MCCORMICK & CO INC Q1 2026 earnings call

Good morning. This is Faten Freiha, VP of Investor Relations. Thank you for joining today's call. While our original plan was to review McCormick's first quarter fiscal 2026 earnings results, today's discussion will focus on our announced combination with Unilever Foods and the strategic rationale for the transaction. Please note that this call is being recorded. The press release and accompanying slide presentation related to today's announcement, along with the materials for our first quarter fiscal 2026 results, are available on our investor relations website, ir.mccormick.com. With me this morning are Brendan Foley, Chairman, President, and CEO of McCormick, and Fernando Fernández, CEO of Unilever, and Marcos Gabriel, Executive Vice President and CFO at McCormick. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. Today's presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected.

The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or other factors. Please refer to our forward-looking statement on slide two for more information. I will now turn the discussion over to Brendan.

Thank you all for joining our call. Marcos and I are pleased to have Fernando join us this morning as well. Today marks a major milestone for McCormick. We are bringing together two leading organizations, McCormick and Unilever Foods, to create a strong, scaled, and growth-oriented company that will be flavor-focused and exceptionally well-positioned to succeed in today's dynamic environment. We have always seen the logic of this combination. We're excited by the opportunity to deliver end-to-end flavor experiences to even more people around the world, bringing the tastes that inspire, connect, and bring joy to kitchens and tables everywhere. Before we go further, I want to quickly provide an update on McCormick's first quarter 2026 results.

For the quarter, we delivered strong growth in sales, adjusted operating income, and adjusted earnings per share, supported by a McCormick de México acquisition and organic growth across both Consumer and Flavor Solutions. In a dynamic environment, we drove margin expansion through strong top-line, acquisition accretion, and disciplined cost management. While the remarks and other materials from our results can be found on our IR website, as Faten noted, I want to underscore that consistent and strong core financial performance from both McCormick and Unilever Foods is foundational as you think about today's announcement. Now, turning back to today's announcement, starting on slide five. McCormick and Unilever Foods are strategically and culturally aligned organizations. We each bring iconic brands in attractive categories, spanning herbs, spices, seasonings, bouillon, condiments, and sauces.

Bringing these portfolios together creates an opportunity to execute multiple growth levers, such as expanded distribution, accelerated innovation, brand premiumization, and a scaled dual-engine foodservice platform. At the same time, we see significant, clearly actionable cost synergies layered onto an already strong structural margin profile, creating capacity for continued reinvestment and attractive shareholder returns. Beyond strategy, our organizations share a common mindset, a passion for flavor, a belief in the power of people, and relentless focus on quality and innovation and strong investment behind our brands. Turning to slide six. The pillars of the combined organization reflect distinct and complementary strengths across geographies, channels, and categories. Together, we create a focused global flavor powerhouse, scaled, resilient, and uniquely concentrated on flavor. Our balanced geographic and channel footprint enhances durability across economic cycles and market conditions.

The breadth of the combined company diversifies our growth across emerging and developed markets and retail and commercial channels. In addition, this combination meaningfully expands McCormick's presence in structurally advantaged categories aligned with enduring Consumer trends, more flavorful, convenient, and focused on health and wellness. We will continue to flavor calories while others compete for them, giving us a strong tailwind and aligning us to favorable consumption growth trends. All of this results in a best-in-class margin profile that supports sustained industry-leading reinvestment behind brands, from global leaders like McCormick, Knorr, Hellmann's, and French's, to high-growth potential brands like Frank's RedHot, Cholula, and Maille, along with strong regional favorites where we see exciting potential. Moving to slide seven. We see a clear path to unlock incremental growth grounded in the complementary strengths of our geographic footprints and go-to-market capabilities.

Unilever Foods brands can benefit from McCormick's focus and strength of retail execution in the North American flavor aisle. At the same time, McCormick is positioned to expand more meaningfully in high-growth emerging markets by leveraging Unilever's established scale, deep local infrastructure, and proven route to market. In foodservice, the strategic fit is particularly strong, McCormick's front-of-house brand equity and tabletop presence, combined with Unilever Foods' deep back-of-house experience and operator relationships, together we create more complete end-to-end solutions for customers, strengthening relevance and deepening partnerships. Innovation is a shared strength. Both organizations have proven expertise in flavor development and format expansion across consumption occasions, complemented by Unilever's robust culinary capabilities and chef-to-chef engagement model. Before I expand on these growth opportunities, I will turn it over to Fernando for his perspective.

