McCORMICK REPORTS SECOND QUARTER PERFORMANCE, REAFFIRMS 2024 OUTLOOK, AND ANNOUNCES 2024 INVESTOR DAY
McCormick reported a 1% decline in sales for Q2 2024 compared to the prior year, with Consumer segment growth offset by declines in Flavor Solutions. Operating income rose to $234 million, up from $222 million, with adjusted operating income steady at $236 million. EPS increased from $0.56 to $0.68, with adjusted EPS at $0.69 compared to $0.60. The company reaffirmed its 2024 fiscal outlook, projecting up to 1% sales growth, 8-10% operating income growth, and adjusted EPS in the range of $2.80-$2.85. Gross profit margin expanded by 60 basis points due to cost savings. Cash flow from operations fell to $302 million from $394 million due to higher incentive and tax payments.
- Operating income increased to $234 million from $222 million.
- Adjusted EPS rose to $0.69 from $0.60.
- Gross profit margin expanded by 60 basis points.
- Adjusted operating income remained steady at $236 million.
- Confirmed fiscal 2024 outlook with potential sales growth up to 1%.
- Sales declined 1% year-over-year.
- Cash flow from operations dropped to $302 million from $394 million.
- Consumer segment operating income decreased by 3%.
- Flavor Solutions segment sales fell by 1%.
- Negative impact from strategic divestitures and lower customer demand.
The second quarter performance of McCormick & Company shows a 1% decline in sales, which is a slight negative indicator considering the company's growth expectations. However, this sales decline is offset by volume growth in the Consumer segment and an increase in operating income at $234 million, up from $222 million in the previous year.
Adjusted earnings per share rose to $0.69 from $0.60 year-over-year, indicating improved profitability despite the sales decline. This can be attributed to a discrete tax benefit and better performance from the company's joint venture in Mexico.
From a broader perspective, the reaffirmation of the 2024 outlook suggests confidence in achieving full-year targets. Operating margin expansion and cost-saving initiatives driven by the CCI program also set a positive tone for future quarters. However, net cash provided by operating activities showed a year-over-year decline, primarily due to higher compensation payments and timing of tax payments, which might raise concerns about the company's cash management strategies.
Investors should note that the company's strategic decisions, such as the divestiture of a small canning business, although having an adverse short-term impact on volume, align with long-term profitability goals. Overall, the company's ability to manage its cost structure while maintaining a steady growth in earnings per share is a positive signal for retail investors.
The market dynamics illustrated by McCormick's latest results reflect a nuanced landscape. The Consumer segment showed resilience, particularly in the EMEA region where sales increased by
Regionally, the APAC region presented mixed results with a
One area of concern is the decline in cash flow from operations, driven by higher compensation and tax payments. This might affect the company's ability to fund further growth initiatives without impacting its financial stability. Nevertheless, McCormick’s investment in brand marketing and innovation across segments should stimulate demand and support long-term growth. Retail investors should watch these metrics closely as they could indicate future strategic adjustments.
- Sales declined
1% in the second quarter from the year-ago period. In constant currency, sales also declined1% . These comparisons reflect volume growth in Consumer, offset by volume declines in Flavor Solutions. - Operating income was
$234 million $222 million $236 million $235 million - Earnings per share was
$0.68 $0.56 $0.69 $0.60 - For fiscal year 2024, McCormick reaffirmed its sales, operating profit, and adjusted earnings per share outlook.
President and CEO's Remarks
Brendan M. Foley, President and CEO, stated, "We are pleased with our performance for the first half of the year, which was in line with our expectations and reflects the success of our prioritized business investments to drive improving results and trends. The investments we made in our Consumer segment drove substantial sequential volume improvement in the second quarter, leading to volume growth, and we expect continued momentum for the second half of the year. In Flavor Solutions, lower demand from some quick service restaurant and packaged food customers combined with the timing of customer activities, impacted our second quarter performance. We believe our collaboration and strong innovation pipeline with our customers will drive improved volume performance in the second half of the year.
