MKC: Volume-Led Demand Will Drive Future Margin Recovery Despite Tariff Pressures

We lower our McCormick price target modestly by about $1, as analysts highlight resilient volume-led growth and margin improvement potential but temper expectations for valuation and near-term profitability given rising tariffs, higher commodity costs, and a wider range of outcomes into 2026.

Analyst Commentary

Analysts broadly acknowledge McCormick's solid operational execution, underpinned by volume-led growth and continued category strength, but they are also resetting expectations to reflect a more uncertain profit and valuation trajectory through 2026.

Bullish Takeaways

• Bullish analysts highlight that McCormick continues to deliver volume-led growth and resilient demand across core categories, supporting a constructive long term growth algorithm despite a challenging consumer backdrop.
• Some see the Consumer segment's outperformance versus Flavor Solutions as evidence that the brand portfolio remains strong and well positioned to capture holiday and everyday cooking occasions, which underpins confidence in top line durability.
• There is optimism that gross margins can stabilize and begin to improve as the company works through higher input costs and incremental tariffs, with expectations for flat to modestly positive margin progress into the key fourth quarter.
• Even after modest target price cuts, supportive ratings and above market target prices imply that, if execution on cost and pricing stays on track, there is still upside potential from current levels.

Bearish Takeaways

• Bearish analysts point to rising tariffs and higher commodity costs as key overhangs that are compressing near term profitability and limiting the pace of margin recovery, leading to incremental downward revisions to earnings expectations.
• There is growing concern that the range of outcomes for fiscal 2026 has widened, with uncertainty around price elasticity, the trajectory of Flavor Solutions, and the broader macro backdrop, which justifies more conservative valuation multiples.
• Mixed quarterly results, including modest organic sales growth and year over year gross margin pressure, reinforce the view that execution needs to be near flawless to support prior valuation levels, prompting several target price reductions.
• Neutral stances and trimmed targets from more cautious voices suggest investors may need to wait for clearer evidence of sustained margin inflection and improved visibility on tariffs before re rating the shares meaningfully higher.

What's in the News

• McCormick's Board approved a quarterly dividend increase from $0.45 to $0.48 per share, marking 102 years of uninterrupted dividends and 40 consecutive years of dividend growth. The dividend is payable January 12, 2026 to shareholders of record on December 29, 2025 (company announcement, Dividend Increases).
• The McCormick brand unveiled a major redesign of its 72 item McCormick Gourmet Collection, the first in over 30 years. The update features refreshed glass packaging, gold screwcaps, and updated labels aimed at authenticity, transparency, and younger, globally focused home cooks, rolling out nationwide through January 2026 (company announcement, Product Related).
• McCormick and Milk Bar renewed their holiday collaboration, launching a limited time McCormick x Milk Bar Eggnog English To coffee Cookie featuring McCormick spices, available November 28 to December 31, 2025. Complimentary cookies will be offered on National Cookie Day, December 4 (company announcement, Product Related).
• Frank's RedHot, a McCormick brand, partnered with Huer Foods on Frank's RedHot Spicy Gummy Bears, tapping into rising demand for sweet and spicy snacks and the growing weekly consumption of spicy foods among North American consumers. The product is available across major retailers and online (company announcement, Product Related).
• McCormick modestly lowered its fiscal 2025 outlook, trimming EPS guidance to $2.95 to $3.00 and operating income growth to 1% to 3%, while maintaining its net sales growth outlook of 0% to 2% (company announcement, Guidance Lowered).

Valuation Changes

• The fair value estimate has edged down slightly from $76.92 to $76.17 per share, reflecting modestly lower long term return expectations.
• The discount rate is effectively unchanged at approximately 6.96%, indicating a stable risk and return profile being applied to future cash flows.
• Revenue growth has risen moderately from about 4.65% to 5.09%, pointing to a somewhat more optimistic outlook for top line expansion.
• The net profit margin has increased from roughly 12.79% to 13.46%, suggesting improved expectations for underlying profitability and cost efficiency.
• The future P/E multiple has fallen meaningfully from 25.44x to 23.65x, implying a more conservative valuation being applied despite better growth and margin assumptions.