McCormick (MKC, Financial) shares rose modestly after concluding FY24 with mixed results. The spice and condiment supplier reported slight gains in both EPS and revenue for Q4 (Nov). However, the FY25 guidance was less impressive, with adjusted EPS projected at $3.03-3.08, slightly below expectations, and revenue growth forecasted at +0-2% (+1-3% in constant currency), which aligned with predictions.
Key Highlights:
- Segments: MKC operates in two segments: Consumer (57% of FY23 revenue) and Flavor Solutions (43%). The Consumer segment generally has better margins.
- Q4 Performance: Total organic sales grew by 2%, driven by volume, marking the fourth consecutive quarter of volume improvement, although pricing was somewhat lower.
- Consumer Segment: Sales increased by 4% year-over-year (+3% organic) to $1.085 billion, with an adjusted operating margin of 21.0%. Volume and product mix rose by 4%, partially offset by a 1% price decrease. Growth was seen in Spices & Seasonings, Recipe Mixes, Mustard, and Hot Sauce, aided by distribution expansion in the Americas and EMEA, and double-digit e-commerce growth. However, China remained a weak spot.
- Flavor Solutions Segment: Sales rose by 1% (+0.8% organic) year-over-year to $713 million, with an operating margin of 11.2%. Growth was driven by pricing, with strong performance in Americas Flavors and volume growth in Americas Branded Foodservice. There was, however, volume softness in CPG and QSR in the Americas and EMEA.
- FY25 Outlook: The guidance reflects investments in core categories to improve volume trends, expand margins, and drive growth. MKC appears cautious, acknowledging a consumer focus on value, as noted in their Q3 call.
Overall, Q4 results were satisfactory but not outstanding, reflecting a cautious consumer environment. Food service traffic remains weak, especially in QSRs, impacting the Flavor Solutions segment. While home dining benefits MKC, consumers are still budget-conscious. The FY25 guidance was somewhat disappointing, as investors hoped for more optimism.