"As we look ahead, we will continue to prioritize our investments in key categories and execute on the initiatives within our growth levers, including brand marketing, new products and packaging, category management, and proprietary technology. Notably, we expect our innovation pipeline across both segments combined with our brand marketing initiatives to accelerate our return to total volume growth. In addition, we remain well positioned with our cost savings initiatives to fuel investments as well as generate operating margin expansion. Our results for the first half of the year coupled with our growth plans, support our continued confidence in achieving the mid to high-end of our projected constant currency sales growth for 2024.
"Overall, we are confident in the sustained trajectory of our business, and in our ability to deliver on our 2024 outlook and long-term financial objectives. Our commitment is underpinned by our proven track record, our broad and advantaged global portfolio, our focus on high growth, profitable categories, our alignment with consumer trends, as well as our differentiated heat platform. Our business fundamentals are strong, and we expect to continue to deliver profitable growth and drive value for shareholders."
"Lastly, I would like to express my gratitude to McCormick employees around the world, as they remain the cornerstone of our success. Their dedication, ongoing contributions, and the momentum they are driving into the business continue to energize me. Importantly, as a leadership team, we remain committed to elevating our power of people culture and to building the next generation of leaders and capabilities that will drive our success well into the future."
Second Quarter 2024 Results
McCormick reported a
Gross profit margin expanded 60 basis points versus the second quarter of last year. This expansion was driven by cost savings led primarily by the Company's Comprehensive Continuous Improvement (CCI) program. Selling, general, and administrative expenses increased from the year-ago period driven by increases in brand marketing, partially offset by CCI-led cost savings.
Operating income increased to
Income tax expense for the quarter included
Earnings per share was
Net cash provided by operating activities through the second quarter of 2024 was
Fiscal Year 2024 Financial Outlook
McCormick's 2024 outlook reflects the Company's commitment to strengthen volume trends and prioritize investments to drive profitable results and return to differentiated volume-led growth as the year progresses. The Company's CCI and GOE programs are fueling growth investments while also driving operating margin expansion. Currency rates are expected to unfavorably impact sales, adjusted operating income and adjusted earnings per share by approximately
In 2024, McCormick expects sales to range between (2)% to
Operating income in 2024 is expected to grow by
McCormick projects 2024 earnings per share to be in the range of
2024 Investor Day
The Company plans to host its Investor Day on October 22, 2024 in
Business Segment Results Consumer Segment | ||||||||
(in millions) | Three months ended | Six months ended | ||||||
5/31/2024 | 5/31/2023 | 5/31/2024 | 5/31/2023 | |||||
Net sales | $ 904.5 | $ 912.1 | $ 1,826.0 | $ 1,821.6 | ||||
Operating income, excluding special charges | 149.3 | 153.6 | 325.6 | 327.0 | ||||
Consumer segment sales decreased
- Consumer sales in the
Americas declined by2% compared to the second quarter of 2023 with minimal impact from currency. The decline reflects pricing decrease of1% and comparable volume and product mix. Volume growth in Spices and Seasonings was offset by volume declines in prepared food categories, including Frozen and Asian. - Consumer sales in
Europe ,Middle East andAfrica (EMEA) increased5% compared to the year-ago period. In constant currency, sales grew4% primarily driven by a4% increase from higher volume and product mix. In major markets, volume growth was broad based across product categories. - Consumer sales in APAC decreased
5% compared to the year-ago period. In constant currency, sales declined1% with a2% volume decline partially offset by a1% increase from pricing actions. The volume decline was driven by slower demand inChina , related to the macro environment. Outside ofChina , sales growth was strong and primarily driven by volume and product mix.
