McCormick(MKC_V) - 2025 Q3 - Quarterly Results

Executive Summary McCormick reported strong Q3 2025 performance with volume-led growth, effective cost savings, and reaffirmed its commitment to shareholder value despite gross margin pressures Key Performance Highlights (Q3 2025) McCormick reported its fifth consecutive quarter of volume-led growth in Q3 2025, with net sales increasing 3% and organic sales up 2%, and despite gross margin pressure from rising costs and tariffs, operating income and earnings per share saw modest increases, reflecting effective cost savings initiatives - Q3 2025 marked the fifth consecutive quarter of volume-led growth, driven by investments in brands, expanded distribution, and innovation[2] - Gross margin was pressured by rising commodity costs and tariffs, but operating profit growth was achieved through cost savings initiatives[2] Q3 2025 Financial Highlights | Metric | Q3 2025 (As Reported) | Q3 2024 (As Reported) | YoY Change | Q3 2025 (Adjusted) | Q3 2024 (Adjusted) | YoY Change | | :---------------------- | :-------------------- | :-------------------- | :--------- | :----------------- | :----------------- | :--------- | | Net Sales | +3% | - | - | - | - | - | | Organic Sales Growth | +2% | - | - | - | - | - | | Operating Income | $289 million | $287 million | +0.7% | $294 million | $288 million | +2.1% | | Earnings per Share | $0.84 | $0.83 | +1.2% | $0.85 | $0.83 | +2.4% | Chairman, President, and CEO's Remarks Brendan M. Foley highlighted the company's consistent volume-led growth, attributing it to strategic investments and effective cost savings, emphasizing strong demand for flavor, agility in adapting to market dynamics, and confidence in achieving the updated 2025 outlook, while also recognizing employee contributions - McCormick achieved its fifth consecutive quarter of volume-led growth, driven by brand investments, expanded distribution, and innovation[2] - Despite rising commodity costs and tariffs, operating profit growth was sustained through effective cost savings initiatives[2] - The company remains confident in its sustained business momentum and ability to drive shareholder value, supported by employee dedication and growth plans[4] Third Quarter 2025 Financial Performance McCormick's Q3 2025 financial performance showed consolidated net sales growth driven by volume/mix, but gross margin contracted due to higher costs, while operating income increased slightly due to SG&A savings Consolidated Sales Metrics Consolidated net sales increased 2.7% in Q3 2025, with a 1.8% organic sales growth driven primarily by volume/mix, and foreign currency had a favorable 0.9% impact on total net sales Q3 2025 Sales Growth | Metric | Q3 2025 As Reported % Change | Q3 2025 Organic % Change | | :---------------- | :--------------------------- | :----------------------- | | Total Net Sales | 2.7 % | 1.8 % | | Total Consumer | 3.8 % | 2.6 % | | Total Flavor Solutions | 1.2 % | 0.6 % | - Organic sales growth of 2% was volume-led, with a 1% contribution from price[7] - Foreign currency had a 1% favorable impact on net sales in the third quarter[7] Consolidated Profitability Metrics Gross profit decreased by $5 million, with gross profit margin contracting 130 basis points (120 bps adjusted) due to higher commodity costs and tariffs, partially offset by cost savings, and operating income increased slightly, with adjusted operating income up 2% in constant currency, driven by lower SG&A expenses Q3 2025 Profitability Metrics | Metric | Q3 2025 As Reported | Q3 2024 As Reported | YoY Change | Q3 2025 Adjusted | Q3 2024 Adjusted | YoY Change | | :---------------------- | :------------------ | :------------------ | :--------- | :--------------- | :--------------- | :--------- | | Gross profit | $645.1 million | $649.9 million | (0.7)% | $646.1 million | $649.9 million | (0.6)% | | Gross profit margin | 37.4 % | 38.7 % | (130) bps | 37.5 % | 38.7 % | (120) bps | | Operating income | $288.7 million | $286.5 million | 0.8 % | $293.6 million | $288.4 million | 1.8 % | | Operating income margin | 16.7 % | 17.1 % | (40) bps | 17.0 % | 17.2 % | (20) bps | | Net income | $225.5 million | $223.1 million | 1.1 % | $229.1 million | $224.4 million | 2.1 % | | Diluted EPS | $0.84 | $0.83 | 1.2 % | $0.85 | $0.83 | 2.4 % | - Gross profit margin contraction was