HUNT
VALLEY, Md., Sept. 7,
2022 /PRNewswire/ -- McCormick & Company,
Incorporated (NYSE:MKC), a global leader in flavor, today announced
preliminary financial results for the third quarter ended
August 31, 2022 and updated its
financial outlook for fiscal year 2022.
Preliminary Third Quarter 2022 Results
- Sales are expected to increase by approximately 3% in the
third quarter from the year-ago period. In constant currency, sales
are expected to increase by approximately 6% driven by growth in
both the Consumer and Flavor Solutions segments. Both comparisons
include an estimated 1% unfavorable impact from the divestiture of
the Company's Kitchen Basics business.
- Operating income is expected to be approximately
$223 million in the third quarter
compared to $265 million in the
year-ago period. Adjusted operating income is expected to be
approximately $226 million compared
to $272 million in the third quarter
of 2021.
- Earnings per share is expected to be approximately
$0.79 in the third quarter,
comparable to the year-ago period. Adjusted earnings per share is
expected to be approximately $0.65 as
compared to $0.80 in the year-ago
period.
- For fiscal year 2022, McCormick updated its sales, operating
income, and earnings per share outlook.
Chairman and CEO's Remarks
Lawrence E. Kurzius, Chairman and
CEO, stated, "Our third quarter sales were a record and while
strong fell short of our own expectations. Our results were led by
the continued growth momentum of our Flavor Solutions segment. We
divested our Kitchen Basics business during the quarter which
impacted our Consumer segment growth. Growth in the Consumer
segment was also tempered by the moderation of elevated consumption
trends that we anticipated in the second half of the year, which
occurred earlier than expected. Broad pressure on consumers' cost
of living from inflation has resulted in higher price elasticity
than expected, although still below historical levels. We are
increasing our brand marketing investments in our updated outlook
and are focusing its messaging on value, which we are confident,
combined with our innovation behind price pack architecture and
category management initiatives, will continue to drive growth.
Cooking at home remains higher than pre-pandemic levels,
reinforcing our expectation that the shift in consumer demand to
at-home-consumption will be sustained.
"During the third quarter, supply chain challenges continued,
and supply recovery of certain constrained materials has taken
longer than expected. We also continued to incur elevated costs to
meet high demand in some parts of our business, while in other
parts of our business, where demand has moderated, we are
experiencing lower operating leverage. Across the supply chain,
managing inventory levels and eliminating inefficiencies have been
a focus. Overall, the normalization of our supply chain costs is
taking longer than expected, pressuring gross margin. Over the
coming months, we will be aggressively driving the elimination of
supply chain inefficiencies.
"We remain confident that we are well positioned for the long
term and will successfully navigate this dynamic global environment
with our strong global portfolio and proven track record of
execution."
Preliminary Third Quarter 2022 Results
Third quarter sales are expected to increase approximately 3%
from the year-ago period, including an expected approximate 3%
unfavorable impact from currency. Sales growth is expected to be
driven by pricing actions the Company has realized, partially
offset by a decline in volume and product mix, including the impact
of the Kitchen Basics divestiture.
Third quarter sales are expected to grow at a constant currency
three-year compounded annual growth rate of approximately 7% for
the total Company off of a pre-pandemic baseline of 2019 showing
the sustained momentum in the business across both the Consumer and
Flavor Solutions segments.
Operating income is expected to be approximately $223 million in the third quarter of 2022
compared to $265 million in the third
quarter of 2021. Excluding special charges, as well as transaction
and integration expenses, adjusted operating income is expected to
be approximately $226 million
compared to $272 million in the
year-ago period. This decline is a result of gross margin
compression, primarily in our Flavor Solutions segment, with higher
brand marketing investments also contributing.
Earnings per share is expected to be approximately $0.79 in the third quarter of 2022, which is
comparable to the third quarter of 2021. The net favorable impact
of the gain on the sale of the Kitchen Basics business, special
charges and transaction and integration expenses is expected to
increase earnings per share by approximately $0.14 in the third quarter of 2022. Special
charges and transaction and integration expenses lowered earnings
per share by approximately $0.01 in
the third quarter of 2021. Excluding these impacts, adjusted
earnings per share is expected to be approximately $0.65 in the third quarter of 2022 compared to
$0.80 in the year-ago period. This
expected decrease is projected to primarily be driven by lower
adjusted operating income.
