McCormick & Company 2026 Q3 Earnings Call

Good morning. This is Faten Freiha, Vice President of Investor Relations. Thank you for joining today's third quarter earnings call. To accompany this call, we have posted a set of slides on our IR website, ir.mccormick.com. With me this morning are Brendan Foley, Chairman, President, and CEO, and Marcos Gabriel, Executive Vice President and CFO. During this call, we will refer to certain non-GAAP financial measures. The nature of those non-GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. Today's presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or other factors.

Please refer to our forward-looking statement on slide 2 for more information. I will now turn the discussion over to Brendan.

Good morning, everyone, and thank you for joining us. Our third quarter demonstrates the resilience and differentiated performance of our flavor-centric business model in a dynamic environment. We delivered strong sales growth, margin expansion, and increased earnings, supported by solid base business performance and accretion from the McCormick de Mexico acquisition. Organic growth reflected in consumer momentum in EMEA and Asia Pacific and improving trends in consumer Americas. Global flavor solutions delivered strong organic growth, though volumes were slightly below our expectations, reflecting cyclical customer demand patterns and a muted food industry environment. Our productivity initiatives and operational discipline are helping us manage higher input, freight, and other ongoing inflationary costs while expanding margins. This strengthens our capacity to continue investing in our brands, innovation, and capabilities, reinforcing sustainable growth and long-term value creation. Our fundamentals remain strong, supported by year-to-date results, advantage categories, and disciplined execution.

We are confident in our ability to deliver on our 2026 outlook. We remain confident in the strategic benefits of the proposed combination with Unilever Foods. Integration planning remains on track, and we continue to advance the work required to support a successful close and a strong transition. Turning now to our results on slide 4, focusing on the top line. In the third quarter, total sales grew by 17% in constant currency, reflecting acquisition contribution from McCormick de Mexico and organic sales growth of 2%, reflecting growth across consumer and flavor solutions. In global consumer, volume trends improved relative to the second quarter, reflecting continued momentum in EMEA and Asia Pacific, and early benefits in the Americas from our targeted actions. While U.S. category consumption is soft in select areas, our actions, including revenue growth management, value marketing, and innovation, alongside expanded distribution, are driving improvement.

Importantly, the underlying business remains strong. Our categories are well positioned for long-term growth, and we have the capacity to continue investing behind our brands and growth initiatives. In Global Flavor Solutions, organic growth reflected pricing and volume growth. Softer demand from CPG and QSR customers weighed on volume performance, with the Cyclospora outbreak impacting QSRs in the U.S. In EMEA, lower QSR foot traffic also pressured volumes. These factors were offset by strong performance in Asia Pacific, driven by new product launches and limited time offers with our QSR customers. Importantly, we delivered strong profit growth this quarter, supported by margin expansion and productivity initiatives, enabling continued investment in our long-term growth priorities. Let's move to slide 5, and let me highlight for the quarter some of the key areas of success. Starting with global consumer, we saw good consumption trends in select categories.

In herbs, spices, and seasonings, unit or volume share gains in Canada, France, Poland, and China continue to support global performance. In the U.S., as expected, we are seeing improving dollar and unit consumption trends. In recipe mixes in the U.K. and Australia, we drove unit and dollar share gains for the last three quarters, supported by expanded distribution and new customer wins. In mustard, U.S. unit share gains were driven by enhanced distribution and promotional execution during the grilling season. Outside of the U.S., we continue to drive unit and dollar share gains in Poland and in the U.K. In hot sauce, we continue to strengthen our position across key markets. In the U.S., we delivered dollar and unit share gains for the fourth consecutive quarter, led by Cholula's expanded distribution, continued base business momentum, and increased household penetration.

In Australia, Frank's and Cholula are gaining share, and we now hold a leading market position. In the U.K., we also delivered unit and dollar share gains. These results reflect strong execution and continued brand momentum across key international markets. In Asia Pacific, we delivered strong results in China, particularly through our retail business. DaQiao, our chicken bouillon brand, continued to perform well, supported by expanded distribution, innovation, and brand marketing investments. McCormick de Mexico delivered robust volume-led quarterly growth, fueled by broad-based strength in the core mayonnaise and herbs and spices categories. Moving to flavor solutions. In flavors, customer innovation activity continued to support sales growth across large CPGs, private label, and high-growth innovators. We are seeing opportunities in functional beverage innovation, supplements, hydration, better for you snacks, premiumization, and customer diversification.

