McCormick & Company, Incorporated Q3 Earnings Call Highlights

Key Points

• Third-quarter performance improved: Constant-currency sales rose 17%, including 2% organic growth, while adjusted operating income increased 22%. Results benefited from the McCormick de Mexico acquisition, productivity savings and pricing.
• Regional and category trends were mixed: EMEA and Asia-Pacific delivered strong consumer volume growth, while U.S. Consumer Americas recovery remained gradual due to softer demand and price sensitivity. Flavor Solutions also faced ongoing weakness among some QSR and CPG customers.
• Outlook and strategic plans remain intact: McCormick maintained its fiscal 2026 outlook and expects to reach the high end of its 100–120 basis-point gross-margin expansion target, despite raising expected cost inflation to 6%–7%. Integration planning for the proposed Unilever Foods combination is advancing on schedule, although a packaging constraint could reduce fourth-quarter volume growth by up to one percentage point.

McCormick & Company, Incorporated NYSE: MKC reported third-quarter sales growth, margin expansion and higher adjusted operating income, supported by its McCormick de Mexico acquisition, productivity initiatives and organic gains across its consumer and flavor solutions businesses.

Chairman, President and CEO Brendan Foley said the company delivered 17% constant-currency sales growth during the quarter, including 2% organic growth. The balance came from McCormick de Mexico, whose integration is substantially complete, according to Executive Vice President and CFO Marcos Gabriel.

“Our third quarter demonstrates the resilience and differentiated performance of our flavor-centric business model in a dynamic environment,” Foley said. He cited consumer momentum in Europe, the Middle East and Africa, or EMEA, and Asia Pacific, alongside improving trends in the Americas.

Consumer growth varied by region

Consumer-segment constant-currency sales rose 24%, including 1% organic growth. In the Americas, organic sales were flat as a 2% pricing contribution was offset by lower volume. Gabriel said volumes were pressured by the macroeconomic environment, though core herbs and spices posted growth during the quarter.

EMEA consumer organic sales increased 5%, including 2% volume growth and 3% from pricing actions related to commodity and freight costs. McCormick recorded its 11th consecutive quarter of volume growth in EMEA. Asia-Pacific consumer organic sales increased 4%, largely due to volume growth and a gradual recovery in China, where retail strength more than offset continued food-service softness.

Foley said the company continued to gain unit or volume share in herbs, spices and seasonings in Canada, France, Poland and China. In the U.S., McCormick reported improving dollar and unit consumption trends, while its Red Cap core herbs-and-spices business performed well and gained share.

Other areas of strength included hot sauce and mustard. Cholula expanded distribution in the U.S. and helped drive the company’s fourth consecutive quarter of dollar and unit share gains in hot sauce, Foley said. McCormick also reported U.S. mustard unit-share gains during grilling season, while Frank’s and Cholula gained share in Australia.

U.S. consumer recovery remains gradual

Management said Consumer Americas improvement is occurring more gradually than previously expected, reflecting softer consumption in certain categories, heightened consumer price sensitivity and competitive conditions.

Foley pointed to higher beef and seafood prices as factors weighing on portions of the recipe mixes business and other products associated with those proteins. Rising gasoline prices also contributed to greater consumer focus on value, he said.

McCormick is responding through assortment optimization, targeted pricing and promotion, revenue-growth management, retailer search initiatives, holiday activation, in-store execution and expanded marketing. The company is also using price-pack architecture in products such as Grill Mates and cooking blends to address price points where it believed it was underrepresented.

Recipe mixes remain an area of focus. Foley said category demand has shifted toward the Mexican aisle, while much of McCormick’s recipe-mix presence is located elsewhere in stores. The company plans to build its position in that aisle through Cholula recipe mixes while also improving velocity in its core portfolio and supporting McCormick Taco products.

Management expects to begin lapping prior pricing and distribution headwinds in recipe mixes in early fiscal 2027. Foley said McCormick does not expect Consumer Americas pricing to turn negative, although pricing contribution may be lower than the year-to-date level.

The company also disclosed a short-term, industrywide supply constraint involving a specific packaging component in Consumer Americas. The issue could reduce total company volume growth by up to one percentage point in the fourth quarter. Foley said it was not a raw-material availability or demand issue, and the company is pursuing alternative packaging formats to mitigate the impact.

Flavor solutions faces softer QSR and CPG demand

Flavor Solutions constant-currency sales increased 6%, including 3% organic growth driven by both price and volume. In the Americas, organic sales rose 3% on pricing while volumes were flat, affected by softer demand from quick-service restaurant, or QSR, and consumer packaged goods customers.

In EMEA, Flavor Solutions organic sales grew 1%, as pricing offset lower volumes tied to softer QSR traffic, particularly in the United Kingdom. Foley said the Cyclospora outbreak in the U.S. also affected QSR traffic and customer demand during the quarter.

Asia-Pacific Flavor Solutions organic sales rose 8%, driven by 10% volume growth that was partially offset by price. The growth reflected timing of new products and limited-time offers with QSR customers in China and Southeast Asia.

Management expects pressure among some QSR customers in the Americas and EMEA, as well as large CPG customers in the Americas, to continue through the balance of the fiscal year. McCormick is seeking to offset those trends through customer diversification, innovation and products aligned with health and wellness, premiumization and differentiated flavor preferences.

Margins expand despite higher costs

Adjusted gross margin expanded 180 basis points in the quarter, benefiting from McCormick de Mexico, pricing and savings from the company’s Comprehensive Continuous Improvement program. Higher freight costs partly offset those gains.

Adjusted operating income increased 22%, or 21% in constant currency. Adjusted earnings per share rose 1% to $0.86, as increased operating income was partly offset by a higher effective tax rate of 22.6%, compared with 16.1% a year earlier.

Cash flow from operations totaled approximately $600 million year to date, up from $420 million in the prior-year period. McCormick returned $387 million to shareholders through dividends and spent $131 million on capital expenditures. Its leverage ratio was about 2.9 times at quarter-end.

The company now expects full-year cost inflation of 6% to 7%, compared with its prior expectation for a mid-single-digit increase. Still, it maintained its forecast for 100 to 120 basis points of full-year gross-margin expansion versus 2025 and now expects to finish at the high end of that range. Fourth-quarter margins are expected to decline year over year because of rising commodity and freight costs and commercial investments in Consumer Americas.

Unilever Foods planning continues

Foley said integration planning for the proposed Unilever Foods combination is advancing on schedule. McCormick has established a planned future leadership team and operating model, mobilized an integration management office and cross-functional teams, and put transition service agreements in place to support business continuity after closing.

Gabriel said the transition service agreements are expected to mainly support back-office operations, including global business services, information technology, human resources and finance, for about two years with a phased exit. Costs associated with those agreements are included in the company’s deal model, he said.

Management said it remains confident in its ability to meet its fiscal 2026 outlook, with organic growth expected near the low end to midpoint of its guidance range and operating income growth and earnings per share expected at the midpoint of their respective ranges.

About McCormick & Company, Incorporated (NYSE:MKC)

McCormick & Company, Incorporated is a global producer and marketer of spices, herbs, seasonings, condiments, sauces and other flavor products. The company sells branded products to consumers through grocery stores, e-commerce channels and other retail outlets, while also supplying customized flavor solutions, ingredients and seasonings to food manufacturers, restaurants and foodservice operators.

Its portfolio includes the McCormick, French's, Frank's RedHot, Lawry's, OLD BAY, Zatarain's, Grill Mates and Cholula brands, among others.

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