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Investors are beginning to pepper McCormick (MKC) with buy orders today after the spices and seasoning mixes supplier exceeded bottom-line estimates in Q3 (Aug) by double-digits for the second straight quarter and increased its FY24 (Nov) outlook slightly. Right out of the gate today, the market's reaction was bland, reflecting mixed feelings toward the divergence between at-home and away-from-home consumption.

MKC's two segments, Consumer and Flavor Solutions, are split nearly equally, with just over half of its annual revs stemming from the retail consumer side and the rest from food service. While grocery price inflation is easing, dining-out prices continue to creep higher, spurring more individuals to consider cooking at home. This double-edged sword generates a give-and-take dynamic, keeping a lid on MKC's revenue growth.

• Sales were nearly flat yr/yr, inching 0.3% lower to $1.68 bln. However, volumes ticked 1% higher, a long-awaited milestone following many periods of negative growth, aided by relative strength in Consumer. Volume gains were relatively equal across each of MKC's regions outside of China, which tempered overall performance slightly. Management mentioned that the environment in China will likely remain challenged for the remainder of the year, a factor behind its still somewhat cautious FY24 outlook.
  • MKC expanded its bottom line by over 27% yr/yr to $0.83, on a healthy 170 bps improvement in gross margins yr/yr, illuminating a decent job hiking prices without significantly disrupting volumes.
• In Flavor Solutions, sales slid by 1% yr/yr. The EMEA and APAC regions dragged down overall sales in this segment, posting an 8% and 1% drop, respectively. However, silver linings were present. The Americas enjoyed a 2% sales bump in the quarter and helped prop up consolidated volumes, which improved sequentially.
• MKC warned that consumers remain challenged, exhibiting value-seeking behavior and reducing their grocery store basket sizes. Meanwhile, food service traffic remains sluggish, especially in the quick-service restaurant space, a sour development for MCD, WEN, QSR, JACK, SHAK, and YUM, all of which are reporting earnings over the next month.
• As a result, MKC's raised FY24 guidance still contained an ounce of caution, projecting adjusted EPS of $2.85-2.90 from $2.80-2.85 and revenue growth of negative 1% to positive 1% from negative 2% to flat. Still, MKC was encouraged by the rise in food-at-home trends, particularly amongst the younger generations, as they replicate gourmet restaurant items. The company also continued to outstrip private label volumes in the quarter, showcasing its competitive advantages.

Crosscurrents are impacting MKC's quarterly results and may continue to do so until inflation rates wind down toward historical norms. However, in the meantime, MKC is capitalizing on the acceleration of at-home cooking while maintaining its competitive advantages over private-label alternatives.