Is McCormick's Flavor Fading?
McCormick & Company Inc. (NYSE:MKC) surpassed first-quarter 2022 projections, and trends from 2021 look promising, so why are investors growing concerned?
On Tuesday, the maker of seasonings released its earnings results for the first quarter of 2022, ended Feb. 28. The results included adjusted earnings of $170 million, or 63 cents per share, beating analysts estimates of $162.6 million, or 62 cents a share. Sales of $1.52 billion also topped projections of $1.47 billion.
McCormick is still gliding in the slipstream of the pandemic-induced consumer tendency to dine at home, but that likely wont last. At the same time, inflation continues to be a major concern. Cracks are already beginning to appear in the bull case.
In fact, despite beating estimates overall, the sales for the consumer segment dropped 2%. Chairman, President and CEO Lawrence Kurzius noted during a Tuesday conference call with analysts that this was a sobering statistic when compared to the 35% gain achieved in the prior-year quarter.
Shares have risen 7% over the course of the last 12 months. The stock was mostly flat on Tuesday on the mixed results, gaining around 0.29% by midday trading to a price of $97.18.
Kurzius said, "In our first quarter, we delivered solid financial results in line with our expectations. We grew constant currency sales 4% on top of 20% constant currency growth in the first quarter of last year, demonstrating our broad and advantaged global flavor portfolio, as well as the effective execution of our pricing actions... The profit driven by our sales growth was more than offset by higher inflation and broad-based supply chain challenges. We continue to operate in a highly inflationary environment and expect to fully offset cost pressures over time using pricing and other levers as we have in the past.
McCormicks consumer segment sales, while impacted by lapping high year-ago demand, continued to reflect the sustained shift to higher at-home consumption compared to pre-pandemic levels, the company said. Its flavor solutions segment growth was driven by the strong performance serving its packaged food and beverage customers as well as robust demand from restaurant and other foodservice customers, due in part to lapping curtailed away-from-home dining in the year-ago period.
For the 2022 fiscal year, McCormick reiterated its financial outlook for sales, operating income and earnings per share. Management expects to grow sales by 3% to 5% compared to 2021, which in constant currency is 4% to 6%. McCormick expects sales growth to be driven by brand marketing, new products, category management and differentiated customer engagement, as well as pricing actions, which in conjunction with cost savings, are expected to offset anticipated inflationary pressures.
Operating income in 2022 is expected to grow by 13% to 15% from $1.02 billion in 2021. The company anticipates integration expenses related to the FONA acquisition of approximately $3 million in 2022. In addition, McCormick expects approximately $30 million of special charges in 2022 that relate to previously announced organization and streamlining actions.
This article first appeared on GuruFocus.
