McCormick's Q1 Results: A Mixed Bag with Positive Outlook for FY25

McCormick (MKC -1%) saw a dip in its stock after reporting a Q1 EPS miss, ending an eight-quarter streak of meeting or exceeding expectations. Revenue for Q1 rose 0.2% year-over-year to $1.61 billion, aligning with expectations but falling short of previous quarters' performance. Despite this, McCormick reaffirmed its FY25 guidance.

• McCormick operates two segments: Consumer (57% of FY24 revenue, 69% of operating income) and Flavor Solutions (43% of revenue, 31% of operating income). The Consumer segment generally has higher margins. Q1 organic sales grew by 2%, driven by volume and product mix.
• Consumer segment sales were flat year-over-year at $919 million, with a 1% organic growth. Volume/mix increased by 3%, while pricing decreased by 2%. The company faced tougher comparisons due to prior price gap management investments. Targeted promotions in the Americas and slight improvements in China consumer sales were noted.
• Flavor Solutions segment sales grew by 1% to $686 million, with a 3% organic increase. Volume and product mix rose by 2%, and pricing increased by 1%. Growth was driven by strong performance with Flavor customers and improved QSR growth, though offset by weaker CPG customer volumes.
• McCormick noted rising consumer uncertainty and inflation concerns impacting sentiment, with consumers becoming more cautious and value-focused, especially in key markets including the US.
• To address US import tariffs on China, McCormick plans cost savings and selective price adjustments, aiming to maintain brand competitiveness. For FY25, the company anticipates a 0-2% sales growth (1-3% in constant currency), expecting a gradual recovery and slight improvement in China consumer sales.

Overall, Q1 results reflected cautious consumer behavior, although increased home dining is beneficial for McCormick. Noteworthy were the improved QSR growth and slight uptick in China sales, which were previously areas of concern. McCormick's reaffirmation of FY25 guidance despite the Q1 EPS miss and modest sales growth is seen as a positive indicator, contributing to the stock's resilience.