McCormick Issues Uninspiring Fiscal 2022 Sales and Profit Outlook; Shares Still Not a Bargain

Supply chain challenges, heightened costs, and tepid consumption are taking a more pronounced toll on McCormick than foreseen two months ago, prompting the wide-moat operator to slice its November-end fiscal 2022 sales and profit targets. Specifically, management now anticipates constant-currency sales growth of just 3%-5% (down from 5%-7%), 300-350 basis points of compression at the gross margin line, and adjusted EPS of $2.63-$2.68 (from $3.03-$3.08). Despite this, we don’t intend to alter our $62 fair value estimate, as more muted near-term estimates don't affect our long-term forecast (3%-4% long-term sales growth and high-teens operating margins) and the positive impact of time value.