McCormick & Company, Incorporated Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Business Strength: McCormick & Company demonstrated strength and resilience in 2025, with differentiated volume-led organic growth and share gains. Despite cost pressures in the second half, disciplined cost management and efficiency initiatives kept the company on track.
• Segment Details: In the fourth quarter, total organic sales increased 2%, supported by consumer and flavor solutions. Consumer segment had volume growth across regions, while flavor solutions faced volume declines in some areas but growth in others due to high-growth innovators and private label customers.
• Operational Highlights: Across global consumer, held or improved share in core categories for six quarters. Innovation in spices, recipe mixes, hot sauce, and QSRs; flavor solutions saw strength in high-margin product categories. Distribution growth in e-commerce and social commerce.
• Fiscal Year Highlights: Delivered sales growth at the midpoint of constant currency guidance, consumer segment volume-led growth, flavor solutions resilience, margin improvement in flavor solutions, strong cash flow, deleveraging, and a 7% increase in the quarterly dividend.

Segment Performance

• Consumer Segment: Fourth quarter organic sales increased 3%, driven by price and volume. In The Americas, organic sales grew 3% with 1% volume growth and 2% pricing. EMEA consumer organic sales grew 3% with 1% volume increase and 2% pricing contribution. Asia Pacific consumer organic sales rose 2% primarily by volume growth. For the fiscal year, consumer segment organic sales increased 2%, with volume-led growth across regions.
• Flavor Solutions Segment: Fourth quarter organic sales rose 1%, with a 2% price contribution offset by a ~1% volume decline. In The Americas, flavor solutions organic sales increased 1% with 3% price contribution and 2% volume decline. EMEA flavor solutions organic sales decreased 3% with 2% price impact and 1% volume decrease. Asia Pacific flavor solutions organic sales increased 3% with 5% volume growth and 2% price. For the fiscal year, flavor solutions organic sales increased 1%, showing resilience despite soft industry trends.

Guidance

• 2026 results to benefit from McCormick de Mexico acquisition, contributing to top line and operating income, but earnings per share growth reduced by factors like elimination of minority interest and unfavorable below-the-line items.
• Base business to drive underlying profitable growth, but incremental costs from inflation, tariffs, digital investments, and incentive compensation rebuild impact profitability.
• Expect organic net sales growth 1-3%, gross margin expansion reflecting recovery from 2025 compression, adjusted operating income growth 15-19% in constant currency, and adjusted EPS range $3.05-$3.13.

Risks

• Volatility and pressure from inflation, geopolitical and trade uncertainty, and rising unemployment affecting consumer confidence and spending.
• Tariffs remaining a significant cost factor, with approximately 50% of incremental tariffs still in place, impacting margins.
• Incremental costs from inflation, digital investments, and incentive compensation rebuild posing challenges to profitability.

Question and Answer

Q: Andrew Lazar asks about key drivers of 2026 outlook, especially consumer Americas elasticity.

A: Brendan M. Foley states consumer volume growth driven by pricing, innovation (e.g., McCormick gourmet renovation, Cholula expansion), distribution expansion, and high-growth channels. Flavor solutions expected to improve with lapping of difficult 2025 and growth with high-growth innovators and private label customers.

Q: Peter Galbo asks about gross margin and ERP.

A: Marcos Gabriel explains Q4 gross margin impact from higher commodity costs and tariffs, and ERP phasing with compression of deployment waves shifting costs into 2026 but costs remaining unchanged overall.

Q: Tom Palmer asks about inflation cadence and consumer segment price elasticity.

A: Marcos Gabriel mentions mid-single-digit inflation exiting 2025, expected to continue in 2026, with price elasticity impact in Q1 due to recent pricing actions, improving later in the year.

Q: Alexia Howard asks about long-term objectives and reformulation.

A: Brendan M. Foley states confidence in long-term sales targets, with development of reformulation activity expected to pick up in 2026, commercialization likely more in 2027.

Q: Robert Moskow asks about US spice and seasonings sales.

A: Brendan M. Foley discusses holiday performance, normal consumption patterns, and price elasticity operating as expected, with post-holiday consumption to be monitored.

Q: Max Comfort asks about tariffs and EPS cadence.

A: Marcos Gabriel clarifies 2025 net tariff impact and 2026 incremental tariff impact, and EPS cadence with Q1 EPS at mid to high end of guidance range, normalizing towards range in subsequent quarters.

Q: Scott Marks asks about regional growth.

A: Brendan M. Foley discusses positive outlook for Asia Pacific (especially China and rest of region), EMEA (consumer and flavor solutions improvement), The Americas (strength in consumer and flavor solutions), and Latin America driven by McCormick de Mexico acquisition.