McCormick & Company, Incorporated (NYSE: MKC), a global leader in flavor, today reported financial results for the second quarter ended May 31, 2019 and provided its latest financial outlook for fiscal year 2019.

• Sales in the second quarter were comparable to the year-ago period. In constant currency, the company grew sales 3% with growth driven by both the consumer and flavor solutions segments in all three regions.
• Operating income was $208 million in the second quarter compared to $189 million in the year-ago period. Adjusted operating income was $215 million, a 5% increase from $205 million in the second quarter of 2018, and an 8% increase in constant currency.
• Earnings per share was $1.12 in the second quarter as compared to $0.93 in the year-ago period. Adjusted earnings per share rose 14% to $1.16 from $1.02 in the year-ago period.
• McCormick reaffirmed its sales outlook and increased its earnings per share outlook for fiscal year 2019.

Chairman, President & CEO's Remarks

Lawrence E. Kurzius, Chairman, President and CEO, stated, "In our second quarter we delivered solid financial results in line with our expectations. Our fundamentals are strong and as we enter the second and most significant half of our year, we are confident the initiatives we have underway in 2019 position us to continue on our growth trajectory.

"Our consumer and flavor solutions segments contributed to our constant currency sales growth of 3%. Both segments grew constant currency sales in each of our three regions driven by higher volume and product mix on base business, new products and pricing. Our consumer segment base business volume growth was driven by our category management initiatives and expanded distribution, as well as effective marketing support and merchandising execution. Growth in the consumer segment was led by our Asia Pacific and Americas regions. In our flavor solutions segment, with our customer intimacy focus and broad range of solutions, we are continuing to win with our customers and drive sales growth through our new products, expanded distribution and their promotional activities. While all of our regions contributed to our flavor solutions sales growth, our EMEA region's growth was particularly strong.

"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. We are continuing to capitalize on the global and growing consumer interests in healthy, flavorful eating, the source and quality of ingredients, and sustainable practices. Our focus on profitable growth and strengthening our organization is the foundation of our future. In 2019, we expect to deliver another strong year while continuing to make targeted investments and fuel our growth to build the McCormick of the future.

"I want to recognize McCormick employees around the world for their efforts and engagement which drive our momentum and make us successful. With our vision to bring the joy of flavor to life and our relentless focus on growth, performance, and people, we are confident we are well positioned to drive future growth, continue our forward momentum and build value for our shareholders in 2019."

Second Quarter 2019 Results

McCormick reported sales in the second quarter comparable to the year-ago period, including a 3% unfavorable impact from currency. Consumer segment sales declined 1% including a 3% unfavorable impact from currency. Excluding the unfavorable currency impact, consumer sales grew across all three regions driven primarily by new products and expanded distribution. Flavor solutions segment sales grew by 1%, including a 3% unfavorable impact from currency. Flavor solutions sales growth was mainly attributable to new products and higher base business volume and product mix primarily driven by the Europe, Middle East and Africa (EMEA) region. In constant currency, the company grew sales 3%.

Gross profit margin increased 30 basis points versus the year-ago period. This expansion was driven by cost savings led by the Comprehensive Continuous Improvement (CCI) program. Operating income was $208 million in the second quarter compared to $189 million in the year-ago period. This increase was primarily driven by CCI as well as lapping prior year transaction and integration expenses from the acquisition of the Frank's and French's brands. Operating income margin increased 150 basis points versus the year-ago period. In the second quarter of 2018, the company recognized $8 million of transaction and integration expenses in operating income related to the acquisition of the Frank's and French's brands. The company recorded $7 million of special charges in the second quarter of 2019 versus $8 million 2018. Excluding transaction and integration expenses as well as special charges, adjusted operating income grew 5% to $215 million compared to $205 million in the year-ago period, or 8% in constant currency. The company expanded adjusted operating income margin 80 basis points versus the year-ago period.

Earnings per share was $1.12 in the second quarter of 2019 compared to $0.93 in the year-ago period. Special charges decreased earnings per share by $0.04 in the second quarter of 2019. Transaction and integration expenses as well as special charges decreased earnings per share by $0.09 in the second quarter of 2018. Excluding these impacts, adjusted earnings per share was $1.16 in the second quarter of 2019 compared to $1.02 in the year-ago period. The increase in adjusted earnings per share was driven primarily by higher adjusted operating income and a lower adjusted income tax rate. This resulted in 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 second quarter of 2019 was $314 million compared to $235 million in the first half of 2018. The strong operating cash flow was driven by higher operating income and continued working capital initiatives. A portion of this cash was used to pay down $88 million of acquisition debt, as the company continues to focus on paying down debt.

Fiscal Year 2019 Financial Outlook

For the 2019 fiscal year, McCormick reaffirmed its financial outlook for sales, updated its outlook for operating income and increased its earnings per share outlook. The company continues to expect another year of strong performance driven by its broad and advantaged flavor portfolio, effective growth strategies and focus on profit realization.

