HUNT VALLEY, Md.-- McCormick & Company, Incorporated (NYSE:MKC), a global leader in flavor, today reported financial results for the third quarter ended August 31, 2023 and reaffirmed fiscal 2023 sales and operating profit outlook.
Sales increased 6% in the third quarter from the year-ago period. In constant currency, sales also grew 6%. Both comparisons include a 1% unfavorable impact attributable to a slower economic recovery in China.
Operating income was $245 million in the third quarter compared to $235 million in the year-ago period. Adjusted operating income was $251 million, a 5% increase from $239 million in the year-ago period.
Earnings per share was $0.63 in the third quarter as compared to $0.82 in the year-ago period. Adjusted earnings per share was $0.65 compared to $0.69 in the year-ago period.
Cash flow from operations through the third quarter of 2023 was $660 million compared to $250 million in the year-ago period.
For fiscal year 2023, McCormick reaffirmed its sales and operating profit outlook and increased its adjusted earnings per share outlook.
President and CEO's Remarks
Brendan M. Foley, President and CEO, stated, 'We drove another quarter of strong performance, reflecting sustained demand and effective execution of our growth strategies across our Consumer and Flavor Solutions segments, reinforcing the confidence that we have in our competitive advantages and differentiation. Our results reflect strong underlying business trends that were in line with our expectations across our business, notwithstanding our Consumer segment in APAC, where the pace of China's economic recovery has been slower than anticipated. We remain confident in our ability to deliver on our outlook and in the sustained trajectory of our business.
'We drove 6% sales growth in the third quarter, reflecting continued effective price realization and an improvement in our underlying business volume trends. Our performance underscores the strength of our brands and categories, as well as the power of our marketing, category management, differentiated customer engagement, and new products. In our Consumer segment, sales growth in the Americas and EMEA regions was partially offset by an unfavorable China impact. In Flavor Solutions, our exceptional performance continued, we delivered our tenth consecutive quarter of constant currency double-digit sales growth. Across our broad portfolio, we are continuing to capitalize on strong demand and deliver on our growth plans.
'We drove significant improvement in our third quarter gross margin performance relative to last year. This improvement reflects the continued recovery of the cost inflation that our pricing lagged last year as well as cost savings from our CCI and GOE programs. Our focus on increasing our profit realization is driving results.
'As we look ahead, we remain committed to our long-term financial algorithm and driving sustained value creation through top line growth and margin expansion. We are excited about the opportunities for future growth in both segments to advance our leadership position and differentiation. We will continue to innovate and renovate and drive industry-leading brand marketing, customer engagement and category management. We will also diligently optimize our cost structure to drive long-term profitable growth.
'Importantly, we will continue to leverage the strength of our culture and the power of people to build the next generation of leaders and capabilities. This is one of our most important commitments, as our teams around the world drive our momentum and success, and I am grateful for and energized by both their ongoing contributions and the results that they are driving. Our business fundamentals remain strong, and we are confident we will continue to not only deliver strong sales growth, but also drive total shareholder return at an industry-leading pace.'
Third Quarter 2023 Results
McCormick reported 6% sales growth in the third quarter from the year-ago period, with minimal currency impact. Constant currency sales growth reflected an 8% increase from pricing actions, partially offset by a 2% volume and mix decline attributable to the impact of a slower than expected economic recovery in China, the Kitchen Basics divestiture, the exit of the Consumer business in Russia, and the Company's strategic decisions to discontinue low margin business. All other volume and product mix was flat to the third quarter of the prior year.
Gross profit margin expanded 150 basis points versus the third quarter of last year. This expansion was driven by pricing actions and cost savings led by the Company's Comprehensive Continuous Improvement (CCI) and Global Operating Effectiveness (GOE) programs partially offset by cost inflation. Selling, general, and administrative expenses increased from the year-ago period driven by an increase in employee incentive compensation expense as well as higher distribution and brand marketing costs partially offset by CCI-led and GOE cost savings.
Operating income increased to $245 million in the third quarter of 2023 compared to $235 million in the third quarter of 2022. Excluding special charges, adjusted operating income was $251 million in the third quarter of 2023 compared to $239 million in the year-ago period. In constant currency, adjusted operating income increased 5% from the year-ago period driven by the favorable impact of higher sales and gross margin expansion partially offset by higher selling, general, and administrative expenses.
Earnings per share was $0.63 in the third quarter of 2023 compared to $0.82 in the year-ago period. Special charges lowered earnings per share by $0.02 in the third quarter of 2023. The net favorable impact of the gain on the sale of the Kitchen Basics business and special charges increased earnings per share by $0.13 in 2022. Excluding these impacts, adjusted earnings per share was $0.65 in the third quarter of 2023 compared to $0.69 in the year-ago period. This decrease was driven by the net impact of lapping the benefit of an optimization of the Company's debt portfolio in the third quarter of last year and the increase in income from unconsolidated operations driven by strong performance in our largest joint venture, McCormick de Mexico.
