COVID lockdowns hamper sales of McCormick & Co.

Hunt Valley, MD. COVID-19 continued to affect China in the first half of 2022 with the presentation of second-quarter results from McCormick & Co.

Sales of the company’s consumer segment in the Asia/Pacific region fell 18% in the quarter ended May 31. Lower volume in China, COVID-19 related restrictions and lower margin business exits in India combined to reduce 20% in volume in the region.

China is McCormick & Co.’s second-largest sales country, said Lawrence E. Corzios, CEO. A factory in Shanghai produces about 40% of China’s total sales.

“The shutdowns lasted about 75 days, with our Shanghai factory forced to shut down for two weeks initially, with employees living in the facility,” he said in an earnings call on June 29. “Once we were able to reopen our doors, we were affected by the labor shortage associated with the shutdown due to workers being placed in quarantine. During the months of April and May, we incurred significant additional manufacturing and transportation costs to supply our customers.”

The company’s overall net sales fell 1% to $1.54 billion from $1.56 billion, reflecting a negative 1% currency impact. While the pricing actions had a positive impact of 7%, it was offset by a 7% decrease in volume and product mix resulting in a negative impact of 4% related to separate items that included the replenishment of US Trade Inventories in the second quarter of last year, a disruption to consumer consumption in the China, the exit of low-margin business in India and the war in Ukraine.

Net income of $118.5 million, or 44 cents per share in common stock, was down 35% from $183.7 million, or 69 cents per share, in the previous year’s second quarter.

In the consumer segment, net sales declined 8% to $866.1 million from $945.2 million in the second quarter of the previous year. In the Americas, consumer sales fell 4%. Pricing measures partially offset lower volume and product mix. In Europe, the Middle East and Africa, consumer sales fell 18%, which McCormick & Co. attributed to COVID-19-related restrictions and the negative impact of 1% from lower sales in Russia and Ukraine.

In the flavor solutions segment, net sales increased 10% to $670.7 million from $611.5 million. Pricing actions increased sales in all three geographies. In the Americas, Flavor Solutions sales increased 12% due to continued growth with packaged food and beverage companies and increased sales to branded foodservice customers.

Cost inflation and supply chain issues continue to challenge the food industry, Mr. Korzios said.

“To partially offset cost pressures, we have taken multiple pricing actions and, as planned, are raising prices again,” he said. “Inflation has continued to climb, and we have adjusted upcoming pricing actions accordingly. We appreciate our customers working with us to navigate this environment.”

He said that the first wave of pricing measures in the Americas was implemented in phases during the fourth quarter of fiscal year 2021. The second wave came in April in the second quarter, and the third wave will enter into force at the end of the third quarter.

“With the first wave, we saw a very low level of resilience,” Mr. Corzios said. “With the second wave, we are seeing more price flexibility even though it is still below historical levels. While consumer spending has remained robust, consumers are now under significant pressure for broad-based inflation, particularly fuel prices and other macroeconomic factors. As we look to the Ahead and our additional pricing actions are being phased in, the resilience we saw may change, but we still expect the impact to be lower than previous levels.”

McCormick & Co.’s supply chain issues have been eased.

“I would say the worst disruption to the supply chain was really in the third quarter of last year, and () it has continued to improve gradually every month,” said Mr. Corzios. “We haven’t come out of the woods with a huge margin in terms of normalization, but the really large-scale turmoil that we’ve been seeing for a year is behind us and the turmoil are largely separate factors.”

McCormick & Co.’s net income for the six months ended May 31 was $273.4 million, or $1.02 per share in common stock, down 21% from $345.5 million, or $1.29 per share, at the same time a year earlier. Six-month net sales rose 0.7% to $3.06 billion from $3.04 billion.

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