Consumers turned to home cooking in greater numbers during the pandemic, a trend that helped boost McCormick & Co.’s sales 11% in the second quarter and is expected to benefit the spice and flavorings maker longer term.
Sales jumped to $1.6 billion for the three months that ended May 31, compared with $1.4 billion in the second quarter of 2020, the Hunt Valley-based company said Thursday.
The manufacturer has seen a sustained shift to at-home use of its spices, recipe mixes and other products that’s higher than pre-pandemic levels, said Lawrence E. Kurzius, McCormick chairman, president and CEO. Meanwhile, sales to commercial customers, such as food manufacturers and restaurants, have recovered well from closures and restrictions at the height of the coronavirus pandemic in 2020.
“Consumers were cooking at home more before the pandemic and that has accelerated,” Kurzius said during a call with analysts. “A lot of lapsed cooks had the opportunity to cook ... It’s been an outlet for creativity and brought families together, and we think this is behavior that will continue.”
McCormick reported a net income of $183.7 million, or 68 cents per share, compared with $195.9 million, or 73 cents per share, in the second quarter last year. The company earned 69 cents per share on an adjusted basis, topping analysts’ estimates of 61 cents per share.
The spice maker’s sales to commercial customers, such as restaurants, jumped 39%, as that segment rebounded from closures and other disruptions during the pandemic and demand increased from packaged food and beverage companies. Sales to consumers fell 2%, largely because of a comparison to stronger-than-usual demand during last year’s second quarter amid the pandemic.
Consumers will likely see higher prices on some McCormick products toward the end of the year, as the company makes adjustments from rising costs of commodities and transportation, Kurzius said.
Arun Sundaram, an equity analyst at CFRA Research, said he no longer has a “sell” recommendation on McCormick stock and raised his opinion to “hold.” Sundaram also raised the 12-month target on shares to $89 each.
Shares of McCormick closed at $87.97 Thursday, down 35 cents per share.
Strong earnings growth next year should be driven by lower COVID-19 expenses, a more favorable tax rate, contributions from Cholula and FONA and price adjustments, the analyst said
“We believe our concerns regarding inflationary pressures and moderating food-at-home demand are now reflected in the valuation,” Sundaram said in a report.
The company raised its sales outlook for the current fiscal year to growth of 11% to 13%, up from the previous projection of 8% to 10%. It also expects higher annual earnings per share, in the range of $2.83 to $2.88 each, compared with $2.78 each in 2020.