McCormick & Co. Inc. reported quarterly results Thursday that disappointed investors again, and said it was laying off employees as part of a plan to cut costs by about $125 million a year and remove inefficiencies in its supply chain.
The seasonings, spices and condiments company
also provided a downbeat earnings outlook for fiscal 2023, due in part to higher interest expenses from rising interest rates, a higher tax rate and a more cautious consumer.
“We do expect the consumer to be under pressure in 2023,” said Chief Executive Lawrence Kurzius on the post-earnings conference call with analysts, according to a transcript provided by AlphaSource/Sentio. “I don’t care whether you call it a recession or a soft landing. Consumers on the lower end of the income spectrum, not even — I’m not talking about the bottom, I’m talking about the lower half — they’re certainly going to have less money and are going to be careful with their budgets.”
Kurzius said initiatives taken to cut costs include an “optimized” leadership structure throughout the company and increased automation. The company will also pare back excessive use of co-packers within the company’s operations.
He said labor was expected to be the “most significant driver” of the company’s cost-cutting plan, which it named the Comprehensive Continuous Improvement (CCI) program.
“We expect through these initiatives to reduce 10% of our Americas supply chain workforce — over the past three months, we have already achieved half of the planned reduction,” Kurzius said, according to a FactSet transcript.
A large part of streamlining actions is a U.S. voluntary retirement program, which he said is “very far along” with a targeted separation date of Feb. 1.
“This will be followed by other actions, some of which will be involuntary,” Kurzius said.
The company did not provide a number of jobs that it expects to cut, and it did not immediately respond to a request for comment. The last annual report, released a year ago said the company had 14,000 full-time employees.
The stock sank 4.8% in afternoon trading, putting it on track to close at a 3-month low. The stock is on track to fall on the day earnings are reported, as it had for the previous four quarters. It would be the 10th time in the past 11 quarters that shares sank on earnings results.
The company reported before the opening bell fiscal fourth-quarter net income, for the quarter through Nov. 30, that fell to $196.7 million, or 69 cents a share, from $227.3 million, or 73 cents a share, in the same period a year ago.
Excluding nonrecurring items, the adjusted earnings per share of 73 cents was well below the FactSet consensus of 86 cents.
Sales fell 2.0% to $1.696 billion, missing the FactSet consensus of $1.767 billion. The company said price increases of 9% helped offset a 4% drop in volume and product mix; a 3% decline in volume from the divestiture of its Kitchen Basics business; lower demand in China due to COVID-related restrictions; and the exit of a lower-margin business in India and the consumer business in Russia.
Cost of goods sold rose 4.3% to $1.071 billion, as gross profit margin contracted to 36.8% from 40.6%.
For fiscal 2023, the company expects sales to grow 5% to 7%, driven primarily by increased pricing. The current FactSet sales consensus of $6.649 billion implies 4.7% growth over fiscal 2022 sales of $6.351 billion.
McCormick expects adjusted EPS of $2.56 to $2.61, which is well below the FactSet consensus of $2.90.
The stock has shed 2.8% over the past three months, while the Consumer Discretionary Select Sector SPDR exchange-traded fund
has gained 2.3% and the S&P 500 index
has advanced 5.6%.