McCormick(MKC_V) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS For Q1 2023, McCormick & Company reported increased net sales but decreased operating and net income, alongside stable total assets and significantly improved operating cash flow Condensed Consolidated Income Statement For Q1 2023, net sales increased, but higher costs and special charges resulted in a decline in operating income, net income, and diluted EPS Q1 2023 vs Q1 2022 Income Statement Highlights (in millions, except per share amounts) | Metric | Three months ended Feb 28, 2023 | Three months ended Feb 28, 2022 | | :--- | :--- | :--- | | Net sales | $1,565.5 | $1,522.4 | | Gross profit | $562.9 | $560.4 | | Operating income | $199.0 | $206.9 | | Net income | $139.1 | $154.9 | | Earnings per share – diluted | $0.52 | $0.57 | Condensed Consolidated Balance Sheet As of February 28, 2023, total assets slightly increased, while total liabilities decreased and total shareholders' equity rose compared to November 30, 2022 Balance Sheet Summary (in millions) | Metric | February 28, 2023 (unaudited) | November 30, 2022 | | :--- | :--- | :--- | | Total current assets | $2,411.3 | $2,386.7 | | Total assets | $13,205.4 | $13,124.9 | | Total current liabilities | $3,321.0 | $3,432.4 | | Total liabilities | $8,317.7 | $8,425.7 | | Total shareholders' equity | $4,887.7 | $4,699.2 | Condensed Consolidated Cash Flow Statement For Q1 2023, net cash provided by operating activities significantly increased, while net cash used in investing activities rose, and financing activities shifted to a net outflow compared to the prior year Cash Flow Summary (in millions) | Metric | Three months ended Feb 28, 2023 | Three months ended Feb 28, 2022 | | :--- | :--- | :--- | | Net cash flow provided by operating activities | $103.4 | $17.9 | | Net cash flow used in investing activities | $(61.5) | $(43.7) | | Net cash flow (used in) provided by financing activities | $(44.7) | $4.4 | | Increase (decrease) in cash and cash equivalents | $22.8 | $(13.3) | Notes to Condensed Consolidated Financial Statements This section details key accounting policies, special charges primarily from the GOE program, the use of derivative financial instruments, and segment performance for Consumer and Flavor Solutions - The company recorded special charges of $27.8 million in Q1 2023, a year-over-year increase from $19.5 million. These charges were primarily driven by the Global Operating Effectiveness (GOE) program ($24.8 million) and the transition of a manufacturing facility in EMEA[31] - The company utilizes derivative financial instruments, including foreign currency exchange contracts with a notional value of $509.6 million and interest rate swaps with a notional value of $600.0 million as of February 28, 2023, to manage market risks[40][45] Segment Performance (in millions) | Segment | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | :--- | | Consumer | Net Sales | $909.5 | $926.1 | | | Operating Income (adj.) | $173.4 | $167.0 | | Flavor Solutions | Net Sales | $656.0 | $596.3 | | | Operating Income (adj.) | $53.4 | $60.1 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the impact of global economic conditions, inflation, and supply chain disruptions, projecting sales and operating income growth for fiscal 2023 through pricing and cost-saving initiatives, with Q1 consolidated sales increasing due to pricing, showing mixed segment performance Overview and 2023 Outlook The company is navigating inflationary and supply chain challenges by implementing pricing actions and cost-saving programs like GOE, with a positive 2023 outlook projecting significant growth in sales, operating income, and adjusted diluted EPS - Key business challenges include a persistent inflationary cost environment and supply chain disruptions. The company is mitigating these through pricing actions and cost savings from its Comprehensive Continuous Improvement (CCI) and Global Operating Effectiveness (GOE) programs[77][80][83] Fiscal Year 2023 Outlook | Metric | Projected Growth/Range | | :--- | :--- | | Net Sales Growth | 5% to 7% | | Operating Income Growth | 10% to 12% | | Adjusted Operating Income Growth | 9% to 11% | | Adjusted Diluted EPS | $2.56 to $2.61 | Results of Operations Consolidated net sales for Q1 2023 increased, driven by pricing actions offset by volume/mix declines and a divestiture, while gross profit margin decreased, and segment performance showed a sales decline for Consumer but growth for Flavor Solutions Components of Consolidated Net Sales Change (Q1 2023 vs Q1 2022) | Component | Percentage Change | | :--- | :--- | | Pricing actions | 10.6% | | Volume and product mix | (4.6)% | | Divestiture | (0.7)% | | Foreign exchange | (2.5)% | | Total Net Sales Increase | 2.8% | - The Consumer segment's sales decreased by 1.8% due to unfavorable volume/mix (-6.8%) and the divestiture of Kitchen Basics (-1.1%), which more than offset strong pricing actions (+8.7%). However, segment operating income margin improved by 110 basis points to 19.1%[107][112] - The Flavor Solutions segment's sales grew 10.0%, driven by significant pricing actions (+13.5%). Despite the sales growth, segment operating income margin decreased by 200 basis points to 8.1% due to lower gross margin and higher SG&A expenses[113][117] Liquidity and Financial Condition The company maintains strong liquidity, evidenced by a significant increase in operating cash flow and a prudent capital structure, with sufficient sources to meet obligations for the next twelve months, including amounts related to its Supply Chain Financing program - Net cash provided by operating activities increased by $85.5 million to $103.4 million in Q1 2023 compared to the same period in 2022, primarily due to lower payments for employee benefits accrued at the prior year-end[140] - The company utilizes a Supply Chain Financing (SCF) program. As of February 28, 2023, amounts due to suppliers participating in the SCF and included in trade accounts payable were approximately $320.1 million[142] - The company maintains two committed revolving credit facilities: a $1.5 billion facility expiring in June 2026 and a $500 million facility expiring in July 2023, which support its commercial paper program and general corporate needs[152] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company reports no significant changes in its market risk exposures since November 30, 2022, actively managing key risks including foreign exchange, interest rate, commodity price, and credit risk - There have been no significant changes in the company's financial instrument portfolio or market risk exposures since the fiscal year ended November 30, 2022[165] - The company is exposed to foreign currency risk, interest rate risk, commodity price volatility, and credit risk. It uses derivative financial instruments, such as forward contracts and swaps, to manage these exposures[118][119][121][123] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of February 28, 2023, with no material changes to internal control over financial reporting during the quarter - The 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[166] - No changes occurred in the company's internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[167] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company reports no material pending legal proceedings involving itself or its subsidiaries - There are no material pending legal proceedings in which the company or its subsidiaries is a party or in which any of their property is the subject[169] ITEM 1A. RISK FACTORS No material changes have occurred in the company's risk factors since its Annual Report on Form 10-K for the fiscal year ended November 30, 2022 - No material changes have occurred in the company's risk factors since the filing of its Form 10-K for the fiscal year ended November 30, 2022[170] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During Q1 2023, the company repurchased 60,514 shares of Common Stock for approximately $4.76 million, with $532.4 million remaining under the November 2019 share repurchase authorization as of February 28, 2023 Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Shares Purchased (CS) | Average Price Paid per Share | | :--- | :--- | :--- | | Dec 2022 | 23,164 | $84.25 | | Jan 2023 | 0 | — | | Feb 2023 | 37,350 | $75.26 | | Total | 60,514 | $78.70 | - As of February 28, 2023, $532.4 million remained of the $600 million share repurchase authorization approved by the Board of Directors in November 2019[174] OTHER ITEMS (3, 4, 5) The company reported no defaults on senior securities, no applicable mine safety disclosures, and no other material information for the quarter - The company reports no defaults on senior securities, no applicable mine safety disclosures, and no other material information for the quarter[176][177][178] ITEM 6. EXHIBITS This section lists exhibits filed with the Form 10-Q, including corporate governance documents, security holder rights instruments, material contracts, and CEO/CFO certifications required by the Sarbanes-Oxley Act of 2002 - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, affirming the accuracy and completeness of the financial statements[187] - Financial statements and notes are provided in Inline XBRL format for data accessibility and analysis[188][189]