McCormick (MKC +4%) is gaining traction today as investors react positively to its Q2 earnings results. The spice and condiment supplier posted its largest EPS beat in three years, with revenue slightly dipping 1% year-over-year to $1.64 billion, in line with expectations. McCormick also reaffirmed its FY24 EPS and revenue guidance.
- McCormick operates in two segments: Consumer (56% of 1HFY24 revenue) and Flavor Solutions (44%), which serves food manufacturers and foodservice customers. In Q2, volume growth in the Consumer segment was offset by declines in Flavor Solutions due to softness in some QSR and packaged food customer volumes.
- Consumer segment sales decreased 1% year-over-year to $904.5 million. However, volumes improved substantially from Q1. In the Americas, McCormick has shown solid sequential volume improvement for three consecutive quarters. Flavor Solutions segment sales also declined 1% to $738.8 million, where a 1% increase from pricing was offset by a 2% decline in volume and product mix. Despite pressures in certain parts of its Flavor Solutions business, McCormick expects volume trends to improve in the second half.
- Consumers continue to exhibit value-seeking behavior, particularly mid to low-income households, buying only what they need and making more frequent store trips. On a positive note, more consumers are cooking at home, benefiting categories like spices, seasonings, condiments, and sauces.
- The company is optimistic about the grilling season and expects its Flame and Flavor marketing campaign launched in Q2 to drive additional consumer demand. McCormick's Cholula salsas and recipe mixes, launched in 2023, are attracting new buyers and exceeding expectations. In 2024, McCormick plans to launch nearly four times more grilling rubs and seasonings compared to 2023. On the Flavor Solutions side, inflation in the foodservice channel is leading to reduced food-away-from-home consumption, impacting restaurant traffic, especially QSRs.
Overall, after some lackluster results in recent quarters, McCormick's performance in the first half of 2024 is a welcome change. The robust EPS beat and positive comments during the earnings call are likely driving today's share price increase. Given the lackluster share price since the Q1 report, the big EPS beat has generated significant excitement among investors.
