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McCormick (MKC): analysis traps
Where its figures could mislead a reader, and what to check before taking them at face value · Data: Q3 FY26, to Aug 31, 2026, filed Oct 1, 2026; rules v1.1
McCormick (MKC): 3 rules of 10 triggered on the filings to Aug 31, 2026: low net debt = no refinancing risk; FCF growth = the business improved; low P/E at a cyclical peak = undervalued. 1 to review; 1 with insufficient data; 2 not applicable. Each is a question to verify, with the normal explanation that would produce the same figures.
Check these first
Low net debt = no refinancing risk Triggered · severity high · confidence medium
$2.1B of debt comes due within a year against $331M of cash and investments and $1.1B of free cash flow over the last twelve months: $640M short, to be refinanced or raised. Net debt of $4.7B says nothing about when the debt falls due.
Innocent reading: A committed, undrawn credit facility covers the gap (not visible in the balance sheet).
FCF growth = the business improved Triggered · severity medium · confidence high
Free cash flow rose $93M (+14%), from $647M to $740M, but capital expenditure fell by $53M: 57% of the increase came from sources that need not repeat. Operating cash flow before working capital rose by $41M.
Innocent reading: An expansion programme finished, so capex fell back to maintenance levels for good.
Low P/E at a cyclical peak = undervalued Triggered · severity medium · confidence medium
The shares trade at 8.7× this year's net income of $1.5B, but that profit is at a high: the median of the last eight fiscal years is $755M, on which the same market value is 17.2×. A low multiple of peak profit is not a low multiple of normal profit.
Innocent reading: The business has changed for good (a merger, a new line, a pricing regime) and the old years are not its normal.
Every rule
A01 FCF growth = the business improved Triggered severity medium · confidence high
Free cash flow rose $93M (+14%), from $647M to $740M, but capital expenditure fell by $53M: 57% of the increase came from sources that need not repeat. Operating cash flow before working capital rose by $41M.
The figures and how they are read
| Fiscal year before | FY24 |
| Fiscal year | FY25 |
| Operating cash flow, year before | $922M |
| Operating cash flow | $962M |
| Capex, year before | $275M |
| Capex | $222M |
| Free cash flow, year before | $647M |
| Free cash flow | $740M |
| Change in FCF | $93M |
| Change in capex | −$53M |
| Working capital: change in its cash contribution | −$800K |
| Of which: capex cut | $53M |
| Of which: working capital released | 0.00 |
| Share of the increase that need not repeat | +56.9% |
| Operating cash flow before working capital: change | 41100000.00 |
FCF = operating cash flow − cash capex; ΔFCF = ΔOCF − ΔCapEx; the working-capital part is the change in the cash-bridge items (receivables, inventory, payables, accruals), with the sign of the cash flow statement
Source: FY25 (cash flow statement, fiscal year) · FY24 (cash flow statement, fiscal year before)
What would explain it innocently
- An expansion programme finished, so capex fell back to maintenance levels for good
- Suppliers agreed longer payment terms in a contract
- Inventory was brought down after a glut and will stay down
What to look for in the filing
- Maintenance capex (what it costs to keep the assets working)
- Supplier payment terms and any supply-chain financing
- Management's capex guidance for next year
What would show the trap does not apply
- Next year's FCF holds or rises with capex back at its earlier level and working capital no longer releasing cash
- The 10-K's capex guidance and the segment capex show the cut is a completed programme, not deferral
- The working-capital release matches a disclosed change in terms or a divestiture, not stretched payables or a collection push
Look again: next filing.
A07 Stock compensation added back = no economic cost Not triggered confidence high
Stock compensation is 0.7% of revenue: small enough that adding it back changes little.
