McCormick & Company (NYSE: MKC) confirmed what many consumers already knew. It can be difficult to keep your spice cabinet fully stocked. And it’s about to get more expensive. On the company’s conference call following the release of its earnings report on September 30, McCormick CEO Lawrence Kurzius said the company is experiencing “the highest inflationary period of the last decade, or even two.”
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For that reason, McCormick lowered its guidance for the rest of the year and, not surprisingly, the company’s stock is down nearly 2% in late-day trading. This is despite the fact that the company generated a double beat. Earnings per share (EPS) came in at 79 cents which was higher than the 72 cents EPS that analysts were expecting. On the revenue side, the beat was less impressive with the company generating $1.56 billion in revenue just a tick above the $1.54 billion expected.
Supply Chain Woes
In addition to dealing with cost pressures, the company cited supply chain difficulties. That’s currently playing out on supermarket shelves where it can be difficult to find your favorite spices or that particular spice you need for a recipe. I’ve found that to be the case on several occasions over the past nine months. Perhaps you have as well.
McCormick reported higher sales, as expected in its commercial channel. This corresponds to the reopening of the economy. Retail sales showed just a 1% increase which reflects the slower growth that was expected as people began to dine out.
Expect That Holiday Meal to Cost a Little More
On the earnings call, the company announced it was expecting to pass its higher costs through its supply chain. That means you can expect to be paying more for spices as we enter the holiday season. And this is due in part to Kurzius’ belief that the trend towards cooking at home will stay in place.
This may not seem to mean much, but a 10% increase in prices amounts to anywhere from 30 cents to 60 cents depending on the particular spice and size of jar. That may seem like a nominal amount but may not to consumers who are already seeing grocery bills climb well above their pre-pandemic levels.
A Solid, Not Spectacular Dividend
McCormick is a member of the Dividend Aristocrat club. In 2021, the company made it 36 consecutive years of increasing its dividend. The company’s annual dividend of $1.36 is on par with the overall sector as well as the broader market. However, it’s three-year growth lags behind both benchmarks.
And with margin pressure likely to persist for some time, investors shouldn’t expect much growth in the dividend. Still, the company did continue its dividend during the pandemic and gave its shareholders a special dividend at the end of 2020. That shows that management are prioritizing shareholder value. MKC Stock Deserves a Look, But Maybe Not a Buy
Currently, the consensus price target for MKC stock projects a 14% gain from the stock’s current level. However, the stock received two lowered price targets from analysts prior to the earnings report. More may be on the way.
The period following an earnings report is a time when analysts sharpen their pencils. In many cases, that means adjusting their rating for a company. That’s particularly true when a company like McCormick downgrades its outlook.
In this case it may be wise to not fight the trend. MKC stock is down 12% for the year and that was before it lowered its forecast. The stock is testing a level of support it hit in August. If that line of support holds, there could be a buying opportunity. The good news is that, then as now MKC has a relative strength indicator (RSI) that suggests an oversold condition may exist.
If the same holds true, there could be a buying opportunity. But if it doesn’t you may be better off waiting for a clear buying signal.