McCORMICK REPORTS STRONG 3RD QUARTER PERFORMANCE.

HUNT VALLEY, Md: McCormick & Company, Incorporated (NYSE:MKC), a global leader in flavor, today reported financial results for the third quarter ended August 31, 2023 and reaffirmed fiscal 2023 sales and operating profit outlook.

Sales increased 6% in the third quarter from the year-ago period. In constant currency, sales also grew 6%. Both comparisons include a 1% unfavorable impact attributable to a slower economic recovery in China.

Operating income was $245 million in the third quarter compared to $235 million in the year-ago period. Adjusted operating income was $251 million, a 5% increase from $239 million in the year-ago period.

Earnings per share was $0.63 in the third quarter as compared to $0.82 in the year-ago period. Adjusted earnings per share was $0.65 compared to $0.69 in the year-ago period.

Cash flow from operations through the third quarter of 2023 was $660 million compared to $250 million in the year-ago period.

For fiscal year 2023, McCormick reaffirmed its sales and operating profit outlook and increased its adjusted earnings per share outlook.

President and CEO's Remarks

Brendan M. Foley, President and CEO, stated, "We drove another quarter of strong performance, reflecting sustained demand and effective execution of our growth strategies across our Consumer and Flavor Solutions segments, reinforcing the confidence that we have in our competitive advantages and differentiation. Our results reflect strong underlying business trends that were in line with our expectations across our business, notwithstanding our Consumer segment in APAC, where the pace of China's economic recovery has been slower than anticipated. We remain confident in our ability to deliver on our outlook and in the sustained trajectory of our business.

"We drove 6% sales growth in the third quarter, reflecting continued effective price realization and an improvement in our underlying business volume trends. Our performance underscores the strength of our brands and categories, as well as the power of our marketing, category management, differentiated customer engagement, and new products. In our Consumer segment, sales growth in the Americas and EMEA regions was partially offset by an unfavorable China impact. In Flavor Solutions, our exceptional performance continued, we delivered our tenth consecutive quarter of constant currency double-digit sales growth. Across our broad portfolio, we are continuing to capitalize on strong demand and deliver on our growth plans.

"We drove significant improvement in our third quarter gross margin performance relative to last year. This improvement reflects the continued recovery of the cost inflation that our pricing lagged last year as well as cost savings from our CCI and GOE programs. Our focus on increasing our profit realization is driving results.

"As we look ahead, we remain committed to our long-term financial algorithm and driving sustained value creation through top line growth and margin expansion. We are excited about the opportunities for future growth in both segments to advance our leadership position and differentiation. We will continue to innovate and renovate and drive industry-leading brand marketing, customer engagement and category management. We will also diligently optimize our cost structure to drive long-term profitable growth.

"Importantly, we will continue to leverage the strength of our culture and the power of people to build the next generation of leaders and capabilities. This is one of our most important commitments, as our teams around the world drive our momentum and success, and I am grateful for and energized by both their ongoing contributions and the results that they are driving. Our business fundamentals remain strong, and we are confident we will continue to not only deliver strong sales growth, but also drive total shareholder return at an industry-leading pace."

Third Quarter 2023 Results

McCormick reported 6% sales growth in the third quarter from the year-ago period, with minimal currency impact. Constant currency sales growth reflected an 8% increase from pricing actions, partially offset by a 2% volume and mix decline attributable to the impact of a slower than expected economic recovery in China, the Kitchen Basics divestiture, the exit of the Consumer business in Russia, and the Company's strategic decisions to discontinue low margin business. All other volume and product mix was flat to the third quarter of the prior year.

Gross profit margin expanded 150 basis points versus the third quarter of last year. This expansion was driven by pricing actions and cost savings led by the Company's Comprehensive Continuous Improvement (CCI) and Global Operating Effectiveness (GOE) programs partially offset by cost inflation. Selling, general, and administrative expenses increased from the year-ago period driven by an increase in employee incentive compensation expense as well as higher distribution and brand marketing costs partially offset by CCI-led and GOE cost savings.

Operating income increased to $245 million in the third quarter of 2023 compared to $235 million in the third quarter of 2022. Excluding special charges, adjusted operating income was $251 million in the third quarter of 2023 compared to $239 million in the year-ago period. In constant currency, adjusted operating income increased 5% from the year-ago period driven by the favorable impact of higher sales and gross margin expansion partially offset by higher selling, general, and administrative expenses.

Earnings per share was $0.63 in the third quarter of 2023 compared to $0.82 in the year-ago period. Special charges lowered earnings per share by $0.02 in the third quarter of 2023. The net favorable impact of the gain on the sale of the Kitchen Basics business and special charges increased earnings per share by $0.13 in 2022. Excluding these impacts, adjusted earnings per share was $0.65 in the third quarter of 2023 compared to $0.69 in the year-ago period. This decrease was driven by the net impact of lapping the benefit of an optimization of the Company's debt portfolio in the third quarter of last year and the increase in income from unconsolidated operations driven by strong performance in our largest joint venture, McCormick de Mexico.

Net cash...