McCormick (MKC 1.26%) this past week closed the books on a mixed fiscal year. The global spice and flavorings giant met its financial goals for 2019, including by boosting profitability to new highs. Yet sales growth barely reached the low end of management's initial forecast. The company also projected an unusually difficult year ahead, with both revenue and earnings figures significantly trailing McCormick's long-term financial objectives.
In a conference call with Wall Street analysts, CEO Lawrence Kurzius and his team explained the factors behind that 2020 outlook while describing the latest operating trends. Below are a few highlights from that presentation.
Image source: Getty Images.
Closing a solid year
We delivered solid organic sales, adjusted operating profit, and adjusted earnings-per-share growth in 2019. We expanded adjusted operating profit margin and drove strong results in both segments.
-- Kurzius
Organic sales growth was 2% in the fourth quarter to match the prior quarter's pace. That translated into 3% revenue gains for the year, which was the low end of management's 3% to 4% 2019 forecast and significantly below the 4% to 6% range that the company targets over the long term.
Still, executives said they were pleased with the healthy volume and market share trends across the consumer and commercial flavorings segments despite the volatile selling environment. McCormick's new branded product introductions were a bright spot, too.
Winning higher profits
We expanded adjusted operating margin in both of our segments while also making investments to drive continued growth.
-- Kurzius
Investors would have to strain to find much to dislike about McCormick's latest financial metrics. Operating profit rose 7% to comfortably outpace sales growth thanks to cost cuts and positive pricing and volume trends. The company logged its eighth straight year of record cash flow as operating cash jumped 15% to $947 million.
These successes supported increased investments into the consumer giant's growth initiatives as well as an expanding dividend payment and reduced debt.
A transition year ahead
Notwithstanding the significant incremental investment in 2020, we expect growth in our underlying business to remain strong. And while the [technology] deployment activities will continue through 2022, we expect to return to our normal growth algorithm in 2021.
-- Kurzius
McCormick has decided to direct most of its recently won financial strength toward a major IT upgrade. The company is rolling out a new global enterprise management platform that will touch on every part of the business, from the supply chain to marketing. This upgrade will cost over $300 million, with outflows peaking in 2020.
As a result, McCormick is predicting essentially no profit growth this fiscal year even as sales trends remain on the weaker side, with organic revenue rising in a range of 2% to 4%. Executives acknowledged that these top- and bottom-line forecasts both trailed their bigger-picture expectations.
Yet they stressed that McCormick is still outperforming those targets when you zoom out to a multiyear picture that includes fiscal 2015 through 2020. In addition, without making exceedingly specific predictions, Kurzius and his team indicated that they believe the company will return to a stronger growth and profit profile beginning in 2021.
