Could McCormick’s Improving Fundamentals Boost Its Stock?

McCormick (MKC) has seen double-digit sales and earnings growth over the past couple of quarters, and analysts expect the company’s top and bottom lines to mark double-digit growth in fiscal 2018.

Continued strength in its base business, driven by new product launches and expanded distribution, are likely to support its sales growth. Meanwhile, incremental sales from its RB Foods acquisition and favorable currency rates are expected to boost its top line.

McCormick’s earnings are expected to gain from the company’s focus on wide-margin products, and sales leverage, cost savings, and a lower tax rate should cushion its bottom line. The company recently announced that it would use the proceeds from the lower tax to pay down debt and increase wages for its US-based employees.

Investors remain concerned over the company’s debt from its RB Foods acquisition. However, improving sales and lower tax should bring some respite and lift investors’ sentiment toward McCormick stock.

Packaged food manufacturers’ stocks have largely disappointed investors so far this year as soft demand, commodity price and transportation cost inflation, and a challenging retail landscape continue to hurt these companies’ financials.

Major food manufacturers General Mills (GIS), Campbell Soup (CPB), Hershey (HSY), and Kraft Heinz (KHC) have seen their stock fall at double-digit rates this year. J.M. Smucker (SJM), Kellogg (K), and Conagra Brands (CAG) have also fallen. However, McCormick stock is holding ground, and had risen ~5% this year as of April 16, 2018, thanks to its stellar sales and earnings growth. The S&P 500 (SPX) has been roughly flat this year.