McCormick(US:MKC)2024-06-27 20:28markdown [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Q2 2024, reporting a net income of $184.2 million and diluted EPS of $0.68 [Condensed Consolidated Financial Statements](index=5&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This subsection presents the unaudited financial statements for Q2 2024, showing net income of $184.2 million and total assets of $12.99 billion Condensed Consolidated Income Statement Highlights (Q2 2024 vs Q2 2023) | Metric (in millions, except per share) | Three months ended May 31, 2024 | Three months ended May 31, 2023 | | :--- | :--- | :--- | | Net sales | $1,643.2 | $1,659.2 | | Gross profit | $619.6 | $615.5 | | Operating income | $234.1 | $221.8 | | Net income | $184.2 | $152.1 | | Earnings per share – diluted | $0.68 | $0.56 | Condensed Consolidated Balance Sheet Highlights | Metric (in millions) | May 31, 2024 | November 30, 2023 | | :--- | :--- | :--- | | Total current assets | $2,069.4 | $2,001.6 | | Total assets | $12,987.6 | $12,862.3 | | Total current liabilities | $2,984.3 | $3,098.9 | | Long-term debt | $3,325.8 | $3,339.9 | | Total liabilities | $7,633.4 | $7,778.8 | | Total shareholders' equity | $5,354.2 | $5,083.5 | Condensed Consolidated Cash Flow Statement Highlights (Six Months Ended) | Metric (in millions) | Six months ended May 31, 2024 | Six months ended May 31, 2023 | | :--- | :--- | :--- | | Net cash flow provided by operating activities | $301.5 | $394.2 | | Net cash flow used in investing activities | $(130.1) | $(116.1) | | Net cash flow used in financing activities | $(172.2) | $(518.1) | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This subsection details financial statement notes, including supplier finance program balances, special charges, and segment performance - As of **May 31, 2024**, amounts due to suppliers participating in the Supply Chain Financing (SCF) program were approximately **$360.4 million**, up from **$300.5 million** as of **November 30, 2023**[29](index=29&type=chunk) Special Charges (in millions) | Period | Employee severance and related benefits | Other costs (Cash & Non-Cash) | Total special charges | | :--- | :--- | :--- | :--- | | **Three months ended May 31, 2024** | $1.0 | $0.8 | $1.8 | | **Six months ended May 31, 2024** | $3.1 | $2.9 | $6.0 | Segment Performance (Six months ended May 31, 2024, in millions) | Segment | Net Sales | Operating Income (excl. special charges) | | :--- | :--- | :--- | | Consumer | $1,826.0 | $325.6 | | Flavor Solutions | $1,419.9 | $148.0 | | **Total** | **$3,245.9** | **$473.6** | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=24&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management analyzes Q2 2024 financial performance, noting a 1.0% sales decline, 5.5% operating income increase, and updated full-year 2024 outlook [Overview and 2024 Outlook](index=25&type=section&id=Overview%20and%202024%20Outlook) This section provides an overview of Q2 2024 performance, including a 1.0% sales decline and the updated full-year 2024 outlook - In **Q2 2024**, sales declined **1.0%**, while operating income increased **5.5%**. Adjusted diluted EPS rose **15.0%** to **$0.69** from **$0.60** in the prior year[85](index=85&type=chunk)[86](index=86&type=chunk) Fiscal Year 2024 Outlook | Metric | Projected Change vs. 2023 | | :--- | :--- | | Net Sales | -2% to 0% (incl. 1% unfavorable FX impact) | | Operating Income | +8% to +10% | | Adjusted Operating Income | +3% to +5% (incl. 1% unfavorable FX impact) | | Adjusted Diluted EPS | $2.80 to $2.85 (+4% to +6%) | [Results of Operations – Company](index=27&type=section&id=Results%20of%20Operations%20%E2%80%93%20Company) This section details the company's Q2 2024 operational results, including a 1.0% net sales decrease and improved gross profit margin Company Results of Operations (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,643.2M | $1,659.2M | (1.0)% | | Gross Profit | $619.6M | $615.5M | 0.7% | | Gross Profit Margin | 37.7% | 37.1% | +60 bps | - The **Q2 2024** effective tax rate was **13.5%**, significantly lower than **22.1%** in **Q2 2023**. This was primarily due to a **$19.4 million** discrete tax benefit related to an international legal entity reorganization[109](index=109&type=chunk)[110](index=110&type=chunk) - Income from unconsolidated operations, mainly from McCormick de Mexico, increased by **$6.5 million** to **$16.8 million** in **Q2 2024**[114](index=114&type=chunk) [Results of Operations – Segments](index=29&type=section&id=Results%20of%20Operations%20%E2%80%93%20Segments) This section analyzes Q2 2024 performance for the Consumer and Flavor Solutions segments, highlighting sales and operating income trends Consumer Segment Results (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $904.5M | $912.1M | (0.8)% | | Segment Operating Income | $149.3M | $153.6M | (2.8)% | | Segment Operating Margin | 16.5% | 16.8% | -30 bps | Flavor Solutions Segment Results (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $738.7M | $747.1M | (1.1)% | | Segment Operating Income | $86.6M | $81.4M | 6.3% | | Segment Operating Margin | 11.7% | 10.9% | +80 bps | [Liquidity and Financial Condition](index=36&type=section&id=Liquidity%20and%20Financial%20Condition) This section discusses the company's liquidity and financial condition, including cash flow from operations and debt obligations - Net cash provided by operating activities decreased by **$92.7 million** to **$301.5 million** for the six months ended **May 31, 2024**, compared to the same period in **2023**[158](index=158&type=chunk) - The company has a significant upcoming cash requirement for the maturity of its **$700.0 million**, **3.15%** notes due in **August 2024**[170](index=170&type=chunk) - The company maintains a committed five-year **$1.5 billion** revolving credit facility which will expire in **June 2026**[167](index=167&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=39&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company reports no significant changes in its market risk exposures related to foreign exchange, interest rates, commodities, or credit since its fiscal year-end 2023 report - There have been no significant changes in the company's financial instrument portfolio or market risk exposures since the **November 30, 2023** fiscal year end[179](index=179&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=39&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Based on an evaluation conducted by management, including the Chief Executive Officer and Chief Financial Officer, the company concluded that its disclosure controls and procedures were effective as of May 31, 2024 - The company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[180](index=180&type=chunk) - No change occurred in the company's internal control over financial reporting during the last fiscal quarter that materially affected, or is reasonably likely to materially affect, internal controls[181](index=181&type=chunk) [PART II - OTHER INFORMATION](index=39&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=40&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company reports that there are no material pending legal proceedings in which it or its subsidiaries are a party - There are no material pending legal proceedings in which we or our subsidiaries is a party or in which any of our or their property is the subject[183](index=183&type=chunk) [ITEM 1.A RISK FACTORS](index=40&type=section&id=ITEM%201.A%20RISK%20FACTORS) The company states there have been no material changes to its risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended November 30, 2023 - There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended **November 30, 2023**[184](index=184&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=40&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the company's equity security repurchases during Q2 2024 and remaining share repurchase authorization Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased (CS) | Average Price Paid per Share | | :--- | :--- | :--- | | March 2024 | 34,564 | $68.15 | | April 2024 | 3,400 | $74.80 | | May 2024 | 21,967 | $74.36 | | **Total** | **59,931** | **$70.80** | - As of **May 31, 2024**, **$497 million** remained of the **$600 million** share repurchase authorization approved by the Board of Directors in **November 2019**[188](index=188&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=41&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reports that there were no defaults upon its senior securities during the reporting period - None[190](index=190&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company's operations - Not Applicable[191](index=191&type=chunk) [ITEM 5. OTHER INFORMATION](index=41&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The company reports that none of its directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the second quarter of 2024 - None of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarterly period covered by this report[192](index=192&type=chunk) [ITEM 6. EXHIBITS](index=42&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with or incorporated by reference into the Form 10-Q, including corporate governance and financial data - The report includes a list of filed exhibits, such as Articles of Incorporation, By-Laws, indentures, various incentive and compensation plans, and certifications pursuant to the Sarbanes-Oxley Act[193](index=193&type=chunk)[195](index=195&type=chunk)