McCormick Earnings: Volume-Led Growth Holds as Tariffs Pressure Margins
- Hardik Shah
- Oct 7
- 4 min read
TLDR
Revenue Strength: Organic sales up 2%, marking five straight quarters of volume-led growth.
Margin Trends: Gross margin contracted 120 bps from commodity and tariff pressures despite CCI cost savings.
Forward Outlook: Sales growth reaffirmed; EPS trimmed to $3.00–$3.05 amid rising input costs and trade uncertainty.
Business Overview
McCormick & Company (NYSE: MKC) is a global leader in flavor, manufacturing and marketing spices, seasonings, condiments, and flavor solutions across 150 countries with over $6.7 billion in annual sales. The company operates two primary segments:
Consumer: Spices, seasonings, sauces, and condiments sold under brands like McCormick, Frank’s RedHot, French’s, Cholula, and Schwartz.
Flavor Solutions: Custom flavors and seasoning blends supplied to packaged food companies and restaurants.
McCormick’s revenue base is geographically diversified across the Americas, Europe, the Middle East, Africa (EMEA), and Asia-Pacific (APAC), with exposure across retail, e-commerce, and foodservice channels.
McCormick Earnings
For the quarter ended August 31, 2025, McCormick delivered modest but steady performance despite cost headwinds.
Revenue:
Net sales rose 3% (including +1% FX benefit); organic growth of 2% was volume-led.
Consumer segment sales grew 4% to $973M; Flavor Solutions up 1% to $752M.
EMEA led growth (+11% reported, +4% constant currency), offsetting flat APAC performance.
Profitability:
Gross margin: 37.4%, down 130 bps year over year.
Operating income: $289M (up 1% YoY); adjusted +2%.
Adjusted EPS: $0.85 (+2% YoY) versus $0.83 in Q3 2024.
Margin compression reflected rising commodity and tariff costs, partly mitigated by McCormick’s Comprehensive Continuous Improvement (CCI) cost savings program.
CEO Brendan Foley: “Our fifth consecutive quarter of volume-led growth underscores our differentiation and investments in brand strength and innovation. We remain agile in navigating the dynamic global trade environment.”
Forward Guidance
McCormick reaffirmed its sales growth outlook for fiscal 2025 but lowered profit expectations to reflect tariff and cost inflation impacts.
Metric | Prior Guidance (June) | Updated (October) |
Net Sales Growth | 0–2% | 0–2% |
Adjusted Operating Income (cc) | +4–6% | +3–5% |
Adjusted EPS (reported) | $3.03–$3.08 | $3.00–$3.05 |
Adjusted EPS (cc) | +5–7% | +4–6% |
Key assumptions:
Commodity inflation at low-to-mid single digits (up from prior “low single”).
Tariff costs expected at $70M for FY25, up from $50M.
Tax rate ~22% vs. 20.5% in 2024.
FX expected to reduce sales by 1%, EPS by 2%.
CFO Marcos Gabriel: “Tariffs remain a discrete headwind. We’re offsetting most of the impact through productivity savings, alternative sourcing, and surgical pricing actions.”
Operational Performance
Consumer Segment:
Volume-led growth across core categories.
Strong momentum in spices, seasonings, and mustard, with share gains across U.S., Canada, France, and Poland.
Innovation wins included new Grill Mates packaging, Cholula cremosas, and McCormick finishing sugars for the holidays.
Flavor Solutions:
Flat volume overall; strength in QSR (Quick-Service Restaurant) and health & wellness categories offset softer volumes among large CPG customers.
Reformulation projects increasing as brands shift toward clean-label, reduced-sodium, and additive-free formulations.
Foley: “Our manufacturing footprint and sourcing agility are core advantages, helping us mitigate tariff impacts while maintaining momentum.”
Market Insights
Industry-wide softness in large CPG and branded foodservice volumes persisted, but QSR and private-label demand grew. Health-conscious consumers continue to drive flavor experimentation, home cooking, and clean-label reformulations.Inflation and trade uncertainty remain watchpoints as companies balance pricing with elasticity risk.
Consumer Behavior & Sentiment
McCormick sees consumers adapting to inflation by:
Making more frequent, smaller trips with focus on value and fresh foods.
Cooking at home more often, reinforcing demand for spices and sauces.
Exploring functional and high-protein foods that deliver flavor and health benefits.
E-commerce adoption continues to accelerate, with McCormick expanding digital engagement and targeted promotions to capture online flavor exploration trends.
Strategic Initiatives
Innovation: Continued pipeline of seasoning, condiment, and sauce launches across retail and QSR.
Digital & Analytics: Advanced Revenue Growth Management (RGM) and data-driven pricing to manage elasticity and offset tariffs.
Productivity & Efficiency: Ongoing CCI and streamlining initiatives driving SG&A leverage and freeing funds for brand marketing.
M&A: Integration plans underway for McCormick de Mexico, expected to close early 2026.
Foley: “We’re balancing near-term cost pressures with sustained investment in brand, technology, and digital transformation to reinforce long-term advantages.”
Capital Allocation
Cash Flow: $420M YTD operating cash flow (vs. $463M prior year), reflecting timing of working capital.
Dividends: $362M returned to shareholders YTD.
CapEx: $138M invested in capacity, digital transformation, and supply chain optimization.
Balance Sheet: Commitment to strong investment-grade rating and steady shareholder returns.
The Bottom Line
McCormick delivered resilient volume-driven growth in a volatile environment but faces margin compression from tariffs and input costs. The company’s disciplined cost management and targeted pricing actions should buffer profitability, while long-term trends—home cooking, flavor exploration, and wellness—continue to underpin growth.
Investor Watchpoints:
Pace of tariff pass-through and elasticity response in Q4.
Commodity cost trends and supply chain resilience into 2026.
Integration progress for McCormick de Mexico and recovery in APAC foodservice.
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