McCormick & Company, Incorporated (MKC) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook. Strong growth in the Flavor Solutions segment and optimistic future guidance are positive. However, challenges like tariff impacts, inflation, and flat gross margins weigh negatively. The Q&A highlights management's uncertainty and lack of precise guidance, which may concern investors. The overall sentiment is neutral, balancing positive growth prospects with significant cost and market challenges.
Key Financial Performance
Total Organic Sales (Q4) Increased by 2%, supported by growth in both Consumer and Flavor Solutions. Reasons include volume growth in the Americas, EMEA, and Asia Pacific regions, and price contributions.
Global Consumer Organic Sales (Q4) Increased by 3%, driven by price and volume. Volume growth for the last 7 quarters underscores differentiation and ability to drive growth even in a challenging consumer backdrop.
Flavor Solutions Organic Sales (Q4) Rose by 1%, driven by price contribution of 2%, partially offset by a volume decline of approximately 1%. Reasons include inventory resets in Latin America and softness in large CPG customer volumes.
Gross Profit Margin (Q4) Declined by 120 basis points due to higher commodity costs, tariffs, and costs to support increased capacity for future growth. Partially offset by savings from the comprehensive continuous improvement program (CCI).
Adjusted Operating Income (Q4) Increased by 3% or 2% in constant currency. Driven by improved SG&A, partially offset by gross margin and increased investments to drive growth.
Adjusted Earnings Per Share (Q4) $0.86, an increase of 7% compared to the year-ago period. Driven by increased adjusted operating income, improved interest expense, and a favorable tax rate.
Cash Flow from Operations (FY 2025) $962 million. Strong cash flow driven by profit and improved working capital initiatives.
Adjusted Operating Income (FY 2025) Grew by 2% or 3% in constant currency. Adjusted operating margins expanded by 10 basis points. Driven by managing costs across the P&L and investing in growth.
Adjusted Earnings Per Share (FY 2025) $3, reflecting an increase of 2%. Driven primarily by growth in adjusted operating income.
Consumer Segment Adjusted Operating Income (FY 2025) Declined by 1% with minimal impact from currency. Decline driven by increased commodity costs and tariffs, partially offset by improved SG&A driven by CCI and SG&A streamlining initiatives.
Flavor Solutions Adjusted Operating Income (FY 2025) Grew by 9% or 11% in constant currency. Operating margin expanded by 90 basis points, reflecting focus on improving profitability.
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Operating Highlights
Holiday finishing sugars: Introduced a new lineup of holiday finishing sugars, contributing to innovation and growth.
McCormick Gourmet collection: Renovated with countertop-worthy packaging, exceeding expectations and expected to drive benefits into 2026.
Gourmet Garden: Fresh convenience line showing growth.
China retail business: Achieved gradual full-year recovery in China consumer market as planned.
E-commerce and social commerce: Expanded distribution in high-growth unmeasured channels like e-commerce and social commerce in the U.S.
McCormick de Mexico acquisition: Acquired a controlling interest in McCormick de Mexico, contributing significantly to top-line and operating income growth.
Cost management and efficiency initiatives: Disciplined cost management and efficiency initiatives helped offset rising costs and supported operating income growth.
SG&A streamlining: Implemented SG&A streamlining initiatives, contributing to cost savings and improved margins.
CCI-driven productivity savings: Delivered planned productivity savings to offset inflationary pressures.
Focus on health and wellness: Aligned product offerings with consumer trends for healthier, home-cooked meals and better-for-you claims.
Digital transformation: Accelerated digital transformation, including ERP implementation, to enhance operational capabilities.
Brand marketing investments: Increased investments in brand marketing to drive consumer engagement and support volume growth.
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Risk or Challenges
Rising Costs: Rising costs in the second half of 2025, particularly due to the dynamic global trade environment, pressured gross margins.
Inflation and Commodity Cost Volatility: Higher-than-expected inflation across a diverse basket of commodities and commodity cost volatility created incremental costs that impacted margins.
Tariffs: Recognized more tariff costs than previously planned, with approximately 50% of incremental tariffs on McCormick items still in place, contributing to inflationary pressures.
Customer Inventory Resets: Flavor Solutions volumes declined due to customers' reset of inventory levels in Latin America, which is expected to stabilize in 2026.
Softness in Large CPG and Branded Foodservice Volumes: Softness in volumes within large CPG customers' businesses and branded foodservice foot traffic impacted customer volumes.
Competitive Activity: Competitive activity in the U.S., particularly within the Mexican flavor category, tempered overall share performance.
