McCormick & Co. presents a mixed picture for investors. Its strong market position, consistent dividend growth, and successful cost-saving initiatives are attractive features. However, competitive pressures and potential economic headwinds in key markets like China introduce elements of risk.
Investors should carefully weigh these factors against their investment goals and risk tolerance, especially when the stock trades at 25.3 times the company’s forward earnings forecast. Such a multiple is fine for a vigorous growth company, but for us this firm’s current performance isn’t justifying that lofty valuation.
MCCORMICK & CO. INC. (New York symbol MKC; www.mccormick.com) is a maker of spices, seasonings and flavours.
McCormick continues to shift its focus to more profitable products. The company is also benefiting as rising inflation prompts more consumers to eat at home instead of restaurants.
In its fiscal 2024 fourth quarter, ended November 30, 2024, McCormick’s sales rose 2.6%, to $1.80 billion from $1.75 billion a year earlier. Stronger demand in the Americas and Europe offset lower demand in Asia, particularly China. The latest sales figure also topped the consensus forecast of $1.77 billion.
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To spur sales, the company has increased its marketing and advertising campaigns. Due to those higher costs, earnings per share (before unusual items) fell 5.9%, to $0.80 from $0.85. Even so, that beat the $0.77 consensus estimate.
McCormick now expects its sales in fiscal 2025 will rise 1% to 3%. However, the midpoint of that range—2%—is less than the 2.4% consensus forecast. The company also expects its earnings will improve roughly 6%, to between $3.03 and $3.08 a share. The stock currently trades at 25.3 times the midpoint of that range.
That’s a somewhat high multiple as cost-conscious consumers switch to cheaper, generic brands of spices. McCormick’s exposure to slowing economic growth in China (the Asia/Pacific region supplies about 10% of its sales) is another risk factor.
Growth Stocks: McCormick has increased its payout for 39 years
McCormick raised your quarterly dividend by 7.1% with the January 2025 payment to $0.45 a share from $0.42. The new annual rate of $1.80 yields 2.3%. The company has now increased the annual dividend rate each year for the past 39 years.
McCormick’s long-term outlook is sound, but in the near term, the company faces strong competition from cheaper store-brands as consumers continue to cope with food inflation and interest rates.
Recommendation in Wall Street Stock Forecaster: McCormick & Co. Inc. is a hold.
