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MCCORMICK & CO INC (MKC) Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered volume-led growth with net sales up 1% to $1.659B and adjusted EPS of $0.69; GAAP EPS was $0.65 as higher operating profit was offset by a less favorable tax rate and gross margin pressure .
  • Versus consensus, adjusted EPS beat by ~$0.04 while revenue was essentially in line/slightly below; EBITDA was ahead of expectations, aided by SG&A savings and mix in Flavor Solutions (see Estimates Context) *.
  • FY25 guidance reaffirmed with tweaks: reported EPS narrowed to $2.98–$3.03 (from $2.99–$3.04), tax rate raised to 22–23%, special charges lifted to ~$20M, and gross margin outlook reduced to flat to +50 bps (from +50–100 bps) due to elevated commodity costs and tariffs .
  • Key catalysts: sustained volume momentum in Consumer across regions, strong Flavor Solutions mix and pricing, and tariff mitigation plans that fully offset ~$50M in-year exposure while preserving volume trajectory .

What Went Well and What Went Wrong

What Went Well

  • Consumer segment net sales rose 3% to $931M on >3% volume growth across regions; adjusted segment operating income increased 10% to $164M on lower SG&A .
  • Flavor Solutions adjusted operating income grew 10% (13% cc) to $95M, driven by mix, pricing, and SG&A efficiencies; QSR momentum remained strong in Americas and Asia Pacific .
  • Management emphasized robust mitigation of tariff costs through sourcing analytics, CCI savings, and surgical pricing: “We expect to fully offset the impact of current tariff costs for 2025” .

What Went Wrong

  • Gross margin contracted 20 bps YoY to 37.5%, reflecting capacity-related costs and higher commodity inputs tied to global trade uncertainty; margin expansion now expected later in the year .
  • EMEA Flavor Solutions volumes remained soft, pressured by QSR traffic declines and geopolitical boycotts tied to the Middle East conflict .
  • Cash flow from operations in 1H 2025 fell to $161M (vs. $302M prior year) on working capital timing; dividends paid rose to $242M YTD, tightening near-term cash flexibility .

Financial Results

Summary P&L and Margins

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$1,798.0 $1,605.5 $1,659.5
GAAP Diluted EPS ($USD)$0.80 $0.60 $0.65
Adjusted EPS ($USD)$0.80 $0.60 $0.69
Gross Margin (%)40.2% 37.6% 37.5%
Operating Margin (%) (GAAP)17.0% 14.0% 14.8%
Operating Margin (%) (Adjusted)17.1% 14.0% 15.6%

Segment Performance

Segment MetricQ1 2025Q2 2025
Consumer Net Sales ($USD Millions)$919 $931
Consumer Adjusted Operating Income ($USD Millions)$147 $164
Flavor Solutions Net Sales ($USD Millions)$686 $729
Flavor Solutions Adjusted Operating Income ($USD Millions)$79 $95

Organic Growth Detail (Q2 2025, YoY %)

AreaAs ReportedVolume/MixPriceConstant Currency/Organic
Total Net Sales1.0% 1.3% 0.3% 1.6%
Consumer (Total)2.9% 3.3% (0.3)% 3.0%
Flavor Solutions (Total)(1.3)% (1.0)% 1.0% 0.0%
Consumer Americas2.4% 3.5% (0.7)% 2.8%
Consumer EMEA4.9% 2.2% 1.1% 3.3%
Consumer APAC2.9% 3.6% 0.1% 3.7%

KPIs and Balance Sheet/CF (Half Year)

MetricH1 2024H1 2025
Cash from Operations ($USD Millions)$301.5 $161.4
Capital Expenditure ($USD Millions)$130.3 $85.4
Dividends Paid ($USD Millions)$225.5 $241.5
Short-term Debt + Current LT Portion ($USD Millions)$748.3 (Nov-24) $1,355.6 (May-25)
Long-term Debt ($USD Millions)$3,593.6 (Nov-24) $3,099.3 (May-25)

Performance vs Estimates

MetricQ1 2025Q2 2025
Revenue Actual ($USD Millions)$1,605.5 $1,659.5
Revenue Consensus Mean ($USD Millions)$1,614.1*$1,661.4*
Adjusted EPS Actual ($USD)$0.60 $0.69
Primary EPS Consensus Mean ($USD)$0.644*$0.653*
EBITDA Consensus Mean ($USD Millions)$289.3*$301.5*
EBITDA Actual ($USD Millions)$280.9*$316.8*

