Brendan M. Foley, President and CEO, stated:
“We are pleased with our performance for the first half of the year, which met our expectations and reflects the success of our prioritized business investments. These investments, particularly in our Consumer segment, drove substantial volume improvement in the second quarter, and we anticipate continued momentum for the second half of the year. In our Flavor Solutions segment, however, lower demand from some quick service restaurant and packaged food customers, along with the timing of customer activities, impacted our second-quarter performance. Nonetheless, we believe our collaboration and strong innovation pipeline with our customers will drive improved volume performance in the second half of the year.
Looking ahead, we will continue to prioritize investments in key categories and execute initiatives within our growth levers, including brand marketing, new products and packaging, category management, and proprietary technology. We expect our innovation pipeline across both segments, combined with our brand marketing initiatives, to accelerate our return to total volume growth. Additionally, our cost savings initiatives position us well to fuel investments and generate operating margin expansion. Our results for the first half of the year, along with our growth plans, support our confidence in achieving the mid to high-end of our projected constant currency sales growth for 2024.
Overall, we are confident in the sustained trajectory of our business and our ability to deliver on our 2024 outlook and long-term financial objectives. Our commitment is underpinned by our proven track record, broad and advantaged global portfolio, focus on high-growth, profitable categories, alignment with consumer trends, and differentiated heat platform. Our business fundamentals are strong, and we expect to continue delivering profitable growth and driving value for shareholders.
Lastly, I would like to express my gratitude to McCormick employees worldwide. Their dedication and contributions remain the cornerstone of our success, driving momentum into our business and energizing me. As a leadership team, we are committed to elevating our people-centric culture and building the next generation of leaders and capabilities for future success.”
McCormick reported a 1% sales decline in the second quarter compared to the year-ago period, with minimal impact from currency. This decline includes the impact of divesting a small canning business and reflects a 1% volume decline due to lower customer demand and the timing of customer activities in the Flavor Solutions segment, which offset volume growth in the Consumer segment.
Gross profit margin expanded by 60 basis points versus the second quarter of last year, driven primarily by cost savings from the Comprehensive Continuous Improvement (CCI) program. Selling, general, and administrative expenses increased from the year-ago period due to higher brand marketing expenses, partially offset by CCI-led cost savings.
Operating income increased to $234 million in the second quarter of 2024, compared to $222 million in the second quarter of 2023. Excluding special charges, adjusted operating income was $236 million in the second quarter of 2024, compared to $235 million in the year-ago period. In constant currency, adjusted operating income was comparable to the year-ago period, as gross margin expansion was offset by higher selling, general, and administrative expenses.
Income tax expense for the quarter included $20.2 million of net discrete tax benefits primarily associated with the recognition of a deferred tax asset related to an international legal entity reorganization.
Earnings per share was $0.68 in the second quarter of 2024, compared to $0.56 in the year-ago period. Special charges lowered earnings per share by $0.01 in the second quarter of 2024 and by $0.04 in the prior year period. Excluding these special charges, adjusted earnings per share was $0.69 in the second quarter of 2024, compared to $0.60 in the year-ago period. This increase was primarily due to the timing of a discrete tax benefit and higher income from unconsolidated operations, driven by strong performance by the Company’s largest joint venture, McCormick de Mexico.
Net cash provided by operating activities through the second quarter of 2024 was $302 million, compared to $394 million through the second quarter of 2023. The year-over-year decline was primarily driven by higher incentive compensation payments and the timing of cash tax payments.
Fiscal Year 2024 Financial Outlook
McCormick’s 2024 outlook reflects the Company’s commitment to strengthening volume trends and prioritizing investments to drive profitable results and return to differentiated volume-led growth as the year progresses. The Company’s CCI and GOE programs are fueling growth investments while also driving operating margin expansion. Currency rates are expected to unfavorably impact sales, adjusted operating income, and adjusted earnings per share by approximately 1%.
In 2024, McCormick expects sales to range between (2)% to 0% compared to 2023, or (1)% to 1% on a constant currency basis. The Company expects a favorable impact from the prior year’s pricing actions. Through the power of its brands and targeted investments, the Company expects to improve volume trends as the year progresses and return to volume growth, absent any new macroeconomic headwinds. The strategic decisions in 2023 to discontinue low-margin business and divest a small canning business will impact volume growth in 2024.
Operating income in 2024 is expected to grow by 8% to 10% from $963 million in 2023. The Company anticipates approximately $15 million of special charges in 2024 related to previous organizational and streamlining actions. Excluding these special charges in 2024 and 2023, adjusted operating income is expected to increase 3% to 5%, or in constant currency 4% to 6%, driven by gross margin expansion partially offset by a significant increase in brand marketing investments.
McCormick projects 2024 earnings per share to be in the range of $2.76 to $2.81, compared to $2.52 in 2023. The Company expects special charges to lower earnings per share by $0.04 in 2024. Excluding these impacts in 2024 and 2023, the Company projects 2024 adjusted earnings per share to be in the range of $2.80 to $2.85, compared to $2.70 in 2023, representing an expected increase of 4% to 6%, or in constant currency 5% to 7%. For fiscal 2024, the Company expects strong cash flow driven by profit and working capital initiatives and anticipates returning a significant portion of cash flow to shareholders through dividends.