primarily due to higher commodity costs, tariffs, and increased capacity costs, partially offset by the CCI program[8] - Adjusted operating income increased 2% in constant currency, driven by decreased SG&A expenses (lower employee benefits, CCI savings) despite lower gross margin and increased marketing/technology investments[9] Segment Performance The Consumer segment saw a 4% net sales increase and a 4% adjusted operating income increase, driven by higher sales and lower SG&A, while the Flavor Solutions segment had a 1% net sales increase but a 2% decrease in adjusted operating income due to higher commodity costs and tariffs Consumer Segment The Consumer segment achieved a 4% net sales increase and a 4% adjusted operating income increase, driven by volume, product mix, and reduced SG&A - Consumer segment net sales increased 4% to $973 million, with organic sales up 3% driven by volume and product mix[11] - Consumer segment adjusted operating income increased 4% to $194 million (3% in constant currency), primarily due to higher sales and decreased SG&A, partially offset by increased commodity costs and tariffs[12] Flavor Solutions Segment The Flavor Solutions segment reported a 1% net sales increase, primarily from pricing, but adjusted operating income declined 2% due to higher commodity costs and tariffs - Flavor Solutions segment net sales increased 1% to $752 million, with organic sales also up 1% driven by price[11] - Flavor Solutions segment adjusted operating income decreased 2% to $100 million (2% in constant currency), mainly due to higher commodity costs and tariffs, partially offset by pricing and decreased SG&A[12] Fiscal Year 2025 Financial Outlook McCormick's fiscal year 2025 outlook reaffirms sales growth but updates operating income and EPS guidance downward due to rising commodity costs and tariffs, while anticipating strong cash flow Updated Financial Guidance McCormick reaffirmed its sales growth outlook for fiscal year 2025 but updated its operating income and earnings per share outlook to reflect rising commodity costs and incremental tariffs, with the updated guidance showing a slight reduction in expected operating income and EPS growth compared to prior guidance FY2025 Financial Outlook Comparison (October vs. June 2025 Guide) | Metric | Current Guide (Oct 2025) Reported | Current Guide (Oct 2025) Constant Currency | Prior Guide (June 2025) Reported | Prior Guide (June 2025) Constant Currency | | :---------------------- | :-------------------------------- | :--------------------------------------- | :------------------------------- | :-------------------------------------- | | Net sales growth | 0% to 2% | 1% to 3% | 0% to 2% | 1% to 3% | | Operating income growth | 1% to 3% | - | 2% to 4% | - | | Adjusted operating income growth | 2% to 4% | 3% to 5% | 3% to 5% | 4% to 6% | | EPS | $2.95 to $3.00 (1% to 3% growth) | - | $2.98 to $3.03 (2% to 4% growth) | - | | Adjusted EPS | $3.00 to $3.05 (2% to 4% growth) | 4% to 6% | $3.03 to $3.08 (3% to 5% growth) | 5% to 7% | - The updated outlook reflects rising commodity costs and incremental tariffs[3] Key Outlook Expectations and Factors The 2025 outlook anticipates volume-led growth and gradual improvement in China Consumer, but gross margin expansion will be impacted by increased commodity costs and tariffs, and SG&A benefits from the CCI program are expected, partially offset by growth investments, with special charges and a higher tax rate also affecting profitability - The Company's fiscal 2025 outlook reflects mitigation plans for tariffs currently in place, which have increased since August 1, 2025, but does not factor in potential new tariffs[14] - Expectations include total volume-led growth, gradual improvement in China Consumer, and gross margin expansion impacted by increased commodity costs and tariffs[17] - SG&A benefits from the CCI program are anticipated, partially offset by growth investments in brand marketing and digital, with special charges of $20 million expected primarily for organizational and streamlining actions[17] - A tax rate of approximately 22% (versus 20.5% in 2024) and a high-single digit year-over-year decline in income from unconsolidated operations (due to U.S. dollar strengthening) are expected to partially offset operating income growth[17] Cash Flow Outlook For fiscal 