With A -17% Earnings Drop, Is McCormick & Company, Incorporated’s (NYSE:MKC) A Concern?

Assessing McCormick & Company, Incorporated’s (NYSE:MKC) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess MKC’s recent performance announced on 31 May 2019 and evaluate these figures to its long-term trend and industry movements.

View our latest analysis for McCormick

Was MKC weak performance lately part of a long-term decline?

MKC’s trailing twelve-month earnings (from 31 May 2019) of US$685m has declined by -17% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 16%, indicating the rate at which MKC is growing has slowed down. Why could this be happening? Well, let’s look at what’s going on with margins and if the rest of the industry is feeling the heat.

NYSE:MKC Income Statement, August 23rd 2019
NYSE:MKC Income Statement, August 23rd 2019

In terms of returns from investment, McCormick has invested its equity funds well leading to a 20% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 8.4% exceeds the US Food industry of 5.9%, indicating McCormick has used its assets more efficiently. However, its return on capital (ROC), which also accounts for McCormick’s debt level, has declined over the past 3 years from 19% to 11%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 67% to 138% over the past 5 years.

What does this mean?

Though McCormick’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors impacting its business. You should continue to research McCormick to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for MKC’s future growth? Take a look at our free research report of analyst consensus for MKC’s outlook.
  2. Financial Health: Are MKC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 May 2019. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.