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McCormick beats quarterly earnings estimates as consumers choose cooking at home

Spice maker McCormick & Co. Inc. beat third-quarter profit estimates as consumers continued a shift toward cooking at home amid the coronavirus pandemic.

But global logistics challenges and higher inflation made packaging and transportation more costly, prompting the Hunt Valley-based flavorings giant on Thursday to lower its profit outlook for the year. The company plans to pass along cost increases to retail and other customers by the end of the year, which will mean higher prices for consumers.

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“In the last few months, inflation has continued to ratchet up,” said Lawrence E. Kurzius, McCormick’s president and CEO, during a morning conference call with analysts. “We along with our peers and customers are also facing additional pressures in our supply chain due to strained transportation capacity and labor shortages.

“Overall, we have a demonstrated history of managing through inflationary periods through a combination of pricing and cost savings,” Kurzius said. “And we expect to manage through this period as we have in the past.”

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Shares of McCormick fell 3.2% in Thursday trading to $81.03 each.

McCormick said Thursday that its income increased to $212.4 million, or 79 cents per share, in the quarter that ended Aug. 31, up from $206.1 million, or 76 cents per share, in the third quarter of 2020. Adjusted earnings per share were 80 cents each, a 5% increase from a year earlier and ahead of Wall Street expectations of 72 cents per share.

Quarterly revenue rose 8% to $1.55 billion, compared with $1.43 billion a year ago. Growth came from the “flavor solutions” segment serving food manufacturers and restaurants, while sales from the Cholula and FONA brands, both acquired last year, added 4% to the increase. Sales topped analysts’ expectations of $1.54 billion.

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Sales to food manufacturers and restaurants increased 21%, helped by acquisitions and growth with packaged food and beverage companies. Sales in the consumer segment grew just 1%, reflecting the slower pace of growth after an extraordinary spike in demand earlier in the pandemic.

McCormick now projects adjusted earnings per share in the range of $2.97 each to $3.02 each, compared with previously reported guidance of $3 to $3.05 per share. The company updated its fiscal year sales outlook to growth of 12% to 13%, the higher end of a previous projection.

Arun Sundaram, an equity analyst at CFRA Research kept a “hold” rating on McCormick shares.

“The good news is pricing actions will begin to be reflected in [fourth-quarter] results, which combined with lower Covid-19 expenses ... should deliver stronger earnings growth in FY 22,” Sundaram said in a report Thursday.

Longer-term growth should be spurred by more at-home cooking, expansion into high-growth categories such as hot sauce and cost savings, Sundaram said.

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Kurzius said he expects the shift in consumer behavior to cooking and eating more at home to continue.

The company also sees a gradual recovery in the demand from restaurant and other food service customers, which have been hurt by fewer people eating out.


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