Investors are showing interest in McCormick (MKC, Financial) as the company exceeded bottom-line estimates for Q3 (Aug) for the second consecutive quarter and slightly raised its FY24 (Nov) outlook. Despite the positive financials, the market's initial reaction was mixed due to contrasting trends in at-home and away-from-home consumption.
MKC's revenue is almost equally split between its Consumer and Flavor Solutions segments. While grocery price inflation is easing, dining-out costs continue to rise, encouraging more people to cook at home. This dynamic impacts MKC's revenue growth.
- Sales were nearly flat year-over-year, declining by 0.3% to $1.68 billion. However, volumes increased by 1%, a significant milestone after periods of negative growth, driven by strength in the Consumer segment. Volume gains were consistent across most regions, except China, which remains challenging. Management expects this trend to continue through the year.
- MKC's bottom line expanded by over 27% year-over-year to $0.83, with a 170 bps improvement in gross margins, highlighting effective price hikes without significantly affecting volumes.
- In Flavor Solutions, sales dropped by 1% year-over-year. The EMEA and APAC regions saw declines of 8% and 1%, respectively. However, the Americas experienced a 2% sales increase, supporting consolidated volumes, which improved sequentially.
- MKC noted that consumers are still facing challenges, showing value-seeking behavior and reducing their grocery store basket sizes. Food service traffic remains sluggish, particularly in the quick-service restaurant sector, affecting companies like MCD, WEN, QSR, JACK, SHAK, and YUM, all of which are set to report earnings soon.
- As a result, MKC's updated FY24 guidance remains cautious, projecting adjusted EPS of $2.85-2.90, up from $2.80-2.85, and revenue growth from negative 1% to positive 1%, up from negative 2% to flat. The company is optimistic about the increasing trend of at-home cooking, especially among younger generations replicating gourmet restaurant dishes. MKC also outperformed private label volumes in the quarter, showcasing its competitive edge.
Crosscurrents are affecting MKC's quarterly results and may continue to do so until inflation normalizes. However, MKC is leveraging the rise in at-home cooking while maintaining its competitive advantages over private-label alternatives.
