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On Thursday, Argus analysts revised their rating on shares of McCormick & Company (NYSE:MKC), moving from a "Buy" to a "Hold" status. The downgrade reflects concerns about the potential impact of weakened restaurant foot traffic in the EMEA (Europe, the Middle East, and Africa) and U.S. markets on the company’s Flavor Solutions segment. Additionally, rising input costs and planned increases in brand marketing spending are expected to constrain earnings growth for the spice and flavorings giant in 2025 and beyond.
The analysts at Argus noted that despite the downgrade, their long-term view of McCormick remains positive, citing the company’s efforts to control expenses and boost productivity. These efforts include McCormick’s Comprehensive Continuous Improvement program and Global Operating Effectiveness initiatives, which are designed to streamline operations and improve the company’s overall efficiency. InvestingPro analysis reveals the company has maintained dividend payments for 54 consecutive years, with a current yield of 2.23% - just one of many insights available in the comprehensive Pro Research Report covering McCormick.
McCormick & Company’s Flavor Solutions segment, which caters to restaurants and foodservice companies, has historically been a strong performer for the firm. However, current trends in the industry, such as reduced foot traffic in some key regions, are expected to pose challenges to this segment. The analysts believe that these factors, combined with the pressure from increased input prices, will likely lead to limited earnings growth in the near term.
In addition to operational challenges, McCormick is planning to ramp up its brand marketing investments. While such spending is essential for maintaining brand strength and market position, it is also anticipated to weigh on the company’s profit margins. The strategy of increasing marketing spend at a high-single-digit pace could further squeeze earnings as McCormick navigates a competitive and cost-sensitive environment.
Despite the downgrade, Argus maintains a long-term "Buy" rating on McCormick & Company. This perspective underscores the belief that the company’s ongoing cost control and productivity measures could eventually offset the near-term headwinds, positioning McCormick for future growth once the current market challenges are mitigated.
In other recent news, McCormick & Company reported its first-quarter 2025 earnings, revealing a slight shortfall in earnings per share (EPS) compared to forecasts. The company posted an EPS of $0.60, missing the projected $0.64, while revenue was in line with expectations at $1.61 billion. Despite this, McCormick’s organic sales increased by 2%, driven by a 3% rise in its Flavor Solutions segment and a 1% growth in its Consumer segment. Analysts from Bernstein raised McCormick’s stock target to $101, maintaining an Outperform rating, while TD Cowen adjusted their target to $90, keeping a Buy rating, citing robust volume growth despite the earnings miss. Stifel maintained a Hold rating with an $82 target, acknowledging McCormick’s strong sales and margin expansion. Additionally, McCormick’s CEO Brendan Foley highlighted an increase in reformulation efforts among consumer packaged goods and restaurant customers, aligning with trends towards healthier and more natural products. These developments come amid inflation concerns and evolving consumer preferences, with McCormick adapting its strategies to meet these challenges.
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