McCormick (MKC)

Food flavoring company McCormick (NYSE:MKC) met Wall Street’s revenue expectations in Q2 CY2025, but sales were flat year on year at $1.66 billion. Its non-GAAP profit of $0.69 per share was 5.7% above analysts’ consensus estimates.

Company Overview

The classic red Heinz ketchup bottle’s competitor, McCormick (NYSE:MKC) sells food-flavoring products like condiments, spices, and seasoning mixes.

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Competitors of McCormick include Kraft Heinz (NASDAQ:KHC), Nestle (SWX:NESN), and Unilever (NYSE:UL).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $6.74 billion in revenue over the past 12 months, McCormick is one of the larger consumer staples companies and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only so many big store chains to sell into, making it harder to find incremental growth. To accelerate sales, McCormick likely needs to optimize its pricing or lean into new products and international expansion.

As you can see below, McCormick’s 2.1% annualized revenue growth over the last three years was sluggish, but to its credit, consumers bought more of its products.

This quarter, McCormick’s $1.66 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, similar to its three-year rate. This projection is underwhelming and indicates its newer products will not lead to better top-line performance yet.

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether McCormick generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, McCormick’s average quarterly volume growth was a healthy 1.1%. In the context of its 1.8% average organic revenue growth, we can see that most of the company’s gains have come from more customers purchasing its products.

In McCormick’s Q2 2025, sales volumes jumped 1.3% year on year. This result was an acceleration from its historical levels, certainly a positive signal.

McCormick has good unit economics for a consumer staples company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 38.3% gross margin over the last two years. That means for every $100 in revenue, $61.70 went towards paying for raw materials, production of goods, transportation, and distribution.

This quarter, McCormick’s gross profit margin was 37.5%, in line with the same quarter last year but missing analysts’ estimates by 1.1%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

McCormick’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 15.4% over the last two years. This profitability was top-notch for a consumer staples business, showing it’s an well-run company with an efficient cost structure. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, McCormick’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q2, McCormick generated an operating margin profit margin of 14.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

McCormick’s unimpressive 2% annual EPS growth over the last three years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

In Q2, McCormick reported EPS at $0.69, in line with the same quarter last year. This print beat analysts’ estimates by 5.7%. Over the next 12 months, Wall Street expects McCormick’s full-year EPS of $2.92 to grow 8.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

McCormick has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.2% over the last two years, quite impressive for a consumer staples business.

Taking a step back, we can see that McCormick’s margin dropped by 3.7 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity.

McCormick’s free cash flow clocked in at $76 million in Q2, equivalent to a 4.6% margin. The company’s cash profitability regressed as it was 1.2 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

McCormick historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.9%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

McCormick reported $124.1 million of cash and $4.45 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.37 billion of EBITDA over the last 12 months, we view McCormick’s 3.2× net-debt-to-EBITDA ratio as safe. We also see its $57.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly McCormick blew past analysts’ EPS and EBITDA expectations this quarter. Overall, this print had some key positives. The stock traded up 3.9% to $76.51 immediately after reporting.

Updated: July 10, 2025 at 10:49 PM EDT

Before deciding whether to buy McCormick or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

McCormick isn’t a terrible business, but it doesn’t pass our quality test. For starters, its revenue growth was uninspiring over the last three years, and analysts don’t see anything changing over the next 12 months. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its cash profitability fell over the last year. On top of that, its mediocre EPS growth over the last three years shows it’s failed to produce meaningful profits for shareholders.

McCormick’s P/E ratio based on the next 12 months is 22.9x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $82.95 on the company (compared to the current share price of $72.44).