McCormick: Reports Q1-2022 Results, Reiterates Outlook

Hunt Valley / MD. (mcc) McCormick + Company Inc., a global leader in flavour, reported financial results for the first quarter ended February 28, 2022.

• Sales rose 3 percent in the first quarter from the year-ago period. In constant currency, the Company grew sales 4 percent.
• Operating income was USD 207 million in the first quarter compared to USD 236 million in the year-ago period. Adjusted operating income was USD 227 million compared to USD 263 million in the first quarter of 2021.
• Earnings per share was USD 0.57 in the first quarter as compared to USD 0.60 in the year-ago period. Adjusted earnings per share was USD 0.63 as compared to USD 0.72 in the year-ago period.
• For fiscal year 2022, McCormick reiterated its sales, operating income, and earnings per share outlook.

Chairman, President and CEO’s Remarks

Lawrence E. Kurzius, Chairman, President and CEO, stated, «In our first quarter, we delivered solid financial results in line with our expectations. We grew constant currency sales 4 percent on top of 20 percent constant currency growth in the first quarter of last year, demonstrating our broad and advantaged global flavor portfolio, as well as the effective execution of our pricing actions. Our Consumer segment sales, while impacted by lapping high year-ago demand, continued to reflect the sustained shift to higher at-home consumption compared to pre-pandemic levels. Our Flavor Solutions segment growth was driven by outstanding performance with our packaged food and beverage customers as well as robust demand from our restaurant and other foodservice customers, due in part to lapping curtailed away-from-home dining in the year-ago period.

«As we anticipated, in the first quarter, the profit driven by our sales growth was more than offset by higher inflation and broad-based supply chain challenges. We continue to operate in a highly inflationary environment and expect to fully offset cost pressures over time using pricing and other levers as we have in the past. The strength of our business model, the value of our products and capabilities and the successful execution of our long-term strategies give us confidence in our robust sales growth momentum and in our ability to successfully navigate the continuing challenges of the dynamic global environment.

«We continue to capitalize on the sustained shift to cooking more at home, increased digital engagement, clean and flavorful eating, and trusted brands. These long-term trends and the rising demand for great taste are as relevant today as ever. Our alignment with these trends, in combination with the breadth and reach of our portfolio and our strategic investments are continuing to provide a strong foundation for long-term, sustainable growth. Our fundamentals, momentum, and growth outlook are stronger than ever, positioning us well to deliver another year of strong performance in 2022.

«I want to recognize McCormick employees around the world as they drive our momentum and success. With our vision to stand together for flavor and our relentless focus on growth, performance, and people, we are confident our strategies will effectively position us to drive sustainable future growth and create long-term value for our shareholders.»

First Quarter 2022 Results

McCormick reported a 3 percent sales increase in the first quarter from the year-ago period, including a 1 percent unfavorable impact from currency. One month of incremental sales from FONA, acquired in December 2020, contributed 1 percent to the quarterly sales increase. In the Flavor Solutions segment, base business, new product and acquisition growth all contributed to the 12 percent increase, or 14 percent in constant currency. Flavor Solutions sales growth was driven by the Company’s differentiated customer engagement, pricing actions to partially offset costs, and the continued demand recovery of away-from-home products. Consumer segment sales declined 2 percent, with minimal impact from currency, and included pricing actions taken to partially offset cost inflation. This performance, against 35 percent growth in the first quarter of 2021 reflects the sustained shift to consumers cooking more at home, which the Company continues to fuel with brand marketing, category management and new products.

Higher cost inflation, partially offset by pricing actions and cost savings led by the Company’s Comprehensive Continuous Improvement (CCI) program, resulted in a decline in gross profit margin of 220 basis points, or 260 basis points excluding transaction and integration expenses. Operating income was USD 207 million in the first quarter of 2022 compared to USD 236 million in the first quarter of 2021. This decline was driven by gross margin compression, strategic investment spending, and higher special charges partially offset by the favorable impact of higher sales, CCI-led cost savings, and lower transaction and integration expenses. In the first quarter of 2022, the Company recognized USD 20 million of special charges versus USD 1 million in 2021 and USD 1 million of transaction and integration expenses related to the acquisitions of Cholula and FONA versus USD 25 million in 2021. Excluding special charges, as well as transaction and integration expenses, adjusted operating income was USD 227 million compared to USD 263 million in the year-ago period.

Earnings per share was USD 0.57 in the first quarter of 2022 compared to USD 0.60 in the first quarter of 2021. Special charges and integration expenses lowered earnings per share by USD 0.06 in 2022. 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 lowered earnings per share by USD 0.12 in the first quarter of 2021. Excluding these impacts, adjusted earnings per share was USD 0.63 in the first quarter of 2022 compared to USD 0.72 in the year-ago period. This decrease was driven by lower adjusted operating income.

Net cash provided by operating activities in the first quarter of 2022 was USD 18 million compared to net cash used by operating activities of USD 32 million in the first quarter of 2021. The increase was driven by working capital improvements and lower payments of transaction and integration costs.

Fiscal Year 2022 Financial Outlook

For the 2022 fiscal year, McCormick reiterated its financial outlook for sales, operating income and earnings per share.

McCormick’s broad and advantaged global flavor portfolio enables the Company to meet the rising demand for flavor around the world. The Company is capitalizing on the growing consumer interests in healthy and flavorful cooking, digital engagement, trusted brands, and purpose-minded practices. This, coupled with the breadth and reach of McCormick’s portfolio and its effective strategies, sustainably position the Company to continue on its growth trajectory.

In 2022, the Company expects to grow sales by 3 percent to 5 percent compared to 2021, which in constant currency is 4 percent to 6 percent. McCormick expects sales growth to be driven by brand marketing, new products, category management and differentiated customer engagement, as well as pricing actions, which in conjunction with cost savings, are expected to offset anticipated inflationary pressures.

Operating income in 2022 is expected to grow by 13 percent to 15 percent from USD 1.02 billion in 2021. The Company anticipates integration expenses related to the FONA acquisition of approximately USD 3 million in 2022. In addition, McCormick expects approximately USD 30 million of special charges in 2022 that relate to previously announced organization and streamlining actions. Excluding the impact of integration expenses as well as special charges in 2022 and 2021, adjusted operating income is expected to increase 7 percent to 9 percent, which in constant currency is 8 percent to 10 percent.

McCormick projects 2022 earnings per share to be in the range of USD 3.07 to USD 3.12, compared to USD 2.80 of earnings per share in 2021. The Company expects integration expenses, as well as special charges, to lower earnings per share by USD 0.10 in 2022. Excluding these impacts, the Company projects 2022 adjusted earnings per share to be in the range of USD 3.17 to USD 3.22, compared to USD 3.05 of adjusted earnings per share in 2021, which represents an expected increase of 4 percent to 6 percent, or in constant currency 5 percent to 7 percent. This reflects strong operating growth, partially offset by a 3 percent headwind from an anticipated increase in the Company’s projected adjusted effective tax rate. For fiscal 2022, the Company expects strong cash flow and anticipates returning a significant portion to shareholders through dividends.