The figures and how they are read
| Fiscal year | FY25 |
| Stock compensation | $46M |
| Revenue | $6.8B |
| SBC / revenue | +0.7% |
| Buybacks | $35M |
| Buybacks / SBC | 0.8 |
| Diluted shares, year before | 269.6M shares |
| Diluted shares | 269.4M shares |
| Diluted shares: change | -0.1% |
SBC / revenue from the cash flow statement's add-back; the diluted weighted share count year over year; buybacks from the financing section
Source: FY25 (stock compensation, buybacks and the diluted share count, fiscal year)
B02 Receivables growing = future cash is certain Not triggered confidence medium
Receivables grew 24% against revenue 17% in Q3 FY26; DSO 35 against a median of 32: collections are keeping pace with sales.
The figures and how they are read
| Quarter | Q3 FY26 |
| Revenue, year over year | +17.4% |
| Receivables, year over year | +24.3% |
| Quarter before | Q2 FY26 |
| Revenue y/y, quarter before | +16.7% |
| Receivables y/y, quarter before | +21.4% |
| Days sales outstanding | 35.0 |
| DSO, median of eight quarters | 31.9 |
| Receivables | $832M |
| Revenue | $2.0B |
receivables and revenue against the same quarter a year earlier; DSO = receivables / quarterly revenue × days, against the median of the eight quarters before
Source: Q3 FY26 (receivables and revenue) · Q3 FY25 (the same quarter a year earlier)
B08 Adjusted profit = economic profit Insufficient data
no reconciliation table read from the releases yet and fewer than three quarters with both an adjusted and a GAAP EPS
C02 Low net debt = no refinancing risk Triggered severity high · confidence medium
$2.1B of debt comes due within a year against $331M of cash and investments and $1.1B of free cash flow over the last twelve months: $640M short, to be refinanced or raised. Net debt of $4.7B says nothing about when the debt falls due.
The figures and how they are read
| Cash and investments | $331M |
| Debt | $5.0B |
| Net debt | $4.7B |
| Due within a year | $2.1B |
| Read from | the current portion of debt on the balance sheet |
| Free cash flow, twelve months | $1.1B |
| Cash plus free cash flow | $1.5B |
| Coverage of what is due | 0.7 |
| Due in the second year | $760M |
| Balance sheet date | 2026-08-31 |
due within a year from the maturity table (else the current portion of debt), against cash and investments plus free cash flow over the last twelve months (zero if negative); no credit lines assumed
Source: FY25 (debt maturities, cash and investments)
What would explain it innocently
- A committed, undrawn credit facility covers the gap (not visible in the balance sheet)
- The notes are routinely rolled over in the commercial-paper or bond market at an investment-grade rating
- Cash held abroad or in subsidiaries can be moved to where the debt is
- A sale of a business or asset already agreed brings the cash
What to look for in the filing
- Undrawn committed facilities and their covenants
- The cost and rating of the refinancing
- Restricted cash and the operating minimum
What would show the trap does not apply
- The 10-K lists an undrawn credit facility that covers the debt due, or the maturity is refinanced before it falls due
- Cash plus FCF of the next quarter exceeds the debt due within a year
Look again: next filing.
D03 EPS growth = profit growth Not triggered confidence high
EPS fell 57% and net income fell 57% in Q3 FY26; the share count rose 0.0%: EPS growth follows profit growth.
The figures and how they are read
| Quarter | Q3 FY26 |
| Quarter before | Q3 FY25 |
| EPS, year before | $0.84 |
| EPS | $0.36 |
| Net income, year before | $226M |
| Net income | $98M |
| Diluted shares, year before | 269.3M shares |
| Diluted shares | 269.4M shares |
| EPS growth | -56.8% |
| Net income growth | -56.7% |
| Diluted shares: change | +0.0% |
| eps from profit | -$0.47 |
| eps from share count | $0.00 |
EPS and net income against the same quarter a year earlier; the EPS bridge attributes the change to profit first, then to the share count (the order is fixed and disclosed)
Source: Q3 FY26 (net income, diluted shares, EPS) · Q3 FY25 (the same quarter a year earlier)
E02 Low P/E at a cyclical peak = undervalued Triggered severity medium · confidence medium
The shares trade at 8.7× this year's net income of $1.5B, but that profit is at a high: the median of the last eight fiscal years is $755M, on which the same market value is 17.2×. A low multiple of peak profit is not a low multiple of normal profit.
