares in the last six months has pushed its valuation lower while lifting its dividend yield to almost 1.5%.

At some point, Wall Street will wake up to the attractive aspects of the business, including its premium market position, ample cash flow, and growing portfolio of leading sauces and condiments. The shift might not happen immediately following Tuesday's report, but that's no reason to avoid this successful growth stock.

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
$92.94 (1.07%) $0.98

*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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

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.