Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-01-22, FY ended November 30, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion
One-line verdict: McCormick is the global spice and flavoring leader with $6.8B in revenue, 37.9% gross margins, and a franchise built on brands like McCormick, French's, Frank's RedHot, Cholula, and OLD BAY. Cash flow quality is healthy — CFFO/NI of 1.22, FCF of $740M, and negative accruals. But McCormick holds just $128M in cash against $4.2B in total debt (3% coverage), and goodwill plus intangibles of $8.8B sit at 153% of equity — classic acquisition-driven balance sheet strain from the $4.2B Reckitt Benckiser food division purchase in 2017 and the $800M Cholula deal in 2020. The M-Score of -2.45 passes the manipulation threshold of -2.22 but by the thinnest margin in this cohort. In January 2026, McCormick acquired an additional 25% stake in McCormick de Mexico for $750M, funded by commercial paper — further leveraging a balance sheet that's already stretched.
| Metric | Result |
|---|---|
| Red Flags | **2** (cash covers 3% of debt, goodwill+intangibles 153% of equity) |
| Watch Items | **0** |
| Checks Completed | **17/18** |
| Beneish M-Score | **-2.45** (clean but narrowly; threshold is -2.22) |
| Altman Z-Score | **1.86** (grey zone — near the distress boundary) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
The Business: Global Flavor Leader, Two Segments
McCormick operates two segments: Consumer (58% of sales, $3.9B — spices, seasonings, condiments for retail) and Flavor Solutions (42%, $2.9B — flavoring products for food manufacturers, restaurants, and foodservice). Per the filing, the Consumer segment "has a higher overall profit margin than our Flavor Solutions segment."
The company is the global brand leader in spices and seasonings and "one of the brand leaders globally" in condiments and sauces. Brands include McCormick, French's, Frank's RedHot, Lawry's, Cholula, OLD BAY, Ducros, Schwartz, and Kamis. Operations span approximately 150 countries.
On January 2, 2026, McCormick acquired an additional 25% ownership interest in McCormick de Mexico from Grupo Herdez for $750M, increasing ownership to 75% controlling interest. Per the filing: "We believe the acquisition creates opportunities for further growth in the Mexican market and provides a strategic platform for further expansion in Latin America."
Profitability: Modest Growth, Stable Margins
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|---|
| Net Sales | $6.4B | $6.7B | $6.7B | $6.8B | +1.7% YoY |
| Net Income | $0.68B | $0.68B | $0.79B | $0.79B | Flat YoY |
| Gross Margin | 35.8% | 37.6% | 38.5% | 37.9% | Contracted -0.6pp |
| Consumer Op Income | $567M | $557M | $599M | $558M | -6.8% YoY |
| Flavor Solutions Op Income | $329M | $330M | $330M | $359M | +9.0% YoY |
Consumer segment: organic sales were essentially flat with "favorable pricing of 1.2% offset by unfavorable volume and product mix of 0.5%." Consumer operating margin declined 60 basis points to 14.2% despite CCI-led cost savings.
Flavor Solutions grew 0.5% with operating income up 9.0%. The APAC region delivered 6.7% organic growth, "driven by growth in China."
Cash Flow: Adequate Quality
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | $1.24B | $0.93B | $0.97B |
| Net Income | $0.68B | $0.79B | $0.79B |
| **CFFO / Net Income** | **1.82** | **1.17** | **1.22** |
| CapEx | $0.27B | $0.28B | $0.22B |
| Free Cash Flow | $0.97B | $0.65B | $0.74B |
Cash flow quality is healthy — CFFO exceeds net income, FCF covers dividends ($410M), and accruals are negative at -1.3%. CapEx declined 19.3%, reflecting normalized investment after prior year capacity additions.
The company maintains a $2.0B revolving credit facility expiring May 2030 and a $500M 364-day facility expiring January 2027. Per the filing: "We generally use our revolving credit facilities to support our issuance of commercial paper."
