HUNT VALLEY, Md., Oct. 1, 2024 /PRNewswire/ -- McCormick & Company, Incorporated (NYSE:MKC), a global leader in flavor, today reported financial results for the third quarter ended August 31, 2024 and reaffirmed fiscal 2024 outlook for sales and operating profit.
Sales in the third quarter were comparable to the year-ago period, reflecting volume growth of 1%, partially offset by price.
Operating income was $287 million in the third quarter compared to $245 million in the year-ago period. Adjusted operating income was $288 million compared to $251 million in the year-ago period.
Earnings per share was $0.83 in the third quarter as compared to $0.63 in the year-ago period. Adjusted earnings per share was $0.83 compared to $0.65 in the year-ago period.
For fiscal year 2024, McCormick reaffirmed its sales and operating profit growth outlook, reflecting minimal impact from currency. In addition, the Company increased its earnings per share outlook.
The Company plans to host its Investor Day on October 22, 2024 in Hunt Valley, Maryland.
President and CEO's Remarks
Brendan M. Foley, President and CEO, stated, "We are pleased with our year to date performance, which was in line with our expectations and reflects the success of our prioritized investments in the areas within our portfolio that we believe will drive the greatest value. This quarter we reached a meaningful milestone by delivering total global positive volume growth, reflecting improved trends across both segments, and we expect this momentum to continue into the fourth quarter. In our Consumer segment, we delivered solid volume growth, despite a more challenging macro environment in China. In Flavor Solutions, we drove sequential volume improvement, as we delivered strong growth in Branded Foodservice.
"We continue to strengthen our business across major markets and core categories by executing with speed and agility on the initiatives within our growth levers, including brand marketing, new products and packaging, category management, and proprietary technology. Additionally, we believe we are well positioned with our cost savings initiatives to fuel investments and generate operating margin expansion. Our year to date results coupled with our growth plans reinforce our confidence in achieving the mid to high-end of our projected sales growth for 2024. Our business fundamentals are strong, and we expect to continue to deliver profitable growth and drive shareholder value.
"Overall, we remain 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 alignment with consumer trends, as well as our differentiated heat platform. We look forward to sharing the strategic roadmap and building blocks that support our long-term objectives at our upcoming Investor Day.
"Lastly, I want to express my appreciation to McCormick employees worldwide. They are the foundation of our success. Their dedication, continuous contributions, and execution in a dynamic environment continue to inspire me. As a leadership team, we are committed to continuing to enhance our people-centric culture and developing the next generation of leaders and capabilities that will drive our success well into the future."
Third Quarter 2024 Results
McCormick reported sales in the third quarter that were comparable to the year-ago period, with minimal impact from currency. Sales include the impact of the Company's strategic decision to divest a small canning business and reflect 1% volume growth driven by the Consumer segment, partially offset by pricing.
Gross profit margin expanded 170 basis points versus the third quarter of last year. This expansion was driven by favorable mix as well as cost savings led by the Company's Comprehensive Continuous Improvement (CCI) program.
Operating income increased to $287 million in the third quarter of 2024 compared to $245 million in the third quarter of 2023. Excluding special charges, adjusted operating income was $288 million in the third quarter of 2024 compared to $251 million in the year-ago period. Adjusted operating income increased 15% from the year-ago period, driven primarily by gross margin expansion in addition to lower selling, general, and administrative expenses.
Income tax expense for the quarter included $16.3 million of net discrete tax benefits primarily associated with the resolution of a tax matter and deferred taxes related to state sales mix.
Earnings per share was $0.83 in the third quarter of 2024 compared to $0.63 in the year-ago period. Special charges lowered earnings per share $0.02 in the prior year period. Excluding these special charges, adjusted earnings per share was $0.83 in the third quarter of 2024 compared to $0.65 in the year-ago period. This increase was primarily attributable to the increase in operating profit, the impact of discrete tax benefits, and higher income from unconsolidated operations, driven by strong performance by the Company's largest joint venture, McCormick de Mexico.
Net cash provided by operating activities through the third quarter of 2024 was $463 million compared to $660 million through the third quarter of 2023. The benefit from the increase in earnings year over year was more than offset by the impacts of cash used for working capital, higher incentive compensation payments, and the timing of income tax payments.
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. The Company expects the impact of foreign currency rates in 2024 to be minimal.
In 2024, McCormick expects sales to range between (1)% to 1% compared to 2023, with minimal impact from currency. The Company expects a favorable impact from the prior year's pricing actions. Through the power of its brands and its targeted investments, the Company expects to improve volume trends as the year progresses. The Company's strategic decisions in 2023 to discontinue low margin business and divest a small canning business will impact volume growth in 2024.
Operating income in 2024 is expected to grow by 9% to 11% from $963 million in 2023. The Company anticipates approximately $15 million of special charges in 2024 that relate to previous organizational and streamlining actions. Excluding the impact of special charges in 2024 and 2023, adjusted operating income is expected to increase 4% to 6%, with minimal impact from currency, driven by gross margin expansion partially offset by a significant increase in brand marketing investments.