Net cash provided by operating activities through the third quarter of 2023 was $660 million compared to $250 million through the third quarter of 2022. The increase was primarily driven by higher operating income and working capital improvements, including lower inventory.
Fiscal Year 2023 Financial Outlook
For fiscal year 2023, McCormick reaffirmed its sales and operating income outlook, despite a lower than previously expected benefit from lapping the COVID-related disruptions in China. The Company increased its adjusted earnings per share outlook, driven by the strong year-to-date and projected performance of its joint venture, McCormick de Mexico.
McCormick's broad and advantaged global flavor portfolio enables the Company to meet the rising demand for flavor around the world. The Company is capitalizing on the growing consumer interests in healthy and flavorful cooking, digital engagement, valuing trusted brands, and purpose-minded practices. This, coupled with the breadth and reach of McCormick's portfolio and its proven strategies, positions the Company to sustainably continue its growth trajectory.
McCormick continues to expect strong underlying business performance in 2023 driven by sales growth. The Company also expects a favorable impact to operating income from its GOE program and the lapping of the negative impact of the COVID-related disruptions in China in 2022, partially offset by the Kitchen Basics divestiture and an expected increase in employee incentive compensation expenses given the anticipated improvement in underlying business performance. In addition, the Company expects earnings per share growth will be tempered by higher interest expense and a higher projected effective tax rate compared to 2022. Excluding this interest and tax headwind, McCormick's operating performance growth is expected to be strong. The Company expects minimal impact on net sales, operating income, and earnings per share from currency rates in 2023.
In 2023, McCormick expects to grow sales by 5% to 7% compared to 2022. The Company expects sales growth to be driven primarily by pricing actions which, in conjunction with cost savings, are expected to offset inflationary pressures. McCormick also expects to drive continued growth through the strength of its brands, as well as brand marketing, new products, category management, and differentiated customer engagement plans.
Operating income in 2023 is expected to grow by 11% to 13% from $864 million in 2022. The Company anticipates approximately $55 million of special charges in 2023 that relate to previously announced organizational and streamlining actions. Excluding the impact of special charges and integration expenses in 2023 and 2022, adjusted operating income is expected to increase 10% to 12%.
McCormick projects 2023 earnings per share to be in the range of $2.46 to $2.51, compared to $2.52 of earnings per share in 2022. The Company expects special charges to lower earnings per share by $0.16 in 2023. Excluding special charges, the Company projects 2023 adjusted earnings per share to be in the range of $2.62 to $2.67, as compared to previously reported guidance of $2.60 to $2.65 and adjusted earnings per share of $2.53 in 2022. The increase from previous guidance reflects an updated expectation of the contribution from the Company's joint venture, McCormick de Mexico. The year-over-year expected increase of 4% to 6% reflects strong operating performance, partially offset by an 8% headwind from higher interest expense due to the higher interest-rate environment and lapping the impact of an optimization of the Company's debt portfolio last year, as well as a 1% headwind from an anticipated increase in the Company's projected adjusted effective tax rate. For fiscal 2023, the Company expects strong cash flow driven by profit and working capital initiatives and anticipates returning a significant portion of cash flow to shareholders through dividends.
Business Segment Results: see full release at:
https://ir.mccormick.com/news-releases/news-release-details/mccormick-reports-strong-third-quarter-performance
Live Webcast
As previously announced, McCormick will hold a conference call with analysts today at 8:00 a.m. ET. The conference call will be webcast live via the McCormick website. Go to ir.mccormick.com and follow directions to listen to the call and access the accompanying presentation materials. At this same location, a replay of the call will be available following the live call. Past press releases and additional information can be found at this address.
