Dive Brief:
- McCormick & Co. said sales rose to $1.499 billion during its fourth quarter, compared with $1.491 billion in the same period a year earlier. Sales trailed estimates from analysts who were looking for $1.55 billion, according to MarketWatch. Net income increased to $214 million, compared with $176 million in the same three-month period last year.
- The Maryland spice maker said sales in its consumer segment rose less than 1% to $984.4 million, led by flat sales in the Americas. McCormick said the segment was slowed by inventory reductions of higher-margin holiday products.
- “Our focus on profitable growth and strengthening our organization is the foundation of our future," McCormick CEO Lawrence Kurzius said in a statement. "In 2019, we expect to deliver another strong year while continuing to make targeted investments and fuel our growth to build the McCormick of the future."
Dive Insight:
McCormick has long been a bright spot in the otherwise beleaguered CPG space where consumers are looking to eat healthier without sacrificing taste in their favorite foods. McCormick said sales rose 12% to $5.4 billion during its 2018 fiscal year, bucking a slide in revenue for many of the big-name food companies for which sales are slowing as consumers flock to fresher foods and offerings from smaller, more nimble upstarts.
While the spice and flavoring company expects sales growth to slow this year to between 1% and 3% through the roll out of new products, brand marketing and expanded distribution, the company's CEO said McCormick remains on solid footing.
We "have solid momentum heading into 2019," Kurzius said. "We are continuing to capitalize on the global and growing consumer interests in healthy, flavorful eating, the source and quality of ingredients, and sustainable practices."
Beyond the store shelf that houses brands such as Old Bay, Lawry's, Zatarain's and its namesake red-capped products, McCormick also has a robust business selling flavorings to other food companies and quick service restaurants, a segment that makes up roughly a third of its sales. During the quarter, sales in this segment edged $2.2 million higher than a year ago to $514.8 million.
Though the results were solid, McCormick's stock fell sharply in early trading on Thursday, plunging 11% to $123.84. The drop was tied to the fact that sales during the quarter grew less than 1%, falling short of Wall Street predictions. McCormick attributed challenges during the period to currency impacts and fewer higher margin holiday products at retailers in the Americas.
The company's tepid outlook could indicate some of these challenges may persist, or that slowing sales at other CPG companies — and potentially the entire U.S. economy — are starting to weigh on McCormick. The seasoning company is also facing rising expenses. Similar to other companies in the CPG space, McCormick expects to increase prices and lower expenses to offset a "low-single digit increase in costs."
Still, the spice and flavoring giant remains in a favorable position compared to its peers. Its $4.2 billion purchase in 2017 of Reckitt Benckiser's food division, the biggest deal in its history, has widely been viewed as a success. It expanded the company's reach on grocery store shelves and gave them inroads to expand its product lineup. McCormick took its Frank's RedHot sauce, added as part of the Reckitt Benckiser purchase, to the frozen foods space through the introduction of chicken wings. During the quarter, McCormick said Frank's and French's brands contributed 8% to the sales increase during the most recent period.
Going forward, McCormick will continue to innovate its existing product base. Kurzius said last fall that the company remains on the lookout for more deals to strengthen its portfolio amid growing consumer demand for flavor. McCormick aims to achieve a third of its growth from acquired brands.
"Every now and then we'll do a big one like (Reckitt Benckiser), but that's our long-term outlook," Kurzius told Food Dive last October. "For the near-term, ... we're going to spend a little bit more time paying down the debt and deleveraging, but we absolutely will be back on the market, and frankly for the right assets, we'd go back to the market today."