McCormick in the spotlight following ‘mixed bag’ quarter, guidance

Shares of McCormick (MKC) are bouncing back on Wednesday morning after sinking into negative territory following quarterly results. While Q3 results came in above consensus’ expectations and the company reaffirmed full year guidance, McCormick trimmed operating income and EPS guidance, citing cost inflation and trade-related headwinds.  Calling McCormick’s Q3 results and outlook “something of a mixed bag,” Bernstein notes the company expects a solid holiday season.

QUARTERLY RESULTS: McCormick reported EPS of 84c in the third quarter as compared to 83c in the year-ago period, and adjusted EPS of 85c as compared to 83c in the year-ago period. The company also said net sales increased 3% in the third quarter and included a 1% favorable impact from currency. Organic sales growth of 2% was volume-led. Meanwhile, operating income was $289M in the third quarter compared to $287M in the year-ago period. Adjusted operating income was $294M compared to $288M in the year-ago period.

For fiscal year 2025, McCormick reaffirmed its sales growth outlook and updated operating income and earnings per share outlook to reflect rising commodity costs and incremental tariffs. “Our third quarter results marked our fifth consecutive quarter of volume-led growth, reflecting our differentiation and the benefit of continued investments in our brands, expanded distribution, and innovation. As a result of the dynamic global trade environment, our gross margin was further pressured by rising costs; however, we continued to drive operating profit growth through the effective execution of our cost savings initiatives. We remain disciplined on actions within our control and agile in adapting to external dynamics, positioning McCormick for sustained long-term growth, ” Brendan Foley, President and CEO said.

MIXED BAG: Bernstein lowered the firm’s price target on McCormick to $93 from $102, while keeping an Outperform rating on the shares. McCormick’s Q3 results and outlook were something of “a mixed bag,” the firm says. Organic sales growth of 2% was similar to last quarter, with the Consumer segment seeing stronger performance than Flavor Solutions, which remains under pressure as larger CPG players continue to see sales declines. The adjusted gross margin also fell by about 120bps year-over-year as rising input costs and incremental tariffs take their toll, Bernstein adds. But, on a somewhat brighter note, the outlook for the important fourth quarter is stronger as the company expects a solid holiday season and gross margins are expected to improve to flat to modestly positive next quarter, the firm adds.

Meanwhile, BofA also cut its price target on Buy-rated McCormick to $89 from $96. Q3 sale and earnings came in better than expected, but the firm lowers its FY25 adjusted EPS view to $3.02 from $3.04 to bake in a higher inflation impact, the firm tells investors. However, McCormick continues to be “one of few packaged food companies” to both deliver organic sales and volume growth, which “continues to have scarcity value,” it added.

Stifel lowered the firm’s price target on McCormick to $71 from $76 and kept a Hold rating on the shares. McCormick reported a stronger-than-expected third quarter, reflecting the fifth consecutive quarter of volume growth benefiting from price gap management and investment, the firm tells investors. The company reiterated its FY25 revenue growth guidance, but lowered its EPS outlook as it now expects cost inflation to be up low- to mid-single digits in FY25, notes Stifel, whose estimates and target reflect lowered profit expectations.
Jefferies, UBS, Deutsche Bank, Barclays, and JPMorgan also lowered their price targets on the stock following the earnings release.

PRICE ACTION: In Wednesday morning trading, shares of McCormick are flat at $65.69 after dropping to as low as $64.72.