Forward-Looking Information
Certain information contained in this release, including statements concerning expected performance, such as those relating to net sales, gross margin, earnings, cost savings, special charges, acquisitions, brand marketing support, volume and product mix, income tax expense and the impact of foreign currency rates are 'forward-looking statements' within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by the use of words such as 'may,' 'will,' 'expect,' 'should,' 'anticipate,' 'intend,' 'believe' and 'plan' and similar expressions. These statements may relate to: the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of COVID-19; the expected results of operations of businesses acquired by the company; the expected impact of the inflationary cost environment, including commodity, packaging materials and transportation costs on our business; the expected impact of pricing actions on the company's results of operations and gross margins; the impact of price elasticity on our sales volume and mix; the expected impact of factors affecting our supply chain, including transportation capacity, labor shortages, and absenteeism; the expected impact of productivity improvements, including those associated with our CCI program, streamlining actions, including our GOE program, and global enablement initiative; the impact of the ongoing conflict between Russia and Ukraine, including the potential for broader economic disruption; expected working capital improvements; expectations regarding growth potential in various geographies and markets, including the impact from customer, channel, category, and e-commerce expansion; expected trends in net sales and earnings performance and other financial measures; the expected timing and costs of implementing our business transformation initiative, which includes the implementation of a global enterprise resource planning (ERP) system; the expected impact of accounting pronouncements; the expectations of pension and postretirement plan contributions and anticipated charges associated with those plans; the holding period and market risks associated with financial instruments; the impact of foreign exchange fluctuations; the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing; the anticipated sufficiency of future cash flows to enable the payments of interest and repayment of short- and long-term debt, working capital needs, planned capital expenditures, as well as quarterly dividends and the ability to obtain additional short- and long-term financing or issue additional debt securities; and expectations regarding purchasing shares of McCormick's common stock under the existing repurchase authorization.
These and other forward-looking statements are based on management's current views and assumptions and involve risks and uncertainties that could significantly affect expected results. Results may be materially affected by factors such as: the company's ability to drive revenue growth; the success of our brand marketing, new products, category management and customer engagement plans; the company's ability to increase pricing to offset, or partially offset, inflationary pressures on the cost of our products; damage to the company's reputation or brand name; loss of brand relevance; increased private label use; the company's ability to drive productivity improvements, including those related to our CCI program and streamlining actions, including our GOE program; product quality, labeling, or safety concerns; negative publicity about our products; actions by, and the financial condition of, competitors and customers; the longevity of mutually beneficial relationships with our large customers; the ability to identify, interpret and react to changes in consumer preference and demand; business interruptions due to natural disasters, unexpected events or public health crises, including COVID-19; issues affecting the company's supply chain and procurement of raw materials, including fluctuations in the cost and availability of raw and packaging materials; labor shortage, turnover and labor cost increases; the impact of the ongoing conflict between Russia and Ukraine, including the potential for broader economic disruption; government regulation, and changes in legal and regulatory requirements and enforcement practices; the lack of successful acquisition and integration of new businesses; global economic and financial conditions generally, including stability of financial institutions, availability of financing, interest and inflation rates, and the imposition of tariffs, quotas, trade barriers and other similar restrictions; foreign currency fluctuations; the effects of increased level of debt service following the Cholula and FONA acquisitions as well as the effects that such increased debt service may have on the company's ability to borrow or the cost of any such additional borrowing, our credit rating, and our ability to react to certain economic and industry conditions; risks associated with the phase-out of LIBOR; impairments of indefinite-lived intangible assets; assumptions we have made regarding the investment return on retirement plan assets, and the costs associated with pension obligations; the stability of credit and capital markets; risks associated with the company's information technology systems, including the threat of data breaches and cyber-attacks; the company's ability to successfully implement our business transformation initiative; fundamental changes in tax laws; including interpretations and assumptions we have made, and guidance that may be issued, and volatility in our effective tax rate; climate change; Environmental, Social and Governance (ESG) matters; infringement of intellectual property rights, and those of customers; litigation, legal and administrative proceedings; the company's inability to achieve expected and/or needed cost savings or margin improvements; negative employee relations; and other risks described in the company's filings with the Securities and Exchange Commission.
Actual results could differ materially from those projected in the forward-looking statements. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
About McCormick
McCormick & Company, Incorporated is a global leader in flavor. With over $6 billion in annual sales across 170 countries and territories, we manufacture, market and distribute spices, seasoning mixes, condiments and other flavorful products to the entire food industry including e-commerce channels, grocery, food manufacturers and foodservice businesses. Our most popular brands with trademark registrations include McCormick, French's, Frank's RedHot, Stubb's, OLD BAY, Lawry's, Zatarain's, Ducros, Vahine, Cholula, Schwartz, Kamis, DaQiao, Club House, Aeroplane and Gourmet Garden. Every day, no matter where or what you eat or drink, you can enjoy food flavored by McCormick.
Founded in 1889 and headquartered in Hunt Valley, Maryland USA, McCormick is guided by our principles and committed to our Purpose - To Stand Together for the Future of Flavor. McCormick envisions A World United by Flavor where healthy, sustainable and delicious go hand in hand. To learn more, visit www.mccormickcorporation.com or follow McCormick & Company on Twitter, Instagram and LinkedIn.
For information contact:
Investor Relations:
Faten Freiha - faten_freiha@mccormick.com
Global Communications:
Lori Robinson - lori_robinson@mccormick.com
MCCORMICK & COMPANY, INCORPORATED 
