McCormick(MKC) - 2024 Q4 - Annual Report

Financial Performance - In 2024, McCormick achieved net sales growth of 0.9% compared to 2023, with operating income increasing to $1,060.3 million from$ 963.0 million[142]. - Adjusted operating income for 2024 was $1,069.8 million, representing a 4.5% increase from$ 1,024.2 million in 2023[142]. - Diluted earnings per share rose to $2.92 in 2024, up from$ 2.52 in 2023, with adjusted diluted earnings per share increasing by 9.3% to $2.95[143]. - Net cash provided by operating activities was$ 921.9 million in 2024, with $504.1 million returned to shareholders through dividends and share repurchases[144]. - For 2025, McCormick expects net sales growth between 0% and 2%, with a 1% unfavorable impact from foreign currency rates[146]. - The company anticipates a gross profit margin improvement of 50 to 100 basis points from the 38.5% reported in 2024, driven by product mix changes and cost savings[147]. - Projected operating income for 2025 is expected to increase by 3% to 5% over the 2024 level, reflecting anticipated gross profit margin rise and SG&A cost savings[148]. - The effective tax rate for 2025 is estimated to be 22.0%, up from 20.5% in 2024[149]. - Income from unconsolidated operations is expected to decline by a mid-teen percentage rate in 2025 due to the strengthening of the U.S. dollar against the Mexican peso[150]. - McCormick's long-term growth objectives include increasing sales by 4% to 6% and adjusted earnings per share by 9% to 11% annually[137]. - Diluted earnings per share for 2024 was$ 2.92, an increase from $2.52 in 2023, with projections for 2025 ranging from$ 2.99 to $3.04[166]. - Net sales for 2024 were$ 6,723.7 million, reflecting a growth of 0.9% compared to $6,662.2 million in 2023, with organic sales growth of 0.8%[152]. - Gross profit increased by$ 88.5 million, or 3.5%, to $2,591.0 million in 2024, with a gross profit margin of 38.5%, up from 37.6% in 2023[153]. - Operating income rose by$ 97.3 million, or 10.1%, to $1,060.3 million in 2024, with an operating income margin of 15.8%, up from 14.5% in 2023[158]. - Selling, general & administrative (SG&A) expenses increased by$ 42.9 million to $1,521.2 million, representing 22.6% of net sales, up from 22.2% in 2023[154]. - Special charges decreased significantly from$ 61.2 million in 2023 to $9.5 million in 2024, positively impacting operating income[155]. - Income from consolidated operations before income taxes was$ 898.3 million in 2024, compared to $798.7 million in 2023, with an effective tax rate of 20.5%[160]. Market Segments - In 2024, the consumer segment contributed approximately 57% of consolidated net sales and 69% of consolidated operating income, while the flavor solutions segment contributed approximately 43% of consolidated net sales and 31% of consolidated operating income[13]. - Approximately two-thirds of the consumer segment sales are from spices, seasonings, condiments, and sauces, with McCormick being the global brand leader in the spices and seasoning category[14]. - Consumer segment net sales increased by 1.1% to$ 3,848.5 million in 2024, with segment operating income of $740.3 million[169]. - In the EMEA region, consumer sales increased by 7.3% in 2024, driven by favorable volume and product mix[171]. - Flavor solutions segment net sales increased by 0.7% in 2024 to$ 2,875.2 million compared to $2,854.9 million in 2023[174]. - Segment operating income for flavor solutions increased by$ 40.8 million, or 14.1%, in 2024, reaching $329.5 million[178]. - In the Americas region, flavor solutions sales grew by 1.4% in 2024, with organic growth of 1.5%[175]. - EMEA region flavor solutions sales decreased by 3.5% in 2024, with an organic decline of 3.6%[176]. - APAC region flavor solutions sales increased by 4.1% in 2024, with organic growth of 5.1%[177]. Customer Relationships - Sales to Wal-Mart Stores, Inc. accounted for approximately 12% of consolidated sales in 2024, while sales to PepsiCo, Inc. accounted for approximately 13%[23]. - Approximately 25% of consolidated sales in 2024 were generated from two large customers, highlighting the importance of maintaining strong relationships with major clients[54]. International Operations - In fiscal year 2024, approximately 39% of sales were from non-U.S. operations, indicating a significant international presence[39]. - Approximately 39% of the company's sales in fiscal year 2024 were generated from international markets, exposing it to currency fluctuations and regulatory risks[107]. Employee Relations - The company employs approximately 14,100 full-time employees worldwide as of November 30, 2024, with good employee relations and minimal work stoppages reported[32]. - The company is committed to fostering a diverse and inclusive workplace, which it believes contributes to business growth and innovation[31]. - Labor shortages and increased turnover rates may lead to higher operational costs, negatively impacting the company's efficiency and overall business[60]. Product Innovation and Strategy - The company is focused on product innovation and customer engagement to drive growth in highly competitive markets[29]. - The company has a diverse product offering, including clean-label, organic, natural, reduced sodium, gluten-free, and non-GMO products to meet increasing consumer demand[12]. - The company is committed to ongoing product innovation and expansion