To The Moon

$McCormick(MKC)$ is scheduled to report its fiscal Q3 2025 earnings on Tuesday, October 7th, before market open.

The general market expectation is for modest revenue growth but a slight decline in Earnings Per Share (EPS) year-over-year.

Revenue (Net Sales) : the consensus estimate (Q3 2025) for revenue is expected to come in approx. $1.71 Billion, which would be approx. +2.0% to +2.1% Year-over-Year change, compared to $1.68 billion from prior year Q3 2024 (Actual)

Adjusted EPS : the consensus estimate (Q3 2025) for earnings per share (EPS) is expected to come in approx. $0.81 to $0.82 which would be approx. -1.2% to -2.4% Year-over-Year change, compared to $0.83 from prior year Q3 2024 (Actual).

Revenue: Analysts are projecting low single-digit sales growth, driven primarily by pricing and a slight increase in volume/mix.

Earnings: The slight expected dip in EPS, despite higher revenue, may be attributable to potential cost pressures (raw materials, supply chain) or increased investments (marketing, innovation).

McCormick (MKC) Fiscal Q2 2025 Earnings Summary

McCormick & Company reported a strong second quarter for fiscal 2025, with adjusted earnings surpassing analyst expectations, while net sales aligned with forecasts. The overall performance was characterized by volume-led growth and effective management of costs and external challenges.

Key Financial Highlights (Q2 2025):

Adjusted Earnings Per Share (EPS): $0.69, which exceeded the consensus analyst estimate of $0.66 and was comparable to the prior-year period.

Net Sales: $1.66 billion, increasing 1% year-over-year and in line with expectations.

Organic Sales Growth: 2%, driven entirely by higher volume and product mix.

Adjusted Operating Income: Increased by nearly 10% year-over-year, largely due to lower selling, general, and administrative (SG&A) expenses and cost savings.

Segment Performance:

Consumer Segment (Retail): Strong performance with a 3% increase in net sales (and organic sales), driven by volume growth across all regions. The company noted continued success in spices, seasonings, and hot sauce categories.

Flavor Solutions Segment (Foodservice & Food Manufacturing): Reported a 1% decrease in net sales, with organic sales being flat year-over-year. This was driven by a modest increase in price offset by a small decrease in volume and product mix, primarily due to softness in some packaged foods customer volumes and a slowdown in foodservice traffic in certain regions (e.g., EMEA).

Lesson Learnt from the Guidance

McCormick reaffirmed its full-year fiscal 2025 outlook for net sales and adjusted EPS, despite a challenging global trade environment and the impact of tariffs.

Fiscal Year 2025 Outlook Reaffirmed:

Net Sales Growth: Expected to be in the range of 0% to 2% (or 1% to 3% in constant currency), driven by volume growth.

Adjusted EPS: Projected to be between $3.03 and $3.08, representing a growth of 3% to 5%.

Lesson Learnt from the Guidance: Operational Resilience in a Challenging Environment

The primary lesson from McCormick's reaffirmed guidance is the critical importance of operational excellence and strategic mitigation planning in navigating macroeconomic headwinds:

Proactive Tariff Mitigation: The company highlighted explicit plans to offset tariff-related costs, which include an incremental 30% tariff on goods imported from China into the U.S. Their strategy involves alternative sourcing, cost savings initiatives (through their Comprehensive Continuous Improvement program), and targeted pricing actions. This proactive and multi-faceted approach demonstrates that major global companies can minimize the financial impact of trade tensions through nimble supply chain management and strategic operations.

Focus on Volume-Led Growth: The guidance is underpinned by expected volume-led growth, particularly in the Consumer segment. In an environment where consumers are showing "value-seeking behavior" (e.g., cooking at home more), McCormick is capitalizing on the enduring demand for flavor and its strong brand portfolio. This suggests that defensive, staple-oriented companies with strong brands can outperform even when facing pricing power constraints in inflationary or challenging consumer environments, provided they can drive increased unit sales.

Investments for Sustained Momentum: The company emphasized that its outlook reflects "prioritized investments in key categories to sustain strong volume trends and drive long-term profitable growth." This indicates a continued commitment to investing in brand marketing, innovation, and distribution despite cost pressures, illustrating that cutting essential growth investments to protect short-term margin is not always the best strategy for a category leader.

