McCormick & Co. has set out below-consensus guidance as prolonged weakness in China weighs on the low-end of the organic sales growth range.
While the outlook for fiscal 2025 generally struck a positive note compared to last year’s performance, the US-based spices, seasonings and hot sauces maker is taking a “prudent” approach in guiding markets to 1-3% organic growth.
That is down on the bottom-end from the 2-3% envisaged at McCormick’s capital markets day in October but builds on the upper-end of the 2024 volume-led 1% growth reported this week.
President and CEO Brendan Foley said McCormick was seeing particular weakness in China in its foodservice and QSR business for a country that AllianceBernstein analysts estimate accounts for around 5-6% of the group’s annual sales – $6.7bn in 2024.
Foley said in his presentation for the fourth quarter: “In Asia Pacific, our results were impacted by China as the environment in this market remains challenged. Looking forward, we expect a slight and gradual recovery in 2025 relative to the prior year.
“Consumer sentiment remains low, and October and November distributor inventory build-up was below prior years due to the expected softer consumption.”
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By GlobalDataCFO Marcos Gabriel said group sales in the new year will continue to be volume-led with “minimal pricing”, even with input-cost inflation expected in the low single-digit range.
He added with respect to China: “Our food-away-from-home business, which is included in the APAC consumer [segment], continues to be impacted by slower demand. As a result, our outlook assumes a gradual recovery, and we expect China consumer sales to improve slightly year over year.
“While we recognise that it has been weak demand, we continue to believe in the long-term growth opportunity of the China business.”
Elsewhere in the outlook, McCormick envisages the gross margin will increase 50-100 basis points in the new year, following a 90-point uptick to 38.5% in 2024.
Adjusted operating income, in constant currency, is expected to grow 4-6%, compared to last year’s 5% improvement, while adjusted EPS is seen at $3.03 to $3.08, versus the $2.95 reported for 2024.
“The guidance was not quite as robust as we had hoped and China remains problematic. However, we maintain high conviction in the company’s path to sequentially stronger volume and GM expansion,” TD Cowen analyst Robert Moskow wrote in a research note.
TD Cowen forecasts an organic growth rate of 2.2% for 2025.
Finance chief Gabriel added: “Our outlook continues to reflect our prioritising investments in key categories to strengthen volume trends and drive long-term profitable growth, while appreciating the uncertainty of the consumer and macro environment.”
The macro environment also includes weakness in the EMEA region for McCormick’s QSR business, which sits within the company’s flavour solutions segment, and boycotts of consumer products in the Middle East linked to the conflicts.
On the high-end of the organic growth guidance, however, is the “strength” in the consumer retail volumes McCormick is seeking in the EMEA and Americas regions, Foley said.
“It reflects a prudent view of a changing marketplace,” Foley added in terms of the outlook.
“Overall, trends continue to evolve. Consumers remain challenged, particularly lower-income consumers. While everyone continues to watch their spending, there appears to be some easing with mid- and higher-income cohorts.”