In branded food service, we continue to see momentum across non-commercial channels, retail food service, and independent operators. Importantly, we delivered front of house share gains across Frank's, Cholula, French's, and McCormick. In Asia Pacific, we delivered strong volume growth that exceeded expectations, supported by new product launches and limited time offers with QSR customers. Continued customer diversification should support solid volume growth for the balance of the year, though at a more normalized rate than in the third quarter. Let me now touch on some areas where we are seeing pressure and speak to the actions we are taking to address them. Starting with global consumer, U.S. herbs, spices, and seasonings remained a growth category. Despite improving dollar and unit trends, we still have room to improve performance, especially in areas like cooking blends and gourmet. Performance also reflects a value-conscious consumer environment.

Within certain segments of the category, consumption was pressured by increased seafood and beef prices. We are acting decisively to improve consumption and strengthen our competitive position. For example, portfolio and assortment optimization to better serve distinct consumer needs and improve shelf productivity. Targeted pricing, promotional, and revenue growth management actions to reinforce value across key segments. Increased investment, including retailer search, holiday activation, precision marketing, and in-store execution, and continued scaling of high growth platforms, including finishing salts and sugars, to create new usage occasions and drive incremental category growth. We have navigated similar consumer and competitive dynamics successfully in the past, and we are already seeing the positive impact of our actions in herbs, spices, and seasonings consumption. With these actions underway, we expect consumption trends to continue improving and strengthen share performance. In terms of volume shipments, we expect continued improvement in the fourth quarter.

In addition, in Consumer Americas, we are managing a short-term industry supply constraint on a specific type of packaging material. This may have a negative impact of up to one point on total company volume growth for the fourth quarter, potentially impacting the expected improvement in volume shipments. Our teams are working hard at mitigating its potential impact. In recipe mixes, performance reflected pressure in select segments, partially offset by improving trends in Mexican flavor and targeted pricing and promotional actions. We are confident that we are making progress to strengthen velocity across the core portfolio, expand consumer conversion behind McCormick Taco, and accelerate Cholula recipe mixes. Together, these actions are designed to improve near-term performance and build a stronger foundation for sustainable profitable growth. Moving to flavor solutions. In the Americas, as I mentioned earlier, we experienced softer demand as macroeconomic pressure affected select CPG and QSR customers.

In EMEA, QSR customer volumes, particularly in the U.K., were pressured by softer foot traffic. We expect some of these trends to be sustained in the fourth quarter, as foot traffic with QSRs remain soft and consumers remain pressured. To help offset these pressures, we are focused on diversifying our customer base and working with existing customers on new products that align with evolving consumer flavor preferences and focus on value. Let me provide some context on the state of the consumer. Geopolitical volatility, elevated fuel costs, and persistent inflation continue to influence consumer confidence and spending. In the U.S., higher gas prices and the Cyclospora outbreak have added pressure and contributed to softer traffic across food service and grocery channels.

Consumers continue to look for practical ways to manage their budgets, including using what's already in their pantry, repurposing leftovers, and seeking simple, affordable ways to add flavor at home. At the same time, flavor exploration, health and wellness, and affordable indulgence remain important priorities, supporting demand for flavorful, convenient meal solutions across retail and food service. Within this environment, flavor remains a powerful constant. Consumers continue to cook at home as they seek affordable, healthier meal solutions, and flavor is the primary driver of purchase across occasions. The continued convergence of value-seeking behavior and health trends reinforces the central role of flavor and underscores our advantaged position across our flavor-focused portfolio. Let's turn to slide 6 and our growth plans. We support our confidence in delivering our top-line outlook for the year and improving volume performance.

Starting with consumer, we recognize that the improvement in Consumer Americas will be more gradual as certain categories are experiencing a more challenging demand environment. However, we continue to view these pressures as cyclical. Our categories remain fundamentally healthy, and we are focused on actions that strengthen consumption and position the business for sustainable growth. Ultimately, our priorities are clear: expanding distribution, accelerating portfolio renovation, and refining revenue growth management to address increased price sensitivity in select segments, including through optimized price pack architecture. We are also increasing innovation and brand marketing investment, including precision marketing and in-store activation, to build purchase intent and drive velocity across our core categories. These actions are designed to support an improvement in consumption trends as well as our shipments.

In flavor solutions, we expect the current pressures, particularly among certain QSRs in the Americas and EMEA and large CPG customers in the Americas who persist through the balance of the year. At the same time, our customer innovation pipeline remains healthy with opportunities across large CPG customers, private label, and high-growth innovators. We are leveraging our R&D and product development capabilities to help customers address evolving health and wellness preferences, premiumization, and demand for differentiated flavor experiences. Finally, in branded food service, we expect to sustain the sales momentum we have seen year-to-date. The environment remains competitive and value-conscious. This is why our targeted investments in menu placements, innovation, and disciplined execution are expected to drive growth across customer channels. Together, these initiatives reinforce our confidence in the resilience of our flavor-focused portfolio and our ability to deliver sustainable, profitable growth over time.