Key Metrics Investors Should Watch

Investors should focus on metrics that reveal the health of McCormick's two primary segments and its ability to manage costs.

McCormick (MKC) Price Target

Based on 14 analysts from Tiger Brokers offering 12 month price targets for McCormick & Company in the last 3 months. The average price target is $82.83 with a high forecast of $102.00 and a low forecast of $67.23. The average price target represents a 20.20% change from the last price of $68.91.

Opportunity for Trading Short-Term Post-Earnings

Trading around an earnings release is inherently high-risk, as stock movements are often volatile and unpredictable. McCormick is generally a lower-volatility consumer staples stock, but an earnings surprise (beat or miss) can still cause significant short-term moves.

The short-term trading opportunity will likely be determined by the magnitude of the surprise and the tone of the forward guidance.

Potential Bullish Scenario (Price Increase)

Surprise: MKC beats the consensus EPS of $0.81-$0.82 and Revenue of $1.71B, driven by better-than-expected volume/mix and gross margin expansion.

Key Driver: A material and surprising expansion in Gross Margin, indicating successful cost-saving (CCI) initiatives are outpacing commodity inflation.

Guidance: Management raises its full-year 2025 financial guidance.

Potential Bearish Scenario (Price Decrease)

Surprise: MKC misses either the EPS or Revenue consensus, or both.

Key Driver: Disappointing organic sales growth, particularly if driven by a sharp decline in volume (as opposed to just lower pricing), signaling weakening demand or market share loss. Significant weakness in the Flavor Solutions segment would also be a negative flag.

Guidance: Management lowers its full-year 2025 financial guidance, or maintains it but warns of increased near-term headwinds.

Trading Strategy Considerations

Earnings Surprise and Guidance: The stock's immediate direction will be dictated by whether the reported numbers and the guidance beat or miss the Street's expectations.

Historical Volatility: MKC's stock movement post-earnings has historically been moderate, but is still subject to significant movement. Prior to this quarter, one source noted the "Most Accurate Estimate" being slightly lower than the consensus, which sometimes suggests a mild bearish tilt to the immediate expectations, though this is not a guarantee of a miss.

MKC implied volatility (IV) is 34.6, which is in the 99% percentile rank. This means that 99% of the time the IV was lower in the last year than the current level. The current IV (34.6) is 18.0% above its 20 day moving average (29.3) indicating implied volatility is trending higher.

Risk Management: Given the stock's recent performance (down in the past three months), a good beat could trigger a strong short-term relief rally. Conversely, a miss, especially one coupled with lowered guidance, could accelerate the recent downward trend. Options trading is a common, though risky, way to play earnings, but requires a precise view on the magnitude and direction of the stock move.

Technical Analysis - Exponential Moving Average (EMA)

With the market expecting a revenue growth but a modest dip in earnings per share (EPS), we can see that MKC have been making some recovery move last week, but the RSI momentum remain in the negative zone.

One thing to note is the share price is now trading near the 50-day period, which we need a much strong positive revenue growth, with also a higher EPS number to have investors coming back to push it for a small rally post earnings tomorrow (07 Oct).

Summary

McCormick (MKC) is scheduled to report its fiscal Q3 2025 earnings on Tuesday, October 7th, before market open.

Analyst consensus projects an adjusted EPS of approximately $0.81 to $0.82, which represents a slight year-over-year decline from the prior year's $0.83. Revenue is forecasted at around $1.71 billion, suggesting a modest year-over-year growth of about 2%.

Key areas of focus include:

Consumer Segment: Expected to show growth, benefiting from the sustained trend of consumers cooking more meals at home and seeking value, flavor, and health/wellness options.

Flavor Solutions Segment: Continues to face pressure from volume weakness among some Quick Service Restaurant (QSR) and CPG customers due to volatile traffic trends, though gains in emerging and health-driven categories provide some offset.

Profitability: Investors will look for margin improvement driven by the company's Comprehensive Continuous Improvement (CCI) and cost savings initiatives, despite ongoing cost pressures.

Overall, the outlook anticipates revenue growth but a modest dip in earnings per share.

Appreciate if you could share your thoughts in the comment section whether you think MKC could improve in its revenue growth and provide a narrower modest EPS dip.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.