McCormick Reports 2023 Financial Results And Provides 2024 Outlook

McCormick & Company, Incorporated (NYSE:MKC), a global leader in flavor, today reported financial results for the fourth quarter and fiscal year ended November 30, 2023 and provided its financial outlook for fiscal year 2024.

• For the fourth quarter, sales increased 3% from the year-ago period and, in constant currency, sales increased 2%. Earnings per share was $0.81 compared to $0.69 in 2022 and Adjusted earnings per share was $0.85 compared to $0.73 in 2022.
• For fiscal year 2023, sales increased 5% from the prior year and, in constant currency, sales grew 6%. Earnings per share of $2.52 was comparable to 2022. Adjusted earnings per share was $2.70 compared to $2.53 in 2022.
• Cash flow from operations grew to a record $1.2 billion for fiscal year 2023. In November, the Board authorized an 8% increase to the quarterly dividend, marking the 38th consecutive year of dividend increases.
• The Company’s 2024 outlook reflects its commitment to strengthen volume trends and prioritize investments to drive profitable results and return to differentiated volume-led growth as the year progresses.

President and CEO’s Remarks

Brendan M. Foley, President and CEO, stated, “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% sales increase in the fourth quarter from the year-ago period, or 2% sales growth in constant currency. Constant currency sales growth reflected a 5% increase from pricing actions partially offset by a 3% 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 $297 million in the fourth quarter of 2023 compared to $264 million in the fourth quarter of 2022. Excluding special charges, adjusted operating income was $311 million compared to $278 million in the year-ago period. In constant currency, adjusted operating income increased 11% 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 $0.81 in the fourth quarter of 2023 compared to $0.69 in the fourth quarter of 2022. Special charges lowered earnings per share by $0.04 in both the fourth quarter of 2022 and the fourth quarter of 2023. Excluding these impacts, adjusted earnings per share was $0.85 in the fourth quarter of 2023 compared to $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% sales increase in 2023 as compared to 2022, or 6% in constant currency. Sales growth reflected an 9% increase from pricing actions partially offset by a 3% decrease in volume and product mix. The volume decline included a combined 1% 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 $963 million in 2023 compared to $864 million in 2022, with minimal impact from currency.  Excluding transaction and integration expenses, as well as special charges, adjusted operating income was $1.02 billion compared to $917 million in the year-ago period. In constant currency, adjusted operating income increased 12% 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 $2.52 in 2023 compared to $2.52 in the prior year. The net unfavorable impact of special charges lowered earnings per share by $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 $0.01 in 2022. Excluding these impacts, adjusted earnings per share was $2.70 in 2023 compared to $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 $1.2 billion in 2023 compared to $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%.

In 2024, McCormick expects sales to range between (2)% to 0% compared to 2023, or (1)% to 1% 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% to 10% from $963 million in 2023. The Company anticipates approximately $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% to 5%, or in constant currency 4% to 6%, 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 $2.76 to $2.81, compared to $2.52 of earnings per share in 2023. The Company expects special charges to lower earnings per share by $0.04 in 2024. Excluding these impacts, the Company projects 2024 adjusted earnings per share to be in the range of $2.80 to $2.85, compared to $2.70 of adjusted earnings per share in 2023, which represents an expected increase of 4% to 6%, or in constant currency 5% to 7%. 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.

Business Segment Results

Consumer Segment

Consumer segment sales increased 1% from the fourth quarter of 2022. In constant currency, sales were comparable to the year-ago period, reflecting a 4% increase from pricing actions, fully offset by a 4% decline in volume. The benefit from lapping the COVID-related disruptions in China was offset by the Company’s strategic decision to discontinue low margin business.

• Consumer sales in the Americas declined 4% from the fourth quarter of 2022, with minimal impact from currency, and included a 2% unfavorable impact related to the discontinuation of business to drive margin improvement. The remaining decline was attributable to lower volume and product mix in several areas of the portfolio driven by a pressured consumer, partially offset by pricing. Notably, spices and seasonings grew driven by both pricing and volume.
• Consumer sales in Europe, Middle East, and Africa (EMEA) increased 18% compared to the year-ago period. In constant currency, sales increased 9% with pricing actions partially offset by lower volume and product mix.
• Consumer sales in the Asia Pacific (APAC) region grew by 28% compared to the year-ago period. In constant currency, sales increased 31% including an expected benefit from lapping the impact of China’s prior year COVID-related disruption as well as strong volume and product mix growth outside of China and pricing actions across the region.

