Why McCormick & Company Stock Dropped Today

What happened

Shares of McCormick & Company (MKC -8.46%) — maker of spices, seasonings, and condiments — dropped on Tuesday after it announced financial results for its fiscal third quarter of 2023. Q3 results (covering the quarterly period that ended in August) came up short of expectations due to weaker-than-expected results in China. As of 2:50 p.m. ET, McCormick stock was down 8% but had been down almost 11% earlier in the trading session. 

So what

In Q3, McCormick’s net sales were actually up 6% year over year to nearly $1.7 billion. And through the first three quarters of its fiscal 2023, net sales are up about 5.5% from the comparable period of its fiscal 2022. 

The problem is that Wall Street expected McCormick’s net sales to be up a little more than that. China had greater restrictions last year than this year because of COVID-19. But sales didn’t bounce back as much as expected.

Regarding profitability, McCormick’s Q3 operating income was up 4% from the same quarter last year. Considering net sales grew faster than operating income, inflation is clearly eating into the company’s bottom line a little. And that worried investors and sent the stock down today.

Now what

McCormick’s management maintained most of its full-year financial guidance. The exception was its guidance for its adjusted earnings per share (EPS), which it raised. The company expects to have adjusted full-year EPS of $2.62 to $2.67 compared to adjusted EPS of just $2.53 last year.

Now normally, I wouldn’t highlight an adjusted profit metric. However, in this case, the adjustments benefited McCormick’s numbers more last year than they will this year due to the sale of a business unit. So that’s encouraging.

All in all, McCormick is still growing net sales and profits, albeit at a modest pace. Its Q3 results show it’s still a strong operator even as it works its way through challenging headwinds. 

Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.

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