McCormick reports sales and profit decline in 4th quarter
McCormick & Co.’s stock slid nearly 6% Thursday after the company missed Wall Street earnings estimates for the fourth quarter as sales and profits declined, ending a challenging year of high inflation, supply chain issues and COVID-related disruptions in China.
The Hunt Valley-based spice and flavorings maker’s shares fell 5.8% to $73.46 each.
McCormick also unveiled plans to boost profit gains in part by streamlining its 14,000-person workforce company-wide through a voluntary retirement program that’s underway, supply chain reductions and additional job cuts this year.
McCormick reported sales of $1.69 billion for the three months that ended Nov. 30, down 2% from $1.73 billion in its fourth quarter of 2021.
It reported income of $85.7 million, or 69 cents per share, compared with $97.4 million, or 73 cents per share, in the same period a year earlier.
When adjusted for nonrecurring items, the company reported earnings of 73 cents per share, which missed analysts’ estimates of 86 cents each. That compared with adjusted earnings of 84 cents in the fourth quarter of 2021.
Sales in 2022 rose 1%, to $6.4 billion. The spice maker said it expects to increase yearover-year sales in fiscal 2023 by 5%.
“Our fourth quarter concluded a challenging year for McCormick as we navigated a dynamic global environment,” said Lawrence E. Kurzius, McCormick chairman and CEO, in Thursday’s announcement. “Despite market-driven volatility, we ended the year with positive momentum in consumer consumption trends.”
Kurzius said the fourth-quarter sales decline was impacted by the sale of the Kitchen Basics brand and by leaving consumer business in Russia amid the war in Ukraine.
But he said consumer demand was strong in the U.S., where total branded consumption grew 6%. He noted that consumers continue to want to cook more at home and eat healthy meals.
The stock price will likely feel the pressure of the disappointing results and outlook, with growth hurt by COVID19 lockdowns in China and the timing of inventory shipments to retailers, said Brittany Quatrochi, consumer staples analyst for Edward Jones.
“This impacted the mix of products sold, which weighed on profitability,” Quatrochi said in a report Thursday. But the company “has resolved issues of getting products on to store shelves and is now focused on reducing costs,” which should help profit margins recover.
During a presentation to stock analysts Thursday, Kurzius outlined plans to cut $100 million worth of supply chain costs over the next two years and achieve $25 million in cost savings through streamlining efforts. About $75 million in savings is expected this fiscal year.
Plans call for reducing 10% of the supply chain workforce in manufacturing and warehousing/distribution locations by returning to more normal shift schedules, eliminating inefficient shifts and accelerating automation, the CEO said.
“Over the past three months, we have already achieved half of the planned reduction,” he said.
And to work more efficiently, he said a voluntary retirement program that’s a large component of streamlining is underway in the U.S., with about 175 employees leaving by Feb. 1.
“This will be followed by other actions, some of which will be involuntary,” he said. “As always we will care for employees in keeping with our shared values.”
Arun Sundaram, senior equity analyst at CFRA Research, maintained a “hold” on McCormick shares.
“While overall results were clearly disappointing, we’re pleased with the initiatives [McCormick] has in place to accelerate sales growth, rebuild margins, reduce inventory levels, and pay down debt,” Sundaram said in a report.