The figures and how they are read
| market value | $13.0B |
| net income ttm | $1.5B |
| pe ttm | 8.70 |
| net income median fy | $755M |
| pe mid cycle | 17.20 |
| net income peak fy | $933M |
| years | FY18 / 933.0; FY19 / 703.0; FY20 / 747.0; FY21 / 755.0; FY22 / 682.0; FY23 / 681.0; FY24 / 788.0; FY25 / 789.0 |
| down years in window | 3 |
P/E on the trailing twelve months' net income against the P/E on the median net income of the last eight fiscal years (a mid-cycle stand-in); 'at a peak' = this year's profit at or above 90% of the best year and at least 1.3× the median
Source: Q3 FY26 (net income, trailing twelve months)
What would explain it innocently
- The business has changed for good (a merger, a new line, a pricing regime) and the old years are not its normal
- The market is right that profit will fall, and the price already says so
- Capacity has left the industry, so the cycle's trough is higher than before
What to look for in the filing
- Where the industry's prices and volumes stand against their own history
- Capacity on order across the industry
- Management's view of the cycle in the MD&A
What would show the trap does not apply
- Profit holds at this level through the next two years (the eight-year peak was a new base, not a top)
- The industry's capacity and prices stay where they are rather than reverting
Look again: next filing.
E07 A precise DCF value = the true value To review confidence high
The DCF's point value is 55.29 a share (price 48.15); 74% of it is the terminal value, a number about years no one has seen. Moving wacc by ±1 pt alone takes it from 42.25 to 76.17; across every method the research ran the range is -15 to 161. The value is a range; the decimals are not information.
The figures and how they are read
| dcf value | 55.29 |
| price | 48.15 |
| terminal value share | +73.7% |
| swing by input | WACC / ±1 pt / 42.25 / 76.17; Operating margin / ±3 pts / 39.53 / 71.06; Revenue growth (each year) / ±5 pts / 41.78 / 71.35; Tax rate / ±5 pts / 50.44 / 60.15 |
| range all methods | -15.49; 161.3 |
the DCF's point value against the share of it that is the terminal value and the value at each input moved by one step (growth ±5 pts, WACC ±1 pt, margin ±3 pts …); the range across every method the research ran
Source: 2026-11-08 (valuation research)
What would explain it innocently
- A stable, mature business with a narrow range of outcomes, where the point value is a fair summary
- The inputs that matter most are themselves well known (a regulated return, a long contract)
What to look for in the filing
- Which input you believe differs from the research's and why
- What the price implies for growth (the reverse DCF on the fair-value page)
What would show the trap does not apply
- The DCF's value is robust to the terminal growth and discount rate (the range's low end is still above the price)
- The company's cash flows over the next three years track the DCF's early years
Look again: next filing.
J06 A bank's low P/E and high profit = safe Not applicable
not a bank
J08 A REIT's low net income = the dividend is unsafe Not applicable
not a REIT
What the statuses mean
Triggered: the filings show the pattern; read the normal explanations and the missing evidence before concluding anything. To review: one quarter or a weak signal; a reader's judgement, not a pattern. Not triggered: the pattern is absent on these figures. Insufficient data: the filings read so far do not hold what the rule needs; this is not a clean bill. Not applicable: the rule is not meant for this kind of company (a bank's working capital, a loss-making quarter's EPS growth). Out of date: the latest filing is more than fifteen months old.
Severity is what the pattern could mean for cash, value or solvency; confidence is how reliable the inputs and the reading are. The two are kept apart.
Record a view
A reader's judgement, grounds, what would change it and the next review; kept in the browser (needs JavaScript).
Every rule and the companies it triggers on → McCormick: cash flow → Earnings quality score →
Each rule reads the company's own filings by a fixed formula and says what would explain the same figures innocently. A triggered rule is a question to verify, not a finding of manipulation, and not a view on the stock. Missing data is shown as missing, never as clear. Not investment advice.