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 34 days, +2 days YoY |
| A2 | AR vs Revenue Growth | PASS | AR +7.1% vs revenue +1.7% |
| A3 | Revenue vs CFFO | PASS | Revenue +1.7%, CFFO +4.4% |
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | PASS | Inventory +2.6% vs COGS +2.8%. Normal |
| B2 | CapEx vs Revenue | PASS | CapEx -19.3% vs revenue +1.7%. Normal |
| B3 | SG&A Ratio | PASS | SG&A/Gross Profit = 57.9%. Normal |
| B4 | Gross Margin | PASS | 37.9%, -0.6pp. Stable |
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 1.22 |
| C2 | Free Cash Flow | PASS | FCF $740M, FCF/NI = 0.94 |
| C3 | Accruals Ratio | PASS | -1.3%. Low accruals |
| C4 | Cash vs Debt | FAIL | Cash $128M covers only 3% of debt $4.2B |
C4 — Minimal cash buffer. Cash of $128M against $4.2B in total debt is a 3% coverage ratio. Short-term borrowings of $381M (commercial paper) and $509M in current debt maturities mean $890M in near-term obligations against $128M in cash. The company relies on revolving credit facilities and commercial paper access for liquidity. The $750M McCormick de Mexico acquisition in January 2026 was funded through "a combination of cash on hand and commercial paper," further straining liquidity.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | FAIL | $8.8B = 153% of equity |
| D2 | Leverage | PASS | Debt/EBITDA = 3.1x. Healthy |
| D3 | Soft Asset Growth | PASS | Other assets -17.6% vs revenue +1.7%. Normal |
| D4 | Asset Impairment | N/A | No write-off data |
D1 — Acquisition-driven intangible overhang. Goodwill of $5.3B ($3.6B Consumer, $1.7B Flavor Solutions) plus indefinite-lived intangibles of $3.0B total $8.3B against equity of $5.8B. The intangible assets include: French's/Frank's RedHot/Cattlemen's at $2.3B, Cholula at $380M, and other brands at $349M. Per the filing: "Our fiscal year 2025 impairment testing indicated that the estimated fair values of our reporting units were significantly in excess of their carrying values." No brands were at heightened impairment risk.
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | PASS | Goodwill+Intangibles +1% YoY. Normal |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | PASS | -2.45 (threshold: < -2.22) |
The M-Score of -2.45 is the narrowest pass in this cohort. The DSRI (Days Sales in Receivables Index) component is slightly elevated, consistent with the modest DSO increase. But all other components are normal.
Key Risks from the 10-K
1. McCormick de Mexico Acquisition Integration
The $750M purchase of an additional 25% stake in McCormick de Mexico, funded by commercial paper, adds leverage to an already strained balance sheet. Integration of a controlling interest in a Mexican food company brings FX exposure, regulatory complexity, and execution risk.
2. Private Label Competition
"In the event that we are unable to supply our products to customers in the time frame and quantities that they desire, our customers may discontinue all or a portion of their purchases from us and source competitive brands." Private label spices and seasonings are a persistent threat to the Consumer segment's pricing power.
3. Commodity and Tariff Cost Pressure
"The increase in gross profit was driven by the impacts of favorable pricing and CCI-led cost savings, partially offset by increased commodity costs including the impact of tariffs, and conversion costs." Tariff exposure on imported ingredients creates cost uncertainty.
4. Grey Zone Z-Score
The Altman Z-Score of 1.86 sits in the grey zone, just above the 1.8 distress boundary. This reflects McCormick's acquisition-laden balance sheet with significant debt and thin equity relative to total assets.
5. Concentrated Intangible Asset Values
The French's/Frank's RedHot/Cattlemen's brand complex at $2.3B represents the single largest indefinite-lived intangible asset. A material decline in condiment category growth or market share loss could trigger impairment of this concentrated position.
Summary
Grade: F. Two balance sheet flags driven by acquisition-era debt and intangible assets, with the thinnest M-Score pass and a near-distress Z-Score. But the spice franchise is real and cash flow quality is sound.
McCormick's core business is a genuine moat: global leadership in spices and seasonings, 37.9% gross margins, stable revenue, and consistent cash generation. CFFO/NI of 1.22, negative accruals, and clean auditor opinion confirm that earnings are backed by cash. The company's brands have lasted decades and command premium positioning.
The vulnerability is entirely structural. The 2017 Reckitt Benckiser acquisition ($4.2B for French's/Frank's RedHot) and 2020 Cholula acquisition ($800M) loaded the balance sheet with $8.8B in goodwill/intangibles — 153% of equity — while leaving just $128M in cash. The McCormick de Mexico deal adds $750M more debt. The Z-Score of 1.86 and M-Score of -2.45 sit uncomfortably close to their respective threshold lines. This is a world-class flavor business operating at the edge of its financial capacity.
**Disclaimer**: This report is based on McCormick & Company's FY2025 10-K filed with SEC EDGAR on January 22, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Ernst & Young LLP (Unqualified opinion)
Fiscal year ended: November 30, 2025