McCormick & Company, Incorporated (MKC) Q2 FY26 earnings call: guidance and Q&A

How is the current weakness in U.S. spices and seasonings, particularly regarding price gaps, different from previous challenges, and how does past experience inform the current strategy?

The approach is broadly similar to past strategies, but current pressure is more specific to certain segments, and consumer pressure is higher due to sustained inflation. The digital landscape offers more targeted marketing capabilities, and the company's speed and agility in response are key, with early positive results observed.

“Our approach is broadly very similar to what we did over the last 2 to 3 years. And so I think the broad theme of the sort of the headline answer to your question would be that. We're taking very much the same type of approaches that we did before.”

asked by Andrew Lazar · answered by Brendan Foley

What portion of the $31 million full-year tariff refund benefit is being used for reinvestment versus offsetting higher cost inflation?

The majority of the tariff refund will be used to offset higher cost inflation, particularly from the Middle East conflict, which is pushing cost inflation to the high end of the mid-single-digit guide (around 6%). The healthy underlying gross margin expansion (130 bps ex-tariff refund) provides room for brand investments.

“So we are going to use the majority of the tax refund to offset these higher costs. I mean, this tariff, they hurt us last year. We're going to use it now to offset the majority of these costs.”

asked by Andrew Lazar · answered by Marcos Gabriel

How can investors gain confidence that the actions being taken in the Americas consumer segment will be sustainable and dampen volatility, given past macro challenges?

The company has demonstrated sustained improvement in similar past conditions. Current efforts include increased A&P and strong innovation, indicating sustained focus. While sharp inflections in consumer behavior occur, the long-term trend shows resilience. The organization is focused on building continued resilience into the business.

“I think that, that is one aspect I would share with investors is that we have a motivation to make sure that we continue to perform in a very healthy way, a volume-driven way within this part of our portfolio.”

asked by Peter Galbo · answered by Brendan Foley

Given the explicit Q3 operating income guidance, how should investors bridge down to the EPS line, considering below-the-line items?

Q3 operating income growth (high single to low double digits) is driven by solid sales and gross margin expansion, offset by SG&A timing (ERP, incentive compensation, brand marketing). The biggest EPS headwind is lapping a favorable tax rate from the prior year (16% last year vs. ~24% this year), creating a 700-800 basis point headwind.

“the biggest element in addition to the elements that I just mentioned is really the tax. the tax was about 16%, I think, last year. And now if you think about the normalization of that tax, in line with the full year guide of about 24%, that creates 700 to 800 basis points, roughly speaking, of a headwind.”

asked by Peter Galbo · answered by Marcos Gabriel

What is driving the faster pace of reformulations in Flavor Solutions, and should this trend continue to build?

The strength in Flavor Solutions is broad-based, with a healthy and amplified customer pipeline. Reformulation projects, especially from large CPGs, are increasing and commercializing faster than initially predicted. This is also driven by a market acceleration in health and wellness innovation, benefiting private label and high-growth innovators. The trend is expected to be sustained due to alignment with consumer trends.

“Reformulation projects are increasing particularly around -- from large CPG customers. And I think what's start to kind of come through in the numbers, we're starting to see them commercialize and maybe a little bit faster than what we initially predicted.”

asked by Thomas Palmer · answered by Brendan Foley

How long can the favorable spread between Flavor Solutions' performance (driven by reformulation, innovation, health & wellness) and end-market consumption be sustained?

The trends in Flavor Solutions are aligned with broader consumer trends, indicating more durability within the marketplace. The food industry is effectively innovating to meet consumer demands, which supports the sustained activity.

“Well, because a lot of this is aligned with consumer trends, Steve, I kind of go there first. What supports the activity and is it aligned with where the consumer is going. I believe it indicates more durability and broadly within the marketplace.”

asked by Stephen Robert Powers · answered by Brendan Foley

Given past experiences, is there enough time to execute the necessary actions to return Americas consumer volumes to positive in the back half of the year?

Past recoveries took longer due to broader program implementation and extensive customer dialogue. Now, the dialogue with customers is faster, implementation is quicker due to increased speed and agility, and digital capabilities provide more tools. Greater gross margin flexibility also allows for targeted investments, and early results are encouraging.

“I think as you now sort of accelerate or fast forward into where we are today, the dialogue that we have with customers is far more faster, a recognition of what we need to go course correct, our ability to kind of implement quickly with our team with more speed and agility.”

asked by Robert Moskow · answered by Brendan Foley

Can the projected 21% operating margin at close (and higher with synergies) be sustained, given healthy marketing spend and potentially low remaining SG&A?

The projected operating margins are achieved while maintaining industry-leading healthy investment rates in A&P and brand marketing. Management does not view the remaining SG&A as unusually low. The 21% is a starting point before synergies, which will further drive expansion to 23-25%.

“I have to tell you, we don't see that as being unusually low in a future state. And I think what we'll have to do is probably as we go through this process and we go this integration is provide more context around that.”

asked by Alexia Howard · answered by Brendan Foley