McCormick: Reports Record Sales Growth in FY-2021

Hunt Valley / MD. (mcc) McCormick + Company Inc., a global leader in flavour, reported financial results for the fourth quarter and fiscal year ended November 30, 2021.

  • For fiscal year 2021, sales rose 13 percent from the prior year. In constant currency, the Company grew sales 11 percent driven by strong growth in both the Consumer and Flavor Solutions segments. Earnings per share increased to USD 2.80 from USD 2.78 in 2020. Adjusted earnings per share rose 8 percent to USD 3.05 from USD 2.83.
  • For the fourth quarter, sales increased 11 percent from the year-ago period. In constant currency, the Company grew sales 10 percent driven by strong growth in both segments. Earnings per share decreased to USD 0.73 from USD 0.74. Adjusted earnings per share increased 6 percent to USD 0.84 from USD 0.79.
  • For fiscal year 2022, McCormick expects to increase year-on-year sales by 3 percent to 5 percent, or 4 percent to 6 percent in constant currency. The Company projects earnings per share to be USD 3.07 to USD 3.12 in fiscal year 2022, compared to USD 2.80 in 2021. Adjusted earnings per share is expected to be USD 3.17 to USD 3.22, compared to USD 3.05 in 2021 driven by significant expected operating income growth, partially offset by a higher projected effective tax rate.

Chairman, President + CEO’s Remarks

Lawrence E. Kurzius, Chairman, President and CEO, stated, «In 2021, we remained focused on growth, performance, and people, driving another year of strong results. We drove record sales growth by executing on our long-term strategies, actively responding to changing consumer behaviors, and capitalizing on new opportunities, all while remaining forward looking in the challenging global environment.

«We grew sales 13 percent in 2021 to USD 6.3 billion. Notably, on a two-year basis, we grew sales 18 percent, reflecting our robust and sustained growth momentum in both of our segments. We also had outstanding contributions from our Cholula and FONA acquisitions and have created value, achieved synergies, and delivered results according to our plans. The breadth and reach of our global flavor portfolio continue to meet the growing demand for flavor around the world and drive differentiated growth. The profit driven by our strong sales growth in 2021 was tempered by higher inflation and broad-based supply chain challenges. We expect to successfully manage through this inflationary environment as we have in the past, using pricing and other levers to fully offset cost pressures over time. Our 2021 operating performance again proves the strength of our business model, the value of our products and capabilities, and the resilience of our employees. We are beginning 2022 from a position of strength.

«We are capitalizing on the sustained shift to cooking more at home, increased digital engagement, clean and flavorful eating, and trusted brands. These long-term trends were in place before the pandemic, and we are confident they will persist beyond the pandemic. The strategic investments that we have made, including in our supply chain resiliency and brand marketing, provide a foundation for long-term, sustainable growth while enhancing our agility and our relevance with our consumers and customers. We are confident in our robust sales growth momentum and our ability to successfully navigate through the continuing challenges of the dynamic global environment. Our fundamentals, momentum, and growth outlook are stronger than ever, positioning us well to deliver another year of strong performance in 2022. We have a strong foundation and remain focused on the long-term goals, strategies, and values that have made us so successful.

«I want to recognize McCormick employees around the world as the collective power of our people drives our momentum and success. With our vision to stand together for the future of flavor and our relentless focus on growth, performance, and people, we are confident our strategies will enable us to become even better positioned to drive future growth and build long-term value for our shareholders.»

Fourth Quarter 2021 Results

McCormick reported an 11 percent sales increase in the fourth quarter from the year-ago period, including a 1 percent favorable impact from currency. Sales from Cholula and FONA, acquired in November 2020 and December 2020, respectively, contributed 4 percent to the sales increase. Both the Consumer and Flavor Solutions segments delivered strong growth with contributions from higher volume and pricing, new products, and acquisitions. Consumer segment sales grew 10 percent, including a 1 percent favorable impact from currency, on top of 6 percent growth in the fourth quarter of 2020. Flavor Solutions segment sales increased 14 percent, including a 2 percent favorable impact from currency, on top of 3 percent growth in the fourth quarter of 2020.

Higher cost inflation, partially offset by pricing and cost savings led by the Company’s Comprehensive Continuous Improvement (CCI) program, resulted in a decline in gross profit margin of 180 basis points, or 150 basis points excluding special charges. Operating income was USD 276 million in the fourth quarter of 2021 compared to USD 275 million in the year-ago period. This increase included USD 31 million of special charges versus USD 3 million in the fourth quarter of last year and USD 2 million of transaction and integration expenses related to the acquisitions of Cholula and FONA versus USD 12 million in the fourth quarter of last year. Excluding special charges, as well as transaction and integration costs, adjusted operating income grew 6 percent, with minimal impact from currency, to USD 309 million in the fourth quarter compared to USD 290 million in the year-ago period. This increase was driven by the favorable impact of higher sales and CCI-led cost savings, partially offset by the impact of higher cost inflation.