The Company has not yet completed its quarterly financial close
process for the third fiscal quarter of 2022. This update does not
present all necessary information for an understanding of
McCormick's financial condition as of the date of this release, or
its results of operations for the third quarter. As McCormick
completes its quarterly financial close process and finalizes its
financial statements for the quarter, it will be required to make
significant judgments in a number of areas. It is possible that the
Company may identify items that require adjustments to the
preliminary financial information set forth above and those changes
could be material. The Company intends to provide its full
financial results for the third quarter on October 6, 2022. Until that time, the preliminary
results described in this press release are estimates and remain
subject to change based on management's ongoing review of results
of the quarter and completion of its quarterly financial close
process.
Fiscal Year 2022 Financial Outlook
For fiscal year 2022, McCormick updated its financial outlook to
reflect its preliminary third quarter results, moderation of
consumption trends earlier than expected, slower supply chain cost
normalization, the divestiture of the Kitchen Basics business, and
a more unfavorable impact of foreign currency rates.
The Company expects foreign currency rates in 2022 to
unfavorably impact net sales by 3%, as compared to 2% in its
previous financial outlook, and continues to expect adjusted
operating income and adjusted earnings per share to be impacted
unfavorably by 2%.
The Company expects 2022 sales to range from comparable to 2021
to an increase of 2%, which in constant currency is sales growth of
3% to 5%. These comparisons include an unfavorable impact from the
divestiture of the Company's Kitchen Basics business. The Company
previously expected to grow sales 3% to 5%, or 5% to 7% in constant
currency.
McCormick is projecting 2022 gross profit margin to be 330 to
280 basis points lower than 2021. In 2021, $11 million of special charges and transaction
and integration expenses lowered the Company's gross margin.
Excluding this impact, the Company is projecting 2022 gross profit
margin to be 350 to 300 basis points lower than 2021, primarily
driven by the Company's Flavor Solutions segment. This projection
includes the Company's reaffirmation of its previous expectation of
an increase in cost inflation in the high teens.
Operating income in 2022 is expected to decline 10% to 8% from
$1.02 billion in 2021. The Company
expects approximately $46 million of
special charges in 2022 that relate to previously approved
organization and streamlining actions as well as integration
expenses related to the FONA acquisition of approximately
$2 million in 2022. Excluding the
impact of special charges and transaction and integration expenses
in 2022 and 2021, the Company projects adjusted operating income to
decline 13% to 11%, which in constant currency is 11% to 9%. The
revised guidance is driven by the updated sales and adjusted gross
margin outlooks as well as a higher level of brand marketing
investments, which is now projected to be a low single digit
increase compared to 2021. The Company's projection also includes
reaffirmation of its previous expectation of approximately
$85 million of cost savings led by
the Company's Comprehensive Continuous Improvement (CCI) program.
The Company previously expected adjusted operating income to range
from comparable to an increase of 2%, or 2% to 4% in constant
currency.
McCormick projects earnings per share to be in the range of
$2.64 to $2.69, compared to $2.80 in 2021. The Company expects the net
favorable impact of the gain on the sale of the Kitchen Basics
business, special charges and transaction and integration expenses
to increase earnings per share by approximately $0.01 in 2022. Excluding these impacts, the
Company projects 2022 adjusted earnings per share to be in the
range of $2.63 to $2.68, as compared to previously reported
guidance of $3.03 to $3.08 and adjusted earnings per share of
$3.05 in 2021. The revised guidance
is driven by the updated adjusted operating income outlook and
includes an approximate $0.02
unfavorable impact from the divestiture of the Kitchen Basics
business.
McCormick will report its full third quarter 2022 financial
results and conduct a related conference call and webcast on
Thursday, October 6, 2022, at
8:00 a.m. Eastern Time.
Non-GAAP Financial Measures
The tables below include financial measures of adjusted
operating income, adjusted operating income margin, and adjusted
diluted earnings per share. These represent non-GAAP financial
measures which are prepared as a complement to our financial
results prepared in accordance with United States generally accepted accounting
principles. These financial measures exclude the impact, as
applicable, of the following:
Special charges – In our consolidated income statement, we
include a separate line item captioned "Special charges" in
arriving at our consolidated operating income. Special charges
consist of expenses associated with certain actions undertaken by
the Company to reduce fixed costs, simplify or improve processes,
and improve our competitiveness and are of such significance in
terms of both up-front costs and organizational/structural impact
to require advance approval by our Management Committee. Upon
presentation of any such proposed action (including details with
respect to estimated costs, which generally consist principally of
employee severance and related benefits, together with ancillary
costs associated with the action that may include a non-cash
component or a component which relates to inventory adjustments
that are included in cost of goods sold; impacted employees or
operations; expected timing; and expected savings) to the
Management Committee and the Committee's advance approval, expenses
associated with the approved action are classified as special
charges upon recognition and monitored on an ongoing basis through
completion.
