MCCORMICK reported higher quarterly sales and profit on Thursday, as pricier seasonings and sauces helped cushion the blow from weaker consumer demand due to elevated gas prices and a cyclospora outbreak that dented volumes.
McCormick, like other branded food companies, has come under pressure from elevated costs and financially stretched consumers trading down to cheaper private label goods. Its shares, which have fallen around 32 percent this year, slumped around 3 percent to their lowest mark since December 2016 in a volatile session.
The Cholula hot sauce maker and competitors such as Conagra Brands and General Mills have leaned on price hikes to shield margins as they counter challenges from uncertainty over United States tariffs and surging input costs tied to the Middle East conflict.
“In the US, higher gas prices and the cyclospora outbreak have added pressure and contributed to softer traffic across foodservice and grocery channels,” CEO Brendan Foley said in prepared remarks.
Cyclospora is a foodborne parasite that has sickened thousands of Americans this summer. McCormick said the outbreak had mainly impacted fast-food restaurants.
For the quarter ended Aug. 31, McCormick’s prices were up 2.2 percent from a year ago, while organic volumes dipped 0.3 percent. Its volumes fell 0.5 percent in the previous quarter.
Volumes in McCormick’s major Consumer Americas division fell 2.5 percent in the quarter, the only segment to post a decline.
The company maintained its annual forecasts for the third time this fiscal year as it navigates an uncertain consumer spending environment.
McCormick’s executives also indicated on the post earnings call that they expect fourth-quarter margin compression, citing rising commodity and freight costs as well as increased commercial investments in the Consumer Americas division.
“The more gradual-than-anticipated volume recovery in Consumer Americas will likely remain top of mind for investors,” Barclays analysts said in a note.
McCormick also said integration planning for the proposed $65-billion merger with Unilever’s foods business was on track and remained confident that the deal will deliver significant earnings-per-share accretion after closing.
The company reported third-quarter sales of $2.02 billion, compared with analysts’ estimates of $1.98 billion, according to data compiled by LSEG.
Its quarterly adjusted profit came in at 86 cents per share, beating estimates of 76 cents.