How This Pandemic Survivor Will Get a Reopening Boost
We're finally getting to the endgame of the COVID-19 nightmare...
And as more folks get vaccinated and government restrictions become less onerous, many industries will start to get back on their feet. One of the hardest-hit victims has been restaurants...
These businesses had to shut their doors and rely strictly on carryout and delivery throughout the past year. But now, that's changing... Indoor and outdoor dining is back in many states under capacity restraints. And more states are loosening restrictions, allowing more diners as the vaccine rollouts continue.
As a result, the restaurant industry has been rehiring workers that were laid off during the shutdowns. And it's working to make up for lost revenue over the past year.
Today, we're highlighting a company set to benefit from the restaurant industry's revival – which will only add to the strength it built up throughout this turbulent period...
We're talking about spice-maker McCormick (NYSE: MKC)...
McCormick is the leading global player in spices and seasonings, reaching consumers in roughly 160 countries.
McCormick's portfolio of brands includes household staples like French's, Frank's RedHot, Lawry's, and Old Bay. These household names are so well-known and loved that McCormick doesn't need to spend a ton on marketing them.
And the company has made moves to expand its brand portfolio. In November, McCormick announced that it would purchase the parent company of Cholula Hot Sauce in a deal worth $800 million in cash. McCormick CEO Lawrence Kurzius said hot sauce is an "attractive, high-growth category" for the company.
He added that Cholula would give the company a great opportunity to capitalize on this growth, since it's growing faster than the broader market.
The company expects the acquired brand to grow at mid- to high-single digits once COVID-19 is behind us. McCormick also said that it will use its wide reach and existing infrastructure to get Cholula into more homes and restaurants, helping to lift sales.
More importantly, spices are in demand no matter what's going on in the broader economy. As the best company in the industry, this makes McCormick a great business to own at any time. It continues to deliver steady sales growth even during economic downturns. And that was especially true during the pandemic-induced recession last year...
When we last highlighted McCormick in September, the company had seen a "substantial increase" in people cooking from home. This was a trend that accelerated throughout 2020, boosting McCormick's business. Sales in this channel rose 26% in the second quarter, 15% in the third, and 6% in the fourth.
The strength in the business has carried over into 2021. Kurzius said that the company just had an "outstanding" quarter...
Specifically, he cited double-digit organic sales growth in the company's consumer business, which sells spices to people through outlets like grocery stores. Kurzius points that out as more evidence of the strength of the at-home cooking trend.
As a result of the strong quarter, McCormick raised its forecast for its 2021 fiscal year, which ends in November. McCormick now guides earnings per share ("EPS") of $2.97 to $3.02, up from the previous range of $2.91 to $2.96, and above the $2.95 estimate.
McCormick also endorsed full-year revenue growth of 8% to 10%, versus the prior guidance of 7% to 9%, and again above Wall Street's expectation of 8.1% growth.
Perhaps more importantly, McCormick said it expects organic sales growth in both the consumer and the flavor-solutions segment.
That's great news, as McCormick's flavor-solutions business has seen headwinds throughout the pandemic...
This segment supplies places like restaurants and packaged-foods companies. And with restaurants seeing less order volume because of COVID-19, this business didn't perform as well. Since it makes up about 40% of sales, this dug into the company's overall sales.
But now, as restrictions lift on dining, that should help this part of McCormick's business recover.
Shares haven't reflected this just yet. Since peaking in September, McCormick shares are down about 15%. This doesn't reflect the ongoing strength (and future growth) for McCormick. Instead, it's likely due to a pullback after the 84% surge off its March 2020 lows. And that could be creating a buying opportunity in MKC shares...
McCormick is a great business to hold in any environment. It performed well throughout the pandemic... And now, the part of its business most damaged by COVID-19 is coming back. That should provide an additional tailwind for shares.
Sometimes investing is simple.