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McCormick shareholders ask about shortages, hear about growth

Many shareholders at McCormick & Co.’s virtual annual meeting Wednesday had the same question on their minds.

They wondered why some McCormick products remain out of stock on local grocery shelves long after the start of the pandemic, said McCormick CEO Lawrence E. Kurzius, who fielded questions.

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“In our consumer business in the U.S., the surge in demand has been extraordinary and far beyond our capability … to keep up with,” said Kurzius, also chairman and president of the Hunt Valley-based spice and flavorings maker.

While toilet paper and other items were wiped out at stores during the early days of the pandemic, spices and flavoring products have remained in sustained higher demand as people ate out less and cooked at home more. McCormick responded by ramping up production capacity in the U.S. and temporarily suspending some products that have since been nearly all restored, Kurzius explained.

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“We are getting caught up,” Kurzius said, noting that the company has been able to fill roughly half of the holes left on shelves. “We think that over the coming weeks and months, you’ll see retailers’ positions return to normal.”

During Wednesday’s meeting, held in a virtual format for the second consecutive year because of COVID-19 concerns, Kurzius sought to assure shareholders that the spice maker is emerging from the pandemic stronger than ever. The company is prepared to handle what Kurzius said will be a longer-term, eat-at-home trend while being well positioned for future growth, both in consumer products and as a supplier to restaurants and food service companies.

Despite the disruptions of 2020, McCormick saw a 5% increase in sales — to $5.6 billion — and a 6% increase in earnings per share for the year. The company’s stock has jumped 27% year over year. A company that has paid dividends to shareholders each year since 1925 delivered an increase in that payout last year, for the 35th consecutive year.

While McCormick struggled to keep up with consumer demand at retailers in the U.S., it met that demand in other parts of the world and even gained market share outside North America as competitors couldn’t keep up, Kurzius said.

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Last year’s overall company sales gains were driven by sales to consumers, a side of the business with 10% sales growth, but McCormick’s “flavor solutions” business to restaurants and food service companies struggled as many eateries faced COVID-19 capacity restrictions. Sales on that side of the business fell 2% for the year.

But it was a year when McCormick made two key acquisitions: the Cholula hot sauce brand in November for $800 million, and flavorings maker FONA, which McCormick bought in December for $710 million. And it invested in brand marketing, new products and production.

The current year is starting out strong, executives noted. On Tuesday, McCormick reported that it beat sales and profit expectations in the first quarter as acquisitions, new products and the continuing eat-at-home trend helped drive a 22% sales gain.

During Wednesday’s meeting, shareholders also asked about McCormick’s ability to compete against private brands and its plans for future acquisitions.

Kurzius said that during the pandemic, consumers returned to major brands that they know and trust.

“We have gained market share in most markets and in most categories of the world,” he said.

Some exceptions have been in places where it has been more challenging to supply extraordinary demand, which led to a loss in market share.

“But I’m confident we can regain that,” he said.

He said the popularity of known brands is not just a COVID-19 phenomenon, but a trend that was already in play.

“Consumers, especially younger consumers, are returning to brands for which they have nostalgia, which tend to be large, trusted brands,” Kurzius said. “This is a trend that is going to continue, and it will be a benefit for us as a company.”

The CEO also said acquisitions will continue to be a key part of McCormick’s growth strategy. As a global brand, the company looks for opportunities around the world, he said.

“The last two are U.S. based, but we have looked at many opportunities outside of the U.S., and we will continue to do so,” he said.

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