The cooking from home surge that has commenced this year due to COVID-19 is likely here to stay for some time, thinks the chairman and CEO of spice maker McCormick.
“All aspects of cooking at home continue to be strong. Consumers are still concerned about their health. Many of the food service venues are closed and headlines we’re seeing is all about the resurgence of the virus. People will be cooking at home for a very long time. This isn’t bad news for them,” said Lawrence Kurzius on Yahoo Finance’s The First Trade. “McCormick has gained market share. People are coming back more. All of that says consumers are trying our brands and like them enough to buy them again. And clearly they are having a good experience. For many, it will be a new habit.”
McCormick is days removed from its fiscal second quarter earnings, which underscored Kurzius’ comments.
Sales in the company’s consumer solutions segment surged 26% from the prior year on the back of demand for spices, French’s mustard and Frank’s Red Hot sauce. U.S. and European sales increased 35.8% and 22%, respectively. The segment’s operating profit margin spiked 610 basis points from the prior year.
Meanwhile, the flavor solutions segment saw sales drop 18.5% from a year ago in large part because restaurants globally mostly remained closed. McCormick does big business with spices for the restaurant sector (think condiments on tables, for example). The segment’s operating margins fell 790 basis points from last year.
McCormick’s stock has gained a solid 8% year-to-date versus the 5.8% drop for the S&P 500, according to Yahoo Finance Premium data.
Somewhat bizarrely, Wall Street remains cautious on McCormick’s stock despite the fundamental shift in food consumption. Of the 13 sell-side analysts that cover the stock, 84% rate it a Hold or a Sell due to its premium relative valuation (forward P/E ratio of 33 times, shows Yahoo Finance Premium).
Hearty valuation or not for McCormick, the company continues to show it’s thriving right now and deserves more of a premium to the market.