McCormick: Reports FY-2023 Financial Results

Hunt Valley / MD. (mcc) McCormick + Company Inc. reported financial results for the fourth quarter and fiscal year ended November 30, 2023 and provided its financial outlook for fiscal year 2024.

President and CEO’s Remarks

President and CEO Brendan M. Foley: «As I reflect on our results for 2023, I am proud of the progress we made to advance our business. For the better part of the year, we drove sequential improvement in volume trends and while the fourth quarter was impacted by a pressured consumer exhibiting more value-seeking behavior, our prioritized investments drove volume improvements in several key areas within our portfolio. In areas that were below our expectations, we understand the challenges, are addressing them, and are confident we will drive improved volume trends in 2024.

«For the full year, we meaningfully strengthened our gross and operating margins while also significantly investing with a focus on returning to sustainable volume growth. Our margin performance reflects the cost savings from our CCI and GOE programs as well as effective price realization. We ended 2023 meeting the cost recovery plans we had in place as we entered the year. Additionally, we significantly improved our cash flow, paid down debt, and reduced our leverage ratio. Our improved profitability and cash generation will help fuel continued business investments early in 2024 to drive improved volume performance, which will build throughout the year.

«We have a strong foundation with powerful brands, effective strategies, and continued demand for flavor. With our flavor leadership and continued investments, we are committed to vigorously fueling category growth with our differentiated portfolio. In 2023, we refined our plans and prioritized our investments in key areas. The initiatives within our growth levers, including targeted price gap management, increased brand marketing, new products, and packaging renovation have already proven to strengthen our volume trends and drive momentum in these areas.

«As CEO, I plan to drive an ambitious growth agenda that capitalizes on our strong business fundamentals as well as the value of our brands and proven capabilities with a renewed sense of urgency and speed to deliver on our strategic priorities. I fully expect that the initiatives we have in place will position us to return to long-term differentiated growth and our cost optimization efforts will support our investments as well as drive enhanced profit realization. For 2024, we appreciate the uncertainty in the consumer environment and we are taking a more cautious view in our outlook. Importantly, we remain committed to our long-term financial algorithm and driving sustained value creation through top line growth and margin expansion.

«Lastly, I want to recognize our global team’s commitment, dedication, and engagement to enable McCormick to bring joy to millions of consumers around the world. I am proud of our people-first culture, and we will continue to further elevate this culture and build our next generation of leaders and capabilities. This is one of our most important commitments, as our teams around the world drive our momentum and success, and I am grateful for and energized by both their ongoing contributions and the results that they are driving. Our business fundamentals remain strong, and we are confident we will continue to not only deliver profitable growth, but also drive total shareholder return at an industry-leading pace.»

Fourth Quarter 2023 Results

McCormick reported a 3 percent sales increase in the fourth quarter from the year-ago period, or 2 percent sales growth in constant currency. Constant currency sales growth reflected a 5 percent increase from pricing actions partially offset by a 3 percent volume decline. As expected, the benefit from lapping prior year COVID-related disruption in China was fully offset by the impacts of Company’s strategic decisions to discontinue low margin business and divest a small canning business in the Flavor Solutions segment. Underlying volume performance was impacted in both segments by a pressured consumer exhibiting more value-seeking behavior, which resulted in lower consumption.

Gross profit margin expanded 320 basis points versus the fourth quarter of last year. This expansion was driven by favorable product mix, cost savings led by the Company’s Comprehensive Continuous Improvement (CCI) and Global Operating Effectiveness (GOE) programs and pricing actions that were partially offset by cost inflation. Selling, general and administrative expenses increased from the year-ago period driven by an increase in employee incentive compensation expense as well as higher brand marketing costs partially offset by CCI-led and GOE cost savings.

Operating income was USD 297 million in the fourth quarter of 2023 compared to USD 264 million in the fourth quarter of 2022. Excluding special charges, adjusted operating income was USD 311 million compared to USD 278 million in the year-ago period. In constant currency, adjusted operating income increased 11 percent from the year-ago period. This increase is primarily attributable to gross profit margin expansion partially offset by higher selling, general, and administrative expenses.

Earnings per share was USD 0.81 in the fourth quarter of 2023 compared to USD 0.69 in the fourth quarter of 2022. Special charges lowered earnings per share by USD 0.04 in both the fourth quarter of 2022 and the fourth quarter of 2023. Excluding these impacts, adjusted earnings per share was USD 0.85 in the fourth quarter of 2023 compared to USD 0.73 in the year-ago period. This increase was driven by higher operating income and higher income from unconsolidated operations driven by strong performance in our largest joint venture, McCormick de Mexico.

Fiscal Year 2023 Results

McCormick reported a 5 percent sales increase in 2023 as compared to 2022, or 6 percent in constant currency. Sales growth reflected an 9 percent increase from pricing actions partially offset by a 3 percent decrease in volume and product mix. The volume decline included a combined 1 percent unfavorable impact from the Kitchen Basics divestiture, the canning business divestiture, the exit of the Consumer business in Russia, and the Company’s strategic decisions to discontinue low margin business.

Gross profit margin expanded 180 basis points versus 2022. This expansion was driven by cost savings led by the Company’s CCI and GOE programs and pricing actions that were partially offset by cost inflation. Selling, general and administrative expenses increased from the year-ago period driven by an increase in employee incentive compensation expense as well as higher distribution and brand marketing costs partially offset by CCI-led and GOE cost savings.

Operating income was USD 963 million in 2023 compared to USD 864 million in 2022, with minimal impact from currency. Excluding transaction and integration expenses, as well as special charges, adjusted operating income was USD 1.02 billion compared to USD 917 million in the year-ago period. In constant currency, adjusted operating income increased 12 percent from the year-ago period. This increase is primarily attributable to gross profit margin expansion partially offset by higher selling, general, and administrative expenses.

Earnings per share was USD 2.52 in 2023 compared to USD 2.52 in the prior year. The net unfavorable impact of special charges lowered earnings per share by USD 0.18 in 2023. The net unfavorable impact of special charges, transaction and integration expenses, and the gain on the sale of the Kitchen Basics business lowered earnings per share by USD 0.01 in 2022. Excluding these impacts, adjusted earnings per share was USD 2.70 in 2023 compared to USD 2.53 in 2022. This increase was driven by higher operating income and higher income from unconsolidated operations driven by strong performance in our largest joint venture, McCormick de Mexico.

Net cash provided by operating activities was USD 1.2 billion in 2023 compared to USD 652 million in 2022. The increase was primarily due to higher operating income and working capital improvements, including lower inventory.

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. Currency rates are expected to unfavorably impact sales, adjusted operating income and adjusted earnings per share by approximately 1 percent.

In 2024, McCormick expects sales to range between (2) percent to 0 percent compared to 2023, or (1) percent to 1 percent on a constant currency basis. 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 and return to volume growth, notwithstanding any new macroeconomic headwinds. 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 8 percent to 10 percent from USD 963 million in 2023. The Company anticipates approximately USD 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 3 percent to 5 percent, or in constant currency 4 percent to 6 percent, 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 USD 2.76 to USD 2.81, compared to USD 2.52 of earnings per share in 2023. The Company expects special charges to lower earnings per share by USD 0.04 in 2024. Excluding these impacts, the Company projects 2024 adjusted earnings per share to be in the range of USD 2.80 to USD 2.85, compared to USD 2.70 of adjusted earnings per share in 2023, which represents an expected increase of 4 percent to 6 percent, or in constant currency 5 percent to 7 percent. 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.