McCormick(MKC) - 2024 Q3 - Quarterly Results

Q3 2024 Performance Highlights and 2024 Outlook McCormick reaffirmed its 2024 sales and operating profit outlook while raising its earnings per share guidance, driven by positive global volume growth Q3 2024 Key Financial Metrics | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | Comparable | - | - | | Volume Growth | 1% | - | - | | Operating Income | $287 million | $245 million | +17.1% | | Adjusted Operating Income | $288 million | $251 million | +14.7% | | EPS | $0.83 | $0.63 | +31.7% | | Adjusted EPS | $0.83 | $0.65 | +27.7% | - The company reaffirmed its fiscal year 2024 sales and operating profit growth outlook and increased its earnings per share outlook[2] - A significant milestone was achieved with positive total global volume growth, reflecting improved trends in both the Consumer and Flavor Solutions segments[3] Third Quarter 2024 Financial Results In the third quarter of 2024, McCormick's sales were comparable to the prior year, with 1% volume growth offset by pricing, while profitability significantly improved with operating income rising 17% to $287 million and adjusted operating income increasing 15% to $288 million, driven by gross profit margin expansion, favorable product mix, and cost savings, though net cash from operating activities for the first nine months decreased to $463 million from $660 million - Q3 sales were comparable to the year-ago period, with 1% volume growth, driven by the Consumer segment, being offset by pricing adjustments[5] - Gross profit margin expanded by 170 basis points compared to Q3 2023, driven by favorable product mix and cost savings from the Comprehensive Continuous Improvement (CCI) program[6] - Earnings per share increased to $0.83 from $0.63, primarily due to higher operating profit, discrete tax benefits, and strong performance from the McCormick de Mexico joint venture[7] - Net cash provided by operating activities for the first nine months of 2024 decreased to $463 million from $660 million in the same period of 2023, mainly due to cash used for working capital and the timing of tax and incentive payments[7] Fiscal Year 2024 Financial Outlook McCormick reaffirmed its full-year 2024 outlook, expecting sales to range between -1% and +1% with minimal currency impact, projecting operating income growth of 9% to 11% and adjusted operating income growth of 4% to 6%, while raising its adjusted EPS guidance to $2.85 to $2.90, representing a 5% to 7% increase over 2023 FY 2024 Financial Projections | Metric | FY 2024 Projection | Change vs. 2023 | | :--- | :--- | :--- | | Sales | -1% to +1% | - | | Operating Income Growth | 9% to 11% | - | | Adjusted Operating Income Growth | 4% to 6% | - | | EPS | $2.81 to $2.86 | vs. $2.52 | | Adjusted EPS | $2.85 to $2.90 | +5% to +7% | - The company's strategic decisions in 2023 to discontinue low-margin business and divest a small canning business will negatively impact volume growth in 2024[8] - Growth in adjusted operating income is expected to be driven by gross margin expansion, partially offset by a significant increase in brand marketing investments[9] - The company anticipates strong cash flow driven by profit and working capital initiatives and plans to return a significant portion to shareholders through dividends[10] Business Segment Results This section details the performance of the Consumer and Flavor Solutions segments, highlighting sales trends, volume drivers, and operating income changes Consumer Segment The Consumer segment's sales in Q3 were flat compared to the prior year, as a 1% increase in volume was offset by a 1% price decrease, with strong volume growth in the Americas and EMEA regions counteracted by declines in APAC, primarily due to a challenging macroeconomic environment in China, while segment operating income, excluding special charges, increased by 8%, driven by lower selling, general, and administrative expenses Consumer Segment Financials (in millions) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $937.4 | $937.1 | $2,763.4 | $2,758.7 | | Adjusted Operating Income | $186.8 | $173.3 | $512.4 | $500.3 | - Volume growth in the Americas (+1%) and EMEA (+4%) was offset by volume declines in APAC (-1%), which was principally attributable to the challenging macro environment in China[12][13] - The 8% growth in segment operating income was primarily due to lower selling, general, and administrative (SG&A) expenses[13] Flavor Solutions Segment The Flavor Solutions segment's sales declined by 1% in Q3 (flat in constant currency), with a 1% price increase being offset by the impact of a canning business divestiture, while the Americas region grew 2% driven by strong branded foodservice performance, despite an 8% sales fall in EMEA due to softness in quick service restaurant (QSR) volumes, leading to an impressive 31% (32% in constant currency) growth in segment operating income fueled by favorable product mix, pricing, and cost savings Flavor Solutions Segment Financials (in millions) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $742.4 | $747.6 | $2,162.3 | $2,150.7 | | Adjusted Operating Income | $101.6 | $77.8 | $249.6 | $212.6 | - Sales performance was impacted by the strategic divestiture of a canning business; in the Americas, sales grew 2% driven by branded foodservice, while EMEA sales declined 8% due to softness in quick service restaurant volumes[14][15] - Segment operating income grew 31% (32% in constant currency), driven by product mix, pricing, and cost savings from the CCI program[16] Non-GAAP Financial Measures & Reconciliations This section details the company's use of non-GAAP financial measures, such as adjusted operating income and adjusted earnings per share, which exclude special charges to provide a clearer comparison of ongoing business performance, and explains the calculation of constant currency results to isolate the impact of foreign exchange fluctuations, with detailed reconciliation tables provided to bridge GAAP results to their non-GAAP counterparts for both the current quarter and the full-year outlook - The company presents non-GAAP measures like adjusted operating income and adjusted EPS to exclude special charges, which it believes provides a better comparison of performance across periods[17][18] Q3 2024 GAAP to Non-GAAP Reconciliation (in millions, except per share) | Reconciliation | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Operating Income (GAAP) | $286.5 | $245.0 | | Impact of special charges | $1.9 | $6.1 | | Adjusted Operating Income (Non-GAAP) | $288.4 | $251.1 | | EPS - diluted (GAAP) | $0.83 | $0.63 | | Impact of special charges | $0.00 | $0.02 | | Adjusted EPS - diluted (Non-GAAP) | $0.83 | $0.65 | FY 2024 EPS Outlook Reconciliation | EPS Reconciliation | 2024 Projection | 2023 Actual | | :--- | :--- | :--- | | EPS - diluted (GAAP) | $2.81 to $2.86 | $2.52 | | Impact of special charges | $0.04 | $0.18 | | Adjusted EPS - diluted (Non-GAAP) | $2.85 to $2.90 | $2.70 | Consolidated Financial Statements This section provides the detailed unaudited consolidated financial statements for the period ended August 31, 2024, including the Income Statement, which shows a slight decline in net sales but a significant increase in net income for the third quarter; the Balance Sheet, which reflects growth in total assets and shareholders' equity; and the Cash Flow Statement, which indicates a year-over-year decrease in cash from operating activities for the nine-month period Consolidated Statements of Income For the third quarter of 2024, net sales were $1.68 billion, nearly flat with the prior year, while gross profit increased to $649.9 million from $622.8 million, with the gross margin expanding from 37.0% to 38.7%, and a significant reduction in special charges and lower SG&A expenses contributed to operating income rising to $286.5 million from $245.0 million, consequently, net income for the quarter grew to $223.1 million, or $0.83 per diluted share, compared to $170.1 million, or $0.63 per diluted share, in Q3 2023 Consolidated Statements of Income (Q3, in millions) | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net Sales | $1,679.8 | $1,684.7 | | Gross Profit | $649.9 | $622.8 | | Operating Income | $286.5 | $245.0 | | Net Income | $223.1 | $170.1 | | Diluted EPS | $0.83 | $0.63 | Consolidated Balance Sheet As of August 31, 2024, McCormick's total assets stood at $13.2 billion, up from $12.9 billion at year-end 2023, driven by higher inventories and trade accounts receivable, while total liabilities remained stable at $7.75 billion, and total shareholders' equity increased to $5.45 billion from $5.08 billion, primarily due to retained earnings growth Consolidated Balance Sheet Summary (in millions) | Metric | Aug 31, 2024 | Nov 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $2,244.3 | $2,001.6 | | Total Assets | $13,204.9 | $12,862.3 | | Total Current Liabilities | $3,144.3 | $3,098.9 | | Long-term Debt | $3,343.1 | $3,339.9 | | Total Liabilities | $7,753.9 | $7,778.8 | | Total Shareholders' Equity | $5,451.0 | $5,083.5 | Consolidated Cash Flow Statement For the nine months ended August 31, 2024, net cash provided by operating activities was $463.2 million, a significant decrease from $660.1 million in the same period of 2023, as higher net income was more than offset by cash used for working capital, particularly an increase in inventories and accounts receivable, while net cash used in investing activities was $189.1 million, primarily for capital expenditures, and financing activities used a net $701.2 million, largely for debt repayments and dividend payments Consolidated Cash Flow Summary (Nine Months, in millions) | Metric | Nine Months Ended Aug 31, 2024 | Nine Months Ended Aug 31, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $463.2 | $660.1 | | Net Cash used in Investing Activities | ($189.1) | ($184.8) | | Net Cash used in Financing Activities | ($701.2) | ($179.3) | - The decrease in operating cash flow was primarily driven by changes in operating assets and liabilities, including a $108.9 million increase in inventories and a $72.2 million increase in trade accounts receivable[34]