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McCormick (MKC +5%) is spicing it up today following an upbeat Q2 (May) earnings report this morning. This supplier of spices, seasoning mixes, and condiments bounced back nicely from an EPS miss in Q1 (Feb) to report a good-size EPS beat this quarter. Revenue rose 1.0% yr/yr to $1.66 bln, which was in-line. MKC also reaffirmed FY25 guidance.

• MKC operates two segments: Consumer (57% of FY24 revs; 69% of operating income) and Flavor Solutions (43%; 31%), which caters to food manufacturers and food service customers. Its Consumer segment tends to sport better margins than its FS segment. Total organic sales growth in Q2 was +2% driven by volume.
• Its Consumer segment really drove the Q2 results with segment sales up 3% (+3% organic) at $931 mln. There was minimal FX impact with organic growth being driven by volume and product mix. Volume growth in the Americas was strong across core categories and was driven by investments in brand marketing, innovation and category management. In EMEA, Consumer organic sales grew 3%, while organic sales in Asia Pacific grew 4%, reflecting a gradual recovery in China.
• FS segment sales decreased by 1% yr/yr (organic was flat) to $729 mln as demand remains pressured in some areas. MKC said that some of its large CPG (consumer packaged goods) customers continue to experience softness in volumes within their own businesses. MKC is also seeing flat performance in branded foodservice in the Americas as some customers are seeing softness due to a continued slowdown in foot traffic. QSR traffic also remains soft in EMEA.
• In terms of its macro view, consumers are adapting to economic pressures by making more frequent trips to the grocery store with fewer units per basket, choosing larger pack sizes, and increasingly using leftovers. Importantly, they continue to spend and not compromise on flavor. Consumers are cooking at home more as 86% of meal occasions are now sourced at home, which remains above pre-pandemic levels.

Overall, the Q2 results were a nice bounce back following the rare EPS miss last quarter. What really stood out was its Consumer segment, partly fueled by people are eating at home more. MKC has spent more on marketing, which appears to be paying off. MKC also cited a gradual recovery in China, which was good to hear after some rough quarters. Seeing the Consumer segment do well is really key for MKC, because it is the larger segment and it is higher margin. The main problem was its FS segment with slower foot traffic at fast food restaurants. But that does make some sense given that people are eating at home more. Net net this is a positive for MKC.