McCormick & Company, Incorporated (MKC Quick QuoteMKC - Free Report) reported fourth-quarter fiscal 2023 results, with the top and the bottom line increasing year over year. Earnings surpassed the Zacks Consensus Estimate while sales missed the same.

Results reflect impacts from pressured consumers displaying more value-seeking behavior, which hurt volumes. Nevertheless, focus on cost savings and effective price realization offered respite.

Quarter in Detail

Adjusted earnings of 85 cents per share increased from 73 cents reported in the year-ago quarter. The metric came above the Zacks Consensus Estimate of 79 cents per share. The year-over-year upside can be attributed to increased operating income and greater income from unconsolidated operations stemming from solid performance in the largest joint venture, McCormick de Mexico.

This global leader in flavor generated sales of $1,752.8 million, up 3% year over year. On a constant-currency (cc) basis, sales rose 2% on the back of a 5% increase from pricing actions, somewhat offset by a 3% volume decline. Gains from lapping of the year-ago period’s COVID-related disruption across China were completely offset by impacts from management’s strategic decisions to discontinue low-margin business and offload canning business in the Flavor Solutions unit. Volumes remained pressured in both segments, thanks to reduced consumption, as consumers displayed value-seeking behavior. The top line missed the Zacks Consensus Estimate of $1,784.5 million.

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McCormick’s gross profit margin expanded 320 basis points. The upside can be attributed to positive pricing actions and product mix and cost savings from Comprehensive Continuous Improvement (CCI) and Global Operating Effectiveness (GOE) programs. This was partly countered by escalated cost inflation.

Selling, general and administrative (SG&A) expenses escalated year over year due to elevated employee incentive compensation expenses and increased brand marketing costs, partly offset by cost savings from the abovementioned programs.

At cc, the adjusted operating income rose 11%, mainly backed by gross profit margin expansion, somewhat offset by increased SG&A expenses.

Segment Details

Consumer: Sales went up 1% to $1,048.6 million. On a cc basis, sales remained in line with the year-ago period, aided by a 4% rise in pricing actions offset by declines in volume to the tune of 4%. Sales dropped 4% in the Americas while increasing 18% and 28% in the Europe, Middle East and Africa (EMEA) and the Asia/Pacific, respectively.

Flavor Solutions: Sales in the segment advanced 7% to $704.2 million. On a cc basis, sales rose 5% due to pricing gains of 7%, somewhat offset by volume declines of 2%. Flavor Solutions’ sales in the Americas grew 7%. Flavor Solutions’ sales in the EMEA rose by 9%. Sales in the Asia/Pacific market ascended 3% year over year.

Financial Update

McCormick exited the quarter with cash and cash equivalents of $166.6 million, long-term debt of $3,339.9 million and total shareholders’ equity of $5,083.5 million. For the year ended Nov 30, 2023, net cash provided by operating activities was $1,237.3 million.

Fiscal 2024 Guidance

For the fiscal 2024, McCormick is focused on strengthening its volume trends and prioritizing investments to fuel profits. The company’s CCI and GOE programs are driving growth investments and operating margin expansion. Management anticipates currency rates to impact adjusted operating income and adjusted earnings per share (EPS) by nearly 1%.

For 2024, management expects sales to range between a 2% decline to flat year over year. At cc, sales are likely to be between 1% growth and a 1% decline. Management anticipates witnessing a favorable impact from pricing actions undertaken in the prior year. Volume trends are likely to improve on the back of solid brands and targeted investments. However, its decision to discontinue the low-margin business and sell the canning business is likely to put pressure on volume during 2024.

Management expects 2024 operating income to grow by 8-10%. Adjusted operating income is likely to grow 3-5% (up 4-6% at cc), courtesy of gross margin expansion somewhat offset by a major rise in brand marketing investments.

Management envisions 2024 adjusted EPS in the band of $2.80-$2.85. The bottom-line view suggests growth from $2.70 recorded in 2023. On a GAAP basis, McCormick projects 2024 earnings in the range of $2.76- $2.81 per share compared with the year-ago period figure of $2.52.

Stock Performance

This Zacks Rank #4 (Sell) stock has declined 26.9% in the past six months compared with the industry’s fall of 6.8%.

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