Hitting Highs From the Newfound Appreciation for At-Home Cooking
With disease out in the streets, it's safer to stay home for family dinner...
The COVID-19 pandemic has sparked a new interest in home-cooked meals. Since 2015, eating out ("food service") sales have surpassed retail grocery sales every year up until now. But that all changed with the pandemic.
In mid-March, many restaurants had to close their doors because of lockdown orders. As a result, many people began cooking at home. According to a survey from sales and marketing agency Acosta, 55% of respondents said they are cooking more at home because of the pandemic.
And companies in the food industry don't expect this trend to go away any time soon...
Grocery chain Kroger (KR) recently said it has found that many consumers are enjoying learning how to cook. And they're enjoying the "family time" that comes along with it. Other grocers and consumer products companies have made similar comments.
And this trend hasn't shown any signs of stopping, even as states begin to lift restrictions. That's a boost for today's company...
McCormick (NYSE: MKC) is a $25 billion spice-maker. It's the leading global player in spices and seasonings, reaching consumers in more than 150 countries.
If you're like most people, you buy McCormick spices. And you usually just do it without thinking... with no marketing required.
McCormick's portfolio of brands includes household staples such as French's, Frank's RedHot, Lawry's, and Old Bay.
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.
The company breaks its sales into two business segments: consumer and flavor solutions. The consumer segment, which makes up about 61% of sales, sells spices directly to shoppers through retail grocers. And the flavor-solutions segment, which makes up the other 39% of total sales, sells spices to packaged-foods companies and restaurants.
The company hasn't been immune to the pandemic. Its flavor-solutions business has struggled because of coronavirus-related restaurant shutdowns. But McCormick's consumer business has gotten a huge boost that's helping balance that weakness...
In the second quarter, McCormick's total sales rose 8% from the same period last year. McCormick has the at-home-cooking trend to thank for this...
Its flavor-solutions segment saw sales decline 18% in the quarter as folks shied away from restaurants.
But sales in the consumer segment surged 26% in the quarter, driven by a "substantial increase" in people cooking from home. Not only did McCormick note a shift to at-home cooking, the company said the trend had accelerated throughout the quarter.
And it hasn't slowed at all so far in the third quarter...
In a presentation at the Barclays Global Consumer Staples Conference, McCormick CEO Lawrence Kurzius said the company is seeing "strong sustained demand." He also said that consumers are still worried about the coronavirus despite reopening measures.
These worries are keeping people cooking at home... and McCormick has the data to back it up.
Kurzius said that 85% of consumers indicated that the pandemic has changed their eating habits... And 60% of people have begun cooking from scratch more. Kurzius said those that are choosing carryout or delivery instead of cooking from home are still using McCormick products for seasonings.
He also said that U.S. consumption of McCormick products is up 26% over the latest four-week period, citing Nielsen data. And McCormick is seeing similar sales trends in Europe and Asia.
So the huge boost in sales that McCormick saw in the second quarter could very well be repeated in the third quarter. And if this trend is here to stay like McCormick suggests, the company's sales will likely have a boost over the next few quarters.
The strength in the "cooking at home" trend has boosted McCormick's shares in recent months. Shares have surged nearly 70% from their March lows, including dividends, and recently hit a new all-time high. For comparison, the broader market (as measured by the S&P 500 Index) has risen about 50% over the same time frame.
A rising share price isn't the only way shareholders can benefit... McCormick loves rewarding shareholders through dividends. It has paid out a dividend for nearly 100 years, and has raised its dividend payout every year for the past 33 years, putting it in a class alongside companies like fast-food titan McDonald's (MCD) and pharmaceutical giant Johnson & Johnson (JNJ) as a Dividend Aristocrat.
McCormick is the type of strong business that you could feel confident owning for your entire life. It has delivered steady sales growth and paid out dividends throughout economic booms and recessions. And its largest segment has huge near-term tailwinds from the pandemic. This should boost McCormick's shares even higher.
Sometimes investing is simple.