Transaction and integration expenses associated with the Cholula
and FONA acquisitions – We exclude certain costs associated with
our acquisitions of Cholula and FONA in November and December 2020, respectively, and their subsequent
integration into the Company. Such costs, which we refer to as
"Transaction and integration expenses", include transaction costs
associated with each acquisition, as well as integration costs
following the respective acquisition, including the impact of the
acquisition date fair value adjustment for inventories, together
with the impact of discrete tax items, if any, directly related to
each acquisition.
Income from sale of unconsolidated operations – We exclude the
gain realized upon our sale of an unconsolidated operation that
occurred during the second quarter of fiscal 2021. The sale of our
26% interest in Eastern Condiments Private Ltd resulted in a gain
of $13.4 million, net of tax of
$5.7 million. The gain is included in
Income from unconsolidated operations in our consolidated income
statement for the year ended November 30,
2021.
Gain on sale of Kitchen Basics - We exclude the expected gain
realized upon our sale of the Kitchen Basics business in
August 2022. For the three months
ended August 31, 2022, we expect a
gain, after tax, associated with the sale of approximately
$40 million.
We believe that these non-GAAP financial measures are important.
The exclusion of the items noted above provides additional
information that enables enhanced comparisons to prior periods and,
accordingly, facilitates the development of future projections and
earnings growth prospects. This information is also used by
management to measure the profitability of our ongoing operations
and analyze our business performance and trends.
These non-GAAP financial measures may be considered in addition
to results prepared in accordance with GAAP, but they should not be
considered a substitute for, or superior to, GAAP results. In
addition, these non-GAAP financial measures may not be comparable
to similarly titled measures of other companies because other
companies may not calculate them in the same manner that we do. We
intend to continue to provide these non-GAAP financial measures as
part of our future earnings discussions and, therefore, the
inclusion of these non-GAAP financial measures will provide
consistency in our financial reporting. A reconciliation of these
non-GAAP financial measures to the related GAAP financial measures
is provided below (expected amounts for the three months ended
August 31, 2022):
(in millions except per
share data)
|
Three Months
Ended
|
|
8/31/22
|
8/31/21
|
Operating
income
|
$ 223
|
$ 265.2
|
Impact of transaction
and integration expenses
|
—
|
1.3
|
Impact of special
charges
|
3
|
5.8
|
Adjusted operating
income
|
$ 226
|
$272.3
|
|
|
|
Earnings per share –
diluted
|
$0.79
|
$0.79
|
Impact of transaction
and integration expenses
|
—
|
—
|
Impact of special
charges
|
0.01
|
0.01
|
Impact of gain on sale
of Kitchen Basics
|
(0.15)
|
—
|
Adjusted earnings per
share - diluted
|
$0.65
|
$0.80
|
Because we are a multi-national company, we are subject to
variability of our reported U.S. dollar results due to changes in
foreign currency exchange rates. Those changes have been volatile
over the past several years. The exclusion of the effects of
foreign currency exchange, or what we refer to as amounts expressed
"on a constant currency basis", is a non-GAAP measure. We believe
that this non-GAAP measure provides additional information that
enables enhanced comparison to prior periods excluding the
translation effects of changes in rates of foreign currency
exchange and provides additional insight into the underlying
performance of our operations located outside of the U.S. It should
be noted that our presentation herein of amounts and percentage
changes on a constant currency basis does not exclude the impact of
foreign currency transaction gains and losses (that is, the impact
of transactions denominated in other than the local currency of any
of our subsidiaries in their local currency reported results).
