Take a walk down any grocery store's spice aisle and you're sure to notice the prominent placement and vast array of products from McCormick (MKC 0.36%). The company is a global leader in flavor and distributes spices, seasoning mixes, and other tasty products to both consumers and the restaurant industry. Beyond the McCormick brand name in spices, there are plenty of other recognizable products under the McCormick umbrella, including French's, Franks RedHot, Cholula, and Old Bay.

Take a look at a stock chart and you're sure to notice that as an investment, McCormick has had a rough past year, with shares down about 11% and near a 52-week low. By comparison, the S&P 500 is up 40% over the same period. While the stock performance has been disappointing, the company managed to navigate the pandemic rather successfully and is poised to take advantage of the continuing reopening of the world economy.

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Pandemic impact

When restaurants around the world shut down in early 2020, McCormick saw its restaurant sales plummet. This impact was felt throughout the first half of 2020 as restaurants in China and Europe closed first, followed soon after by the U.S. However, at the same time there was a surge in consumers purchasing McCormick products for at-home use. After a 6% decline in Q1 of 2020, the following quarter saw consumer sales increase 26%. This offset the 25% decline in the company's flavor solutions segment, which primarily sells to food manufacturers and the foodservice industry. In short, at-home sales were able to overcome the drop in away-from-home sales.

Post-pandemic potential

In the 2020 Q2 earnings call, management stated their belief that this strength in consumer sales would continue, even if not at the same rate. It turns out they were right. In the quarters since, consumer sales have remained close to their Q2 2020 levels, fluctuating between $911 million and $1.24 billion. This growth has continued, although inflation and supply chain disruptions have impacted the bottom line. Moving forward, management believes the company can navigate these challenges with a combination of price increases and cost savings, as they have in the past.

At the same time, McCormick's flavor solution sales have seen a significant comeback from their pandemic low. After bottoming out at $438 million in Q2 2020, flavor solutions sales have grown to a record $628 million this past quarter. With the strength in consumer sales and the return of flavor solutions revenue, McCormick is in a stronger position now than it was before the pandemic. In fact, when compared to 2019, this last quarter's net sales, adjusted operating income, and adjusted earnings per share were up 19%, 17% and 18% respectively. 

McCormick also did not let the pandemic slow its acquisition strategy. In November of 2020, McCormick acquired well-known hot sauce company, Cholula, for $801 million. This was followed up in December of 2020 when the company paid $708 million for FONA, a leading manufacturer of clean and natural flavors. Both acquisitions were paid for with a combination of cash and debt, but are already proving to be accretive, with management expecting them to comprise approximately one third of 2021 sales growth.

Long term thinking

In the last quarter's earnings presentation, management projected the following for the current fiscal year, which ends in November:

  • Net sales growth of 12% to 13%
  • Adjusted operating income growth of 6% to 8%
  • Adjusted earnings per share of $2.97 to $3.02

Using these projections, 2021 is shaping up to be stronger than both 2020 and 2019.


FY 2019

FY 2020

FY 2021 (Estimates)

Net Sales

$5.3 billion

$5.6 billion

$6.27 to $6.33 billion

Adjusted Operating Income

$979 million

$1.0 billion

$1.06 to $1.08 billion

Adjusted EPS



$2.97 to $3.02

Source: Company Filings.

Despite the strong position of McCormick's business, Wall Street has not been kind to the stock, which is down on the year. However, this year's price dip creates an attractive valuation: The stock is trading at 28 times earnings, 17% below its price-to-earnings ratio from this time last year.

Additionally, McCormick has raised its dividend for 35 straight years, earning itself the title of Dividend Aristocrat. The current dividend yield is 1.7%, which is modest, but well above the S&P 500 average of 1.3%. McCormick's dividend has also had an annualized growth rate of 9.23% over the past 10 years. Now that the company's results have surpassed their pre-pandemic levels, McCormick is in a position to return to its market-beating ways.