McCormick & Company, Incorporated Q1 FY2025 earnings call

Key Points

• First quarter results were solid, with total organic sales up 2% driven by volume and product mix. Global Consumer segment showed volume-led growth across regions, while Global Flavor Solutions also had volume-led growth.
• Consumer landscape has increased uncertainty with value-seeking behavior, but trends like health consciousness and cooking at home continue to support demand.
• Success areas include strong volume growth in Global Consumer segments, innovation in Flavor Solutions, and gains in market share. Pressures exist in Flavor Solutions with soft CPG customer volumes and foodservice challenges.
• Growth plans focus on category management, brand marketing, new products, proprietary technologies, and digital transformation to capitalize on secular trends.

Global Consumer Segment: Organic sales increased 1%, driven by 3% volume growth partially offset by a 2% impact of pricing investments. Americas organic sales were flat with 3% volume growth offset by price investments. EMEA saw 4% organic sales growth with 2% volume and 2% price growth. Asia Pacific organic sales increased 3% with 2% volume and 1% price contribution. Global Flavor Solutions Segment: Organic sales increased 3%, driven by 2% volume growth and 1% price contribution. Americas Flavor Solutions organic sales increased 4% (3% price, 1% volume). EMEA organic sales decreased 4% (2% price, 2% volume/product mix). Asia Pacific Flavor Solutions organic sales increased 15% with 16% volume growth.

Guidance

• Maintaining 2025 guidance with organic net sales growth expected to range between 1% and 3%, volume-led.
• Gross margin projected to be 50 to 100 basis points higher than 2024 due to CCI program.
• Adjusted operating income expected to grow 4% to 6% in constant currency, supported by Flavor Solutions and margin expansion.
• Currency rates expected to have a 1 point negative impact on net sales and adjusted operating income, 2 points on adjusted earnings per share.
• China consumer sales expected to improve slightly year-over-year.

Risks

• Uncertainty around U.S. import tariffs on China, with current plans to offset costs but continued uncertainty on potential impacts.
• Consumer uncertainty and concern over returning inflation impacting sentiment and value-seeking behavior.
• Softness in larger CPG customer volumes and challenges in the foodservice environment affecting Flavor Solutions.

Q: On last quarter's call, guidance was flat to slightly down for operating profit, but it fell about 5% in the quarter. What drove the stronger-than-forecast decline, especially in Consumer?

A: Timing elements like shift of stock-based compensation from Q2 to Q1, increased investments in technology and brand marketing hitting in Q1, and lapping price gap management investments from 2024. However, 2/3 of the Consumer operating profit decline will roll away in the next quarter, and FX was a bigger headwind but moderating.

Q: Two questions on the Americas Consumer business. First, on the price gap management and if pricing still has opportunity to be negative?

A: In Americas, there was an incremental promotion on recipe mixes driven by cold weather, but overall volume growth was strong. Price in Global Consumer segment expected to be flat for the year to go.

Q: Focus on growth of sales in Flavor Solutions. How much are new high-growth customers adding to sales?

A: Flavor Solutions had strong volume growth, driven by QSR customer promotions, limited time offers, and new products. High-growth customers in emerging segments related to health and wellness contributed, offsetting some softness in larger CPG customer volumes.

Q: Understanding tariff risks ahead. What should investors be looking for?

A: Known tariffs on China are already factored into guidance. Future tariffs are difficult to project, but the company is prepared to work through them, having dealt with similar situations in the past.

Q: On the chili promotion in Americas, is it profitable?

A: The team evaluates promotional programs for profit, and the incremental recipe mix promotion was smart strategically, building loyalty and was financially sound.