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Shares of McCormick & Company Inc. (NYSE: MKC ) fell more than 5% on Thursday after the company missed expectations for fourth-quarter 2022 results and provided a lower-than-expected earnings outlook for 2023. down 10% year over year. Even so, the company remains optimistic about driving sales growth over the next year.
Quarterly figures
For the fourth quarter of 2022, McCormick posted net sales of $1.69 billion, which was down 2% from the prior-year quarter and missed estimates. Sales grew 2% in constant currency, reflecting 9% growth from pricing actions partially offset by a 3% volume decline. Adjusted EPS fell 13% year over year to $0.73, missing the consensus target.
Business performance
During the fourth quarter, reported sales growth was primarily impacted by pandemic-related disruptions in China, which prevented total sales from being flat compared to last year, or growing 4% in constant currency.
In the Consumer segment, sales declined 8% YoY on a reported basis and 4% on a constant currency basis, primarily due to lower volumes and product mix. The decline was partially offset by price action. Sales also declined across all geographic regions on a reported basis, primarily due to a decline in volume and product mix. However, the company saw strong consumption trends in this segment, with total brand consumption rising 6% in the US during the quarter.
McCormick saw strong momentum in its Flavor Solutions segment during the fourth quarter, with sales up 9% YoY on a reported basis and 14% on a constant currency basis. Sales growth was driven by price action, higher volumes and product mix.
Sales in the Americas increased 13% due to high demand from packaged food and beverage companies as well as higher sales to branded foodservice customers. In the EMEA region, sales fell 2% while in the Asia/Pacific region, sales remained flat, according to the report. On a constant currency basis, both regions experienced double-digit sales growth.
Outlook
Looking ahead to 2023, McCormick believes its broad portfolio will help meet the growing demand for flavors around the world. The company is taking advantage of the growing consumer interest in trends like healthy and flavorful cooking, digital engagement, giving more value to trusted brands and implementing practices that fit specific goals.
In 2023, McCormick expects to see strength in the business driven by sales growth but EPS growth is expected to weaken due to higher interest costs and effective tax rates. The company expects sales to increase by 5-7% over 2022, mainly due to price action, which together with cost savings is expected to offset the impact of inflation. Growth is also expected to be driven by factors such as brand strength, new products, brand marketing and category management.
For 2023, McCormick expects reported EPS to be $2.42-2.47 compared to EPS of $2.52 in 2022. Adjusted EPS is expected to be between $2.56-2.61 compared to adjusted EPS of $2.53 in 2022. Analysts have predicted EPS of $2.2090.
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