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McCormick (MKC +2%) is trading modestly higher after wrapping up FY24 on a bit of a mixed note. This supplier of spices, seasoning mixes, and condiments reported modest upside for both EPS and revs for Q4 (Nov). However, we got our first look at FY25 guidance and... it lacked some flavor. MKC guided to FY25 adjusted EPS of $3.03-3.08, which was a bit light. It also guided to FY25 revenue growth of +0-2% (+1-3% CC), which was generally in-line.

• MKC operates two segments: Consumer (57% of FY23 revs) and Flavor Solutions (43%), which caters to food manufacturers and foodservice customers. Its Consumer segment tends to sport better margins than its FS segment. Total organic sales growth in Q4 was +2% driven by volume. Sequentially, total volume improved for the fourth consecutive quarter. That was good to see, but pricing was a bit lower.
• Its Consumer segment outperformed its FS segment in Q4 as sales increased 4% yr/yr (+3% organic) to $1.085 bln with segment adjusted operating margin of 21.0%. Results reflected a 4% increase in volume and product mix, partially offset by 1% decrease from pricing. MKC saw consumption growth in key markets across Spices & Seasonings, Recipe Mixes, Mustard, and Hot Sauce. MKC also benefitted from volume share gains in Spices & Seasonings and Recipe Mixes. There were also some tailwinds from distribution expansion in Americas and EMEA and MKC saw double-digit e-commerce consumption growth. On the negative side, China remains a weak spot.
• Flavor Solutions segment sales increased 1% (+0.8% organic) yr/yr to $713 mln with segment adjusted operating margin of 11.2%. Sales growth was driven by pricing. MKC experienced strength in Americas Flavors with high-growth innovators. MKC also saw volume growth in Americas Branded Foodservice. However, on the negative side, there was some volume softness in CPG (consumer packaged goods) and QSR (quick service restaurants) in Americas and EMEA.
• We did not let a lot of color on the FY25 guidance in the press release. However, it did say its outlook continues to reflect prioritized investments in core categories to strengthen volume trends, expand operating margins, and drive growth. We suspect that MKC is being cautious heading into the new fiscal year given a consumer that is more focused on value. On its Q3 call, MKC said consumers were resilient, but remain challenged and they are exhibiting value-seeking behavior to stretch their budgets.

Overall, the Q4 results were decent but not great. They continue to reflect a cautious consumer. Food service traffic remains soft across most restaurant types, particularly at QSRs. This is impacting MKC's Flavor Solutions segment. While it is good for MKC that consumers are eating at home more, they are still being value-conscious. They are focused on reducing waste and stretching their budgets. Also, China, in particular, remains a weak spot. MKC's FY25 guidance was a bit of a letdown. We think investors were looking for a bit more optimism heading into the new fiscal year.