Acquisitions - McCormick completed the acquisition of FONA International for approximately $710 million, with FONA's annual sales at the time of acquisition being about $114 million[12]. - The company acquired Cholula Hot Sauce for approximately $803 million, with Cholula's annual sales at the time being around $96 million[13]. - The ongoing integration of acquired businesses, such as Cholula and FONA, is expected to impact operational results and financial performance[42]. - The company has completed nine acquisitions since 2015, which are expected to account for approximately one-third of sales growth over time[129]. Financial Performance - For the fiscal year 2020, net sales increased to $5,601.3 million, up from $5,347.4 million in 2019, representing a growth of 4.7%[111]. - Operating income for 2020 was $999.5 million, compared to $957.7 million in 2019, reflecting an increase of 4.0%[111]. - Net income for 2020 was $747.4 million, an increase from $702.7 million in 2019, marking a growth of 6.4%[111]. - The company declared common dividends of $1.27 per share in 2020, up from $1.17 per share in 2019, indicating a 8.5% increase[111]. - The company aims for long-term annual growth objectives of 4% to 6% in sales, 7% to 9% in adjusted operating income, and 9% to 11% in adjusted earnings per share[115]. - Adjusted operating income for the year ended November 30, 2020, was $1,018.8 million, representing a 4.1% increase compared to the prior year[202]. - Adjusted net income for the year ended November 30, 2020, was $762.7 million, reflecting a 6.3% increase year-over-year[202]. - Earnings per share—diluted for the year ended November 30, 2020, was $2.83, up from $2.68 in the previous year, marking a 5.6% increase[202]. Market Segments - In 2020, the consumer segment contributed approximately 64% of consolidated net sales and 77% of consolidated operating income, while the flavor solutions segment contributed about 36% of consolidated net sales and 23% of consolidated operating income[15]. - The consumer segment's sales are primarily driven by spices, herbs, and seasonings, which account for about half of the segment's sales[17]. - The consumer segment's net sales grew by 10.0% in 2020, with segment operating income reaching $780.9 million, reflecting a margin of 21.7%[161]. - Flavor solutions segment net sales decreased by 3.5% in 2020 compared to 2019, with a 2.4% decline on a constant currency basis[167]. Sales and Customer Dependency - Approximately 12% of consolidated sales in 2020 came from Wal-Mart Stores, Inc., while PepsiCo, Inc. accounted for about 11% of consolidated sales[24]. - Approximately 23% of consolidated sales in 2020 were generated from two large customers, highlighting the risk of dependency on major clients[56]. - The company anticipates continued impacts from the COVID-19 pandemic on operations and supply chains, with potential disruptions affecting financial results[46]. Operational Challenges - Seasonal factors lead to lower sales and income in the first two quarters, with significant increases in the fourth quarter due to holiday demand[29]. - The company faces challenges from increased private label competition and changing consumer preferences, which could affect market share[50]. - Supply chain disruptions and procurement issues may negatively impact the availability of key raw materials, affecting production capabilities[59]. - Fluctuations in raw material prices, particularly for dairy, pepper, and vanilla, pose significant risks to the company's financial condition and operating results[57]. - Climate change may negatively impact the availability and pricing of raw materials essential for the company's products[75]. Cost Management and Efficiency - The company has implemented a Comprehensive Continuous Improvement (CCI) program aimed at enhancing productivity and cost savings[1]. - The company recorded $113.0 million in cost savings from its CCI program in 2020, which helped offset increased conversion costs and COVID-19 related expenses[136]. - The company anticipates approximately $110 million in CCI-led cost savings for 2021, similar to the $113 million realized in 2020[141]. Debt and Financial Position - The company incurred approximately $4.9 billion in total indebtedness as of November 30, 2020, following the acquisition of Cholula, and an additional $710 million for the acquisition of FONA[79]. - The company has total outstanding variable rate debt of approximately $950 million at a weighted-average interest rate of approximately 0.3%[76]. - The uncertainty surrounding the phase-out of LIBOR may increase the cost of the company's variable rate debt, impacting financial position and operating results[82]. - The leverage ratio, defined as net debt to adjusted EBITDA, is a key metric for evaluating financial leverage, with expectations to comply with financial covenants for the foreseeable future[210]. Tax and Regulatory Environment - The effective tax rate is projected to rise to approximately 24% in 2021, compared to 19.8% in 2020[142]. - The effective tax rate can be affected by changes in tax legislation and the global mix of earnings[94]. - The company is subject to numerous laws and regulations that could increase compliance costs and adversely affect financial condition[89]. Employee and Operational Safety - The company implemented measures to ensure employee safety and product integrity during the pandemic, including pre-shift temperature checks and work-from-home arrangements[120]. - The company has approximately 13,000 full-time employees worldwide as of November 30, 2020[33]. Cybersecurity and Information Security - The company has experienced cybersecurity threats and incidents, although none have been material to date[86]. - The company maintains an information security program to address risks to its information technology systems and data[86]. - The company relies on third-party vendors for cloud-based services, which increases operational complexity and vulnerability[88]. Stock Performance - The market price of the common stock at the close of business on December 31, 2020, was $95.57 per share for Common Stock and $95.60 per share for Common Stock Non-Voting[106]. - The closing price of non-voting shares at the end of 2020 was $93.49, up from $84.63 at the end of 2019, reflecting a growth of 10.9%[111]. - As of November 30, 2020, approximately $585 million remained of a $600 million share repurchase authorization approved in November 2019[109].
McCormick(MKC_V) - 2020 Q4 - Annual Report