Consumer segment operating income, excluding special charges, was comparable to the fourth quarter of 2022, with minimal impact from currency. Pricing actions and cost savings were offset by lower volume, higher inflation, and brand marketing costs as well as an increase in employee incentive compensation.

Flavor Solutions Segment

Flavor Solutions segment sales increased 7% from the fourth quarter of 2022. In constant currency, the sales growth was 5%, reflecting a 7% increase from pricing partially offset by lower volume of 2%. Included in the volume decline is a 1% impact from the canning business divestiture.

• In the Americas, Flavor Solutions sales rose 7% compared to the fourth quarter of 2022. In constant currency, sales increased 6% driven by pricing with volume comparable to the prior year.
• The EMEA region’s Flavor Solutions sales increased 9% compared to the fourth quarter of 2022. In constant currency, sales grew 2% with pricing actions partially offset by lower volume and product mix. Included in this increase is a 3% decline from the canning business divestiture and a 1% decline related to the pruning of low margin business.
• The APAC region’s Flavor Solutions sales increased by 3% compared to the fourth quarter of 2022. In constant currency, sales grew 5% reflecting a 6% increase from pricing actions partially offset by a 1% volume decline.

Flavor Solutions segment operating income, excluding special charges, grew by 78% in the fourth quarter of 2023 compared to the year-ago period, or 73% in constant currency.  Pricing actions, cost savings, favorable product mix,  and lapping elevated supply chain costs in the fourth quarter of last year more than offset higher inflation and an increase in employee incentive compensation.

Because we are a multi-national company, we are subject to variability of our reported U.S. dollar results due to changes in foreign currency exchange rates. Those changes have been volatile over the past several years. The exclusion of the effects of foreign currency exchange, or what we refer to as amounts expressed “on a constant currency basis,” is a non-GAAP measure. We believe that this non-GAAP measure provides additional information that enables enhanced comparison to prior periods excluding the translation effects of changes in rates of foreign currency exchange and provides additional insight into the underlying performance of our operations located outside of the U.S. It should be noted that our presentation herein of amounts and percentage changes on a constant currency basis does not exclude the impact of foreign currency transaction gains and losses (that is, the impact of transactions denominated in other than the local currency of any of our subsidiaries in their local currency reported results).

Percentage changes in sales and adjusted operating income expressed on a constant currency basis are presented excluding the impact of foreign currency exchange. To present this information for historical periods, current period results for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the corresponding period of the comparative year, rather than at the actual average exchange rates in effect during the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the comparative year. Rates of constant currency growth (decline) follow:

To present “constant currency” information for the fiscal year 2024 projection, projected sales and adjusted operating income for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the company’s budgeted exchange rates for 2024 and are compared to the 2023 results, translated into U.S. dollars using the same 2024 budgeted exchange rates, rather than at the average actual exchange rates in effect during fiscal year 2023. To estimate the percentage change in adjusted earnings per share on a constant currency basis, a similar calculation is performed to arrive at adjusted net income divided by historical shares outstanding for fiscal year 2023 or projected shares outstanding for fiscal year 2024, as appropriate.

The following provides a reconciliation of our estimated earnings per share to adjusted earnings per share for 2024 and actual results for 2023:

About McCormick 

McCormick & Company, Incorporated is a global leader in flavor. With over $6 billion in annual sales across 170 countries and territories, we manufacture, market and distribute spices, seasoning mixes, condiments and other flavorful products to the entire food industry including e-commerce channels, grocery, food manufacturers and foodservice businesses. Our most popular brands with trademark registrations include McCormick, French’s, Frank’s RedHot, Stubb’s, OLD BAY, Lawry’s, Zatarain’s, Ducros, Vahiné, Cholula, Schwartz, Kamis, DaQiao, Club House, Aeroplane and Gourmet Garden. Every day, no matter where or what you eat or drink, you can enjoy food flavored by McCormick.

Founded in 1889 and headquartered in Hunt Valley, Maryland USA, McCormick is guided by our principles and committed to our Purpose – To Stand Together for the Future of Flavor. McCormick envisions A World United by Flavor where healthy, sustainable and delicious go hand in hand. To learn more, visit www.mccormickcorporation.com or follow McCormick & Company on Instagram and LinkedIn.