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, 2020. Summary:
- For the fiscal year 2020, sales rose 5 percent from the prior year, with minimal impact from currency. Significant Consumer segment growth of 10 percent was partially offset by a low single digit sales decline in the Flavor Solutions segment. Earnings per share increased to USD 2.78 from USD 2.62 in 2019. Adjusted earnings per share rose 6 percent to USD 2.83 from USD 2.68.
- For the fourth quarter, sales increased 5 percent from the year-ago period. In constant currency, the Company grew sales 4 percent driven by growth in both segments. Earnings per share decreased to USD 0.74 from USD 0.79. Adjusted earnings per share decreased to USD 0.79 from USD 0.81 driven by higher brand marketing investments versus the fourth quarter of 2019.
- Cash flow from operations grew 10 percent to a record USD 1 billion in 2020. In November, a 10 percent increase to the quarterly dividend was authorized, marking the 35th consecutive year of dividend increases.
- For fiscal year 2021, McCormick expects to increase year-on-year sales by 7 percent to 9 percent, including the contribution of its Cholula and FONA acquisitions, or 5 percent to 7 percent in constant currency. The Company expects strong underlying business performance and the acquisitions to drive significant operating income and earnings per share growth, partially offset by an incremental investment in business transformation and a higher projected effective tax rate.
Chairman, President and CEO’s Remarks
Lawrence E. Kurzius, Chairman, President and CEO, stated, «2020 marked an extraordinary year for McCormick. We delivered strong results despite the disruption caused by the Covid-19 pandemic proving the strength of our business model, the value of our products and our capabilities as a company. The breadth and reach of our portfolio and the investments we have made, and continue to make, positioned us well to actively respond to changing consumer behavior and capitalize on new opportunities. I am incredibly proud of the way McCormick performed in such an unprecedented operating environment.
«Our fourth quarter 2020 results, with growth in both segments, completed a year of strong financial performance in which we grew sales, adjusted operating income and adjusted earnings per share driven by the engagement of our employees and the successful execution of our strategies. Our record cash flow from operations of USD 1 billion this year, coupled with the realization of USD 113 million in cost savings led by our CCI program, funded investments in brand marketing, new product innovation, information technology systems and our supply chain to sustainably meet growing demand and drive differentiated performance for years to come. Our sustained positive performance and outlook for continued growth was reflected in our 2-for-1 stock split effective at the end of fiscal 2020. In addition to these 2020 accomplishments, we further reinforced our global flavor leadership and are accelerating our growth platform through the recent acquisitions of Cholula and FONA. Cholula, an iconic brand and the leading Mexican hot sauce, further broadens our flavor offerings in a high-growth category. FONA, a leading manufacturer of flavors, increases the scale of our global flavors platform, expands our breadth in attractive categories and advances our health and wellness portfolio.
«Our focus on long-term sustainable growth and strengthening our organization is the foundation of our future. We are capitalizing on accelerating consumer trends, particularly the sustained shift to cooking more at home, increased digital engagement, clean and flavorful eating, and trusted brands, which we are confident will continue to persist even beyond the pandemic. The investments we have made, including in our supply chain resiliency and brand marketing, provide a foundation for growth while enhancing our agility and our relevance with our consumers and customers. We are well positioned for continued success and our 2021 outlook reflects another year of differentiated results while making additional investments for the future. Our fundamentals, momentum and growth outlook are stronger than ever.
«Finally, I want to express my deep appreciation for McCormick employees around the world for their continued hard work and dedication. The collective power of our people drives our growth momentum and success and we remain committed to supporting them and the communities where we live, work and source. 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 position us to continue our growth trajectory and build long-term value for our shareholders.»
Fourth Quarter 2020 Results
McCormick reported a 5 percent sales increase in the fourth quarter from the year-ago period, including a 1 percent favorable impact from currency. The Company grew sales in both segments with the Consumer segment growth driven by an increase in demand resulting from consumers cooking more at home and led by the Americas and Europe, Middle East and Africa (EMEA) regions, partially offset by a decline in the Asia/Pacific region related to away from home products included in its Consumer portfolio. In the Flavor Solutions segment, all regions contributed to growth.
Gross profit margin was comparable to the year-ago period with cost savings led by the Company’s Comprehensive Continuous Improvement (CCI) program, fully offset by Covid-19 related costs as well as increased transportation costs. Operating income decreased to USD 275 million in the fourth quarter of 2020 compared to USD 299 million in the year-ago period. This decline included USD 12 million of transaction expenses related to the acquisitions of Cholula and FONA as well as USD 3 million of special charges versus USD 4 million in the fourth quarter of last year. Excluding transaction expenses and special charges, adjusted operating income declined 4 percent, with minimal impact from currency, to USD 290 million in the fourth quarter compared to USD 303 million in the year-ago period. Growth from higher sales and CCI-led cost savings was more than offset by higher planned brand marketing investments, Covid-19 related costs and higher employee benefit expenses.
Earnings per share was USD 0.74 in the fourth quarter of 2020 compared to USD 0.79 in the fourth quarter of 2019. Transaction expenses and special charges lowered earnings per share by USD 0.05 in the fourth quarter of 2020 while special charges lowered earnings per share by USD 0.02 in the fourth quarter of 2019. Excluding these impacts, adjusted earnings per share was USD 0.79 in the fourth quarter of 2020 compared to USD 0.81 in the year-ago period. This 2 percent decline in adjusted earnings per share was driven primarily by lower adjusted operating income, partially offset by lower interest expense.
