McCormick & Company, Incorporated Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Overview of Results: Second quarter total organic sales grew 2% driven by volume and mix. Focus on profitable volume-led growth via brand investments, distribution expansion, innovation, and operational efficiencies.
• Consumer Landscape: Consumers show resilience, adapting to economic pressures by adjusting shopping habits, cooking more at home. McCormick positions to meet demand for flavorful, fresh, and healthy meals.
• Key Areas of Success: Global Consumer segment drove share gains in core categories (spices, recipe mixes, mustard, hot sauce). Expanded total distribution points (TDPs) in Americas and EMEA. Flavor Solutions segment saw strength in Flavors, growth in high-growth innovators, and QSR performance.
• Growth Plans: Consumer segment plans include preferred packaging, marketing campaigns, new products (cremosas, chamoy, cooking sauces). Flavor Solutions segment focuses on branded food service innovation, leveraging culinary heritage for health-conscious consumers, and winning new high-growth customers.

Segment Performance

• Consumer Segment: Organic sales increased 3% driven by volume and mix. In the Americas, organic sales grew 3% with 4% volume growth offset by 1% price decrease; in EMEA, 3% organic sales growth with 2% volume and 1% price growth; in Asia Pacific, 4% organic sales growth driven by volume reflecting China's gradual recovery. Adjusted operating income increased 10% with minimal currency impact, primarily from improved SG&A expenses.
• Flavor Solutions Segment: Second quarter organic sales flat, with 1% price contribution offset by 1% volume decline. In the Americas, organic sales increased 1% with 2% price contribution and 1% volume decline; in EMEA, organic sales decreased 7% impacted by soft CPG and QSR volumes; in Asia Pacific, organic sales increased 3% with 5% volume growth from QSR promotions. Adjusted operating income increased 10% or 13% in constant currency, driven by product mix, pricing, and improved SG&A expenses.

Guidance

• Maintains net sales, adjusted operating profit, and adjusted earnings per share guidance for 2025. Organic net sales growth expected 1%-3%, volume-led by Consumer segment. Flavor Solutions volumes flat for the year. Gross margin projected flat to up 50 basis points. Adjusted operating income growth 4%-6% in constant currency. Tax rate expected 22%-23%. Adjusted EPS projection $3.03-$3.08 on reported basis, 5%-7% constant currency growth.

Risks

• Global trade environment increasing cost of agricultural ingredients, impacting cost of sales. Tariff exposure of approximately $90 million, with $50 million in-year exposure, mitigated by sourcing, CCI, and surgical pricing. Elevated pressure on certain commodities due to global trade, mitigated by SG&A savings.

Question and Answer

Q: Second quarter EBIT came in stronger than expected. What surprised or differed from messaging?

A: Consumer business performed well, Flavor Solutions worked through customer challenges better than peers. SG&A savings and CCI initiatives drove operating profit.

Q: Tariff mitigation actions, cost work vs strategic pricing?

A: Majority mitigation via sourcing and CCI, surgical pricing targeted and balanced with top line momentum.

Q: Gross tariff exposure and global trade impact on COGS?

A: $90 million annual tariff exposure, 2% blended COGS impact, mitigated by sourcing, CCI, and surgical pricing.

Q: Texas additive labeling and IT investment?

A: State-by-state labeling early days, ERP implementation derisked with functional deployment, spend normalized.

Q: Brand marketing tweaks and innovation in Flavor Solutions?

A: A&P efficiency reflected in savings, innovation activity accelerated, particularly health and wellness categories.

Q: Flavor Solutions growth cadence and consumer business retailer discussions?

A: Flavor Solutions trends to sustain, EMEA comparing to prior year weakness. Consumer business has productive retailer conversations, driving category growth.