Percentage changes in sales expressed on a constant currency
basis are presented excluding the impact of foreign currency
exchange. To present this information for historical periods,
current period results for entities reporting in currencies other
than the U.S. dollar are translated into U.S. dollars at the
average exchange rates in effect during the corresponding period of
the comparative year, rather than at the actual average exchange
rates in effect during the current fiscal year. As a result, the
foreign currency impact is equal to the expected current year
results in local currencies multiplied by the change in the average
foreign currency exchange rate between the current fiscal period
and the corresponding period of the comparative year. The following
provides our expected increase in sales for the third quarter of
2022.
|
Estimate for the
Quarter Ended August 31, 2022
|
Percentage change in
net sales
|
3 %
|
Impact of unfavorable
foreign currency exchange
|
3 %
|
Percentage change in
net sales in constant currency
|
6 %
|
To present "constant currency" information for the fiscal year
2022 projection, projected sales and adjusted operating income for
entities reporting in currencies other than the U.S. dollar are
translated into U.S. dollars at the company's budgeted exchange
rates for 2022 and are compared to the 2021 results, translated
into U.S. dollars using the same 2022 budgeted exchange rates,
rather than at the average actual exchange rates in effect during
fiscal year 2021.
|
Projection for the Year
Ending November 30, 2022
|
Percentage change in
net sales
|
0% to 2%
|
Impact of unfavorable
foreign currency exchange
|
3 %
|
Percentage change in
net sales in constant currency
|
3% to 5%
|
|
|
Percentage change in
adjusted operating income
|
(13)% to
(11)%
|
Impact of unfavorable
foreign currency exchange
|
2 %
|
Percentage change in
adjusted operating income in
constant currency
|
(11)% to
(9)%
|
The following provides a reconciliation of our estimated
earnings per share to adjusted earnings per share for 2022 and
actual results for 2021:
|
Twelve Months
Ended
|
|
2022
Projection
|
|
11/30/21
|
Earnings per share -
diluted
|
$2.64 to
$2.69
|
|
$
2.80
|
Impact of transaction
and integration expenses
|
0.01
|
|
0.14
|
Impact of special
charges
|
0.13
|
|
0.16
|
Impact of sale of
Kitchen Basics
|
(0.15)
|
|
—
|
Impact of sale of
unconsolidated operation
|
—
|
|
(0.05)
|
Adjusted earnings per
share - diluted
|
$2.63 to
$2.68
|
|
$
3.05
|
Live Webcast
As previously announced, McCormick will be participating in the
Barclays Global Consumer Staples Conference on September 8, 2022, at 11:15 a.m. Eastern Time. Representing McCormick
will be Lawrence Kurzius, Chairman
& CEO; Brendan Foley, President
& COO; and Mike Smith, Executive
Vice President & CFO. A live audio webcast of the session will
be available on the McCormick website ir.mccormick.com. If you are
unable to listen to the live webcast, the event will be archived on
ir.mccormick.com.
As a reminder, McCormick is scheduled to conduct a conference
call and webcast of its third quarter 2022 financial results on
October 6, 2022, at 8:00 a.m. Eastern Time. Lawrence Kurzius, Chairman & CEO;
Mike Smith, Executive Vice President
& CFO; Brendan Foley, President
& COO; and Kasey Jenkins, Chief
Strategy Officer & Senior Vice President, Investor Relations
will be hosting the call.
Forward-Looking Information
Certain information contained in this release, including
statements concerning expected performance, such as those relating
to net sales, operating income, gross margin, earnings, cost
savings, transaction and integration expenses, special charges,
acquisitions, brand marketing support, volume and product mix,
income tax expense and the impact of foreign currency rates are
"forward-looking statements" within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended. These statements
may be identified by the use of words such as "may," "will,"
"expect," "should," "anticipate," "intend," "believe" and "plan."
These statements may relate to: the impact of the COVID-19 pandemic
on our business, suppliers, consumers, customers, and employees;
disruptions or inefficiencies in the supply chain; the expected
results of operations of businesses acquired by the company,
including the acquisitions of Cholula and FONA; the expected impact
of the inflationary cost environment, including commodity,
packaging materials and transportation costs on our business; the
expected impact of pricing actions on the company's results of
operations and gross margins; the expected impact of factors
affecting our supply chain, including transportation capacity,
labor shortages, and absenteeism; the expected impact of
productivity improvements, including those associated with our
Comprehensive Continuous Improvement (CCI) program and global
enablement initiative; the impact of the Russia-Ukraine conflict, including the potential for
broader economic disruption; expected working capital improvements;
expectations regarding growth potential in various geographies and
markets, including the impact from customer, channel, category, and
e-commerce expansion; expected trends in net sales and earnings
performance and other financial measures; the expected timing and
costs of implementing our business transformation initiative, which
includes the implementation of a global enterprise resource
planning (ERP) system; the expected impact of accounting
pronouncements; the expectations of pension and postretirement plan
contributions and anticipated charges associated with those plans;
the holding period and market risks associated with financial
instruments; the impact of foreign exchange fluctuations; the
adequacy of internally generated funds and existing sources of
liquidity, such as the availability of bank financing; the
anticipated sufficiency of future cash flows to enable the payments
of interest and repayment of short- and long-term debt as well as
quarterly dividends and the ability to issue additional debt
securities; and expectations regarding purchasing shares of
McCormick's common stock under the existing repurchase
authorization.
