McCormick & Co Q3 Preview by Deutsche Bank

McCormick (NYSE:MKC) announced its first-quarter earnings, which fell short of Wall Street expectations, despite revenue meeting forecasts and guidance remaining unchanged.

For the quarter, the spice and flavoring maker reported adjusted earnings per share of $0.60, below the $0.64 consensus estimate. Revenue held steady at $1.61 billion, matching expectations but reflecting flat year-over-year growth.

The company’s 2% increase in sales volume was offset by a 2% foreign currency headwind, keeping overall top-line growth neutral. McCormick’s Consumer segment saw a 1% rise in organic sales, while Flavor Solutions posted 3% organic growth, signaling steady demand across its core business units.

Despite the soft Q1 earnings, McCormick reaffirmed its full-year guidance, expecting adjusted EPS in the range of $3.03 to $3.08, closely aligned with the $3.07 consensus. The company also maintained its projection of 1–3% organic sales growth for fiscal 2025.

McCormick & Company, Inc. (NYSE:MKC) is a global leader in the flavor industry, known for its spices, seasoning mixes, and condiments. The company is set to release its first-quarter 2025 earnings on March 25. Analysts expect earnings per share (EPS) to be $0.64, with projected revenue of approximately $1.61 billion. McCormick's performance in this quarter is crucial for its stock's near-term price movement.

Analysts anticipate a 0.6% increase in revenue from the same quarter last year, with the Zacks Consensus Estimate set at nearly $1.6 billion. Despite a 4.5% decrease in the earnings estimate to $0.64 per share, this still represents a 1.6% growth compared to the previous year's quarter. McCormick has a history of outperforming expectations, with an average earnings surprise of 12.9% over the last four quarters.

The company's growth is expected to be driven by strong volume and product mix, alongside cost-saving initiatives. However, high costs remain a potential risk to these positive projections. McCormick's strategic cost management, premiumization, and operating leverage have helped expand margins in its Flavor Solutions segment, making it an attractive investment for dividend investors.

For fiscal year 2025, McCormick anticipates revenue growth of 1% to 3% and adjusted operating income growth of 4% to 6%, despite challenges such as inflation, tariffs, and geopolitical risks. The company's financial metrics, including a P/E ratio of 27.29 and a price-to-sales ratio of 3.20, reflect its market value relative to earnings and sales. The debt-to-equity ratio of 0.82 indicates a balanced approach to financing its assets.

The upcoming earnings report will significantly influence McCormick's stock price. If the company surpasses expectations, the stock price may rise. Conversely, a miss could lead to a decline. The sustainability of any immediate price changes and future earnings expectations will depend on management's discussion of business conditions during the earnings call.

McCormick & Company, Incorporated (NYSE:MKC) pre-announced softer Q3/22 results and cut its full 2022-year guidance.

Revenue is expected to grow approximately 3% year-over-year in Q3. In constant currency, the increase is expected to be around 6% driven by growth in both the Consumer and Flavor Solutions segments.

Given growing signs of changing consumer behaviors and deteriorating demand across several categories in response to high prices, analysts at Deutsche Bank expect fundamental skepticism/caution across CPG will likely continue to build over the coming months.

Analyst at Deutsche Bank provided their views on McCormick & Company (NYSE:MKC) ahead of the company’s upcoming Q2/22 earnings, which are expected to be reported on June 29.

While the company has demonstrated solid execution and momentum throughout the pandemic, the analysts believe the top-and bottom-line delivery will be incrementally tougher moving forward as consumers shift towards value brands and cost headwinds linger throughout 2022 and into 2023.

Furthermore, with inflation pressures continuing to escalate in recent months (alongside volatility in China and more adverse FX headwinds), the company is likely to see its 2022 profit skew further towards the second half of its fiscal year than previously planned. That said, the analysts’ base case remains that the company will still largely reiterate its full-year outlook (if now likely skewed to the low end of its $3.17-$3.22 EPS range).

The analysts reduced their price target to $91 from $99, while keeping their hold rating unchanged.