McCormick Earnings: Volumes Improve as Brand Investments Captivate Value-Seeking Consumers

Wide-moat McCormick’s first-quarter results have reinforced our confidence in the firm’s capacity to mitigate volume and market share erosion through stepped-up investments in innovation and marketing. In our view, this spending should ensure its mix better appeals to more budget-conscious consumers favoring home-cooked meals, at the expense of away-from-home food occasions. As evidence, organic sales popped 2%, driven by a 3% rise in prices, which was partially offset by a 1% drop in volumes—a decline attributable to the trimming of its less profitable segments, which we see as prudent. Impressively, this growth comes on the heels of numerous price hikes in recent years to blunt rising costs. From a profit perspective, McCormick’s efficiency initiatives and improved mix yielded a 140-basis-point expansion in the gross margin to 37.4% and a more muted 30-basis-point bump in the adjusted operating margin, reflecting higher levels of brand spending.