McCormick’s Earnings Call: Growth, Costs and 2026 Pivot

McCormick & Company Inc ((MKC)) has held its Q4 earnings call. Read on for the main highlights of the call.

McCormick & Company Balances Strong Demand With Margin Strain in Latest Earnings Call

McCormick & Company’s latest earnings call painted a picture of a business with solid demand and strategic momentum, but one that is wrestling with significant near-term cost and margin pressures. Management emphasized broad-based volume growth in the consumer segment, improving profitability in Flavor Solutions, robust cash generation and a strengthened balance sheet, alongside an accretive Mexican acquisition that underpins a bullish 2026 revenue outlook. Yet higher-than-expected inflation, tariffs, ERP-related costs and softer volumes in parts of Flavor Solutions pressured margins and kept 2025 earnings at the low end of guidance, leaving investors weighing strong top-line and strategic progress against a tougher profit backdrop.

Steady Organic Sales Growth Anchored by Consumer Demand

Total organic sales grew 2% in the fourth quarter of fiscal 2025, with full-year growth landing at the midpoint of McCormick’s constant-currency guidance range. The year was notably volume-led, especially in the consumer segment, which posted 2% volume-led growth for fiscal 2025 and continued to show resilience despite a challenging macro environment. For 2026, management is guiding to 1–3% organic net sales growth before any contribution from acquisitions, signaling cautious optimism on underlying demand as consumers continue to prioritize flavor even while trading more carefully in other categories.

Consumer Segment Volume Momentum Across Regions

The consumer segment remained the standout engine of growth, with organic sales up 3% in Q4, driven by both price and volume. Volumes have now increased for seven consecutive quarters, underscoring the durability of McCormick’s brand portfolio. Regionally, Americas consumer organic sales rose 3% in Q4 (1% volume, 2% pricing), while EMEA matched that 3% growth (also 1% volume, 2% price) and Asia-Pacific grew 2%, primarily on volume. This consistent performance suggests McCormick continues to command brand loyalty and successfully navigate pricing and promotional dynamics, even as shoppers remain cautious.

Flavor Solutions Margin Improvement Despite Volume Softness

Flavor Solutions delivered notable profitability improvement even as volumes softened late in the year. Adjusted operating income in the segment grew 7% in Q4 (6% in constant currency) and 9% for the full year (11% cc), with operating margin expanding by 90 basis points for fiscal 2025. The improvement came despite softer customer volumes, particularly with large CPG and branded food-service clients. Management acknowledged some lumpiness and weakness in 2025 volumes but emphasized ongoing progress on cost and mix, positioning the segment for stronger earnings power once volumes normalize.

EPS and Operating Income Growth at the Low End of Expectations

McCormick delivered modest profit growth, but macro and cost pressures kept results toward the lower end of its outlook. Adjusted EPS rose 7% year over year in Q4 to $0.86 and 2% for the full year to $3.00. Adjusted operating income increased 3% in the quarter (2% cc) and 2% for fiscal 2025 (3% cc), with approximately 10 basis points of adjusted operating margin expansion for the year. While headline profitability improved, management acknowledged that commodity inflation, tariffs and targeted growth investments weighed on the consumer segment, where full-year adjusted operating income slipped 1% even as Q4 consumer operating income eked out a 1% gain.

Cash Generation, Deleveraging and Shareholder Returns Remain Strong

Cash flow and capital allocation were clear bright spots. McCormick generated $962 million of cash from operations in fiscal 2025, giving it ample flexibility to both delever and invest. The company returned $483 million to shareholders via dividends, deployed $122 million in capital expenditures and reduced leverage to below 2.7x, improving balance sheet resilience. The board’s decision to authorize a 7% increase in the quarterly dividend reinforces management’s confidence in long-term cash generation and should appeal to income-focused investors looking for steady total return from a consumer staples name.

M&A in Mexico Set to Power 2026 Top-Line Growth

The acquisition of a controlling interest in McCormick de Mexico (Pacoemer de Mexico) was a major strategic highlight, bolstering the company’s leadership in flavor across a key growth market. Management expects the deal to contribute 11–13% to 2026 net sales, driving total constant-currency sales growth of roughly 12–16% when combined with the underlying organic outlook. The transaction deepens McCormick’s presence in Mexico and broader Latin America, adds scale and creates cross-border opportunities, making M&A a central pillar of the company’s growth algorithm for 2026 and beyond.

Tariff Exposure Halved, but Cost Headwinds Persist

McCormick reported meaningful progress in reducing its tariff exposure, cutting total gross annualized tariffs to about $70 million, down from roughly $140 million. Even so, management expects an incremental year-over-year tariff cost of around $50 million in 2026. The company outlined plans to mitigate the bulk of this headwind through productivity initiatives, cost savings programs and alternative sourcing, supplemented by targeted pricing actions. While the reduced exposure is a clear structural improvement, tariffs remain a notable drag on near-term margins.

Brand Strength, Share Gains and Channel Expansion

The company continued to leverage its brand equity across categories and channels. McCormick has now held or improved share in its core categories for six consecutive quarters, with particularly strong momentum in spices, seasonings and hot sauce, where unit share has increased for four straight quarters. The renovation of McCormick Gourmet has exceeded velocity expectations, underlining the payoff from innovation and packaging upgrades. At the same time, the company is expanding into high-growth channels such as e-commerce and social commerce, reinforcing its relevance with younger and digital-first consumers.

