MCCORMICK & CO INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Fourth Quarter Performance: Total organic sales up 2%, driven by Consumer segment volume growth. Americas Consumer had over 5% volume growth, EMEA drove positive volume growth, while APAC was impacted by China. Flavor Solutions volumes flat due to CPG and QSR softness.
• Areas of Success: Global Consumer segment executed plans with investment in core categories, Americas saw unit/volume/dollar consumption growth, Spices/Seasonings had solid growth, Recipe Mixes strengthened trends, Mustard and Hot Sauce showed gains, and e-commerce had double-digit growth. Flavor Solutions had strength in Flavors and Branded Foodservice.
• Areas of Pressure: Asia Pacific Consumer (China) challenged, Flavor Solutions CPG and QSR softness, EMEA geopolitical impact and QSR traffic softness.
• Full Year Performance: Successfully delivered on goals, total organic sales growth near high end of guidance, consumer business had 1% volume growth, margin expansion in line with guidance, and Flavor Solutions operating margins advanced.
• Consumer Trends: Demand for flavor remains strong, focus on core categories, hot and spicy trends, and digital transformation support.

Segment Performance

• Consumer Segment: Fourth quarter organic sales increased 3%, with volume growth of 4% partially offset by price investments. Americas Consumer had over 5% volume growth, EMEA saw 3% organic sales growth with 5% volume growth, while APAC Consumer declined 10% due to China's challenging environment.
• Flavor Solutions Segment: Fourth quarter organic sales increased 1%, with Americas Flavor Solutions flat due to CPG and QSR softness, EMEA down 4% due to similar issues, and APAC up 6% driven by QSR promotions.

Guidance

• 2025 Outlook: Organic net sales growth 1%-3%, volume-led with minimal pricing. China consumer sales expected to slightly recover. Gross margin projected 50-100 basis points higher than 2024. SG&A benefits from cost savings partially offset by brand marketing investments. Adjusted operating income expected to grow 4%-6% in constant currency. Tax rate expected ~22%. Income from unconsolidated operations expected to decline mid-teens due to USD-MXN exchange rate.

Risks

• China Market: Continued weak consumer sentiment and slower demand in food away-from-home.
• Flavor Solutions: Soft volumes in CPG and QSR, especially in EMEA, impacted by geopolitical issues.
• Currency Fluctuations: Impact on unconsolidated operations, particularly from USD-MXN exchange rate.

Question and Answer

Q: Consumer organic sales strength and momentum into 2025?

A: Attributed to investments in brand marketing, innovation, expanded distribution, and price gap management. Continuation of growth via increased brand marketing, innovation, and renovation plans.

Q: Fiscal 2025 reinvestment and guidance?

A: Reinvestment in technology, ERP implementation, AI, and data analytics. Guidance reflects volume-driven plan with balanced growth between segments, considering China and QSR softness.

Q: Flavor Solutions new customers and Europe outlook?

A: Strength in higher growth innovator customers in certain categories. Europe Consumer segment has strong plans, Flavor Solutions expects gradual improvement with some geopolitical impacts.

Q: China expectations and Q4 operating income?

A: China expected to gradually recover. Q4 operating income impacted by shifted technology expenses and SG&A investments, but in line with expectations.

Q: Price gaps and consumer meal-related items?

A: Price gap management maintained as in 2024. Meal-related items benefit from consumer cooking at home and focus on healthier eating.

Q: Margin expansion and segment progression?

A: Gross margin expected to expand 50-100 basis points in 2025 due to CCI, technology, and portfolio mix. Flavor Solutions expected to drive more margin growth.

Q: US CPG vs Consumer segment dichotomy?

A: Healthy growth in consumer segments, early execution, and focus on heat and condiments contribute to strength.

Q: Brand marketing plans and JV income?

A: Brand marketing spend to increase high single-digits, even across quarters. JV income impacted by FX, but underlying business in Mexico is strong.

Q: Earnings cadence and JV currency impact?

A: Top line consistent across quarters, OP shift between Q1 and Q2. JV income decline due to FX, but underlying business in Mexico is growing.