McCormick projects 2024 earnings per share to be in the range of $2.81 to $2.86, compared to $2.52 of earnings per share in 2023. The Company expects special charges to lower earnings per share by $0.04 in 2024. Excluding these impacts in 2024 and 2023, the Company projects 2024 adjusted earnings per share to be in the range of $2.85 to $2.90, compared to $2.70 of adjusted earnings per share in 2023, which represents an expected increase of 5% to 7%, with minimal impact from currency. For fiscal 2024, the Company expects strong cash flow driven by profit and working capital initiatives and anticipates returning a significant portion of cash flow to shareholders through dividends.
Business Segment Results
Consumer Segment
(in millions)
Three months ended
Nine months ended
8/31/2024
8/31/2023
8/31/2024
8/31/2023
Net sales
$ 937.4
$ 937.1
$ 2,763.4
$ 2,758.7
Operating income, excluding special charges
186.8
173.3
512.4
500.3
Consumer segment sales were comparable to the third quarter of 2023, with minimal currency impact, reflecting a 1% increase in volume growth fully offset by a 1% decrease from pricing. Volume growth in the Americas and the Europe, Middle East, and Africa (EMEA) regions was partially offset by volume declines in the Asia-Pacific region (APAC) principally attributable to the macro environment in China.
Consumer sales in the Americas were comparable to the third quarter of 2023, reflecting a 1% increase from volume and product mix fully offset by a 1% decrease from pricing, with minimal impact from currency. Volume growth benefited from growth in the Company's core categories.
Consumer sales in EMEA increased 3% compared to the third quarter of 2023 with minimal impact from currency. A 4% increase from higher volume and product mix was partially offset by a 1% decline from price. In major markets, volume growth was broad based across product categories.
Consumer sales in APAC decreased 1% in the third quarter of 2024 compared to the year-ago period. In constant currency, sales were comparable with a 1% volume decline fully offset by a 1% increase from pricing actions. The volume decline was driven by slower demand in China, related to the macro environment. Outside of China, sales growth was strong and primarily driven by volume and product mix.
Consumer segment operating income, excluding special charges, increased 8% in the third quarter of 2024 compared to the year-ago period with minimal impact from currency. The growth was due to lower selling, general, and administrative expenses.
Flavor Solutions Segment
(in millions)
Three months ended
Nine months ended
8/31/2024
8/31/2023
8/31/2024
8/31/2023
Net sales
$ 742.4
$ 747.6
$ 2,162.3
$ 2,150.7
Operating income, excluding special charges
101.6
77.8
249.6
212.6
Flavor Solutions segment sales declined 1% from the third quarter of 2023. In constant currency, sales were comparable to the prior year period with a 1% increase from pricing fully offset by the impact of the Company's strategic decision to divest its canning business.
In the Americas, Flavor Solutions sales increased 2% as compared to the third quarter of 2023. In constant currency, sales increased 3%, reflecting a 1% increase from pricing and a 2% increase in volume and product mix driven by strong growth in branded foodservice and the timing of customer activities.
The EMEA region's Flavor Solutions sales declined 8% compared to the third quarter of 2023. In constant currency, sales decreased 9% including a 3% decline from the canning divestiture. The remainder of the decrease was primarily driven by a volume decline of 5% attributable to softness in quick service restaurant volumes.
The APAC region's Flavor Solutions sales declined 1% compared to the third quarter of 2023. In constant currency, sales were comparable with minimal impact from both pricing and volume and product mix.
Flavor Solutions segment operating income, excluding special charges, grew 31% in the third quarter of 2024 compared to the year-ago period, or 32% in constant currency driven by product mix, pricing and cost savings generated by our CCI program.
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 United States generally accepted accounting principles. These financial measures exclude the impact of special charges and the associated income tax effects, as applicable.
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
Nine Months Ended
8/31/2024
8/31/2023
8/31/2024
8/31/2023
Operating income
$ 286.5
$ 245.0
$ 754.1
$ 665.8
Impact of special charges
1.9
6.1
7.9
47.1
Adjusted operating income
$ 288.4
$ 251.1
$ 762.0
$ 712.9
% increase versus year-ago period
14.9 %
6.9 %
Operating income margin (1)
17.1 %
14.5 %
15.3 %
13.6 %
Impact of special charges
0.1 %
0.4 %
0.2 %
0.9 %
Adjusted operating income margin (1)
17.2 %
14.9 %
15.5 %
14.5 %
Income tax expense
$ 41.0
$ 42.7
$ 116.8
$ 117.4
Impact of special charges
0.6
1.3
2.1
11.0
Adjusted income tax expense
$ 41.6
$ 44.0
$ 118.9
$ 128.4
Income tax rate (2)
16.7 %
21.4 %
18.4 %
21.7 %
Impact of special charges
0.1 %
— %
0.1 %
0.1 %
Adjusted income tax rate (2)
16.8 %
21.4 %
18.5 %
21.8 %
Net income
$ 223.1
$ 170.1
$ 573.3
$ 461.3
Impact of special charges
1.3
4.8
5.8
36.1
Adjusted net income
$ 224.4
$ 174.9
$ 579.1
$ 497.4
% increase versus year-ago period
28.3 %
16.4 %
Earnings per share - diluted
$ 0.83
$ 0.63
