McCormick(MKC) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for the three and six months ended May 31, 2025 and 2024 Condensed Consolidated Income Statement Highlights (in millions, except per share data) | Metric | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | Six Months Ended May 31, 2025 | Six Months Ended May 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,659.5 | $1,643.2 | $3,265.0 | $3,245.9 | | Gross profit | $622.8 | $619.6 | $1,226.8 | $1,218.9 | | Operating income | $245.8 | $234.1 | $471.0 | $467.6 | | Net income | $175.0 | $184.2 | $337.3 | $350.2 | | Earnings per share – diluted | $0.65 | $0.68 | $1.25 | $1.30 | Condensed Consolidated Balance Sheet Highlights (in millions) | Metric | May 31, 2025 (unaudited) | November 30, 2024 | | :--- | :--- | :--- | | Total current assets | $2,166.3 | $2,139.0 | | Total assets | $13,190.4 | $13,070.3 | | Total current liabilities | $3,185.7 | $2,882.8 | | Total liabilities | $7,560.0 | $7,753.5 | | Total shareholders' equity | $5,630.4 | $5,316.8 | Condensed Consolidated Cash Flow Statement Highlights (in millions) | Metric | Six Months Ended May 31, 2025 | Six Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net cash flow provided by operating activities | $161.4 | $301.5 | | Net cash flow used in investing activities | $(105.2) | $(130.1) | | Net cash flow used in financing activities | $(142.9) | $(172.2) | | Decrease in cash and cash equivalents | $(62.0) | $(0.3) | - The company operates in two business segments: Consumer and Flavor Solutions, with the Consumer segment selling to retail channels and Flavor Solutions to food manufacturers and foodservice[80] Segment Performance Highlights (in millions) | Segment & Period | Net Sales | Operating Income (excl. special charges) | | :--- | :--- | :--- | | Consumer (Q2 2025) | $930.6 | $163.6 | | Consumer (Q2 2024) | $904.5 | $149.3 | | Flavor Solutions (Q2 2025) | $728.9 | $95.0 | | Flavor Solutions (Q2 2024) | $738.7 | $86.6 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management analyzes the company's financial condition and results for Q2 and H1 fiscal 2025, including performance, outlook, and liquidity Executive Summary and 2025 Outlook Q2 2025 saw modest sales and operating income growth, with full-year 2025 projections indicating slight sales and EPS increases - In Q2 2025, net sales increased 1.0% YoY, driven by a 1.3% favorable impact from volume and product mix and 0.3% from pricing, offset by a 0.6% negative impact from currency fluctuations[89][95] - Q2 2025 operating income rose 5.0% to $245.8 million, and adjusted operating income increased 9.7% to $258.6 million, driven by lower SG&A expenses[89] Fiscal Year 2025 Outlook | Metric | Projected Growth vs. 2024 | | :--- | :--- | | Net Sales | 0% to 2% (1% to 3% organic) | | Gross Profit Margin | Flat to +50 bps | | Operating Income | 2% to 4% (3% to 5% adjusted) | | Adjusted Diluted EPS | $3.03 to $3.08 (3% to 5% growth) | Results of Operations – Company Q2 2025 net sales grew modestly, gross profit margin declined, SG&A decreased, and a higher effective tax rate impacted net income Components of Net Sales Change - Q2 2025 vs Q2 2024 | Component | Impact on Net Sales | | :--- | :--- | | Pricing actions | +0.3% | | Volume and product mix | +1.3% | | Foreign exchange | -0.6% | | Total Increase | +1.0% | - Gross profit margin for Q2 2025 was 37.5%, a 20 basis point decrease from Q2 2024, driven by higher commodity costs and costs to support increased capacity, partially offset by CCI-led savings[102] - SG&A expense in Q2 2025 decreased by $19.5 million compared to Q2 2024, driven by lower stock-based compensation, lower incentive expense, and cost savings, resulting in a 140 basis points decrease as a percentage of net sales[104] - The effective tax rate for Q2 2025 was 24.1%, a significant increase from 13.5% in Q2 2024, as the prior year included a large $19.4 million discrete tax benefit from an international legal entity reorganization[111][114] Results of Operations – Segments In Q2 2025, the Consumer segment grew sales and operating income, while Flavor Solutions saw sales decline but improved operating income Consumer Segment Performance - Q2 2025 | Metric | Value/Change | | :--- | :--- | | Net Sales Growth | +2.9% | | Organic Sales Growth | +3.0% | | Volume/Mix Impact | +3.3% | | Segment Operating Income Growth | +9.6% | Flavor Solutions Segment Performance - Q2 2025 | Metric | Value/Change | | :--- | :--- | | Net Sales Growth | -1.3% | | Organic Sales Growth | 0.0% | | Volume/Mix Impact | -1.0% | | Segment Operating Income Growth | +9.8% | Liquidity and Financial Condition Net cash from operating activities decreased in H1 2025 due to working capital, but the company maintains liquidity with a new $2.0 billion credit facility - Net cash provided by operating activities decreased by $140.1 million in H1 2025 compared to H1 2024, mainly due to accounts payable decreases driven by the timing of inventory purchases[156] - In May 2025, the company entered into a new five-year $2.0 billion revolving credit facility expiring in May 2030, replacing its previous $1.5 billion and $500 million facilities[165] - Dividends paid increased to $241.5 million ($0.45 per share) in H1 2025 from $225.5 million ($0.42 per share) in H1 2024[160] - As of May 31, 2025, approximately $422 million remained under the $600 million share repurchase program authorized in November 2019[158] QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company manages market risks from foreign exchange, interest rates, and commodities using derivatives for hedging, with no significant changes reported - The company uses derivative financial instruments, including forward contracts and swaps, to manage foreign exchange and interest rate risks[133][134][136] Derivative Notional Values (in millions) | Derivative Type | May 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | Forward foreign currency | $1,070.7 | $1,034.2 | | Cross currency swaps | $1,009.6 | $945.5 | | Interest rate swaps | $600.0 | $600.0 | - Commodity risk for materials like pepper, onion, and garlic is managed through strategic purchasing and customer price adjustments, not derivatives[138] - There have been no significant changes in the company's financial instrument portfolio or market risk exposures since the November 30, 2024 fiscal year-end[176] CONTROLS AND PROCEDURES Management concluded disclosure controls were effective as of May 31, 2025, with no material changes to internal control over financial reporting - Based on an evaluation by management, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of May 31, 2025[177] - 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, these controls[178] PART II - OTHER INFORMATION LEGAL PROCEEDINGS The company reports no material pending legal proceedings involving itself or its subsidiaries - There are no material pending legal proceedings reported[180] RISK FACTORS No material changes to risk factors from the last 10-K, except for an updated risk concerning U.S. trade policies and potential inflationary pressures - There have been no material changes in risk factors from the Annual Report on Form 10-K for the fiscal year ended November 30, 2024, with one exception[181] - A specific risk related to U.S. presidential administration trade policies and tariffs is highlighted, which could lead to inflationary pressures, higher costs, and adversely affect business if not successfully mitigated[182][183] UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's Q2 2025 equity security repurchases and the remaining authorization under its share repurchase program Issuer Purchases of Equity Securities - Q2 2025 | Period | Shares Purchased (CS) | Avg. Price (CS) | Shares Purchased (CSNV) | Avg. Price (CSNV) | | :--- | :--- | :--- | :--- | :--- | | Mar 2025 | 19,908 | $84.50 | 0 | N/A | | Apr 2025 | 47,000 | $75.50 | 12,341 | $81.89 | | May 2025 | 41,250 | $75.13 | 0 | N/A | | Total | 108,158 | $77.01 | 12,341 | $81.89 | - As of May 31, 2025, approximately $422 million remained available under the $600 million share repurchase authorization from November 2019[186] DEFAULTS UPON SENIOR SECURITIES The company reports no defaults upon senior securities - None reported[188] MINE SAFETY DISCLOSURES This item is not applicable to the company - Not applicable[189] OTHER INFORMATION The company states that none of its directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarterly period[190] EXHIBITS This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, material contracts, and required certifications - Lists various corporate governance documents, indentures for debt securities, and material contracts filed as exhibits[191][192] - Includes certifications from the CEO and CFO pursuant to Sarbanes-Oxley Act Sections 302 and 906[193] - Financial information is provided in Inline XBRL format[194]