Mustard Category Decline: Decline in the mustard category in the U.S. impacted share performance, attributed to the timing of certain promotions.
Macroeconomic Environment: Volatility in the macroeconomic environment, including geopolitical and trade uncertainty, inflation, and the threat of rising unemployment, continues to pressure consumer confidence.
Consumer Behavior Changes: Consumers, especially low- to middle-income households, are making more frequent trips to the store while purchasing fewer units per trip, stretching meals, and seeking affordable ways to prepare meals.
Digital Investments and ERP Implementation Costs: Incremental costs associated with ongoing digital investments, particularly related to ERP implementation, are expected to impact profitability in 2026.
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Guidance & Outlook
Revenue and Sales Growth: The company expects organic net sales growth to range between 1% and 3% in 2026, supported by sustained volume growth and higher pricing. The acquisition of McCormick de Mexico is projected to contribute 11% to 13% to the top line, leading to total constant currency sales growth of 12% to 16%.
Profitability and Margins: Full-year gross margin expansion is anticipated, reflecting recovery from 2025 compression. This will be driven by favorable product mix, cost savings from the CCI program, and margin accretion from McCormick de Mexico. Adjusted operating income is expected to grow 15% to 19% in constant currency.
Inflation and Cost Management: The company anticipates a mid-single-digit increase in cost inflation and incremental costs from tariffs, digital investments, and rebuilding incentive compensation. These pressures will be partially offset by cost reduction efforts, including CCI programs and SG&A streamlining.
Consumer Segment Outlook: The Consumer segment is expected to deliver volume growth, supported by higher pricing, distribution growth, accelerated innovation, and increased brand marketing investments. The company plans to address evolving consumer trends, such as demand for flavor exploration, health and wellness, convenience, and value.
Flavor Solutions Segment Outlook: The Flavor Solutions segment is anticipated to recover and deliver full-year volume growth. The customer pipeline has doubled compared to the prior year, and the company is leveraging expertise in regulatory, R&D, and product development to meet health and wellness demands with innovation.
Digital Investments and ERP Implementation: The company is advancing its ERP implementation with a refined execution plan, which shifts more expenses into 2026. Overall program costs remain unchanged, and the implementation is expected to enhance digital transformation and operational efficiency.
Tariff Exposure: Tariff exposure has been reduced by approximately 50%, with the incremental year-over-year cost impact of tariffs expected to be approximately $50 million in 2026. The company plans to mitigate this impact through productivity savings, alternative sourcing, and supply chain initiatives.
Earnings Per Share (EPS): Adjusted earnings per share for 2026 is projected to range from $3.05 to $3.13, reflecting benefits from operating income, offset by higher tax rates, increased interest expense, and the elimination of minority interest in McCormick de Mexico.
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Shareholder Return Plan
Dividend Increase: At the end of 2025, the Board of Directors authorized a 7% increase in the quarterly dividend.
Dividend History: This marks the 102nd year of continuous dividend payments and 40 years of consecutive annual increases.
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Key Q&A
Q:What are the key drivers underpinning the 2026 outlook, particularly in Consumer Americas?
A:The 2026 outlook is driven by continued volume momentum, with pricing contributing more to growth than in 2025. Consumer Americas is expected to maintain volume growth supported by increased A&P spending, innovation (e.g., U.S. Cholula expansion, McCormick Gourmet relaunch), distribution expansion, and portfolio renovation (e.g., blends and seasonings relaunch). Flavor Solutions is expected to improve over 2025, driven by innovation, reformulation projects, and partnerships with high-growth innovators and private label customers.
Q:What is the expected cadence of EPS growth over the four quarters of 2026?
A:EPS growth will follow operating profit (OP) fluctuations. Q1 OP will be slightly below guidance due to not reflecting a full quarter of McCormick de Mexico, but EPS is expected to be at the mid- to high-end of the guidance range. EPS will build up as the year progresses.
Q:What caused the gross margin to come in below expectations in Q4 2025, and what is the outlook for 2026?
A:Gross margin in Q4 2025 was impacted by higher-than-expected inflation in commodity costs and tariffs, as well as product mix. For 2026, the company aims to recover the 60 basis points of margin compression seen in 2025, though precise guidance is difficult due to market uncertainty.
Q:What is the impact of ERP implementation costs on 2026 and beyond?
A:ERP implementation costs are being accelerated into 2026 to minimize risks by compressing deployment waves. This shifts costs from 2027 to 2026, but overall program costs remain unchanged. Costs are expected to moderate in 2027 and further in 2028.
