McCormick & Company, Incorporated (MKC.V) (NYSE: MKC), a global leader in flavor, today reported financial results for the third quarter ended August 31, 2018 and updated its latest financial outlook for fiscal year 2018.

• Sales rose 14% in the third quarter from the year-ago period with minimal impact from currency and strong results in both the consumer and flavor solutions segments.

• Operating income was $233 million in the third quarter compared to $169 million in the year-ago period. Adjusted operating income was $242 million, a 19% increase from $204 million in the third quarter of 2017, and a 20% increase in constant currency.

• Earnings per share was $1.30 in the third quarter as compared to $0.85 in the year-ago period. Adjusted earnings per share rose 14% to $1.28 from $1.12 in the year-ago period.

• For fiscal year 2018, based on its strong year-to-date performance and growth momentum, McCormick continues to expect strong sales growth and raised its projection for earnings per share.

Chairman, President & CEO's Remarks

Lawrence E. Kurzius, Chairman, President and CEO, stated, "McCormick's strong third quarter and year to date results reflect the successful execution of our strategies. We delivered double-digit sales, adjusted operating income and adjusted earnings per share growth in both the third quarter and year to date. We continued to expand operating margin, while also making significant brand marketing investments during the quarter.

"Both our consumer and flavor solutions segments contributed to our constant currency sales growth of 14%. Growth in both segments was led by incremental sales from the Frank's and French's portfolio. Consumer segment sales growth was also driven by both Americas and Asia/Pacific's base business and new products, with particular strength in the U.S. and China. Our U.S.sales growth accelerated versus the first half of the year as planned, driven by distribution gains and the effectiveness of our brand marketing. Our momentum in China has also continued. Our additional flavor solutions segment growth was driven by increased base business and new product sales growth in the Americas and Europe, Middle East and Africa (EMEA) regions. In this segment, we continue to win with existing business as well as with new products and customers. During the third quarter, we celebrated our one year anniversary of the Frank's and French's brands joining our portfolio and have achieved our year one acquisition plan for both sales and profit. Across both of our segments, the solid year to date growth from our core business and the performance of Frank's and French's are in line with our plans, we are pleased with our momentum entering the last quarter of our fiscal year and are confident in our updated 2018 guidance.

"McCormick is a global leader in flavor with a broad and advantaged global portfolio which continues to grow and position us to fully meet the demand for flavor around the world. All over the world, people desire great tasting foods and drinks with rich, authentic flavor. And we deliver flavor across all markets and through all channels. We are focused on growth, delivering against our objectives, strengthening our organization and building the McCormick of the future. Through the execution of our strategies, we are becoming even better positioned to drive future growth and are confident in our continued success. We are balancing our resources and efforts to drive sales with our work to lower costs led by our Comprehensive Continuous Improvement (CCI) program.

"I want to recognize McCormick employees around the world for their efforts and engagement. With our vision to bring the joy of flavor to life and our steadfast focus on growth, performance, and people, we are confident in our continuing momentum for growth in 2018 to deliver strong financial results and build value for our shareholders."

Third Quarter 2018 Results

McCormick reported a 14% sales increase in the third quarter from the year-ago period with minimal impact from currency. Incremental sales through mid-August from the acquired Frank's and French's brands added 10% to the sales increase. Consumer segment sales grew by 14% with minimal impact from currency. The incremental impact of Frank's and French's added 10% to the consumer segment with the remaining increase driven by the Americasand Asia/Pacific regions. Flavor solutions segment sales grew by 14%, with minimal impact from currency and 9% from the incremental impact Frank's and French's. The remaining sales increase was driven by the Americas and EMEA regions. In constant currency, the company grew sales 14%.

Gross profit margin increased 330 basis points versus the year-ago period. This expansion was driven by CCI-led cost savings and our shift in the portfolio to more value added products, including the impact of Frank's and French's portfolios. Additionally, in the year-ago period gross profit margin was unfavorably impacted $6 million by the RB Food's transaction expense related to the acquisition-date fair value adjustment of inventories. Adjusted gross profit margin increased 280 basis points versus the year-ago period. Operating income was $233 million in the third quarter compared to $169 million in the year-ago period. This increase was driven by higher sales and gross margin expansion as well as decreases in special charges and in transaction and integration expenses from the RB Foods acquisition. Partially offsetting this increase was higher brand marketing and distribution expense. Brand marketing increased 36%, or $21 million, in the third quarter versus the year-ago period. The company recognized $6 million of transaction and integration expenses in operating income related to the RB Foods acquisition in the third quarter of 2018 versus $30 million in 2017. The company recorded $3 million of special charges in the third quarter of 2018 versus $5 million in 2017. Excluding transaction and integration expenses as well as special charges, adjusted operating income was $242 million compared to $204 million in the year-ago period. The company grew adjusted operating income 20% in constant currency, which excluded a 1% unfavorable impact of currency.

