HUNT VALLEY, MD.  – McCormick & Co. expects increased brand marketing, price gap management, new products and packaging renovations to stop a slide in sales volume, said Brendan M. Foley, president and chief executive officer. Sales volume in the fourth quarter ended Nov. 30, 2023, declined 3% when compared with the previous year’s fourth quarter.

“We do recognize that consumers are exhibiting even more value-seeking behavior,” Foley said in a Jan. 25 earnings call to discuss fiscal-year 2023 results. “They are increasing shopping trips, reducing basket size and making just-in-time purchases, creating further uncertainty in the consumer environment.

“I want to be clear that we are dedicated to improving volumes. We have refined our plans and are prioritizing our investments to drive impactful results and return to differentiated and sustainable volume-led growth, and you should expect improvement over the coming year and into 2025 and beyond.”

Over the fiscal year, net income of $681 million, equal to $2.54 per share on the common stock, marked a 0.2% decrease from $682 million, or $2.54 per share, in the previous fiscal year.

Sales increased 5% to $6.66 billion from $6.35 billion. The growth reflected a 9% increase from pricing actions that was offset partially by a 3% decrease in volume and product mix. The volume decline included a 1% unfavorable impact from the combination of the Kitchen Basics divestiture, the canning business divestiture, the exit of the consumer business in Russia and the company’s decision to discontinue low-margin business.

In its fiscal-year 2024 outlook, McCormick projected diluted earnings per share in a range of $2.76 to $2.81, which compares with $2.52 in fiscal 2023. Fiscal-year sales are expected to range between a decrease of 2% to flat compared with 2023, or a decrease of 1% to an increase of 1% on a constant currency basis. McCormick expects to return to volume growth in the fiscal year.

The revenue outlook for 2024 was below consensus and below the normal algorithm, according to TD Cowen, a division of TD Securities.

“We think the revenue outlook raises questions about whether the stock still merits such as big valuation on premium (about 50%) to packaged foods peers,” TD Cowen said.

In the fourth quarter, sales increased 3% to $1.75 billion from $1.70 billion. The 3% volume decline partially offset a 5% increase from pricing and a 1% favorable impact from currency. Net income in the quarter rose 18% to $219 million, or 82¢ per share on the common stock, from $186 million, or 69¢ per share in the previous year’s fourth quarter.

While organic sales increased 2.1% in the quarter, TD Cowen had forecast an increase of 5.1%. TD Cowen pointed to pressure in general on mature packaged foods companies.

“There is currently elevated macro risk from weakening consumer buying power, push back from retailer customers on price increases and elasticity of demand,” TD Cowen said. “Mature companies may need to invest in price to reinvigorate their volume trends and improve their competitiveness. High-growth companies may face weaker demand for their premium-priced products.”

John Oh, an analyst at global research firm Third Bridge, added, “As profits benefit from various cost-savings programs and previous pricing actions for McCormick, our specialists indicate top-line growth and volume recovery will have to come into focus in the near term. However, with the ongoing threat of private label in core categories and with a more value-oriented consumer, our specialists question whether fundamental demand for McCormick will be there.”

In McCormick’s Consumer segment, sales increased 1.3% to $3.81 billion from $3.76 billion in the fiscal year and 1% to $1.05 billion from $1.04 billion in the fourth quarter. Consumer sales in the Americas declined 4% in the fourth quarter.

“In Americas Consumer, we expected volume declines in the prepared food categories that we participate in, like frozen and Asian, but the decline was greater than we anticipated due to the more challenging macro trends and was broadly consistent with the performance of these categories,” Foley said. “For mustard in the Americas, extremely low price points in private label impacted our consumption and is driving down category dollars. We plan to improve our volume trends in 2024 by narrowing price gaps, increasing promotions and, importantly, through distribution wins.”

In the Flavor Solutions segment, net sales increased 4.9% to $2.85 billion from $2.59 billion in the fiscal year and 7% to $704 million from $658 million in the fourth quarter.