Release Date: October 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- McCormick & Co Inc (MKC, Financial) achieved positive volume growth in the third quarter despite a challenging environment.
- The company saw solid sequential volume improvement in the Americas consumer segment for the third consecutive quarter.
- EMEA and Asia Pacific regions also experienced positive volume growth, driven by new product innovation and expanded distribution.
- Gross profit margin expanded by 170 basis points year-over-year, driven by favorable mix and cost-saving initiatives.
- McCormick & Co Inc (MKC) expects to achieve the mid- to high end of its constant currency sales growth guidance for 2024.
Negative Points
- Sales were flat in constant currency, reflecting flat pricing and a 1% volume increase, impacted by the canning divestiture.
- The environment in China remains challenging, with lower demand impacting the company's performance in the region.
- QSR traffic remains soft, particularly in EMEA, affecting volume trends in the flavor solutions segment.
- The company anticipates a slight negative impact from pricing in the consumer segment in the fourth quarter.
- Cash flow from operations decreased to $463 million in the first nine months of 2024, compared to $660 million in 2023, due to higher working capital and increased incentive compensation payments.
Q & A Highlights
Q: Brendan, it's certainly nice to see the continued sequential volume improvement in consumer, especially in the Americas. Are you seeing the expected magnitude of volume lift from the pricing actions and investments you've made? And if so, would there be a reason to lean in even further to keep the momentum going?
A: Yes, we are on track with our expectations and have turned the corner in growing volume. We're outperforming private label in volume across all core categories and making good progress in flavor solutions, especially in the Americas. Our programs, including increased brand marketing, innovation, and expanded distribution, are working as planned. However, we remain cautious due to the dynamic consumer environment, particularly in China and QSR trends.
Q: I think you mentioned that your prepared foods business in the Americas, which had been weaker, was stabilizing. Can you provide more insight into this and the broader industry trends?
A: Our customer plans are performing as expected, with improvement compared to the second quarter. We saw good results in our Flavors business, particularly with high innovator growth customers in categories like Performance Nutrition and beverages. However, QSR traffic remains weak, adding some uncertainty. We expect sequential improvement in the fourth quarter.
Q: Mike, thanks again for everything. Can you clarify the impact of the timing of customer activities on 3Q results and how it will reflect in 4Q?
A: Yes, there was a positive impact in 3Q from the timing of customer activities, which will normalize in 4Q. This shift was anticipated and is part of our overall performance.
Q: Is there any reason to think you won't be on your long-term algorithm for 2025, considering the current environment and your investments?
A: While we're not ready to provide 2025 guidance, we believe our current programs and investments are the right ones to drive growth. We will share more details at our upcoming Investor Day.
Q: Can you explain the gross margin guidance for Q4, given the strong performance in Q3?
A: We expect Q4 gross margin to be higher than Q3, continuing the sequential improvement. However, year-over-year, it will be flat due to factors like supply chain investments and pricing impacts. Overall, our second-half profitability remains in line with expectations.
Q: Brendan, can you provide your perspective on the recent stimulus policy in China and its potential impact on consumer demand?
A: We expect the environment in China to remain broadly challenged, with our business likely down slightly in 2024. Previous stimulus actions haven't had a material impact on our business, and we are cautious about predicting the effects of the latest news.
Q: Can you discuss the margin recovery in flavor solutions and the drivers behind it?
A: The margin recovery in flavor solutions is driven by product mix, particularly growth in branded foodservice and high-margin categories like Performance Nutrition. Our continuous improvement programs also contribute to margin improvement.
Q: What is driving the growth in branded foodservice, given the subdued QSR traffic?
A: Our growth in branded foodservice is driven by gaining share, expanding tabletop placements, and running successful limited-time offers with our brands. These programs are performing well despite the challenging market conditions.
Q: Can you explain the expected SG&A step-up in Q4 and its impact on operating profit?
A: The SG&A increase in Q4 is due to investments in IT and digital transformation, as well as brand marketing. These investments are necessary to drive top-line growth and are part of our long-term strategy.
Q: How do you view the pricing lever in your long-term algorithm, given the current inflation environment?
A: Pricing will continue to be a part of our long-term algorithm, but we also rely on our continuous improvement programs to fund investments and drive growth. We manage our P&L holistically, balancing pricing, cost savings, and volume growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
