Inflation, supply chain issues hurt McCormick profit
McCormick & Co.’s sales rose 3% in the first quarter, but inflation and supply chain challenges squeezed the Hunt Valley-based spice company’s profits.
Sales rose to $1.5 billion in the three months that ended Feb. 28, compared with $1.48 billion in 2021’s first quarter, the spice maker reported Tuesday. McCormick earned $154.9 million, or 57 cents per share, compared with $161.8 million, or 60 cents a share, the year before.
“As we anticipated, in the first quarter, the profit driven by our sales growth was more than offset by higher inflation and broad-based supply chain challenges,” said Lawrence E. Kurzius, McCormick’s chairman, president and CEO, in a statement. “We continue to operate in a highly inflationary environment and expect to fully offset cost pressures over time.”
On an adjusted basis, earnings were 63 cents per share, beating analysts’ estimates of 59 cents per share, according to Zacks Investment Research.
Stronger-than-expected sales were able to overcome slightly higher-than-expected overall costs, said John Boylan, an analyst with Edward Jones, in a report.
“Sales were driven by, ironically, both better-than-anticipated at-home food demand and a recovery in food away from home as COVID-19 restrictions began to wane,” Boylan said.
McCormick’s stock price fell 72 cents to close Tuesday at $96.90 a share.
McCormick’s business selling to restaurants, food-service customers and packaged food makers was strong, the company said, driven by robust demand as more people resumed eating out. Sales in that segment jumped 12%, driven by base business, new products and acquisition growth.
Sales to consumers through retailers were down when compared with higher-than-normal demand in the same period a year earlier. But, Kurzius said, the company continued to see a shift to higher at-home consumption compared with levels before the pandemic. “We continue to capitalize on the sustained shift to cooking more at home, increased digital engagement, clean and flavorful eating, and trusted brands,” Kurzius said.
Still, sales dipped 2% in the consumer segment, which accounts for nearly two-thirds of sales, after the spice company raised prices to offset inflation.
Pressure from inflation is expected to worsen in the second quarter, one analyst said. “But [McCormick] plans to combat this with further prices increases,” said Arun Sundaram, equity analyst at CFRA Research.
Like most packaged food companies, McCormick has been able to raise prices with little impact to demand, but it’s unclear how long that will last, Sundaram said in a report.
“The good news is [McCormick] is seeing stronger market share performance and is favorably positioned by competing in on-trend, fast-growing categories like spices, hot sauce, and condiments, which should make it a bit easier to pass through higher costs,” he said.
The company maintained its sales and earnings outlook for the fiscal year. The company expects a sales increase of 3% to 5%. McCormick projects earnings in the range of $3.07 per share to $3.12 per share, compared with $2.80 each in fiscal 2021.