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McCormick, with strong Q3 numbers, announces stock split

McCormick & Co. CEO Lawrence Kurzius discusses the firm's new global headquarters. The spice makers celebrated the opening of its new building at 24 Schilling Road on Tuesday. (The Daily Record/ Adam Bednar)

McCormick & Company CEO Lawrence Kurzius, shown in a 2018 photo, says the company’s strong performance is a testament to its diverse product line. (The Daily Record/File Photo)

McCormick & Company Inc. Tuesday announced a 2-for-1 stock split amid strong sales growth during the third quarter, a signal that despite the pandemic’s blow to its restaurant market the company is thriving.

Net income in the third quarter grew to $206.1 million or $1.53 per share, up from $191.9 million or $1.43 per share last year. Sales also increased about 8% to roughly $1.43 billion.

The Hunt Valley-based company joins the likes of Apple and Tesla, which initiated stock splits last month, with its strong financial results reflecting its ability to flourish and adapt to changing consumer habits.

“It’s a signal,” said Karyl Leggio, a professor of finance at Loyola University Maryland. “It’s a message to the market that we believe our stock price is going to continue to go up.”

In the third quarter, McCormick’s consumer segment sales increased by 15%, while the brand’s flavor solutions sector, which includes the restaurant industry, dropped by about 3%. Increased sales to packaged food companies balanced lower demand among food service customers, said McCormick President and CEO Lawrence E. Kurzius.

“Taken together, these impacts continue to demonstrate the strength and diversity of our offering,” he said.

Over the last few years, McCormick has diversified its product line. In 2017, it acquired the food division of Reckitt Benckiser –– the owner of Frank’s RedHot and French’s.

The company also opened a 350,000-square-foot global headquarters in 2018. Earlier this month, McCormick announced a quarterly dividend of $0.62 a share on its common stock, marking the 96th consecutive year of a dividend.

Leggio said the global eating-at-home trend because of the pandemic is a likely contributor to the company’s growth. Amid the pandemic, food blogs are on the rise and many consumers have turned to sampling new foods and seasonings, the foundation of McCormick as a global company.

Sales are up, costs are contained, and the company is also continuing to make money for shareholders Leggio said. For most investors it’s beneficial to buy stock in a block of 100 shares, but when those prices get too high it becomes difficult to do that, which could be one benefit to the split.

Although the stock split, which takes effect Nov. 30, might send a positive signal to shareholders, it doesn’t add any real value, said David Kass, a professor of finance at the University of Maryland, College Park.

“It’s really a cosmetic change,” Kass said. “It doesn’t create any value; you’re just cutting the pie into two pieces and the pie is still the same size.”

The split could create excitement among customers and potentially attract new shareholders, but the customer effect is minor, although psychologically the shareholder may feel “richer,” he said.

Kass pointed to recent examples of Apple and Tesla, where shares skyrocketed after a 4-for-1 and a 5-for-1 split, respectively. It’s unclear whether the stock split actually caused the increase or whether the stock would have gone up otherwise, he added.

Erin Lash, the director of consumer equity research at Morningstar said McCormick’s “wide-moat” results confirm its “competitive prowess.”

Although the company’s flavor solutions business decreased slightly, the shift is an improvement from the double-digit drop last quarter, said Lash, who closely follows the company. Demand from its packaged food customers is also beginning to recover.

“Even though the firm struck an optimistic tone regarding the sustainability of at-home food consumption, we think a desire to venture outside the home for food will resume as concerns surrounding the virus fade, particularly when a vaccine is widely available (which we posit will occur in mid-2021),” Lash said.

The speed of top-line gains, including sales, will likely decrease over time, she added. Morningstar is also standing firm on its long-term estimate of 3 to 4 percent annual sales growth for McCormick by the end of their 10-year explicit forecast.

For now, the unknown is whether people will return to eating in restaurants at a steady pace, Leggio said.

“There is some expectation that peoples’ behaviors may have changed,” she said. “We may see a longer-term trend toward cooking at home and family meals.”

McCormick’s stock closed at 189.89, down 2.71%.

 

 


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