McCormick Stock Remains a Buy-and-Hold Ahead of Earnings

September 25, 2020

Shares of spices and flavourings producer McCormick & Co Inc (NYSE: MKC) saw shares finish up 1.9% before its earnings next week. Here’s why it’s still a great buy-and-hold stock.

Tim’s Take:

If anyone’s ever done any home cooking, or perhaps got the roaring barbeque going, then McCormick’s vast array of spices are most likely one of the first things on the shopping list.

The company’s instantly-recognisable little bright red-coloured spice bottles adorn supermarket shelves all over the world. Given all that, it’s still probably not a company investors are all that familiar with.

But they should be. That’s because the firm is one of the most reliable and steady earners around. The company’s history dates back to the 19th century so it’s been around for a while.

Reliable business

Beyond spices, it also produces a wide range of flavourings for the industrial and restaurant markets. On the financials side, it’s a Dividend Aristocrat – having increased its dividend now for 34 consecutive years.

Amazingly, the company has paid a dividend consistently for 96 years. But what about its business? The company suffered early on in the Covid-19 pandemic in the US as restaurants were shuttered.

Yet this fall in its “flavour solutions” segment, that includes supplying restaurants, the pick-up in its consumer-facing business more than made up for it as people stayed indoors and cooked (see below).

McCormick sales

Source: McCormick fiscal Q2 2020 investor presentation

In its fiscal second quarter, the company grew net sales by 10% year-on-year while adjusted EPS came in 27% higher than the year ago period.

Gross margin and operating margin both expanded in McCormick’s latest quarter (by 230 and 240 basis points respectively).

This is a “Steady Eddie” business and for long-term investors who want income – and a bit of diversification from high-growth tech – then McCormick fits the bill.

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of McCormick & Co Inc.

This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.

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Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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