McCormick Strives to Spice Up Things After a Bland Fiscal-Year 2022; Shares Far From a Bargain

While McCormick posted a sour fourth quarter (2% underlying sales growth and 140 basis points of degradation in adjusted operating margin to 16.4%), management attempted to strike a more optimistic tone for the year ahead (calling for 5%-7% sales and 9%-11% adjusted operating income growth). We continue to believe that several of the forces that have weighed on recent performance (supply chain bottlenecks and COVID-19 disruptions in China) are unlikely to prove lasting. Further, we posit the company is judiciously focusing on the long-term health of the business—beefing up brand spending (we forecast 6% of sales, or $400 million annually), investing in capacity and capabilities, and unearthing inefficiencies (to the tune of an incremental $125 million).