Earnings per share was USD 0.73 in the fourth quarter of 2021 compared to USD 0.74 in the fourth quarter of 2020. Special charges and transaction and integration expenses lowered earnings per share by USD 0.11 in the fourth quarter of 2021 and USD 0.05 in the fourth quarter of 2020. Excluding these impacts, adjusted earnings per share was USD 0.84 in the fourth quarter of 2021 compared to USD 0.79 in the year-ago period. This 6 percent increase in adjusted earnings per share was driven primarily by higher sales, partially offset by higher cost inflation.

Fiscal Year 2021 Results

McCormick reported a 13 percent sales increase in 2021 compared to 2020, including a 2 percent favorable impact from currency. Sales from Cholula and FONA contributed 4 percent to the sales increase. Consumer segment sales grew 9 percent, or 7 percent in constant currency, driven by consumers’ sustained preference for cooking more at home, fueled by the Company’s brand marketing, strong digital engagement and new products, as well as acquisition growth. Flavor Solutions segment sales increased 19 percent, or 16 percent in constant currency, driven by incremental sales from acquisitions and growth driven equally from packaged food and beverage companies, as well as restaurant and other food service customers.

Gross profit margin declined 160 basis points versus the year-ago period and adjusted gross profit margin, excluding special charges and transaction and integration expenses, declined 140 basis points. This decline was driven by higher cost inflation, partially offset by pricing and cost savings led by the Company’s CCI program. Operating income was USD 1.02 billion in 2021 compared to USD 1.00 billion in the prior year. This increase was driven by higher sales partially offset by gross margin compression and strategic investment spending, as well as higher special charges and transaction and integration expenses. In fiscal 2021, the Company recognized USD 51 million of special charges versus USD 7 million in 2020 and USD 35 million of transaction and integration expenses related to the acquisitions of Cholula and FONA versus USD 12 million in 2020. Excluding special charges, as well as transaction and integration expenses, adjusted operating income grew 8 percent to USD 1.10 billion compared to USD 1.02 billion in the year-ago period, or 6 percent in constant currency.

Earnings per share was USD 2.80 in 2021 compared to USD 2.78 in the prior year. The net impact of special charges, transaction and integration expenses, including an unfavorable income tax expense impact from a discrete item related to the acquisition of FONA, and the gain on the sale of the Company’s minority stake in Eastern Condiments Private Ltd (Eastern) lowered earnings per share by USD 0.25 in 2021. Special charges and transaction and integration expenses lowered earnings per share by USD 0.05 in 2020. Excluding these impacts, adjusted earnings per share grew 8 percent to USD 3.05 in 2021 compared to USD 2.83 in 2020, driven primarily by higher adjusted operating income.

Net cash provided by operating activities was USD 828 million in 2021 compared to USD 1.04 billion in 2020. The decrease was primarily due to the higher use of cash associated with working capital, including higher inventory levels to support increased demand and mitigate supply and service issues, and the payment of transaction and integration costs.

Fiscal Year 2022 Financial Outlook

McCormick’s broad and advantaged global flavor portfolio enables the Company to meet the rising demand for flavor around the world. The Company is capitalizing on the growing consumer interests in healthy and flavorful cooking, digital engagement, trusted brands, and purpose-minded practices. McCormick is sustainably positioned to continue on its growth trajectory through its alignment with consumer trends, the breadth and reach of its portfolio, and its effective growth strategies.

In 2022, the Company expects to grow sales by 3 percent to 5 percent compared to 2021, which in constant currency is 4 percent to 6 percent. McCormick expects sales growth to be driven by brand marketing, new products, category management and differentiated customer engagement, as well as pricing actions, which in conjunction with cost savings, are expected to offset anticipated inflationary pressures.

Operating income in 2022 is expected to grow by 13 percent to 15 percent from USD 1.02 billion in 2021. The Company anticipates integration expenses related to the FONA acquisition of approximately USD 3 million in 2022. In addition, McCormick expects approximately USD 30 million of special charges in 2022 that relate to previously announced organization and streamlining actions. Excluding the impact of integration expenses as well as special charges in 2022 and 2021, adjusted operating income is expected to increase 7 percent to 9 percent, which in constant currency is 8 percent to 10 percent.

McCormick projects 2022 earnings per share to be in the range of USD 3.07 to USD 3.12, compared to USD 2.80 of earnings per share in 2021. The Company expects integration expenses, as well as special charges, to lower earnings per share by USD 0.10 in 2022. Excluding these impacts, the Company projects 2022 adjusted earnings per share to be in the range of USD 3.17 to USD 3.22, compared to USD 3.05 of adjusted earnings per share in 2021, which represents an expected increase of 4 percent to 6 percent, or in constant currency 5 percent to 7 percent. This reflects strong operating growth, partially offset by a 3 percent headwind from an anticipated increase in the Company’s projected adjusted effective tax rate. For fiscal 2022, the Company expects strong cash flow and anticipates returning a significant portion to shareholders through dividends.

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