Gross Margin Compression Weighs on 2025 Results

Despite revenue and share gains, profitability was squeezed by higher input costs and operational spending. Adjusted gross margin declined 120 basis points in Q4 2025, driven by elevated commodity costs, tariffs and capacity/support costs, and fell 60 basis points for the full year. Management reiterated its expectation of recovering this compression in 2026 but acknowledged that both tariff and commodity inflation in Q4 ran hotter than anticipated. For investors, this underscores the tension between McCormick’s strong demand backdrop and the cost environment it must navigate.

Inflation and Tariffs Keep Pressure on the P&L

McCormick exited the year facing mid-single-digit inflation across a wide basket of commodities, packaging and tariffs, which continues to pressure the P&L. Even with tariff exposure reduced, the company is still bracing for about $50 million in incremental tariff costs in 2026, alongside another mid-single-digit increase in overall cost inflation. These pressures will partially offset the benefits of margin recovery initiatives, making cost management, productivity and selective pricing critical levers for protecting earnings growth in the coming year.

Below-the-Line Headwinds Cloud EPS Trajectory

While operating performance is expected to improve, several below-the-line items will drag on EPS growth in 2026. The elimination of the 25% minority interest in McCormick de Mexico from the former partner shifts economics and presentation, reducing the EPS benefit compared with 2025. Additionally, management anticipates a higher adjusted tax rate of about 24% in 2026 versus roughly 21.5–22% in 2025, as well as increased net interest expense related to funding the acquisition and other needs. These factors create a headwind for net income even as operating income is projected to grow solidly.

Flavor Solutions Volume Softness and Customer Dynamics

Flavor Solutions volumes came under pressure in the fourth quarter, tempering enthusiasm around the segment’s margin gains. Globally, price was up about 2% but volumes declined around 1%, with Americas volumes falling roughly 2%—in part due to inventory resets by Latin American customers—and EMEA organic sales declining 3% (2% price, 1% lower volume). Management highlighted softness and volatility among large CPG and branded food-service customers throughout 2025 and expects some recovery in 2026, though they warned that volumes could remain uneven. For investors, the segment’s improving margins provide a cushion, but volume trends remain an area to watch.

Segment-Level Profit Picture Remains Mixed

The profit picture was uneven across the portfolio. While total adjusted operating income and EPS grew, they landed at the low end of McCormick’s 2025 outlook, largely due to macro pressures and higher input costs. The consumer segment, despite solid volume and share gains, saw a 1% decline in full-year adjusted operating income, reflecting the impact of commodity inflation, tariffs and stepped-up investments to support brands and innovation. This mix highlights the company’s challenge: defending and growing market share in a choppy demand environment while absorbing cost pressure and funding strategic initiatives.

ERP Rollout Accelerates 2026 Expense, Eases Thereafter

McCormick refined its ERP implementation plan to reduce execution risk, compressing deployment waves and pulling more program spending into 2026. While the total cost of the program remains unchanged, this timing adjustment will elevate digital and ERP-related expenses in 2026, with management expecting a moderation in 2027 and beyond. The near-term impact is higher SG&A, partially offsetting cost savings, but the longer-term payoff is improved digital capabilities, better data and more efficient operations—key enablers for future productivity and margin expansion.

Category and Competitive Pressures in Select Lines

Not all categories performed equally well. Competitive activity in the U.S. Mexican flavor segment weighed on McCormick’s recipe mixes share, and the U.S. mustard category declined in Q4, with the French’s brand underperforming the category due to promotional timing. Management framed these as manageable category and execution issues, expecting normalization as promotions cycle and as they deploy new innovation and marketing support in 2026. For investors, these pockets of weakness underscore that even strong category leaders are not immune to shifting competition and promotional intensity.

Consumer Behavior Reflects Low Confidence and Value Focus

Management emphasized that overall consumer confidence remains subdued, shaping how shoppers engage with food and flavor categories. Consumers are making more frequent store trips but buying fewer units per trip and stretching meals further, which pressures unit volumes even as flavor trends remain favorable. This environment places a premium on perceived value and affordability, forcing McCormick to balance pricing and pack architecture carefully. The company’s ability to deliver value-oriented innovation and maintain relevance in this cautious spending climate will be key to sustaining volume-led growth.

Guidance: Strong 2026 Sales Boost, Margin Recovery and EPS Growth

For 2026, McCormick is guiding to a robust top-line uplift and meaningful margin recovery, though EPS growth will be moderated by higher taxes and interest. Organic net sales are expected to grow 1–3%, with the McCormick de Mexico acquisition adding 11–13%, implying total constant-currency sales growth of about 12–16%. Adjusted operating income is projected to rise 15–19% in constant currency, supported by a planned recovery of the roughly 60 basis points of gross margin lost in 2025, even as the company absorbs mid-single-digit cost inflation and an additional ~$50 million of tariff costs. Management plans to largely offset these headwinds through productivity, alternative sourcing and surgical pricing, while SG&A savings will be balanced against increased brand marketing, digital/ERP spending and a rebuild of incentive compensation. Adjusted EPS is guided to a range of $3.05–$3.13, reflecting solid but not explosive growth once higher tax and interest expense are incorporated.

In sum, McCormick’s earnings call showcased a business with resilient demand, strong brands and disciplined capital allocation, but also one navigating a difficult cost environment and some segment-specific softness. The company’s 2026 outlook hinges on successful integration of its Mexican acquisition, execution on margin recovery and cost mitigation, and a steady consumer spending backdrop. For investors, the story is one of long-term structural strength and attractive top-line potential, tempered by near-term profitability headwinds and the need for flawless execution on both pricing and productivity levers.