A projected 5% earnings rise isn’t enough for us to recommend McCormick

McCormick’s 4.7% decline over the last five years affirms our “Hold” call. We see better places for you to put your money even though the firm is shifting its focus toward more profitable products.

While the yield is solid, the shares trade at a high 26.3 times the company’s 2024 earnings forecast. That’s a price we consider high when considering its growth prospects.

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MCCORMICK & CO. INC. (New York symbol MKC) makes spices, seasonings and flavours.

The stock rose 9% recently on better-than-expected quarterly results as McCormick shifts its focus to more-profitable products. The company is also benefitting as rising inflation prompts more consumers to eat at home instead of restaurants.

In its fiscal 2024 first quarter, ended February 29, 2024, McCormick’s sales rose 2.4%, to $1.60 billion from $1.57 billion a year earlier. That topped the consensus forecast of $1.56 billion.

The higher sales are mainly because the company raised its selling prices (up 3%), which offset lower volumes (down 1%) as well as the sale of certain businesses.

If you exclude unusual items, earnings per share gained 6.8%, to $0.63 from $0.59. That also beat the $0.58 consensus estimate.

Growth Stocks: McCormick’s price seems high despite potential earnings rise

McCormick now expects its earnings for all of fiscal 2024 will rise roughly 5% to between $2.80 and $2.85 a share. The stock currently trades at 26.3 times the midpoint of that range. That’s a somewhat high multiple as rising inflation and interest rates prompt cost-conscious consumers to switch to cheaper, generic brands of spices. McCormick’s exposure to China (the Asia/Pacific region supplies about 10% of its sales) is another risk factor due to that country’s slower economic recovery.

The company raised your quarterly dividend by 7.7% with the January 2024 payment. The new annual rate of $1.68 a share yields 2.3%. The company has now increased the annual dividend rate each year for the past 38 years.

Recommendation in Wall Street Stock Forecaster: McCormick & Co. Inc. is a hold.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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