McCormick's stock suffers worst day in more than 3 years as weaker China recovery blamed for sales miss

By Tomi Kilgore

Spices and flavor company's stock tumbles toward lowest close since March 2020

Shares of McCormick & Co. Inc. tumbled Tuesday, after the parent of flavor brands including McCormick's spices, Frank's RedHot and French's reported fiscal third-quarter sales that came up short of expectations, due in part to a slower-than-expected economic recovery in China and the exit of some businesses.

"Our results reflect strong underlying business trends that were in line with our expectations across our business, notwithstanding our Consumer segment in APAC [Asia-Pacific], where the pace of China's economic recovery has been slower than anticipated," said Chief Executive Brendan Foley. "We remain confident in our ability to deliver on our outlook and in the sustained trajectory of our business."

The stock (MKC) dropped 10.3% in morning trading, enough to lead the S&P 500 index's SPX losers. The selloff puts the stock on track for the lowest close since March 27, 2020 and the biggest one-day percentage decline since lost 10.9% on March 19, 2020.

Net income for the quarter to Aug. 31 fell to $170.1 million, or 63 cents a share, from $222.9 million, or 82 cents a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share slipped to 65 cents from 69 cents, but was in line with the FactSet consensus of 65 cents.

Sales grew 5.6% to $1.685 billion, while the average estimate of two analysts surveyed by FactSet was for sales of $1.697 billion, with growth reflecting an 8% rise in prices but a 2% decline in volume and mix.

The company said the factors affecting sales growth included "a slower than expected economic recovery in China, the Kitchen Basics divestiture, the exit of the consumer business in Russia, and the Company's strategic decisions to discontinue low margin business."

Consumer segment sales increased 1% to $937.1 million, as prices rose 5% while volume declined 4%, and flavor solutions segment sales rose 12% to $747.6 million with pricing up 10% and volume up 1%.

"The fundamental strength of the spices and seasonings category is evident as cooking at-home has remained elevated since pre-COVID and consumers have an increasing demand for flavor," CEO Foley said on the post-earnings conference call with analysts, according to an AlphaSense transcript.

For fiscal 2023, the company raised its adjusted EPS guidance range to $2.62 to $2.67 from $2.60 to $2.65, but affirmed its sales growth outlook of 5% to 7%.

The stock has sunk 24% over the past three months, while Consumer Staples Select Sector SPDR ETF XLP has shed 9% and the S&P 500 has given up 4.8%.

-Tomi Kilgore

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10-03-23 1031ET

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