Q:What is the outlook for inflation and its impact on 2026?
A:The company exited 2025 with mid-single-digit inflation, the highest in Q4. This level is expected to continue into 2026, driven by tariffs, commodity costs, and packaging. Any improvement in inflation is expected later in the year.
Q:What is the expected impact of price elasticity on the Consumer segment in Q1 2026?
A:Price elasticity is expected to impact Q1 2026 volumes, potentially leading to flat or slightly negative volumes. This is due to additional pricing actions to offset costs, with improvement expected in subsequent quarters.
Q:What is the confidence level in achieving long-term objectives, and when might the company return to its long-term algorithm?
A:The company remains confident in achieving its long-term sales growth objectives by 2028, supported by organic growth and M&A. However, incremental costs and market uncertainty have delayed earnings growth. More clarity on targets will be provided at CAGNY.
Q:What is the status of reformulation activity and its impact on revenue?
A:Reformulation activity is increasing, particularly with private label and large CPG clients. Commercialization of these efforts is expected to begin in late 2026, with more significant revenue impact in 2027.
Q:What is the outlook for the U.S. Spices and Seasonings category and holiday performance?
A:The U.S. Spices and Seasonings category saw strong holiday performance in Q4 2025, with inventory levels in line with expectations. However, price elasticity and consumer behavior (e.g., value-seeking) may impact Q1 2026 volumes.
Q:What is the impact of tariffs on 2025 and 2026 financials?
A:In 2025, gross tariff impact was $70 million, mitigated to a net impact of $20 million. For 2026, gross tariff exposure is $70 million, with $50 million incremental year-over-year impact expected to be offset, resulting in no net impact.
Q:What is the regional outlook for 2026?
A:In Asia Pacific, gradual growth is expected, particularly in China, driven by retail grocery, foodservice, and QSR channels. EMEA is expected to see volume growth in Consumer and improvement in Flavor Solutions. The Americas are expected to maintain strong performance in both Consumer and Flavor Solutions, while McCormick de Mexico is expected to contribute positively.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing when the company might return to its long-term earnings growth algorithm, citing incremental costs and market uncertainty. They also provided qualitative rather than precise guidance on gross margin recovery for 2026, citing market volatility and macroeconomic uncertainty.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CCI SGA
Consumer segment
Directors
ERP implementation
Global Consumer
Grupo Herdez
Poland unit
QSRs Americas
SGA investment
Spices Seasonings
acquisition interest
commodity tariff
consumer Flavor
convenience
cost inflation
discipline
elasticity
incentive compensation
inflation tariff
innovator label
interest expense
investment ERP
majority
mitigation
momentum brand
mustard
pricing action
productivity
reduction
strength resilience
supply chain
tariff exposure
trade
transaction
unit dollar
volume pricing
MKC Transcript
McCormick & Company, Incorporated (MKC) Q4 2025 Earnings Call Transcript
Unknown1-22
The earnings call presents a mixed outlook. Strong growth in the Flavor Solutions segment and optimistic future guidance are positive. However, challenges like tariff impacts, inflation, and flat gross margins weigh negatively. The Q&A highlights management's uncertainty and lack of precise guidance, which may concern investors. The overall sentiment is neutral, balancing positive growth prospects with significant cost and market challenges.
McCormick & Company, Incorporated (MKC) Q3 2025 Earnings Call Transcript
Unknown10-7
The earnings call presents a mixed picture: positive aspects include a 2% increase in EPS, strong product launches, and strategic focus on acquisitions. However, challenges such as decreased cash flow, rising costs, and unclear tariff and elasticity impacts temper enthusiasm. The Q&A reveals management's confidence in mitigating tariffs and maintaining growth, but lack of specific guidance and potential volume declines raise concerns. Overall, the neutral sentiment reflects balanced positive and negative elements, with no strong catalysts for significant stock price movement in the near term.
McCormick & Company, Incorporated (MKC) Presents At Barclays 18th Annual Global Consumer Staples Conference 2025 (Transcript)
Neutral9-3
McCormick & Company, Incorporated (MKC) Q2 2025 Earnings Call Transcript
Unknown6-26
The earnings call summary and Q&A session reveal a mixed sentiment. While McCormick has strong growth plans, brand marketing initiatives, and digital transformation efforts, there are notable concerns. These include geopolitical headwinds, tariff impacts, and unclear management responses on regulatory challenges. Additionally, the company's revenue growth guidance is modest, and the market strategy lacks significant new partnerships or innovations. The balance of positives and negatives suggests a neutral stock price movement over the next two weeks.
MKC Report
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