McCormick (MKC) expects pricing to drive sales growth for the full year of 2022

Shares of McCormick & Co. Inc. (NYSE: MKC) were up on Thursday after the company beat sales estimates for the third quarter of 2022. Adjusted earnings, however, decreased from the year-ago period and also fell short of estimates. The company expects sales growth to be driven by pricing actions in the full year of 2022. The stock has dropped 24% year-to-date.

Quarterly performance

In Q3 2022, McCormick’s net sales increased 3% year-over-year to $1.6 billion, surpassing analysts’ projections. On a constant currency basis, sales grew 6%, reflecting a 10% growth from pricing actions. Sales results during the quarter were impacted by the divestiture of the Kitchen Basics business, the exits of a low-margin business in India and the Consumer business in Russia, as well as a decline in volume and product mix.

GAAP EPS increased 4% YoY to $0.82 while adjusted EPS fell 14% to $0.69. Adjusted EPS, which missed expectations, declined during the quarter due to a drop in adjusted operating income. Higher cost inflation and supply chain costs caused gross profit margin to decline by 320 basis points in Q3.

Trends

During the third quarter, McCormick benefited from the strength of its broad global portfolio as well as its pricing actions and strategies. The company continues to take advantage of trends that started during the pandemic such as cooking more meals at home and a shift towards clean and flavorful eating.

On its quarterly conference call, McCormick stated that its total US branded portfolio consumption grew 4%, in line with its shipments. Since 2019, consumption has grown at a three-year CAGR of 8% indicating how the shift in consumer consumption continues to drive demand for the company’s products.

Within its Consumer segment in the Americas, the company has seen solid demand and growth across most of its categories with spices and seasonings displaying the strongest momentum. In EMEA, McCormick has seen strong performance in herbs, spices and seasonings in regions like the UK, Italy and Eastern Europe.

Within Flavor Solutions, McCormick saw strong growth in the Americas driven by snack seasonings, savory flavors and branded foodservice products. The company is seeing strong demand from its foodservice customers as summer travel continues to fuel consumption.

Outlook

For fiscal year 2022, McCormick expects to see sales growth while profits are expected to be impacted by cost inflation and supply chain challenges. The top line growth is expected to be driven mainly by pricing. The company expects to offset inflationary pressures over time through its pricing and cost savings efforts.

McCormick expects FY2022 sales to range from comparable to 2021 to an increase of 2%. Sales are expected to grow 3-5% on a constant currency basis. Operating income is expected to decline 10% to 8% for the year. GAAP EPS is expected to range between $2.64-2.69 while adjusted EPS is expected to be $2.63-2.68.

Click here to read the full transcript of McCormick’s Q3 2022 earnings conference call