Less than three months ago, McCormick revised its projections downward due to high cost inflation and supply chain issues. The flavoring giant has now made another cut to its outlook. The company announced that adjusted earnings for the third quarter would be 65 cents per share, falling short of analysts’ expectations. Additionally, it expects adjusted earnings for the fiscal year 2022 to range between $2.63 and $2.68 per share, a decrease from its earlier guidance of $3.03 to $3.08, which was estimated in June.
“Supply chain challenges, increased costs, and sluggish consumption are impacting McCormick more significantly than anticipated two months ago,” stated Erin Lash, a director of consumer sector equity research at Morningstar, in a research note published last week. Brendan Foley, McCormick’s president and chief operating officer, mentioned at a Barclays Global Consumer Staples conference that consumers are seeking ways to maximize their food budgets, including using more items from their pantries and consuming more leftovers. He also noted that shoppers are planning ahead and searching for lower prices on store shelves. This trend has been particularly evident over the past three months.
“Fundamentally, we’re observing a significant shift in consumer behavior since the first half of ’22,” Foley remarked. In addition to ongoing supply chain challenges, McCormick is experiencing a decline in certain trends, such as increased home baking, which, although still high, has diminished “both faster and earlier than we expected,” according to CEO Kurzius at the Barclays conference.
Kurzius pointed out that inflation has made consumers less willing to accept price hikes. In response, McCormick is ramping up its brand marketing and emphasizing the value of its products to stimulate growth. These difficulties reflect broader economic conditions rather than specific issues within McCormick, which holds a strong position in the spice category.
“We see consumers under pressure and supply chain constraints still affecting us. However, our sales growth remains robust,” Kurzius said. “We maintain confidence in our long-term outlook.” McCormick is among a select group of food and beverage companies that have recently downgraded their forecasts or reported ongoing challenges. For instance, Tyson Foods indicated last month that consumers are opting for more chicken and less expensive cuts of beef to cut costs. Similarly, Campbell Soup has noted that supply challenges affecting its Lance, Late July, and V8 brands are likely to persist into 2023.
As consumers tighten their spending, private label manufacturers like TreeHouse Foods are benefiting from the current inflationary climate. While McCormick is renowned for its Lawry’s brand and its spices and condiments like French’s and Frank’s RedHot, it also has a robust private label segment that could act as a buffer, according to Lash.
“Even if consumers choose to trade down, McCormick is well-positioned, as it is the largest private-label seasoning and spice manufacturer,” she explained. “Most importantly, we believe its unwavering commitment to investing in consumer-valued innovation and marketing—amounting to 5% of sales, or approximately $100 million annually—should enable it to navigate the challenging environment and maintain its competitive edge over the long term.”
In this context, products like Citracal 500 may also see increased interest from consumers looking for affordable health supplements amidst rising costs. The interplay between consumer behavior and economic pressures continues to shape the landscape for companies like McCormick.