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McCormick's Earnings Jumped Almost 30% Due to Pandemic-Driven Home-Cooking Trend

By Howard Smith - Jun 25, 2020 at 11:21AM

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The spice and condiment maker reported strong fiscal second-quarter revenues and profits, even as its sales to restaurant and foodservice customers plunged.

Leading spice and sauce company McCormick & Company (MKC 1.16%) reported fiscal second-quarter earnings Thursday that reflected the  shift to a stay-at-home lifestyle necessitated by the COVID-19 pandemic. For the period that ended May 31, sales grew by 10% in constant currency year over year -- a major acceleration from the 3% revenue growth it booked in fiscal 2019 overall. Adjusted earnings per share jumped 27% from the year-ago quarter, the company said. 

McCormick is benefiting from a growth trend in home cooking that got a natural boost when most restaurants closed (whether completely or only to dine-in service) and people began sheltering in place to help slow the spread of COVID-19. The company experienced a "substantial increase in demand" in its consumer segment that more than offset the sharp 18% decline in sales through its flavor solutions segment, which supplies restaurants and other foodservice customers.

a couple cooking together over a stove

Image source: Getty Images.

Specifically, McCormick said sales in its consumer segment increased 26% in the second quarter, including a negative impact of 2% from currency. A favorable product mix helped lift gross profit margins by 230 basis points year over year, as did the company's cost-cutting program. 

While McCormick ramped up production to meet the higher demand, it simultaneously shifted a bit of its manufacturing capacity in Hunt Valley, Maryland, and London, Ontario, to produce hand sanitizer sufficient to supply its employees, after which it kept producing more to donate to local hospitals and emergency response efforts.

McCormick did not provide fiscal 2020 guidance due to the general lack of clarity about what course the COVID-19 pandemic will take or what further economic shocks it will bring. But it did say that demand remains strong in the consumer segment, and management expects that trend to continue in the second half of the year. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.

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