Consumer segment operating income, excluding special charges, decreased
Flavor Solutions Segment | ||||||||
(in millions) | Three months ended | Six months ended | ||||||
5/31/2024 | 5/31/2023 | 5/31/2024 | 5/31/2023 | |||||
Net sales | $ 738.7 | $ 747.1 | $ 1,419.9 | $ 1,403.1 | ||||
Operating income, excluding special charges | 86.6 | 81.4 | 148.0 | 134.8 | ||||
Flavor Solutions segment sales declined
- In the
Americas , Flavor Solutions sales were comparable to the second quarter of 2023. In constant currency, sales declined1% , reflecting a1% increase from pricing and a2% decrease in volume and product mix driven by softness in some quick service restaurant and packaged food customers' volumes, as well as the timing of customer activities. - The EMEA region's Flavor Solutions sales declined
7% compared to the second quarter of 2023. In constant currency, sales decreased8% including a3% decline from the canning divestiture. The remainder of the decrease was primarily driven by a volume decline of4% attributable to softness in some quick service restaurant and packaged food customers' volumes as well as the timing of customer activities. - The APAC region's Flavor Solutions sales rose
6% compared to the second quarter of 2023. In constant currency, sales grew10% reflecting9% growth in volume and product mix, driven by new products as well as the timing of customers promotions, and a1% increase from pricing.
Flavor Solutions segment operating income, excluding special charges, grew
Non-GAAP Financial Measures
The following tables include financial measures of adjusted operating income, adjusted operating income margin, adjusted income tax expense, adjusted income tax rate, adjusted net income and adjusted diluted earnings per share. These represent non-GAAP financial measures, which are prepared as a complement to our financial results prepared in accordance with
Special charges consist of expenses and income, as applicable, associated with certain actions undertaken by the Company to reduce fixed costs, simplify or improve processes, and improve our competitiveness, and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee. Expenses associated with the approved actions are classified as special charges upon recognition and monitored on an on-going basis through completion.
We believe that these non-GAAP financial measures are important. The exclusion of the items noted above provides additional information that enables enhanced comparisons to prior periods and, accordingly, facilitates the development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends.
These non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but they should not be considered a substitute for, or superior to, GAAP results. In addition, these non-GAAP financial measures may not be comparable to similarly titled measures of other companies because other companies may not calculate them in the same manner that we do. We intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. A reconciliation of these non-GAAP financial measures to the related GAAP financial measures is provided below:
(in millions except per share data) | Three Months Ended | Six Months Ended | |||||
5/31/2024 | 5/31/2023 | 5/31/2024 | 5/31/2023 | ||||
Operating income | $ 234.1 | $ 221.8 | $ 467.6 | $ 420.8 | |||
Impact of special charges | 1.8 | 13.2 | 6.0 | 41.0 | |||
Adjusted operating income | $ 235.9 | $ 235.0 | $ 473.6 | $ 461.8 | |||
% increase versus year-ago period | 0.3 % | 2.6 % | |||||
Operating income margin (1) | 14.2 % | 13.4 % | 14.4 % | 13.0 % | |||
Impact of special charges | 0.2 % | 0.8 % | 0.2 % | 1.3 % | |||
Adjusted operating income margin (1) | 14.4 % | 14.2 % | 14.6 % | 14.3 % | |||
Income tax expense | $ 26.2 | $ 40.3 | $ 75.8 | $ 74.7 | |||
Impact of special charges | 0.4 | 3.2 | 1.5 | 9.7 | |||
Adjusted income tax expense | $ 26.6 | $ 43.5 | $ 77.3 | $ 84.4 | |||
Income tax rate (2) | 13.5 % | 22.1 % | 19.5 % | 21.9 % | |||
Impact of special charges | 0.1 % | 0.2 % | 0.1 % | 0.2 % | |||
Adjusted income tax rate (2) | 13.6 % | 22.3 % | 19.6 % | 22.1 % | |||
Net income | $ 184.2 | $ 152.1 | $ 350.2 | $ 291.2 | |||
