McCormick & Company, Incorporated Q3 FY2025 earnings call

• Top-Line Growth: Third quarter total organic sales increased 2%, driven by volume growth, primarily in the consumer segment. - Consumer Behaviors: Consumers adjust shopping behaviors due to economic environment, cooking at home more, shopping perimeter for fresh foods, health and wellness trends gaining momentum. - Success Areas: Consumer segment held steady or improved share in core categories; flavor solutions saw strength in high-margin product category. - Pressure Areas: Recipe mixes faced competition in U.S.; Asia-Pacific food service business had soft demand; flavor solutions had softness in large CPG and branded food service customers. - Growth Levers: Category management, brand marketing, new products, proprietary technologies, differentiated customer engagement; digital transformation supported by data and analytics. - Initiatives: Relaunch of McCormick gourmet line, successful new products like Cholula cremosas, Schwartz air fryer seasonings, leveraging iconic brands in branded food service, innovation in flavors for health and wellness.

Consumer Segment: Organic sales increased 3%, driven by volume and mix. Americas saw 3% volume growth with flat pricing. EMEA had 4% organic sales growth with 1% volume and 3% price increase. Asia-Pacific organic sales decreased 1% due to softness in China's food service business. Flavor Solutions Segment: Third quarter organic sales up 1%, driven by price contributions. Americas saw 1% growth with 2% price contribution, partially offset by volume decline. EMEA organic sales decreased 3% due to soft CPG volumes. Asia-Pacific organic sales increased 6% with 9% volume growth.

• 2025 Outlook: Maintains net sales guidance, revises adjusted operating income and EPS. Organic net sales growth expected 1-3%, adjusted operating income 3-5% constant currency, adjusted EPS $3.00-$3.05. Tariff exposure updated, gross margin revised due to higher commodity costs and tariffs. - Fourth Quarter Expectations: Gross margins expected to improve as mitigation efforts take effect; SG&A expected to be offset by CCI savings and investments in technology and brand marketing.

• Rising Costs: Gross margin pressured by higher commodity costs, tariffs, and costs to support future growth. - Tariff Impact: Tariff exposure updated, with gross tariff costs for 2025 now ~$70 million, total annualized tariff exposure ~$140 million; mitigation efforts need to be addressed next year. - Profitability Pressures: Incremental cost pressures due to global trade environment impacting gross margins and profitability.

Q: Brendan, you reiterated expectation for positive volume in consumer segment in fiscal fourth quarter. What's visibility to positive volume outcome given potential elasticity?

A: Brendan M. Foley noted deceleration in third quarter is due to overall food unit growth decline, but focused on maintaining volume momentum, leveraging pricing, innovation, and distribution.

Q: Marcos, on cost inflation guidance for 2025, what's driving the change?

A: Marcos Gabriel explained Q3 gross margin down 120 basis points due to increased commodity costs, existing and new tariffs, and costs to support capacity for future growth.

Q: Alexia Howard asked about reformulation and acquisitions. Brendan M. Foley discussed reformulation focus on natural ingredients, etc., and M&A strategy focusing on flavor areas, both bolt-on and transformational.

Q: Robert Moskow asked about conversations with customers regarding tariffs. Brendan M. Foley said conversations are collaborative, focusing on offsetting input costs while maintaining volume growth.

Q: Max Gumport asked about gap between U.S. scanner data slowdown and Consumer Americas growth. Brendan M. Foley attributed to e-commerce, club store channel, and Canadian business growth.

Q: Stephen Powers asked about pricing elasticity and mitigation levers. Brendan M. Foley said early on elasticity, Marcos Gabriel mentioned mitigation skewed towards savings and productivity initiatives.

Q: Scott Marks asked about China recovery and reformulation impact. Brendan M. Foley discussed China's gradual recovery, lapping easier comps, and reformulation as industry innovation.

Q: Bryan Adams asked about 4Q growth conviction. Marcos Gabriel said midpoint of top line guide implies same growth in 4Q, with growth across regions in consumer segment.