2025, McCormick expects strong cash flow, driven by profit generation and working capital initiatives, with a significant portion anticipated to be returned to shareholders through dividends - The Company expects strong cash flow for fiscal 2025, driven by profit and working capital initiatives[18] - A significant portion of cash flow is anticipated to be returned to shareholders through dividends[18] Non-GAAP Financial Measures McCormick utilizes non-GAAP financial measures to provide clearer insights into underlying performance by excluding special charges and the impact of foreign currency fluctuations, facilitating better comparisons and projections Definition and Rationale McCormick uses non-GAAP financial measures like organic net sales, adjusted gross profit, and adjusted operating income to provide additional insights into its financial performance, and these measures exclude special charges, which are expenses related to cost reduction, process improvement, and competitiveness, to facilitate enhanced comparisons to prior periods and aid in future projections - Non-GAAP financial measures (e.g., organic net sales, adjusted gross profit, adjusted operating income) are presented as a complement to GAAP results[19] - Special charges, excluded from adjusted measures, consist of expenses related to fixed cost reduction, process improvement, and competitiveness, including transaction and integration costs[19] - These non-GAAP measures provide additional information for enhanced comparisons to prior periods, facilitate future projections, and are used by management to measure ongoing operations' profitability and analyze business performance[20] Reconciliation of Non-GAAP Measures The report provides detailed reconciliations of GAAP to non-GAAP financial measures for the three and nine months ended August 31, 2025 and 2024, covering gross profit, operating income, income tax expense, net income, and diluted earnings per share, highlighting the impact of special charges Reconciliation of GAAP to Adjusted Financial Measures (Q3 2025 vs. Q3 2024) | Metric | Q3 2025 GAAP | Impact of Special Charges | Q3 2025 Adjusted | Q3 2024 GAAP | Impact of Special Charges | Q3 2024 Adjusted | | :-------------------------- | :----------- | :------------------------ | :--------------- | :----------- | :------------------------ | :--------------- | | Gross profit | $645.1 | $1.0 | $646.1 | $649.9 | $0.0 | $649.9 | | Gross profit margin | 37.4 % | 0.1 % | 37.5 % | 38.7 % | 0.0 % | 38.7 % | | Operating income | $288.7 | $4.9 | $293.6 | $286.5 | $1.9 | $288.4 | | Operating income margin | 16.7 % | 0.3 % | 17.0 % | 17.1 % | 0.1 % | 17.2 % | | Income tax expense | $39.3 | $1.3 | $40.6 | $41.0 | $0.6 | $41.6 | | Income tax rate | 15.9 % | 0.2 % | 16.1 % | 16.7 % | 0.1 % | 16.8 % | | Net income | $225.5 | $3.6 | $229.1 | $223.1 | $1.3 | $224.4 | | Earnings per share - diluted | $0.84 | $0.01 | $0.85 | $0.83 | $0.00 | $0.83 | Reconciliation of GAAP to Adjusted Financial Measures (YTD 2025 vs. YTD 2024) | Metric | YTD 2025 GAAP | Impact of Special Charges | YTD 2025 Adjusted | YTD 2024 GAAP | Impact of Special Charges | YTD 2024 Adjusted | | :-------------------------- | :------------ | :------------------------ | :---------------- | :------------ | :------------------------ | :---------------- | | Gross profit | $1,871.9 | $1.0 | $1,872.9 | $1,868.8 | $0.0 | $1,868.8 | | Gross profit margin | 37.5 % | 0.0 % | 37.5 % | 37.9 % | 0.0 % | 37.9 % | | Operating income | $759.7 | $17.7 | $777.4 | $754.1 | $7.9 | $762.0 | | Operating income margin | 15.2 % | 0.4 % | 15.6 % | 15.3 % | 0.2 % | 15.5 % | | Income tax expense | $130.2 | $4.3 | $134.5 | $116.8 | $2.1 | $118.9 | | Income tax rate | 20.4 % | 0.1 % | 20.5 % | 18.4 % | 0.1 % | 18.5 % | | Net income | $562.8 | $13.4 | $576.2 | $573.3 | $5.8 | $579.1 | | Earnings per share - diluted | $2.09 | $0.05 | $2.14 | $2.13 | $0.02 | $2.15 | Constant Currency and Organic Growth McCormick provides constant currency and organic net sales growth rates to offer a clearer view of underlying performance by excluding the impact of foreign currency exchange rate fluctuations, acquisitions, and divestitures, allowing for enhanced comparability to prior periods and better insight into operations outside the U.S. - Constant currency basis is a non-GAAP measure that excludes the translation effects of changes in foreign currency exchange rates, providing insight into underlying operational performance outside the U.S.