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales Growth (Reported)FY250%–2% 0%–2% Maintained
Net Sales (Constant Currency)FY251%–3% 1%–3% Maintained
Adjusted Operating Income (Reported)FY253%–5% 3%–5% Maintained
Adjusted Operating Income (Constant Currency)FY254%–6% 4%–6% Maintained
Reported EPSFY25$2.99–$3.04 $2.98–$3.03 Narrowed lower
Adjusted EPSFY25$3.03–$3.08 $3.03–$3.08 Maintained
Gross Margin Expansion (YoY)FY25+50–100 bps (prior) 0–+50 bps Lowered
Tax RateFY25~22% 22%–23% Raised
Special ChargesFY25~$15M ~$20M Raised
Income from Unconsolidated OpsFY25Mid-teens decline YoY High-single-digit decline YoY Improved
Tariff AssumptionsFY25Offset China tariffs via CCI and pricing ~$90M gross exposure; ~$50M in-year; fully offset via sourcing/CCI plus surgical pricing Clarified magnitude
DividendQ2 2025$0.45 declared (Q1) $0.45 declared (payable Jul 21) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024; Q1 2025)Current Period (Q2 2025)Trend
Tariffs/MacroFY25 outlook assumed offset of China tariffs via CCI/targeted price; currency a headwind ~$90M gross tariff exposure; ~$50M in-year; fully offset via sourcing analytics, CCI savings, and surgical pricing without derailing volume; commodity costs elevated Intensifying headwind, mitigation credible
Supply Chain & SourcingCCI-led cost savings driving margin expansion in FY24/Q1 Global manufacturing footprint localizes production; diversified sourcing across 17,000 materials/90 countries; advanced analytics to optimize buys Strategic resilience reinforced
Consumer Demand & CategoriesVolume-led growth returning; brand marketing and innovation fueling core categories Strong volume momentum across spices/seasonings, recipe mixes, mustard, hot sauce; share gains and TDP expansion; home-cooking and health/value trends persist Sustained momentum
Regional TrendsChina a headwind in FY24; gradual recovery contemplated in FY25 China consumer gradually recovering; EMEA QSR soft on geopolitical boycotts; Americas QSR promotions/LTOs strong Mixed: APAC improving, EMEA pressured
Technology/ERP/DigitalERP transformation planned; FY24 brand marketing investments elevated ERP de-risked via functional rollout; spend normalized; continued investment in digital and AI; tech supports A&P efficiencies Execution-focused, steady investment
Regulatory/LegalForward-looking risks including conflicts, regulation State-level additives regulation questioned; preference for national-level approach; reformulation activity elevated Monitoring, collaborative stance
Health & WellnessFY24/25 aligned with consumer trends High win rate in health-driven briefs; flavor solutions for protein/zero-sugar, hydration, functional ingredients (masking/enhancement) Structural tailwind

Management Commentary

  • CEO: “We are pleased with our strong results… continued volume-driven performance and share gains across core categories… robust plans to mitigate current tariff related costs, fuel growth investments, and expand operating margins.”
  • CFO: “Our total gross annualized tariff exposure is approximately $90 million, and in terms of 2025 in-year exposure, it's about $50 million… offset with sourcing plans supported by advanced analytics and CCI savings; remainder via revenue management.”
  • CEO on Consumer demand: “Consumers are cooking at home more… 86% of meal occasions are sourced at home… they continue to spend and not compromise on flavor.”
  • CFO on margins: “Gross margin is now projected to range between flat to up 50 bps… expansion to be weighted towards Q4 given timing of mitigation efforts.”

Q&A Highlights

  • Tariff mitigation mix: Majority via sourcing/CCI, residual via surgical pricing informed by elasticity analytics; intent to maintain volume momentum while protecting OP .
  • Gross margin outlook revision: Elevated commodity costs prevented expected YoY improvement; SG&A streamlining offsets; margin expansion weighted to Q4 .
  • Flavor Solutions cadence: Americas steady with faster-growing flavor customers and QSR promotions; EMEA pressure expected to stabilize; APAC strong QSR promotions .
  • Brand marketing efficiency: Technology and CCI drive media buying efficiencies; still increasing A&P YoY in 2H with reinvestment in categories .
  • Regulatory environment: State-level additives proposals could be disruptive; management advocates national-level approach; reformulation activity elevated .

Estimates Context

  • Q2 2025 adjusted EPS of $0.69 vs consensus ~$0.653: beat by ~$$0.04; revenue $1,659.5M vs consensus ~$1,661.4M: essentially in line/slight miss; EBITDA ahead of consensus (actual ~$316.8M vs ~$301.5M) *.
  • Q1 2025 adjusted EPS of $0.60 vs ~$0.644 consensus: miss; revenue $1,605.5M vs ~$1,614.1M consensus: slight miss *.
  • Consensus EPS trajectory for 2H 2025 implies continued improvement (Q3: ~$0.816; Q4: ~$0.874) consistent with company’s Q4-weighted margin expansion plan *.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Volume-led growth is intact, with Consumer segment strength and Flavor Solutions margin gains offsetting macro/tariff headwinds; adjusted OP grew ~10% YoY in Q2 (11% cc) .
  • Tariff exposure (~$90M gross; ~$50M in-year) is credibly mitigated via sourcing/CCI and surgical pricing, limiting risk to volumes while protecting margins .
  • Gross margin pressure persists near term; expect expansion skewed to Q4 as mitigation actions fully phase in—aligns with consensus EPS back-half bias *.
  • EMEA QSR weakness and elevated commodities remain watch points; management expects stabilization and leverages mix/pricing/innovation to offset .
  • China’s gradual recovery supports APAC Consumer and QSR demand; Americas QSR promotions/LTOs and branded foodservice bolster Flavor Solutions .
  • FY25 guidance is reaffirmed with tighter reported EPS range and higher tax rate/special charges; constant currency adjusted EPS growth of 5–7% still targeted .
  • Dividend continuity ($0.45 declared) and balance sheet progress (LT debt down, ST debt up due to working capital timing) suggest disciplined capital allocation amid investment needs .

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