Editor's Note: All images are courtesy of Unsplash.com and AP Images.
Key Takeaways for McCormick Stock:
- McCormick suspects a continuation of home cooking spurred by the pandemic, which could drive demand for spices and seasonings as long as consumers don’t trade out of the category.
- To help address consumers who trade down or up depending on their financial situation, McCormick supplies products for both private labels and its own brand name.
- More consumers are buying brand name spices, or trading up, at dollar stores where McCormick currently has an agreement. These direct consumer insights are helping with the formulation of products for industrial markets.
Andrew Willis: Want to make a bet that we see more home cooking with the holidays, and dine out less in the long term? McCormick (MKC) would be the right pick at the stock supermarket as we head into some potential seasonal and economic tailwinds.
McCormick stock has quite a bit from its pandemic-era highs of early 2022, but there appear to be longer-term trends at play that may favour home cooking. The leading player in the 11 billion dollar global spices and seasoning market, McCormick suspects the recently jumpstarted trend of households eating at home will continue.
McCormick’s Wide Moat Makes for a Defensive Dividend Stock
Ongoing demand and a sustainable advantage in the grocery aisle will likely support the dividend for McCormick stock, which has been on the rise in recent years. Sector director Erin Lash contends that while others have struggled to play both sides of the aisle, McCormick continues to leverage its spice industry superiority to reinforce its wide moat further.
The process that McCormick has established will be rather important as consumer tastes change… Imagine a shopper who enters a dollar store to pick up some spice, they usually buy the name-brand McCormick stuff, but today the budget’s a little tighter and it's time to trade down to the store brand. Well, both of those products may have been from McCormick. And the same setup applies to those shoppers who may be trading up! McCormick currently has an agreement with both Dollar General and Family Dollar, and all parties are pleased it seems, as category sales have picked up with the addition of higher-end spices and seasonings.
Lastly, for those betting against home cooking in the coming year, consider McCormick’s industrial operations which benefit from their consumer-level insights – you might find this stock is a recipe for long-term returns.
For Morningstar, I’m Andrew Willis.
McCormick Bulls Say
- We see the merits of its technology modernization effort (aiding future sales growth), as it is replacing a system that has been in place since the early 2000s when the firm was half the size it is now.
- McCormick's sales trajectory could be bolstered if consumers' penchant for at-home food consumption (jump-started by the pandemic) maintains momentum, as management suspects.
- Even with lingering supply chain disruptions, McCormick is seeing service levels improve relative to the start of the pandemic as its manufacturing operations are catching up, aiding its retail relationships.
McCormick Bears Say
- Unrelenting freight, labour, packaging, and commodity cost hikes (which have been cited by a number of consumer product manufacturers) stand to cap profits over the near term.
- The pandemic took a toll on its consumer sales in Asia (which houses its branded quick-service restaurant business) in the first quarter of fiscal 2020, and results in the region remain choppy.
- Competition abounds in the spice aisle from all sides—lower-priced value offerings as well as premium-priced products—which could impede McCormick's value in the eyes of retailers and end consumers.
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