Did it seem like you spent a lot more time cooking at home the last few months? With restaurants outright closed until just recently in some cases—while others tried frantically to make a go of it with only takeout and delivery options available—cooking at home was for some the only real strategy left. That put a particularly strong call out for spices, and the latest word suggests that McCormick (NYSE:MKC) is having a banner year as home cooks develop their skills.
A Downright Piquant Earnings Report
The earnings report for McCormick tells the story in brilliant detail. For the quarter ending in August, McCormick brought in adjusted earnings of $1.53 per share. That's up 4.8% from last year, and also beat consensus earnings projections, if only just barely, at $1.52 per share. Group revenues were also up, though consensus estimates saw that coming too, and the gains to $1.39 billion, a rise of 8%, were just about perfectly in line with consensus.
McCormick also did something unusual for the market these days; it brought out further projections on its last quarter for the fiscal year. McCormick's new guidance suggests adjusted earnings around $5.64 to $5.72 per share, and revenue growth will be between 4% and 5%, though the company is looking closer to five than four. Just to top it all off, McCormick announced a two-for-one stock split to take place December 1.
Incredible Gains Powered Mainly By Circumstances
There's no doubt McCormick made huge gains this quarter, and the biggest driver behind these gains had to be the overall circumstances of the market. McCormick lost a good chunk of its restaurant business for obvious reasons, but those losses were readily ameliorated by the growing numbers of people stuck at home, and left to cook their own meals.
Those same circumstances also led to more cooking done period; not only were customers now cooking their own meals at home, they were cooking more in general. Remember that brief period where it was next to impossible to find flour or yeast in stores because everyone was buying it? That sort of thing contributed to the gains at McCormick.
While circumstances were definitely a big contributor to McCormick's exciting bottom line, that was far from the only source of gains. McCormick also engages in regular innovation, which may sound unusual for a company that deals mainly in dried, ground-up plants. But innovate it does, and these innovations tend to find some fairly solid market approval thanks to McCormick's generally-high levels of customer reception. Back in June, for example, the company re-released its Old Bay hot sauce line, and now has plans to step up its Frank's line, which is most closely associated with Frank's RedHot. The new arrivals will include an array of frozen appetizers—including chicken bites—and a collection of dips for same once they roll out in stores later this year.
In perhaps the oddest twist of all, McCormick recently partnered with IBM (NYSE:IBM) to put artificial intelligence to work in generating new products. Basically, McCormick is where home diners want to be right now, and is doing everything in its power to be where the home diner will want to be tomorrow.
Further Gains Likely to Follow
As great a quarter as McCormick has had, it comes at the absolute perfect time for the company. Why? Because very soon now, home cooking is going to explode, thanks to an annual series of events we know as “the holidays.” If it hasn't started already with the arrival of apple season in North America and the upcoming Halloween parties, which will certainly be smaller events than normal this year, call for baked goods instead of the usual pre-wrapped candies and liquor. About a month later, meanwhile, will be Thanksgiving, then Christmas, then possibly New Year's, which means a whole lot of baking, cooking, and use of spices.
It was already an impressive quarter for McCormick thanks to its combination of being in the right place at the right time with a whole load of the right product. The next quarter may well do even better, as many of the factors that drove the third quarter up will be in place, while a whole new set of circumstances drives further gains. It's a great time to be a McCormick investor, and maybe you should be one too.
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