The call in brief

McCormick delivered a strong fiscal second quarter of 2026 (ended May 31), with total sales up 14% in constant currency (net sales up 16.7% to $1,936.6 million), supported by a 12-point contribution from the McCormick de Mexico acquisition and 2% organic growth. The standout was Global Flavor Solutions, where organic sales rose 3% (volume growth exceeded expectations) on broad strength across large CPGs, private label, high-growth innovators, and branded food service, aided by reformulation projects commercializing faster than the prior 2027 expectation. Gross profit margin expanded 270 basis points (140 from a tariff refund, 130 underlying), adjusted operating income grew 30%, and adjusted EPS rose 16% to $0.80; however, GAAP diluted EPS fell 13.8% to $0.56 on acquisition and minority-interest effects (operating income $276 million, a ~14.3% operating margin). The soft spot was U.S. spices and seasonings within Americas Consumer (organic flat), where consumption lagged the category in specific segments on rising price sensitivity, widening price gaps, and heightened private-label/branded competition, prompting management to redeploy its proven multi-year revenue-growth-management, price-pack-architecture, and precision-marketing playbook with faster, more agile execution. Management held its 2026 outlook broadly consistent (gross margin +100-120 bps, cost inflation tracking toward the high end at ~6% on Middle East conflict costs, tariff refunds largely offsetting inflation) and flagged a Q3 operating-income step-down to high-single/low-double digits on SG&A timing (ERP, incentive comp, and heavier brand marketing) plus an EPS headwind from lapping a favorable ~16% prior-year tax rate. First-half operating cash flow surged to $431 million (from $161 million) and leverage fell to 2.9x, while integration planning for the Unilever Foods (Dressings) acquisition progressed on schedule with reaffirmed accretion targets (mid-to-high single-digit in year one, mid-to-high teens in year three) and 21% operating margins plus 100% free-cash-flow conversion expected at close.

What went well
  • Total sales grew 14% in constant currency (net sales +16.7% to $1,936.6 million), supported by a 12% contribution from the McCormick de Mexico acquisition plus 2% organic growth.
  • Global Flavor Solutions volume growth exceeded expectations, with organic sales up 3% (split evenly between volume and price) on broad strength across large CPGs, private label, high-growth innovators, and branded food service.
  • Gross profit margin expanded 270 basis points (140 bps from a tariff refund, 130 bps underlying), demonstrating business resilience, and adjusted operating income rose 30% (27% in constant currency).
  • Adjusted EPS increased 16% to $0.80 (including ~$0.07 from the tariff refund), and first-half operating cash flow surged to $431 million from $161 million a year ago on higher profitability and working-capital gains.
  • EMEA Consumer delivered its tenth consecutive quarter of volume growth (+3%) and Asia Pacific grew 3% on a gradual China recovery and Australia strength.
  • Integration planning for the Unilever Foods (Dressings) acquisition is progressing on schedule with 200+ dedicated people, reaffirmed accretion targets, and delevering already underway (leverage down to 2.9x after the McCormick de Mexico close).
What went wrong
  • GAAP diluted EPS fell 13.8% year-over-year to $0.56 (versus $0.65), even as adjusted EPS rose, reflecting acquisition consolidation and minority-interest effects.
  • U.S. spices and seasonings underperformed, with consumption lagging the category in specific segments (e.g., Grill Mates, Lawry's) on increased price sensitivity, widening price gaps, and heightened private-label and branded competition.
  • Americas Consumer organic sales were flat (3% price offset by volume declines) amid a pronounced consumer shift toward value driven by rising gas prices and inflation.
  • The Middle East conflict is driving inflation toward the high end of the mid-single-digit range (~6%) plus higher logistics/freight costs, absorbing most of the $31 million full-year tariff refund.
  • SG&A rose 90 basis points as a percent of sales, Flavor Solutions in EMEA and Asia Pacific was flat on soft QSR foot traffic, and the Q3 operating-income guide (high single to low double digits) read as a step-down to some analysts.

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