[24] - Organic net sales growth rates exclude the impact of foreign currency exchange rate fluctuations, acquisitions, and divestitures to provide transparency to underlying net sales performance[25] Q3 2025 Sales Growth: Reported vs. Constant Currency and Organic | Metric | Percentage Change as Reported | Impact of Foreign Currency Exchange | Percentage Change on a Constant Currency and Organic Basis | | :---------------------- | :---------------------------- | :---------------------------------- | :--------------------------------------------------------- | | Total Net Sales | 2.7 % | 0.9 % | 1.8 % | | Total Consumer | 3.8 % | 1.2 % | 2.6 % | | Total Flavor Solutions | 1.2 % | 0.6 % | 0.6 % | Q3 2025 Adjusted Operating Income Growth: Reported vs. Constant Currency | Segment | Percentage Change as Reported | Impact of Foreign Currency Exchange | Percentage Change on Constant Currency Basis | | :---------------------- | :---------------------------- | :---------------------------------- | :------------------------------------------- | | Consumer segment | 3.7 % | 0.5 % | 3.2 % | | Flavor Solutions segment | (1.8)% | (0.2)% | (1.6)% | | Total adjusted operating income | 1.8 % | 0.2 % | 1.6 % | Company Information McCormick & Company, a global flavor leader with over $6.7 billion in annual sales, operates in Consumer and Flavor Solutions segments, while also providing cautionary forward-looking statements regarding future performance About McCormick McCormick & Company, Incorporated is a global flavor leader with over $6.7 billion in annual sales across 150 countries, manufacturing and distributing herbs, spices, seasonings, condiments, and flavors to various food industry sectors, operating in two complementary segments: Consumer and Flavor Solutions, and founded in 1889, the company is guided by its purpose to 'Stand Together for the Future of Flavor' and envisions 'A World United by Flavor' - McCormick is a global leader in flavor with over $6.7 billion in annual sales across 150 countries and territories[37] - The company operates in two complementary segments, Consumer and Flavor Solutions, which drive sustainable growth through scale, insights, and technology[37][38] - McCormick's purpose is 'To Stand Together for the Future of Flavor,' envisioning 'A World United by Flavor where healthy, sustainable, and delicious go hand in hand'[38] Forward-Looking Information This section contains forward-looking statements regarding expected performance, sales growth, earnings, cost savings, and the impact of various factors like economic conditions, tariffs, and supply chain issues, and these statements are based on management's current views and involve risks and uncertainties that could cause actual results to differ materially, with the company disclaiming any obligation to update these statements - The release contains forward-looking statements regarding expected performance, including net sales, gross margin, earnings, cost savings, and the impact of foreign currency rates[33] - These statements are based on management's current views and assumptions and involve risks and uncertainties that could significantly affect expected results, such as the ability to drive revenue growth, offset inflationary pressures, and manage supply chain issues or trade policies[34][35] - The company undertakes no obligation to update or revise publicly any forward-looking statements, except as required by law[36] Unaudited Financial Statements The unaudited financial statements for Q3 2025 detail McCormick's income, balance sheet, and cash flow, showing modest sales and net income growth, balance sheet shifts, and changes in cash flow activities Consolidated Income Statement The consolidated income statement for the three and nine months ended August 31, 2025, shows a slight increase in net sales and net income compared to the prior year, despite a contraction in gross profit margin, and operating income also saw a modest increase, while interest expense decreased Consolidated Income Statement (Unaudited) - Q3 2025 vs. Q3 2024 | Metric | Three months ended Aug 31, 2025 | Three months ended Aug 31, 2024 | | :------------------------------------------ | :------------------------------ | :------------------------------ | | Net sales | $1,724.9 million | $1,679.8 million | | Cost of goods sold | $1,079.8 million | $1,029.9 million | | Gross profit | $645.1 million | $649.9 million | | Gross profit margin | 37.4 % | 38.7 % | | Selling, general and administrative expense | $352.5 million | $361.5 million | | Special charges | $3.9 million | $1.9 million | | Operating income | $288.7 million | $286.5 million | | Interest expense | $50.2 million | $53.5 million | | Net income | $225.5 million | $223.1 million | | Earnings per share - diluted | $0.84 | $0.83 | Consolidated Income Statement (Unaudited) - YTD 2025 vs. YTD 2024 | Metric | Nine months ended Aug 31, 2025 | Nine months ended Aug 31, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net sales | $4,989.9 million | $4,925.7 million | | Cost of goods sold | $3,118.0 million | $3,056.9 million | | Gross profit | $1,871.9 million | $1,868.8 million | | Gross profit margin | 37.5 % | 37.9 % | | Selling, general and administrative expense | $1,095.5 million | $1,106.8 million | | Special charges | $16.7 million | $7.9 million | | Operating income | $759.7 million | $754.1 million | | Interest expense | $149.7 million | $156.7 million | | Net income | $562.8 million | $573.3 million | | Earnings per share - diluted | $2.09 | $2.13 | Consolidated Balance Sheet As of August 31, 2025, McCormick's consolidated balance sheet shows an increase in total assets, primarily driven by higher trade accounts receivable and inventories, and total liabilities decreased, mainly due to a reduction in long-term debt, leading to an increase in total shareholders' equity Consolidated Balance Sheet (Unaudited) - Aug 31, 2025 vs. Nov 30, 2024 | Metric | August 31, 2025 | November 30, 2024 | | :------------------------------------------ | :-------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $94.9 million | $186.1 million | | Trade accounts receivable, net | $668.7 million | $587.4 million | | Inventories, net | $1,323.6 million| $1,239.9 million | | Total current assets | $2,224.0 million| $2,139.0 million | | Property, plant and equipment, net | $1,419.8 million| $1,413.0 million | | Goodwill | $5,314.2 million| $5,227.5 million | | Intangible assets, net | $3,302.5 million| $3,318.9 million | | Total assets | $13,247.0 million| $13,070.3 million | | Liabilities | | | | Short-term borrowings and current portion of long-term debt | $1,253.4 million| $748.3 million | | Trade accounts payable | $1,196.8 million| $1,238.1 million | | Total current liabilities | $3,120.0 million| $2,882.8 million | | Long-term debt | $3,104.9 million| $3,593.6 million | | Total liabilities | $7,463.4 million| $7,753.5 million | | Shareholders' equity | | | | Total shareholders' equity | $5,783.6 million| $5,316.8 million | - Cash and cash equivalents decreased from $186.1 million to $94.9 million from November 30, 2024, to August 31, 2025[42] - Long-term debt decreased by approximately $488.7 million from November 30, 2024, to August 31, 2025[42] Consolidated Cash Flow Statement For the nine months ended August 31, 2025, net cash flow provided by operating activities decreased compared to the prior year, investing activities saw a lower net cash outflow, while financing activities resulted in a significantly higher net cash outflow, primarily due to increased dividends paid and lower net short-term borrowings Consolidated Cash Flow Statement (Unaudited) - YTD 2025 vs. YTD 2024 | Metric | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 31, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net income | $562.8 million | $573.3 million | | Net cash flow provided by operating activities | $420.2 million | $463.2 million | | Net cash flow used in investing activities | $(172.2) million | $(189.1) million | | Net cash flow used in financing activities | $(378.3) million | $(205.9) million | | Dividends paid | $(362.2) million | $(338.3) million | | Cash and cash equivalents at end of period | $94.9 million | $200.8 million | - Net cash flow provided by operating activities decreased by $43.0 million year-over-year[43] - Net cash flow used in financing activities significantly increased, primarily due to higher dividends paid and a substantial decrease in net short-term borrowings compared to the prior year[43]