Take three quarters of uninterrupted earnings growth. Add three consecutive "earnings beats." Mix with an expectation of weaker year-over-year fiscal Q1 results tomorrow. What you get is a formless hodgepodge of expectations for tomorrow's earnings report by McCormick (NYSE:MKC) that could set the stock to moving either way. Here's what you need to know to make sense of the mix.

Wall Street Wisdom:

  • General consensus. Twelve analysts follow McCormick; two say the stock is a buy, but 10 more say it's only a hold.
  • Revenues. Fiscal Q1 2006 sales are predicted to rise 2% to $617.6 million versus last year.
  • Earnings. Profits have been tagged for an 8% decline to $0.24 per share.

Margin watch:
McCormick isn't breaking any speed records for sales and profits growth, but overall, its business isn't doing too badly. Over the past 18 months, gross margins are off by only 10 basis points. Operating profits are up 80 basis points, and net margins are down by only 20.

Margins %

8/04

11/04

2/05

5/05

8/05

11/05

Gross

40.1

39.9

39.7

39.5

39.6

40

Op.

13.7

13.6

13.5

13.5

13.9

14.5

Net

8.5

8.5

8.3

8.2

8.2

8.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

Foolish lookout:
Yet with its stock trading today roughly where it was two years ago, McCormick apparently feels pressure to do better. Its solution: This is admittedly looking very far out, but last month, McCormick promised investors an increase in its margins "in the upcoming years," laying out an ambitious plan that's expected to significantly improve profitability by 2008. McCormick aims to begin its efforts to "revitalize" its spice and seasonings businesses later this year.

Does that sound like good news to you? It could be, if consumers react positively to the "revitalization." That remains to be determined, though. What we do know is that McCormick intends to purchase new equipment, redesign its packaging, and develop "innovative products" as part of the initiative. These efforts are expected to weigh on profits in 2006, with the company saying that "special charges" will reduce the year's profits by $0.42 per share and that stock-options expensing will siphon off another $0.11.

Competitors:
As dominant as McCormick seems in the aisles of most supermarkets, the company still has a few competitors. International Flavors & Fragrances (NYSE:IFF) and Unilever (NYSE:UL) are two.

Fool contributorRich Smithdoes not own shares of any company named above.