McCormick & Company, Incorporated (NYSE:MKC) experienced a decline in its stock value on Thursday following the announcement of its fourth-quarter financial results, which exhibited a mixture of positive sales figures and disappointing profit margins. The spice and seasoning producer reported adjusted earnings per share of 86 cents for the quarter, narrowly missing analyst expectations, which averaged 88 cents. In contrast, the company’s quarterly net sales reached $1.850 billion, slightly surpassing the estimated $1.845 billion projected by market analysts.
Delving deeper into the quarterly performance metrics, McCormick revealed a 3% increase in net sales compared to the same quarter in the previous year, with a contributing 1% gain fueled by favorable currency exchange movements. The organic sales growth, excluding currency effects, was recorded at 2%. The company’s Consumer segment registered a 4% growth in net sales, reaching $1.127 billion, including a 1% positive currency impact. Additionally, the Flavor Solutions segment posted a 2% increase in sales to $723 million, also benefiting from a 1% currency advantage.
Despite the sales growth, the company’s profitability faced hurdles. Adjusted operating income for the quarter stood at $317 million, an improvement from $308 million a year earlier; however, gross profit declined by $2 million relative to the prior-year period, and gross profit margins contracted by 130 basis points. These margin pressures were attributed primarily to higher-than-anticipated inflationary costs across a broad spectrum of commodities and tariff expenses that exceeded initial forecasts.
During the earnings call, McCormick’s Chairman, President, and CEO Brendan Foley highlighted the challenges posed by these factors, emphasizing that inflation and tariff costs exerted a significant negative impact on gross margins during the quarter. Nevertheless, the company maintained a healthy liquidity position, ending the period with $95.9 million in cash and cash equivalents.
Looking ahead, McCormick provided its fiscal 2026 financial outlook, projecting GAAP earnings per share between $3.05 and $3.13, which surpasses the consensus estimate of $2.97. The company anticipates net sales growth ranging from 12% to 16% at constant currency rates. This expected growth is supported by sustained volume increases, price improvements, the incorporation of the McCormick de Mexico acquisition, and planned cost-saving initiatives.
The forecast also includes an improvement in adjusted operating income due to anticipated margin expansion and organic growth. However, these positive drivers are expected to be partially offset by ongoing higher commodity costs and pressures on selling, general, and administrative expenses (SG&A). Furthermore, adjusted earnings per share growth is likely to be moderated by a higher effective tax rate, increased interest expenses related to the Mexico acquisition, and alterations in unconsolidated operations following the removal of the minority interest.
The market reacted negatively to the quarterly announcement, as McCormick’s shares declined by 6.00%, trading at $62.56 during Thursday’s session. This drop positioned the stock at a new 52-week low according to available trading data. The decline reflects investor concern over the company’s profitability challenges despite encouraging revenue growth.
Key Points
- McCormick’s fourth-quarter adjusted earnings per share were 86 cents, missing analyst estimates of 88 cents.
- Quarterly net sales grew 3% year-over-year, reaching $1.850 billion and slightly exceeding expectations.
- Gross profit margin contracted by 130 basis points due to inflationary pressures and higher-than-expected tariffs.
- Fiscal 2026 guidance projects 12%–16% net sales growth and adjusted EPS between $3.05 and $3.13, driven by volume growth, acquisitions, pricing, and efficiencies.
Risks and Uncertainties
- Ongoing inflation across commodities may continue to pressure gross margins adversely.
- Tariff costs are higher than initially anticipated and may persist, affecting profitability.
- Commodity cost volatility and increased SG&A expenses may offset anticipated operating income improvements.
- Higher effective tax rates and increased interest expenses related to acquisitions may temper adjusted earnings growth.