Impact of special charges | 1.4 | 10.0 | 4.5 | 31.3 | |||
Adjusted net income | $ 185.6 | $ 162.1 | $ 354.7 | $ 322.5 | |||
% increase versus year-ago period | 14.5 % | 10.0 % | |||||
Earnings per share - diluted | $ 0.68 | $ 0.56 | $ 1.30 | $ 1.08 | |||
Impact of special charges | 0.01 | 0.04 | 0.02 | 0.12 | |||
Adjusted earnings per share - diluted | $ 0.69 | $ 0.60 | $ 1.32 | $ 1.20 | |||
% increase versus year-ago period | 15.0 % | 10.0 % | |||||
(1) | Operating income margin, impact of special charges, and adjusted operating income margin are calculated as operating income, impact of special charges, and adjusted operating income as a percentage of net sales for each period presented. |
(2) | Income tax rate is calculated as income tax expense as a percentage of income from consolidated operations before income taxes. Adjusted income tax rate is calculated as adjusted income tax expense as a percentage of income from consolidated operations before income taxes excluding special charges of |
Because we are a multi-national company, we are subject to variability of our reported
Percentage changes in sales and adjusted operating income expressed on a constant currency basis are presented excluding the impact of foreign currency exchange. To present this information for historical periods, current period results for entities reporting in currencies other than the
Three Months Ended May 31, 2024 | |||||||
Percentage Change as Reported | Impact of Foreign Currency Exchange | Percentage Change on Constant Currency Basis | |||||
Net sales | |||||||
Consumer Segment | |||||||
| (1.6) % | — % | (1.6) % | ||||
EMEA | 5.0 % | 1.1 % | 3.9 % | ||||
APAC | (4.8) % | (3.9) % | (0.9) % | ||||
Total Consumer segment | (0.8) % | (0.3) % | (0.5) % | ||||
Flavor Solutions Segment | |||||||
| (0.2) % | 0.7 % | (0.9) % | ||||
EMEA | (7.3) % | 0.9 % | (8.2) % | ||||
APAC | 5.9 % | (4.4) % | 10.3 % | ||||
Total Flavor Solutions segment | (1.1) % | 0.3 % | (1.4) % | ||||
Total net sales | (1.0) % | — % | (1.0) % | ||||
Adjusted operating income | |||||||
Consumer segment | (2.8) % | (0.4) % | (2.4) % | ||||
Flavor Solutions segment | 6.3 % | 0.4 % | 5.9 % | ||||
Total adjusted operating income | 0.3 % | (0.1) % | 0.4 % | ||||
Six Months Ended May 31, 2024 | |||||||
Percentage Change as Reported | Impact of Foreign Currency Exchange | Percentage Change on Constant Currency Basis | |||||
Net sales | |||||||
Consumer Segment | |||||||
| (0.8) % | — % | (0.8) % | ||||
EMEA | 9.1 % | 3.1 % | 6.0 % | ||||
APAC | (6.2) % | (2.9) % | (3.3) % | ||||
Total Consumer segment | 0.2 % | 0.2 % | — % | ||||
Flavor Solutions Segment | |||||||
| 2.1 % | 1.0 % | 1.1 % | ||||
EMEA | (3.2) % | 1.9 % | (5.1) % | ||||
APAC | 3.8 % | (3.7) % | 7.5 % | ||||
Total Flavor Solutions segment | 1.2 % | 0.7 % | 0.5 % | ||||
Total net sales | 0.7 % | 0.4 % | 0.3 % | ||||
Adjusted operating income |
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FAQ
What were McCormick's Q2 2024 earnings per share?
McCormick's Q2 2024 earnings per share was $0.68, up from $0.56 in the year-ago period. Adjusted EPS was $0.69, up from $0.60.
How did McCormick's sales perform in Q2 2024?
McCormick's sales declined by 1% in Q2 2024 compared to the same period last year, with Consumer segment growth offset by declines in the Flavor Solutions segment.
What is McCormick's 2024 fiscal outlook?
McCormick reaffirmed its 2024 fiscal outlook, projecting sales growth of (2)% to 0%, operating income growth of 8-10%, and adjusted EPS in the range of $2.80 to $2.85.
What were the key factors impacting McCormick's Q2 2024 performance?
Key factors included strategic divestitures, lower customer demand in the Flavor Solutions segment, expanded gross profit margin from cost savings, and higher incentive compensation and tax payments impacting cash flow.
What is the impact of McCormick's cost-saving initiatives in Q2 2024?
McCormick's cost-saving initiatives led to a 60 basis points expansion in gross profit margin, contributing positively to the company's financial performance in Q2 2024.
McCormick & Company, Incorporated
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