McCormick & Company (NYSE: MKC) stock is sliding after the company’s fiscal third-quarter earnings report. Shares fell more than 5.5% following the release, trading near $44. That marked a fresh 52-week low for the spice and flavor giant.
On paper, the quarter looked solid. McCormick beat Wall Street estimates on both revenue and adjusted earnings. Management also reaffirmed its full-year outlook.
But investors are looking past the headline beat. GAAP earnings fell sharply from a year ago. Special charges tied to the pending Unilever Foods combination did much of the damage. Management also warned of rising costs and more margin pressure heading into 2027.
That leaves McCormick stock in an uncomfortable spot. The core business is holding up. Yet the market is focused on what comes next. That includes a transformational merger that isn’t expected to close until mid-2027.
The fundamentals show a company still growing sales and expanding margins. The perception is that McCormick is entering a long, expensive transition with few near-term catalysts.
The stock was already down about 30% this year heading into the report. Now investors must decide whether this selloff creates value or signals more pain ahead.
Adjusted Earnings Beat, GAAP Earnings Tumble
McCormick reported net sales of $2.02 billion for the quarter ended Aug. 31. That was up 17.4% year-over-year and ahead of the $1.98 billion consensus. Most of that growth came from the McCormick de Mexico acquisition, which added roughly 14 points.
Organic sales growth was a more modest 1.9%. Pricing contributed 2.2%, while volume and mix slipped 0.3%. In other words, McCormick is still leaning on price to drive growth.
Margins were a bright spot. Gross margin expanded 190 basis points to 39.3%. Adjusted operating income jumped 22% to $358.5 million.
Adjusted earnings per share (EPS) came in at $0.86. That beat estimates of $0.76 and edged past last year’s $0.85. A higher tax rate of 22.6%, up from 16.1%, absorbed most of the operating gains.
The GAAP picture was far less flattering. Diluted EPS fell to $0.36 from $0.84 a year earlier. GAAP operating income dropped about 25% to $217 million.
The culprit was $141.5 million in special charges, or $0.50 per share. Those included transaction and integration costs for the Unilever deal. They also included an impairment tied to exiting a pepper sourcing project in Malaysia.
Why the Unilever Deal Is Weighing on Sentiment
McCormick announced its plan to combine with Unilever’s Foods business in March. The deal would create a flavor-focused company with about $20 billion in annual revenue. Unilever (NYSE: UL) will receive $15.7 billion in cash. McCormick shareholders would own 35% of the combined company.
Management says the deal is on track. Regulatory filings have been submitted on schedule. The future leadership team and operating model are in place. McCormick still expects significant EPS accretion after closing.
The problem is timing. Deal costs hit the income statement now. The benefits don’t arrive until after a mid-2027 close. Until then, GAAP earnings will likely stay noisy.
Financing is another worry. McCormick expects net leverage of up to 4.0x at closing. Interest rates have risen since the deal was announced. That raises questions about how much accretion survives higher borrowing costs.
On the call, the CFO said the company can still deliver its accretion and deleveraging targets. The plan includes mixing euro and dollar debt, balancing fixed and floating rates and staggering maturities. Management aims to cut leverage to 3.0x within two years of closing.
Analysts also flagged that Unilever Foods has grown more slowly than expected since the announcement. McCormick can’t control that business until the deal closes. That adds another layer of uncertainty.
Rising Costs and a Cautious Tone on 2027
The deal isn’t the only overhang. McCormick raised its full-year cost inflation forecast to 6% to 7%. It previously expected a mid-single-digit increase.
Management now expects gross margins to compress year-over-year in the fourth quarter. Higher commodity and freight costs are the main drivers. A packaging supply issue could also trim total volume growth by up to one point.
The U.S. consumer business remains soft. Consumer organic sales in the Americas were flat. Price gains offset lower volumes as shoppers stayed value-conscious.
Perhaps most important, management said it expects more headwinds for margins and EPS in 2027. A formal outlook is coming in January. That kind of early warning tends to cap enthusiasm for a defensive stock.
There were positives, too. EMEA consumer volumes grew for the 11th straight quarter. Year-to-date operating cash flow rose to about $600 million from $420 million. Leverage stood at roughly 2.9x, giving McCormick some cushion ahead of the deal.
What the MKC Chart Is Saying
The technical picture reflects the sour mood. MKC is trading well below its 50-day simple moving average near $51.79. The stock has also broken below its prior 52-week low.
The 14-day relative strength index (RSI) sits near 21. That’s deeply oversold territory. The last comparable reading came in late March.
That episode offers a useful lesson. The stock bounced in April, but the rally faded within weeks. A stronger recovery didn’t arrive until summer. Oversold conditions can spark relief rallies. They don’t guarantee a lasting bottom.
Is McCormick Stock a Buy After the Selloff?
McCormick delivered a solid quarter. Adjusted earnings beat estimates, margins expanded, and the full-year outlook held. The GAAP decline was largely driven by deal costs, not a collapse in the core business.
Still, investors aren’t wrong to be cautious. Inflation is rising, the consumer is stretched, and 2027 already looks tougher. The Unilever deal adds financing risk and integration complexity on top of that.
For long-term investors, the selloff may offer a better entry point into a durable consumer staples franchise. But patience will be required. The next real catalyst may not come until January’s 2027 outlook.
Until then, perception may continue to outweigh fundamentals for McCormick stock.