Fiscal Year 2020 Results
McCormick reported a 5 percent sales increase in 2020 compared to 2019, with minimal impact from currency. The Company significantly grew Consumer segment sales driven by an increase in demand resulting from consumers cooking more at home and fueled by the Company’s brand marketing, strong consumer digital engagement and new products. Partially offsetting this growth was a decline in the Flavor Solutions segment sales as Covid-19 restrictions in most markets as well as consumer reluctance to dine-out reduced demand from restaurant and other foodservice customers.
Gross profit margin increased 100 basis points versus the year-ago period. This expansion was driven by favorable product mix and cost savings led by the Company’s CCI program, partially offset by Covid-19 related costs. Operating income was USD 1.00 billion in 2020 compared to USD 958 million in the prior year. This increase was driven by higher sales, gross margin expansion and lower special charges. Partially offsetting this increase was higher incentive compensation expense and brand marketing investments as well as transaction expenses related to the Cholula and FONA acquisitions. In fiscal 2020, the Company recognized USD 12 million of transaction expenses as well as USD 7 million of special charges related to organization and streamlining actions compared to USD 21 million of special charges in 2019. Excluding transaction expenses and special charges, adjusted operating income grew 4 percent to USD 1.02 billion compared to USD 979 million in the year-ago period, or 5 percent in constant currency.
Earnings per share was USD 2.78 in 2020 compared to USD 2.62 in the prior year. Transaction expenses and special charges lowered earnings per share by USD 0.05 in 2020 while special charges lowered earnings per share by USD 0.06 in 2019. Excluding these impacts, adjusted earnings per share grew to USD 2.83 in 2020 compared to USD 2.68 in 2019, driven primarily by higher adjusted operating income and lower interest expense with a partial offset from a higher adjusted income tax rate. This resulted in a 6 percent year-over-year increase in adjusted earnings per share, which includes an unfavorable impact of foreign currency rates.
The Company continues to generate strong cash flow. Net cash provided by operating activities reached a record USD 1.04 billion in 2020, a 10 percent increase from USD 947 million in 2019. The strong operating cash flow was mainly driven by higher operating income. As the Company continues to focus on paying down debt, a portion of this cash was used to fully pay off the term loans related to the acquisition of its Frank’s RedHot and French’s brands.
Fiscal Year 2021 Financial Outlook
McCormick is capitalizing on the sustained shift to cooking more at home and the growing consumer interests in clean and flavorful eating, increased digital engagement, trusted brands and purpose-minded practices. These long-term trends have accelerated during the Covid-19 pandemic and are expected to persist beyond the pandemic. The Company expects the shift in consumer demand to at-home consumption to be sustained at higher than pre-pandemic levels, as well as a gradual recovery in the demand from restaurant and other foodservice customers which have been impacted by the curtailment of away from home dining. The strength and diversity of McCormick’s product offering is expected to drive continued consistency in performance during volatile times. McCormick is well positioned for continued growth through the combination of its alignment with these consumer trends, the breadth and reach of its flavor portfolio and its effective growth strategies.
In 2021, the Company expects to grow sales by 7 percent to 9 percent compared to 2020, which in constant currency is 5 percent to 7 percent and includes the incremental impact of the Cholula and FONA acquisitions. McCormick expects to drive organic sales growth in both its Consumer and Flavor Solutions segments in 2021 driven by brand marketing, new products, category management and differentiated customer engagement.
Operating income in 2021 is expected to grow by 4 percent to 6 percent from USD 1.00 billion in 2020. The Company anticipates transaction and integration expenses related to the Cholula and FONA acquisitions of approximately USD 50 million in 2021. In addition, McCormick currently expects approximately USD 8 million of special charges in 2021 that relate to previously announced organization and streamlining actions. Excluding the impact of transaction and integration expenses as well as special charges in 2021 and 2020, adjusted operating income is expected to increase 8 percent to 10 percent, which in constant currency is 6 percent to 8 percent. This expected growth range includes strong base business growth and acquisition contribution partially offset by a 4 percent impact from incremental 2021 business transformation and first-half volume driven Covid-19 expenses.
McCormick projects 2021 earnings per share to be in the range of USD 2.71 to USD 2.76, compared to USD 2.78 of earnings per share in 2020. The Company expects transaction and integration expenses, including an unfavorable income tax expense impact from a discrete item related to the acquisition of FONA, as well as special charges, to lower earnings per share by USD 0.20 in 2021. Excluding these impacts, the Company projects 2021 adjusted earnings per share to be in the range of USD 2.91 to USD 2.96 which represents an expected increase of 3 percent to 5 percent, or in constant currency 1 percent to 3 percent. This reflects strong base business growth and acquisition contribution, partially offset by a 4 percent impact from incremental 2021 business transformation and Covid-19 expenses and a 4 percent headwind from an anticipated increase in the projected adjusted effective tax rate to approximately 23 percent. For fiscal year 2021, the Company projects another year of strong cash flow, with plans to return a significant portion to McCormick’s shareholders through dividends and to pay down debt.