This Company Can’t Spice Up Its Debt Issues

Inflation and long-term debt can be a challenging recipe as Real Money Columnist Stephen “Sarge” Guilfoyle sees it. 

That’s especially true for a company he recently looked at following its latest financial results. 

Investors should sit out on buying this spice maker McCormick’s  (MKC) – Get McCormick & Company, Incorporated Report shares even though its fiscal first-quarter financial results beat Wall Street estimates, argues  Guilfoyle.

“I will not be venturing forward with a position in this name, nor will I be endorsing one for the readers,” he wrote in a recent Real Money column. “That said, some of you probably already have one.”

The company recently reported adjusted EPS of $0.63 on revenue of $1.52 billion beating Wall Street’s predictions. Sales rose by 2.8% year over year.

McCormick’s gross profit margin declined by 2.2% while operating income declined to $207 million from $236 million for the year ago period.

The problem with McCormick is that its current assets are $2.24 billion while its current liabilities are $3.1 billion with a net cash position of $338.4 million and inventories of $1.24 billion. This leaves the company with a ratio of 0.73, which Guilfoyle finds to be uncomfortable.

“Needless to say, as far as the Sarge test is concerned… This balance sheet falls well short of even sniffing a passing grade,” he wrote.

McCormick’s guidance is one positive factor. The company anticipates growing sales by 3% to 5% compared to the 3.8% estimated by Wall Street. McCormick also estimates adjusted EPS for the year at $3.17 to $3.22 compared to Wall Street’s prediction of $3.18 on this metric.