McCormick (NYSE:MKC) & Company reported robust results in their third-quarter earnings call, highlighting 6% sales growth in constant currency, driven by successful price realization and improved volume performance. The company expects sustained growth and margin expansion in the fourth quarter, backed by their focus on brand marketing and innovation.
Key takeaways from the call:
- The Consumer segment showed solid results in the Americas and EMEA regions, with strong growth in the discount channel and market share gains in various categories.
- The Flavor Solutions segment experienced significant growth for the 10th consecutive quarter, driven by pricing actions.
- McCormick announced partnerships with celebrity chefs Tabitha Brown and Nadiya Hussain to launch new products and build consumer confidence in the kitchen.
- The company reported a 6% increase in constant currency sales compared to the previous year.
- McCormick expects higher gross margins in Q4 2023 compared to Q3 2023, with further expansion expected in Q4 2022.
- McCormick expects to de-lever to approximately 3 times earlier in 2024 than originally expected.
- Adjusted earnings per share for 2023 are projected to be $2.62 to $2.67, reflecting strong underlying business growth of 14% to 16%.
During the call, McCormick also highlighted successful brand marketing campaigns, such as the limited edition French's mustard-flavored SKITTLES, which generated 5 billion impressions. They expressed confidence in their growth plans and emphasized the complementary nature of their Consumer and Flavor Solutions segments. Despite volume declines related to slower recovery in China and strategic decisions, McCormick provided an updated financial outlook for 2023, anticipating continued top-line growth and increased profit realization.
Brendan Foley, a representative from McCormick, discussed the company's performance and expectations for the fourth quarter. He noted that the Hispanic bagged spices segment is expected to perform well due to the holiday season. McCormick also launched a package renovation that has received positive consumer reaction, and the company is seeing strong performance in core categories like recipe mix, condiments, and sauces.
Despite slower recovery in China, McCormick remains confident in the overall strength of its business and maintains an appetite for attractive assets in both the Consumer and Flavor Solutions segments, preferably in the international market. McCormick has observed consumers shifting towards larger package sizes and taking advantage of lower-priced options like the Lowry's brand. The company's marketing initiatives highlight the value and cost-saving advantages of its products.
McCormick also discussed its efforts to restore distribution and improve velocity, noting that it is starting to see growth in total distribution points (TDPs) and expects more growth in the future. The company attributed gross margin improvement to successful cost recovery through pricing, commitments to GOE and CCI, and cost savings in advertising programs.
In response to questions about margin performance, Mike Smith explained that successful price realization, business mix optimization, and cost recovery were key drivers. He also mentioned the impact of the GOE and CCI programs and the importance of hitting their numbers and achieving a China recovery.
Regarding the Asia-Pacific region, McCormick acknowledged a slower recovery in China but expressed confidence in the long-term growth trajectory of the business. They mentioned that despite the slow recovery, sales have grown in high-single digits on a constant currency basis and the total China business has grown at a 3% CAGR since 2019. The slower recovery is attributed to reduced consumer spending, particularly in the foodservice channel, although limited time offers in the QSR segment have started to return.
In addition to the company's projections, InvestingPro data reveals that McCormick's market cap stands at a robust $18.36 billion, with a P/E ratio of 26.07. The company's revenue growth for the last twelve months (LTM2023.Q3) is 3.45%, which aligns with the company's report of solid growth. Additionally, InvestingPro Tips suggests that McCormick's revenue growth has been accelerating and the company has maintained dividend payments for 53 consecutive years, further demonstrating the company's financial stability. The company's stock has taken a hit over the last week, with a 1-week price total return of -8.36%, which could potentially offer an attractive entry point for investors, as per InvestingPro's analysis. For more insights and tips, readers can check out InvestingPro's platform here.
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