High p/e adds to McCormick’s risk

Article Excerpt

MCCORMICK & CO. INC. $118 (New York symbol MKC; Income Portfolio, Consumer sector; Shares o/s: 131.3 million; Market cap: $15.5 billion; Price-to-sales ratio: 3.0; Divd yield: 1.7%; TSINetwork Rating: Average; www.mccormick.com) makes spices, seasonings and flavours. In August 2017, the company acquired several condiment brands from Reckitt Benckiser Group plc. They include French’s Mustard, Frank’s RedHot Hot Sauce and Cattlemen’s BBQ Sauce. McCormick paid $4.2 billion for those businesses. Mostly due to the deal with Reckitt Benckiser, sales for the fiscal 2018 second quarter, ended May 31, 2018, jumped 19.1%, to $1.33 billion from $1.11 billion a year earlier. Excluding unusual items, the company earned $135.9 million, up 31.4% from $103.4 million. With more shares outstanding, earnings per share rose 24.4%, to $1.02 from $0.82. McCormick borrowed most of the funds it needed for the Reckitt deal. That pushed up its long-term debt to $4.5 billion. The debt load equals a manageable 29% of its market cap. However, the stock trades at high 23.8 times…

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