Inflation, Supply Chain Disruption Clouds McCormick's Near-Term Prospects, but its Edge Should Hold

As the leading player in the $11 billion global spices and seasoning market--with 20% share, 4 times the next-largest operator--McCormick is a valuable partner for retailers. However, competitive and macro headwinds abound. For one, McCormick is facing a pronounced acceleration in costs (related to commodities, packaging, freight, and labor, which management has alluded to as being the highest in the past decade or two) that has ensnarled firms of all stripes. Further, we think consumers (particularly those with lower incomes and/or on a fixed budget) will start to tighten spending, given stepped up prices at the grocery store and pump as well as rising interest rates, which could serve to pressure its results if consumers trade down or out of the category.