Brendan Foley, the newly appointed president and CEO of McCormick & Co., recognizes the potential of hot sauce as a “growth accelerator” for the company, which specializes in seasonings and spices. Speaking at the Barclays Global Consumer Staples Conference, Foley outlined his priorities, including expanding McCormick & Co.’s competitive advantage and reinforcing the leadership team in the consumer categories.
However, what stood out during Foley’s speech was his emphasis on the impact of spicy sauce on the company’s margins and volumes. As the owner of popular hot sauce brands Frank’s RedHot and Cholula, McCormick & Co. expects to see continued growth in these areas throughout the year.
Foley mentioned that heat goes beyond just hot sauce for the company. He views it as a flavor profile that drives increased growth rates and acts as a growth accelerator for their entire portfolio. According to McCormick & Co.’s estimates, approximately 20% of their total net sales are driven by heat or spicy associated components, with only half of that coming from hot sauce.
Foley emphasized the positive trends in categories exclusively defined by heat, such as hot sauce, as well as in categories like spices and seasonings that feature heat-associated ingredients like red pepper flakes. He believes these categories have a favorable trajectory and intends to capitalize on it.
Despite his new position, Foley plans to maintain the strategic pillars set by his predecessor, Lawrence Kurzius, who remains the executive chairman of the board. These pillars aim for long-term objectives, including top-line net sales growth, growth in operating profit, and earnings per share growth.
In addition to the focus on growth, Foley highlighted the importance of innovation, renovation, effective advertising, category management, and digital transformation for McCormick & Co.
Volume, Margin Recovery
Amid the current cost-of-living environment, Foley acknowledged that consumers are still financially stretched. However, he noted that people are cooking more at home, favoring categories that offer value and cost-effectiveness. McCormick & Co. has observed sequential improvement in consumption metrics, including dollars, units, volume, and total distribution points.
The company expects volumes to perform better in the second half of the year compared to the first three months. Foley attributed this improvement to their advantaged categories and effective execution in areas such as brand marketing, category management, and innovation.
CFO Mike Smith, also speaking at the conference, expressed his satisfaction with the margin trajectory achieved so far. Pricing actions have contributed to a gross margin improvement in the first half. Smith mentioned the change in margin guidance, which now predicts a rise of 50 to 100 points compared to the previous outlook of 25 to 50 points.
Smith explained that the dynamic environment of the past couple of years, with inflation and cost recovery, disrupted the natural sequential pattern of gross margins. However, the first six months of this year saw a gross margin of about 36.5%, and the second quarter reached 37.1%, reflecting strong price realization. The company’s guidance for the second half aims to maintain a gross margin within the range of 36.6% to 37.1%.
