Spice giant McCormick (MKC) reported weak earnings Wednesday, June 29, hit by sluggish demand in China, the war in Ukraine, the dollar’s strength and higher fuel and transport costs. Shares fell 1.39% to close at $85.63. The stock is down 11.37% so far this year, compared to a loss of 19,88% for the S&P 500.
But better times may be ahead for the company, which is part of the Action Alerts PLUS portfolio.
The AAP team writes for their investment club members: “Some of the challenges of the May quarter will remain, including higher interest rates, a stronger dollar, and the ongoing impact of the Russia-Ukraine war." But “several of the items will fade or be offset by additional pricing action.”
And these issues aren’t unique to McCormick.
China Market Likely to Rebound
As for China, McCormick's second largest market, McCormick's current quarter started June 1, “which means it will feel the lingering effects of China's lockdowns in the current quarter,” the AAP team said.
“But as those lockdowns fade, its Shanghai facility, which produces 40% of its product for China, should rebound.”
Another positive factor for McCormick going forward is price increases set for August for in its consumer business. That builds on pricing action from April and the November 2021 quarter, the AAP team said in Wednesday's alert.
“We may see some margin improvement in the current quarter, as supply chains continue to improve. But the totality of those pricing actions points more toward McCormick's November quarter.”
Further, “we are witnessing some rollover in various commodity inputs,” the team said. “If that rollover continues, it means McCormick's pricing action to combat inflation this year will likely become a margin generator in 2023.”
Bottom line: “we continue to see McCormick as a high-quality company,” the team said.