MCCORMICK & CO INC Q3 FY2026 earnings call

• Resilience and Growth: Delivered strong sales growth, margin expansion, and earnings, supported by solid base business performance and the McCormick de Mexico acquisition.
• Consumer Segment Dynamics: Volume trends improved sequentially in the Americas, with continued momentum in EMEA and Asia-Pacific. U.S. category consumption is soft in select areas but improving due to targeted actions like revenue growth management and innovation.
• Flavor Solutions Challenges: Organic growth was strong, but volumes were below expectations due to cyclical customer demand, muted food industry environment, and a cyclospora outbreak impacting QSRs in the U.S. Lower QSR foot traffic also pressured volumes in EMEA.
• Productivity Initiatives: Comprehensive Continuous Improvement (CCI) program and operational discipline are helping manage inflationary costs (inputs, freight) while expanding margins.
• Unilever Foods Integration: Integration planning is on track, with leadership teams established and synergy opportunities validated. Regulatory filings are submitted on schedule, supporting confidence in a timely close.
• Strategic Focus: Priorities include expanding distribution, accelerating portfolio renovation, refining revenue growth management, and increasing investment in brand marketing and innovation to drive long-term value.

Total net sales grew 17% in constant currency, driven by a 2% organic growth rate and contributions from the McCormick de Mexico acquisition. The Consumer segment saw constant currency sales increase 24%, with flat organic sales in the Americas (offset by pricing), 5% growth in EMEA, and 4% growth in Asia-Pacific. The Flavor Solutions segment experienced constant currency sales growth of 6%, including 3% organic growth driven by price and volume, with strong performance in Asia-Pacific (+8%) partially offsetting softer trends in the Americas and EMEA. Adjusted gross profit margin expanded 180 basis points year-over-year due to acquisition accretion, pricing, and productivity initiatives, despite higher freight costs. Adjusted operating income increased 22% (21% in constant currency). Consumer adjusted operating income rose 24% with flat margins, while Flavor Solutions adjusted operating income grew 18% (16% in constant currency) with a 120 basis point margin expansion.

• Organic Growth: Full-year organic growth expected to be between the low end and midpoint of the guidance range, reflecting stable volumes and positive pricing contributions, primarily from Flavor Solutions. Includes an approximate 30 basis point negative impact from a packaging supply constraint.
• Gross Margin: Maintaining full-year expectation of 100 to 120 basis points of expansion versus 2025, now expecting to be at the high end of this range. Cost inflation is now estimated at 6% to 7% (previously mid-single-digit).
• Operating Income and EPS: Expecting results to be at the midpoint of the range for the year. Fourth quarter implies year-over-year margin compression due to rising commodity/freight costs and commercial investments.
• Tariffs: Cost assumptions regarding the global 10% tariff remain unchanged; no meaningful impact expected from Canadian tariffs this year.
• Cash Flow and Balance Sheet: Expect strong cash flow from operations for the fiscal year. Leverage ratio was ~2.9x at quarter-end; post-Unilever Foods close, target leverage of 2.0-3.0x within two years, with $1.5-$2 billion available for debt paydown.

• Macroeconomic Pressures: Geopolitical volatility, elevated fuel costs, persistent inflation, and higher gas prices are influencing consumer confidence, spending, and price sensitivity.
• Cyclical Demand Volatility: Softer demand from CPG and QSR customers in the Americas and EMEA, exacerbated by a cyclospora outbreak in the U.S. and lower QSR foot traffic in the UK.
• Supply Chain Constraints: Short-term industry supply constraint on a specific packaging material may negatively impact total company volume growth by up to 1 percentage point in Q4. Freight capacity constraints and rising costs due to geopolitical conflicts (Middle East) and U.S. federal regulations are also noted.
• Competitive Environment: Value-conscious consumer behavior, trade-down effects in select segments, and intense competition in the U.S. herbs, spices, and seasonings categories require continuous execution of portfolio and pricing strategies.

Q: Analyst asked about the success of initial interventions in Consumer Americas and what additional actions are needed for Q4 volume improvement given slower-than-expected sequential gains. / A: CEO noted that while consumption improved, implementation speed was slower than desired due to coordination challenges with retailers. He highlighted early successes in U.S. red cap (core herb/spice) and hot sauce, but acknowledged pressure from higher beef/seafood prices and gas costs driving value-seeking behavior. For Q4, they expect greater impact from new price-pack architecture (e.g., Grillmates, Cooking Blends), increased search spend productivity, and sharper promotions/assortment optimization, particularly in cooking blends and recipe mixes.