These and other forward-looking statements are based on
management's current views and assumptions and involve risks and
uncertainties that could significantly affect expected results.
Results may be materially affected by factors such as: the
company's ability to drive revenue growth; the company's ability to
increase pricing to offset, or partially offset, inflationary
pressures on the cost of our products; damage to the company's
reputation or brand name; loss of brand relevance; increased
private label use; product quality, labeling, or safety concerns;
negative publicity about our products; actions by, and the
financial condition of, competitors and customers; the longevity of
mutually beneficial relationships with our large customers; the
ability to identify, interpret and react to changes in consumer
preference and demand; business interruptions due to natural
disasters, unexpected events or public health crises, including
COVID-19; issues affecting the company's supply chain and
procurement of raw materials, including fluctuations in the cost
and availability of raw and packaging materials; labor shortage,
turnover and labor cost increases; the impact of the Russia-Ukraine conflict, including the potential for
broader economic disruption; government regulation, and changes in
legal and regulatory requirements and enforcement practices; the
lack of successful acquisition and integration of new businesses;
global economic and financial conditions generally, availability of
financing, interest and inflation rates, and the imposition of
tariffs, quotas, trade barriers and other similar restrictions;
foreign currency fluctuations; the effects of increased level of
debt service following the Cholula and FONA acquisitions as well as
the effects that such increased debt service may have on the
company's ability to borrow or the cost of any such additional
borrowing, our credit rating, and our ability to react to certain
economic and industry conditions; risks associated with the
phase-out of LIBOR; impairments of indefinite-lived intangible
assets; assumptions we have made regarding the investment return on
retirement plan assets, and the costs associated with pension
obligations; the stability of credit and capital markets; risks
associated with the company's information technology systems,
including the threat of data breaches and cyber-attacks; the
company's inability to successfully implement our business
transformation initiative; fundamental changes in tax laws;
including interpretations and assumptions we have made, and
guidance that may be issued, and volatility in our effective tax
rate; climate change; Environmental, Social and Governance (ESG)
matters; infringement of intellectual property rights, and those of
customers; litigation, legal and administrative proceedings; the
company's inability to achieve expected and/or needed cost savings
or margin improvements; negative employee relations; and other
risks described in the company's filings with the Securities and
Exchange Commission.
Actual results could differ materially from those projected in
the forward-looking statements. The company undertakes no
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as may be required by law.
About McCormick
McCormick & Company, Incorporated is a global leader in
flavor. With over $6 billion in
annual sales across 170 countries and territories, we manufacture,
market and distribute spices, seasoning mixes, condiments and other
flavorful products to the entire food industry including e-commerce
channels, grocery, food manufacturers and foodservice businesses.
Our most popular brands with trademark registrations include
McCormick, French's, Frank's RedHot, Stubb's, OLD BAY, Lawry's,
Zatarain's, Ducros, Vahiné, Cholula, Schwartz, Kamis, DaQiao, Club
House, Aeroplane and Gourmet Garden. Every day, no matter where or
what you eat or drink, you can enjoy food flavored by
McCormick.
Founded in 1889 and headquartered in Hunt Valley, Maryland USA, McCormick is guided
by our principles and committed to our Purpose – To Stand Together
for the Future of Flavor. McCormick envisions A World United by
Flavor where healthy, sustainable and delicious go hand in hand. To
learn more, visit www.mccormickcorporation.com or follow McCormick
& Company on Twitter, Instagram and LinkedIn.
For information contact:
Investor Relations:
Kasey Jenkins -
kasey_jenkins@mccormick.com
Corporate Communications:
Lori Robinson -
lori_robinson@mccormick.com
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SOURCE McCormick & Company, Incorporated