Making Sense Of McCormick’s Newly Added Risk Factors

McCormick & Company (MKC) makes food flavoring products from spices to seasoning mixes. Its customers include grocery stores, food manufacturers, and foodservice businesses. McCormick has been in business since 1889.

For Fiscal Q4 2021 ended November 30, the company reported an 11% year-over-year increase in revenue to $1.73 billion, which exceeded the consensus estimate of $1.72 billion. It posted adjusted EPS of $0.84, which increased from $0.79 in the same quarter the previous year and beat the consensus estimate of $0.80.

With this in mind, we used TipRanks to take a look at the newly added risk factors for McCormick.

Risk Factors

According to the new TipRanks Risk Factors tool, McCormick’s main risk category is Finance and Corporate, representing 30% of the total 33 risks identified for the stock. Macro and Political and Ability to Sell are the next two major risk categories at 24% and 15% of the total risks, respectively. McCormick has recently updated its profile with five new risk factors.

The company informs investors that labor is a critical component of operating its business. It explains that labor force availability and costs could be affected by many factors outside its control. The company says that it has experienced supply-chain pressures as a result of labor shortages, and it cautions that the problem may persist, causing a material adverse impact on its business and financial condition.

McCormick tells investors that the cost of raw materials, labor, fuel, and other inputs that go into the manufacturing and distribution of its products have continued to rise in 2022, extending the trend from 2021. The company cautions that the measures taken to offset these cost pressures may not be successful. For example, increasing the selling price of products in response to rising production costs may result in a decrease in sales as customers turn to cheaper alternatives from competitors. 

Companies across the board are facing increasing scrutiny over their environmental, social, and governance (ESG) practices. On that note, McCormick cautions that failure to meet the ESG expectations of its customers, investors, or its own commitments could hurt its business. For example, some customers may stop purchasing McCormick’s products and investors may think twice about investing in the company. As a result, sales may decrease, and access to capital may be limited. Furthermore, ESG standards and regulatory requirements may result in increased operating and compliance costs for McCormick, which could, in turn, adversely affect the company’s operating results, financial condition, and expose it to lawsuits. 

The Finance and Corporate risk factor’s sector average is 37%, compared to McCormick’s 30%. McCormick’s stock has gained about 5% year-to-date.

Analysts’ Take

Barclays analyst Andrew Lazar recently reiterated a Hold rating on McCormick stock with a price target of $100, which suggests the stock is fully valued at the current price.

Consensus among analysts is a Hold based on 5 Holds and 1 Sell. The average McCormick price target of $95 implies 5.46% downside potential from current levels.

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