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) 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.
