The new coronavirus lockdown in China, a key market for McCormick & Co., pushed the global spice maker’s sales and profits down in the first quarter, the company said Tuesday.
Shares slipped 1.3% Tuesday to close at $141.21 each.
McCormick said its first-quarter results were significantly hurt by “the extraordinary disruption in China’s consumption related to the COVID-19 outbreak."
But as the deadly virus has spread from China around the globe, the Hunt Valley manufacturer has kept its supply chain and employees working without disruption to get spice and flavorings products to retailers and food manufacturers, executives said.
While business from restaurant and dining services customers has plummeted, accounting for about a fifth of overall sales, consumer demand has risen sharply, the company said.
Some of that has been a result of shoppers stocking up, and food makers ramping up production, Lawrence E. Kurzius, , McCormick’s Chairman, CEO and president, said during a conference call with analysts.
Beyond that short-term effect, "we expect some level of elevated demand for at-home cooking to continue, " Kurzius said. “Schools are closed. People are staying at home, and that contributes to real incremental at home consumption.”
[ [Consumer confidence tumbles as impact of coronavirus grows. ‘Further declines are sure to follow.’] ]
It’s too soon to predict how trends will play out. The spice maker withdrew guidance on its expected financial performance for the rest of the fiscal year, “due to the uncertainty of the duration and extend of the COVID-19.
McCormick sells products to food service and restaurant customers, many of whom have shut down businesses.
“I would expect that the restaurant industry impact will be pretty heavy in the second quarter, again with the complete closure of restaurants in some areas," a situation not easily offset by consumer sales, Kurzius said.
He sought to assure investors that the brand is well positioned to navigate the health crisis thanks to stable cash generation, access to liquidity and mitigation plans.
“McCormick is committed to maintaining critical food supply across all our markets and supporting our community,” Kurzius said.
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Aaron Siegel, an analyst with CFRA, said McCormick could see more of an effect from the virus than its spice maker competitors because 20 percent of its sales come from restaurants and dining services.
“However, we believe [McCormick] is well positioned to navigate through these turbulent times,” Siegel said in a report Tuesday.
The company said it gained insight into how the spread of the virus could unfold in the U.S. and elsewhere after seeing its impact in China, where the virus started.
Typically, the start of the year is a peak season for McCormick in the Chinese market, but instead residents there were in extended lockdowns with no opportunities to stock their pantries. Consumer sales throughout the Asia/Pacific region plummeted 29 percent in the quarter.
During the three months that ended Feb. 29, McCormick’s sales fell 2% to $1.21 billion compared with $1.23 billion in the first three months of last year.
Net income declined to $144.7 million, or $1.08 per share, compared with $148 million, or $1.11 each.
China has entered the early recovery stage, with lockdowns lifted or soon to be lifted, restaurants starting to re-open and consumer confidence slowing coming back, Kurzius said.