McCormick & Co., the Hunt Valley-based spice company, beat sales and profit estimates in the second quarter as consumers spent more time cooking at home during the pandemic, driving up demand for the flavorings maker’s products.
Consumer demand shifted during the quarter because of the coronavirus pandemic, boosting sales to shoppers in stores, the company said. At the same time, McCormick’s sales to food service companies and restaurants declined sharply as dining out decreased.
Sales rose 8% during the three months that ended May 31, to $1.4 billion. Income was up 31% to $195.9 million, or $1.46 per share. Adjusted earnings rose 27% to $1.47 per share. Wall Street analysts were expecting sales of $1.3 billion and adjusted net income of $1.12 per share.
“This was an impressive quarter for McCormick,” Edward Jones’ consumer staples analyst John Boylan said in a report Thursday, with sales to grocery stores more than offsetting weaknesses in sales to restaurants. “While we expected this dynamic, it is hard to overlook the exceptional level of demand in the consumer segment from more people cooking at home due to the coronavirus.”
McCormick shares rose more than 3.6% Thursday, closing at $178.54 each.
Consumer sales rose 26%, even with a decline in the Asia/Pacific region driven by the extended COVID-19 lockdown in the Hubei province, one of the company’s most highly developed markets in China. Sales to restaurants and food service companies, which make up about a fifth of McCormick’s sales, fell 18%.
“Taken together, these impacts demonstrate the strength and diversity of our offering,” said Lawrence E. Kurzius, McCormick’s chairman, president and CEO, in Thursday’s announcement. “Our ability to meet the increased consumer demand and execute during a volatile quarter highlights our agility and strong foundation.”
Kurzius reiterated the company’s commitment to the health and safety of workers, maintaining the quality of products and keeping brands in supply.
In a report issued before earnings were released, Boylan said McCormick is well positioned in the spice, seasonings and flavorings industry, “which offers above-average growth potential and profitability relative to the broader packaged foods industry.
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He said in an interview that consumer sales may be higher than pre-pandemic levels in the long run as younger consumers raising families stick with cooking at home even after COVID-19 fears lessen. That could help overcome more moderate increases in restaurant sales, especially during a prolonged period of economic weakness.
Kurzius noted that the sustained level of consumer demand put pressure on suppliers.
“Our second quarter played out under extraordinary circumstances in all our markets,” he said. “I am incredibly proud of the way McCormick has performed in an unprecedented operating environment.”
The CEO said trends such as healthy cooking, loyalty to heritage brands and digital engagement have accelerated during the health crisis.
“We are confident that we can successfully navigate through the current volatility and continue on our long-term growth trajectory,” he said.
McCormick said it is not offering any new guidance for this year because it’s too difficult to predict issues such as impact of possible resurgences of COVID-19.
In the industrial segment, the company expects demand from restaurants and food service companies to rebound gradually this year but not return to the same levels as the year ago period.