Hunt Valley / MD. (mcc) McCormick + Company Inc., a global leader in flavour, reported financial results for the second quarter ended May 31, 2021.
- Sales rose 11 percent in the second quarter from the year-ago period. In constant currency, the Company grew sales 8 percent.
- Operating income was USD 237 million in the second quarter compared to USD 257 million in the year-ago period. Adjusted operating income was USD 258 million compared to USD 260 million in the second quarter of 2020.
- Earnings per share was USD 0.68 in the second quarter as compared to USD 0.73 in the year-ago period. Adjusted earnings per share was USD 0.69 compared to USD 0.74 in the year-ago period reflecting a higher adjusted income tax rate versus the second quarter of 2020.
- For fiscal year 2021, McCormick increased its sales outlook to expected growth of 11 percent to 13 percent, or 8 percent to 10 percent in constant currency, and also raised its operating profit and earnings per share growth outlook.
Chairman, President and CEO’s Remarks
Lawrence E. Kurzius, Chairman, President and CEO, stated, «The combination of McCormick’s broad and advantaged portfolio, the acceleration of consumer trends which our strategies capitalize on and our two recent acquisitions, as well as the effective execution of our strategies and engagement of our employees have positioned us well to drive differentiated growth, even when lapping challenging year-over-year comparisons. We grew sales 11 percent in the second quarter and, notably, on a two-year basis, sales and adjusted operating income grew 20 percent, which reflects our robust growth momentum.
«Our second quarter results were strong compared to our exceptional 2020 second quarter performance. Last year, our Consumer segment demand was driven by a surge of consumers cooking more at home at the onset of the pandemic, while our Flavor Solutions demand was impacted by the substantial decline in away-from-home consumption. Our results reflect cycling these comparisons as well as a sustained shift to consumer at-home consumption higher than pre-pandemic levels and the strong recovery of demand from away-from-home customers. Taken together, these impacts continue to demonstrate the strength and diversity of our offering and we are confident our balanced and diverse portfolio will continue to differentiate McCormick and sustainably position us for long-term growth.
«Our focus on long-term sustainable growth and propelling our business forward 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. With our strong year-to-date results and robust operating momentum, we are entering the second half of our year well positioned to deliver another year of differentiated growth in 2021. Our fundamentals, momentum and growth outlook are stronger than ever.
«I want to recognize McCormick employees around the world as the collective power of our people drives our momentum and our success. With our vision to stand together for 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.»
Second Quarter 2021 Results
McCormick reported an 11 percent sales increase in the second quarter from the year-ago period, including a 3 percent favorable impact from currency. Sales from Cholula and FONA, acquired in November 2020 and December 2020, respectively, added 5 percent to the sales increase. Flavor Solutions segment sales increased 39 percent, or 34 percent in constant currency, driven by higher sales of away-from-home products, incremental sales from acquisitions, as well as growth with packaged food and beverage companies. Consumer segment sales declined 2 percent, including a 3 percent favorable impact from currency against a strong comparison of 26 percent growth in the second quarter of 2020. Despite the difficult year-over-year comparison, Consumer segment sales reflect the sustained shift to consumers cooking more at home, fueled by the Company’s brand marketing, strong digital engagement and new products, as well as acquisition growth.
Gross profit margin declined 190 basis points versus the year-ago period driven by unfavorable product mix and higher cost inflation, partially offset by cost savings led by the Company’s Comprehensive Continuous Improvement (CCI) program. Operating income was USD 237 million in the second quarter of 2021 compared to USD 257 million in the year-ago period. This decline included USD 7 million of transaction expenses related to the acquisitions of Cholula and FONA as well as USD 14 million of special charges versus USD 3 million in the second quarter of last year. Excluding transaction and integration expenses as well as special charges, adjusted operating income declined 1 percent to USD 258 million in the second quarter compared to USD 260 million in the year-ago period, or a 4 percent decline in constant currency. The favorable impact of higher sales and CCI-led cost savings was more than offset by gross margin compression and higher planned brand marketing investments.
Earnings per share was USD 0.68 in the second quarter of 2021 compared to USD 0.73 in the second quarter of 2020. The net impact of the gain on the sale of the Company’s minority stake in Eastern Condiments Private Ltd (Eastern), transaction and integration expenses, and special charges lowered earnings per share by USD 0.01 in the second quarter of 2021. Special charges lowered earnings per share by USD 0.01 in the second quarter of 2020. Excluding these impacts, adjusted earnings per share was USD 0.69 in the second quarter of 2021 compared to USD 0.74 in the year-ago period. This 7 percent decrease in adjusted earnings per share was driven primarily by a higher adjusted income tax rate.
Year-to-date net cash provided by operating activities was USD 229 million compared to USD 356 million through the second quarter of 2020. The decrease was primarily due to the timing associated with working capital payments, including transaction and integration expenses.
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. 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.
For the fiscal year 2021, McCormick increased its financial outlook for sales, adjusted operating income and adjusted earnings per share based on the Company’s strong year-to-date performance and robust operating momentum. The Company now expects a three-percentage point favorable impact from currency rates on sales and reaffirms the two-percentage point favorable impact from currency on adjusted operating income and adjusted earnings per share.
In 2021, the Company expects to grow sales by 11 percent to 13 percent compared to 2020, which in constant currency is 8 percent to 10 percent and includes the incremental impact of the Cholula and FONA acquisitions. This is an increase from the Company’s previous projection of 8 percent to 10 percent, or 6 percent to 8 percent in constant currency. 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. Sales growth is also expected to include the impact of pricing actions taken to partially offset an anticipated mid-single digit increase in costs, previously estimated to be a low-single digit increase.
Operating income in 2021 is expected to grow by 6 percent to 8 percent from USD 1.0 billion in 2020. The Company anticipates transaction and integration expenses related to the Cholula and FONA acquisitions of approximately USD 42 million in 2021. In addition, McCormick currently expects approximately USD 21 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 grow by 10 percent to 12 percent, which in constant currency is 8 percent to 10 percent. This is an increase from the Company’s previous projection of 9 percent to 11 percent, or 7 percent to 9 percent in constant currency. 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 increased its projected 2021 earnings per share to be in the range of USD 2.83 to USD 2.88, compared to USD 2.78 of earnings per share in 2020. The Company expects the net impact of the 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 and the gain on the sale of the Company’s minority stake in Eastern to lower earnings per share by USD 0.17 in 2021. Excluding these impacts, the Company projects 2021 adjusted earnings per share to be in the range of USD 3.00 to USD 3.05. This is an increase from previously reported guidance of USD 2.97 to USD 3.02, and, as compared to USD 2.83 of adjusted earnings per share in 2020, represents an expected increase of 6 percent to 8 percent, which includes a favorable impact from currency. 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.