During the company’s fourth quarter ending Nov. 30, McCormick’s sales declined 2% from the prior year, including a 4% hit from currency that when take into account allowed actual sales to eke out a 2% increase in the quarter. Most of that stemmed from a 9% increase from pricing that was partially offset by a 4% decline in underlying volume and product mix, including a 2% expected decline from the sale of its Kitchen Basics business and other low-margin business in India and the consumer business in Russia, CEO Lawrence Kurzius told investors yesterday.
“While our sales were within our implied guidance range, the operating income for the fourth quarter fell short,” he added, explaining adjusted operating income fell 9% in constant currency and adjusted earnings per share dropped 13%.
He attributed the difference in part to lower US spice and seasonings sales in the fourth quarter as the company lapped substantial inventory restocking in the fourth quarter of 2021 and 2022. Likewise, lower-than-anticipated sales in China and fallout from two COVID-related plant shutdowns in China also took a toll on the company finances and operations.
McCormick seeks $25m in cost savings from ‘streamlining’ workforce
“We are committed to increasing our profit realization in 2023,” Kurzius tried to reassure investors and market analysts during the company’s fourth quarter earnings call.
To pull this off, the company plans to cut $100m in supply chain costs over the next two years and an additional $25m by “streamlining” its workforce across the organization, he said.
“A large component of our streamlining actions is a US voluntary retirement program, which is very far along with a targeted separation date of Feb. 1,” he explained, adding, “This will be followed by other actions, some of which will be involuntary.”
Automation, revised production schedule reduce supply chain labor costs
McCormick also plans to trim its supply chain workforce in the Americas by 10%, half of which took place in last three months.
This was possible in part by accelerating automation, including bringing in a completely automated line for a high-volume packaging format, as well as individual pieces of equipment, Kurzius explained.
He added during the quarter the company also “optimized our leadership team throughout our facilities and upgraded the talented key roles.”
McCormick also reduced labor costs during the fourth quarter by reinstating a “more normal shift schedule with most locations now operating on a 24/5 pattern,” Kurzius said. “This allows us to eliminate inefficient and unpopular or difficult to staff shifts. Additionally, as we move away from the industry-wide labor issues seen during the pandemic, we have stabilized absenteeism and turnover rates in our workforce and returned to more standard staffing by line.”
Layoffs across food industry mount
McCormick is not the only CPG food and beverage player laying off staff or offering buyouts to reign in costs and offset inflationary pressures.
Earlier this month, Campbell Soup Co. announced a handful or roles would be cut related to a decision to close its snacks division offices in Charlotte, NC, and Norwalk, Conn.
This came weeks after PepsiCo announced in December its intention to lay off hundreds of workers across North America, and after The Coca-Cola Co. offered select employees in the US, Canada and Puerto Rico buyouts in November that will go into effect in March.
Other packaged food businesses eliminating jobs in 2023 include General Mills. In 2022, Beyond Meat, Motif FoodWorks, Impossible Foods and Apeel Sciences also laid off workers. Foodservice providers also are laying off staff, including DoorDash, which slashed about 60% of its workforce.