In 2019, the company continues to expect a two-percentage point unfavorable impact from currency rates on net sales, adjusted operating income and adjusted earnings per share.

In 2019, the company continues to expect to grow sales compared to 2018 by 1% to 3%, which in constant currency is a 3% to 5% projected growth rate. This increase consists entirely of organic growth as the company has no incremental sales impact from acquisitions in 2019. The company expects to drive sales growth with new products, brand marketing and expanded distribution. Sales growth is also expected to include the impact of pricing taken to offset an anticipated low-single digit increase in costs. The company has plans to achieve approximately $110 million of cost savings and intends to use these savings to fund investments to drive continued growth, improve margins, and as a further offset to increased costs.

Operating income in 2019 is expected to grow 8% to 10% from $891 million of operating income in 2018. This is a decrease from the company's previous projection of 10% to 12% driven primarily by its most recent estimates related to business transformation investments, global trade and economic developments and special charges. Special charges of approximately $20 million are currently projected for 2019 that relate to previously announced organization and streamlining actions. Excluding the impact of special charges, as well as in 2018 transaction and integration expenses, the updated expected growth in adjusted operating income is 6% to 8%, which in constant currency is an 8% to 10% projected growth rate, from adjusted operating income of $930 million in 2018.

McCormick increased its projected 2019 earnings per share to be in the range of $5.09 to $5.19 compared to $7.00 of earnings per share in 2018. Excluding an estimated $0.11 impact of special charges in 2019, the company projects 2019 adjusted earnings per share to be in the range of $5.20 to $5.30. This is an increase from previously reported guidance of $5.17 to $5.27 and, as compared to $4.97 of adjusted earnings per share in 2018, represents an expected increase of 5% to 7%, or in constant currency 7% to 9%. This increase reflects the updated adjusted operating income outlook projection, an expected high single digit increase in income from unconsolidated operations and a reduction of the company's fiscal 2019 projected adjusted effective tax rate to approximately 21%. The projected adjusted effective tax rate is an increase from 2018 and results in a significant headwind on adjusted earnings per share growth, partially offsetting the company's strong adjusted operating income growth expectation. For fiscal year 2019, 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.

Business Segment Results

The company's consumer segment sales declined 1% when compared to the second quarter of 2018. In constant currency, sales grew 2% with increases in each of the three regions.

• Consumer sales in the Americas rose 2% compared to the second quarter of 2018 and in constant currency also rose 2%. The increase was primarily driven by higher volume and product mix of the Zatarain's frozen portfolio, Frank's RedHot sauces, branded extracts, and branded Hispanic products. A slowdown in the spices and seasonings category, driven by a late Easter which delayed the beginning of grilling season, tempered growth in the Americas.
• Consumer sales in EMEA declined 7%. In constant currency, sales increased 1% from the year-ago period. This increase was driven by higher volume and product mix due to new products, distribution gains and promotions offset partially by a decline in private label products as well as pricing actions, including those related to trade promotional activities.
• Second quarter consumer sales in the Asia/Pacific region declined 4% and in constant currency grew 3%. The sales growth was led by India and Australia.

Consumer segment operating income, excluding special charges, transaction and integration expenses, increased 7% to $138 million for the second quarter of 2019 compared to $129 million in the year-ago period. In constant currency, consumer operating income increased 9%. The favorable impact of CCI-led cost savings drove the year over year growth.

Flavor Solutions Segment

Flavor solutions segment sales increased 1% from the second quarter of 2018. In constant currency, sales grew 4% with increases in each of the three regions.

• Flavor solutions sales in the Americas grew 2% from the year-ago period and in constant currency, sales grew 3%. This growth was led by the increased sales to quick service restaurants and continued flavors and seasonings momentum. New products, expanded distribution and customer promotional activities all contributed to the increase.
• Second quarter flavor solutions sales in EMEA decreased 1% and in constant currency rose 9%. The growth was broad based and driven by higher volume and product mix, attributable to both the base business and new products, as well as pricing.
• Flavor solutions sales in the Asia/Pacific region decreased 4% in the second quarter of 2019 and in constant currency rose 2%. Sales to quick service restaurants, partially due to the timing of their promotional activities, drove the growth.

Flavor solutions segment operating income, excluding special charges, transaction and integration expenses, rose 2% to $77 million for the second quarter of 2019 compared to $76 million in the year-ago period. In constant currency, flavor solutions operating income increased 5%. The favorable impact of higher sales and CCI-led cost savings drove the year over year growth with a partial offset from higher costs, including the unfavorable transactional impact of foreign currency exchange rates.

About McCormick

McCormick & Company, Incorporated is a global leader in flavor. With $5.3 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.