into new markets to drive future growth[40]. Cost Management and Risks - The company utilizes strategic raw material purchases and cost-saving programs to mitigate the impact of raw material price volatility[20]. - The company faces risks related to fluctuations in raw material prices, particularly for key ingredients such as dairy products, pepper, and tomato products, which could negatively impact financial results[55]. - The impact of inflationary pressures on product costs is a significant concern, with the company exploring pricing actions to offset these challenges[41]. - The company has experienced significantly elevated commodity and supply chain costs, with expectations of continued inflation in 2025 at a more modest rate compared to 2024[61]. - Attempts to offset cost pressures through price increases may not be successful, potentially leading to reduced sales volume[62]. - The food industry is highly competitive, and economic uncertainties may force the company to reduce product prices, adversely affecting profitability[64]. - Ongoing geopolitical conflicts, including those between Russia and Ukraine, may disrupt supply chains and affect overall economic conditions, impacting consumer demand[46]. - Ongoing geopolitical conflicts, including those between Russia and Ukraine, may disrupt the company's operations and increase costs due to trade restrictions[65]. - Climate change and related regulatory measures may negatively impact the availability and pricing of raw materials essential for the company's products[76]. - Increased compliance costs due to environmental regulations may disrupt operations and increase manufacturing and distribution costs[77]. - The company may face reputational risks if it fails to address stakeholder concerns regarding climate change and sustainability[78]. Financial Management and Debt - As of November 30, 2024, the company had total outstanding variable rate debt of approximately$ 449 million at a weighted-average interest rate of approximately 4.7%[85]. - The company's total outstanding fixed to variable interest rate swaps had a notional value of $600 million as of November 30, 2024[86]. - The company's total indebtedness as of November 30, 2024, was approximately$ 4.3 billion[88]. - The company relies on revolving credit facilities to fund a portion of its working capital needs and other general corporate purposes, including acquisitions[89]. - The company's credit ratings impact the cost and availability of future borrowings, with any downgrade potentially increasing borrowing costs[87]. - The company is exposed to credit risks from customers and counterparties, particularly in volatile credit markets[92]. Cybersecurity and Compliance - The company maintains an information security program to address cybersecurity threats, although risks continue to evolve[97]. - The company has adopted a risk-based, multilayered approach to cybersecurity, with significant resources allocated to protect data and manage threats[111]. - The company has not experienced any material cybersecurity threats or incidents to date, but acknowledges the potential for future risks[113]. - The company is subject to various data privacy laws, including the GDPR and CCPA, which impose compliance obligations and potential penalties for non-compliance[102]. - The company maintains a cybersecurity insurance policy, although it may not cover all potential claims related to cyber threats[117]. - The company has established an Executive Cybersecurity Steering Committee to enhance governance and compliance related to cybersecurity[121]. Cash Flow and Investments - Operating cash flow decreased to $921.9 million in 2024 from$ 1,237.3 million in 2023, primarily due to higher working capital needs[200]. - Net cash used in investing activities was $269.0 million in 2024, with capital expenditures expected to approximate$ 300 million in 2025[206]. - Net cash used in financing activities was $583.1 million in 2024, a decrease from$ 1,184.2 million in 2023, primarily due to changes in net borrowings and share repurchase activity[208]. - The cash conversion cycle improved to 36 days in 2024 from 40 days in 2023, driven by better inventory management[203]. - The company repaid $801.1 million of long-term debt in 2024, including$ 700.0 million of notes that matured in August 2024[208]. - The company issued $500.0 million of 4.95% notes due 2033, with net cash proceeds of$ 496.4 million[209]. - The share repurchase program activity shows 0.7 million shares repurchased in 2024 for a total of $53.1 million, compared to 0.5 million shares for$ 35.7 million in 2023[209]. - As of November 30, 2024, $448 million remains of a$ 600 million share repurchase program authorized in November 2019[209]. - Proceeds from exercised stock options were $17.5 million in 2024,$ 16.6 million in 2023, and $41.4 million in 2022[210]. - Total dividends paid in 2024 were$ 451.0 million, an increase from $418.5 million in 2023 and$ 396.7 million in 2022[210]. - Dividends paid per share increased to $1.68 in 2024, up 7.7% from$ 1.56 in 2023[210]. - The Board of Directors approved a 7.1% increase in the quarterly dividend from $0.42 to$ 0.45 per share in November 2024[210]. - The company repurchased $9.0 million of common stock in 2024 for employee tax withholding requirements[210]. - The percentage increase in dividends per share was 5.4% in 2023 and 8.8% in 2022[210].