McCormick's (NYSE: MKC) price action wobbled following a better-than-expected Q2 and increased guidance. The news proves that the decision to transition Brenden Foley into the CEO position was good. The transition, begun in June 2022, was completed at the end of the quarter, leaving Mr. Brenden in near-complete control as CEO and president. Mr. Foley has been with the company for 9 years in a series of roles with increasing responsibility; the former CEO, Lawrence Kurzius, will remain board chairman. 

McCormick Rises As Pricing Power Drives Bottom Line Results

McCormick had a solid quarter with revenue of $1.66 billion, growing 7.8% compared to last year. The revenue is driven by strength in both segments and all regions and underpinned by an 11% increase in pricing. The 11% increase caught the company up to input costs increase experience in the previous year and was offset by only 1% of elasticity.

Flavor Solutions led with a gain of 12% compared to 5% in Consumer, and both segments were led by strength in the EU and Asia/Pacific. 

The margin news is even better. The gross margin expanded by 310 basis points, driving outperformance at all income comparisons. The operating income increased by 35% compared to the 7.8% top-line growth, while adjusted earnings grew by 25%. The adjusted EPS came in at $0.60, which is also $0.03 above the Marketbeat consensus and led the company to adjust its guidance. 

McCormick execs reiterated the guidance for revenue growth of at least 5%. The good news is that earnings guidance was raised by $0.04 at both ends of the range, putting the consensus figures at the midpoint. That’s not a significant increase but it got the market's attention. The increase supports the idea of strength, which includes a healthy dividend and distribution increases. 

McCormick; The Value May Cap The Market 

McCormick is a solid company with a healthy dividend, but its value may cap the market. The stock trades above 35X its earnings outlook and yields only 1.7%. That’s in line with the broad market at double the value, and the comparison with more reasonably valued staples stock is worse.

Arguably in better condition than Kraft Heinz (NASDAQ: KHC), McCormick trades at double the valuation, but KHC shares yield more than double the return, and the company is amid a turnaround. 

The analyst will not be much help for this market either. The analysts rate the stock at Hold with a price target below the current market. The most recent target is $100, about 10% above the recent action, but it is an outlier that might not get repeated. At best, the market could increase to $100, consistent with resistance levels in 2020/2021, confirmed in 2022. With shares up nearly 30% since earlier this year, a move to recognized resistance points would be an attractive selling point for profit takers. 

The Technical Outlook: McCormick Pull Back Imminent

McCormick shares are in an uptrend, but the market looks ready to return to firmer support levels. A pullback began before the Q2 results were released, and those results have failed to spark a rally. The pullback may find solid support at the 30-day moving average, but that is not guaranteed. If the market falls below that level, it could retreat to $88 or lower.