Earnings per share was $1.30 in the third quarter of 2018 compared to $0.85 in the year-ago period. The increase in the net favorable non-recurring impact of the U.S. tax legislation (U.S. Tax Act), partially offset by transaction and integration expenses as well as special charges increased earnings per share by $0.02 in the third quarter of 2018. Transaction and integration expenses, including $15 million of other debt costs, as well as special charges lowered earnings per share by $0.27 in 2017. Excluding these impacts, adjusted earnings per share was $1.28 in the third quarter of 2018 compared to $1.12 in the year-ago period. The increase in adjusted earnings per share was driven primarily by higher adjusted operating income and a favorable adjusted income tax rate partially offset by higher interest expense and shares outstanding. This was an increase in adjusted earnings per share of 14%, which includes an unfavorable impact of foreign currency rates.

The company continues to generate strong cash flow. Year-to-date net cash provided by operating activities through the third quarter of 2018 was $389 million compared to $303 million through the third quarter of 2017. The increase was mainly due to net income growth. A portion of this cash was used to make $280 million of prepayments on our recent acquisition debt during the first nine months of fiscal year 2018.

2018 Financial Outlook

McCormick updated its 2018 sales, operating income and earnings per share guidance to reflect the strength of its year to date performance and growth momentum as well as a less favorable impact from foreign currency exchange rates on sales, adjusted operating profit, income from unconsolidated operations and adjusted earnings per share. The update also included a lower effective income tax rate and a higher impact from the net favorable non-recurring impact of the recent U.S. Tax Act.

In 2018, McCormick expects to grow sales 12% to 14% compared to 2017, including only a one percentage point favorable impact from currency rates. This is a decrease from previous guidance of 13% to 15% which included a two percentage point favorable impact from currency rates. This reaffirms the company's constant currency expected sales growth rates. The company expects to drive sales growth with new products, brand marketing and expanded distribution as well as the incremental impact of acquisitions already included in its year to date results. Sales growth also includes the incremental impact of pricing from 2017 in addition to the expected impact of actions taken in 2018 to offset an anticipated low single digit increase in costs. The company has plans to achieve at least $105 million of cost savings and intends to use these savings to improve margins, fund an increase in brand marketing, and as a further offset to increased costs.

Operating income is expected to grow in 2018 by 31% to 32% from $702 million of operating income in 2017. Transaction and integration expenses from the RB Foods acquisition of approximately $23 million are currently projected to impact operating income for 2018. Special charges of approximately $18 million are currently projected for 2018. Excluding the impact of transaction and integration expenses as well as special charges in 2018 and 2017, the expected growth in adjusted operating income is 22% to 23% from adjusted operating income of $786 million in 2017. This growth includes minimal impact from currency rates. This is a decrease from previous guidance of 23% to 25% which included a one percentage point favorable impact from currency rates.

McCormick increased its projection of 2018 earnings per share to be in the range of $7.03 to $7.08 compared to $3.72 of earnings per share in 2017. Excluding an anticipated favorable per share impact in 2018 of $2.08, consisting of the estimated net favorable non-recurring impact of the U.S. Tax Act, partially offset by the estimated effects of transaction and integration expenses related to RB Foods and of special charges, the company projects 2018 adjusted earnings per share to be in the range of $4.95 to $5.00. This is an increase from the previous guidance of $4.85 to $4.95 and reflects a reduction of the company's expected adjusted effective tax rate to approximately 21% for 2018, due to the year to date favorable impact of discrete items, principally a higher level of stock option exercises. The updated guidance also reflects a lower favorable impact from currency. Year to date currency has been favorable with an unfavorable impact in the third quarter and the remainder of the year is also expected to be unfavorable. The updated guidance projects an increase of 16% to 17% from adjusted earnings per share of $4.26 in 2017 and includes minimal impact from currency. For fiscal year 2018, the company projects another year of strong cash flow, with plans to return a significant portion to McCormick's shareholders through dividends and to pay down debt.

The company grew consumer segment sales 14% when compared to the third quarter of 2017, with minimal impact from currency, driven by the Americasand Asia/Pacific regions.

• Consumer sales in the Americas rose 18% compared to the third quarter of 2017 with minimal impact from currency. Incremental sales from the Frank's and French's acquisition contributed 14% to sales growth. The remaining underlying increase of 4% was driven by higher volume and pricing across several product lines including recipe mixes, spices and seasonings, Asian foods, stocks and broths and grilling. This underlying increase was a significant sequential improvement from growth in the first half of 2018.
• Consumer sales in EMEA were flat. In constant currency, sales declined 1% from the year-ago period, which included 1% growth from Frank's and French's. The underlying sales decline was impacted by a category slow down driven by unusually warm weather across Europe.
• Third quarter consumer sales in the Asia/Pacific region rose 9% with minimal impact from currency. The sales growth was led by China.

Consumer segment operating income rose 10% to $154 million for the third quarter of 2018 compared to $140 million in the year-ago period, with minimal impact from currency. The favorable impact of higher sales, including favorable mix, and CCI-led cost savings more than offset the unfavorable impact of increases in brand marketing and freight costs. In the consumer segment, we increased our brand marketing 44%, or $21 million, in the third quarter versus the year-ago period.

About McCormick

McCormick & Company, Incorporated is a global leader in flavor. With $4.8 billion in annual sales, the company manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the entire food industry – retail outlets, food manufacturers and foodservice businesses. Every day, no matter where or what you eat, you can enjoy food flavored by McCormick. McCormick Brings the Joy of Flavor to Life™.

For more information, visit www.mccormickcorporation.com.