Thank you, Brendan. We are very enthusiastic about this combination and about our partnership with McCormick. We are confident it delivers a compelling outcome for all stakeholders. At Unilever, over the past several years, we sharpened our strategic focus, we have reshaped our portfolio toward high-growth categories, and strengthened our operational foundation. This transaction is a natural extension of that strategy, leading to value creation, while giving our shareholders meaningful participation in the upside of a scaled global flavor-focused leader with a strong growth and margin profile. Importantly, this is a transaction anchored in a strategic and cultural fit. Both organizations operate in attractive categories where brand, innovation, and execution matter. Both bring disciplined capital allocation, a strong cash generation, and a consistent track record of volume-driven growth. Both are driven by performance-oriented cultures with a deep commitment to quality and customer partnership.

We believe this combination strengthens the competitive position of the business, enhances its growth prospects, and creates a more focused platform to lead in flavor globally. With that, I hand it back to Brendan.

Thank you, Fernando. Moving to slide nine, I'd like to begin by reinforcing why flavor is a structurally advantaged category. When you think about food, we strongly believe flavor is the best place to be. It is the number one purchase driver across dishes, trends, and occasions. It transcends age, culture, dietary preferences, and income levels, making it both resilient and highly relevant in a dynamic consumer environment. Importantly, flavor is fully aligned with today's health and wellness priorities. As consumers increasingly focus on cooking at home, adding more protein and produce, and pursuing healthier lifestyles, flavor plays a critical role in elevating those choices. Younger consumers, particularly Gen Z, are notable contributors to these trends. Taken together, these favorable flavor tailwinds position us well to drive sustainable growth as a combined company. The highly complementary nature of this combination gives us multiple ways to capitalize on these tailwinds.

The clear, tangible, and many growth levers we see across this combination create real excitement for all of us here. Let me highlight our four priority areas of focus on slide 10. Maximizing our reach by leveraging expanded distribution in a highly complementary portfolio across markets. Unlocking incremental growth by scaling high-growth potential brands across new geographies, channels, and consumer occasions. Integrating McCormick's Flavor Solutions and Unilever Food Solutions enhances our dual-engine model with a scaled, globally distributed platform with strong brand equity among chefs and operators. Accelerating innovation at scale by leveraging our shared R&D and technology to lead the future of flavor and stay ahead of evolving consumer preferences. These areas of focus are actionable growth levers for the combined company. Moving to slide 11. Together, we have an end-to-end flavor proposition, from cooking to condiments, with brands that have minimal overlap and maximal adjacency.

Our iconic, globally recognized brands, Knorr and McCormick, will enable us to be part of more cooking occasions across more markets. At the same time, our condiments portfolio, including hot sauces, mustard, and mayonnaise, allow us to be present in even more kitchens and on more tabletops, meeting consumers' growing needs for healthy, flavorful meals. Moving to slide 12. Beyond adjacency, the combination also accelerates the opportunity for high-growth potential brands. The brands on the slide, as well as the number of brands in our portfolio, enjoy high consumer loyalty, connection to consumer trends, and global appeal, particularly with young consumers. For example, we have the leading share in hot sauce in the U.S. with Cholula and Frank's. We have begun expanding in EMEA, where we have seen great success in highly competitive markets, for example, Cholula in France.

Through Unilever's capabilities, we will be able to accelerate expansion, not just in EMEA, but also in Latin America and Asia Pacific. With Unilever Foods' strong presence in these regions, these brands will have substantial opportunities to expand their distribution and reach new consumers. Another unique opportunity is Maille, an almost 280-year-old French brand deeply connected to French culinary tradition as a prestige mustard and mayonnaise brand. We see opportunities to scale its presence across a number of new large markets, similar to what we have done with Cholula. This is just one example of many that we see across the portfolio. In addition to retail expansion, slide 13 highlights the power of our combined foodservice platform.

Together, we will strengthen a scaled business-to-business leader with approximately $6 billion in pro forma annual sales, positioning us among the largest global foodservice players. Unilever Food Solutions brings global presence with deep back-of-house capabilities and culinary expertise and breadth that meaningfully expands McCormick's reach across multiple foodservice operators. Complementing that strength, McCormick offers a powerful branded front-of-house presence and an extensive partnership network, particularly across independent, non-commercial, and chain operators. This creates significant cross-selling opportunities. We see clear potential to elevate key Unilever Foods brands while utilizing our partnerships to drive awareness and trial. In turn, this visibility will reinforce retail demand and brand equity, creating a virtuous cycle across channels. Supporting all of these growth opportunities is innovation. Slide 14 outlines how we will leverage our combined technology and R&D capabilities, an essential strategic pillar and long-term competitive advantage.

Together, we bring leading capabilities in R&D and flavor science, underpinned by deep consumer insight, culinary expertise, and advanced technology platforms. By combining our resources, we meaningfully expand our capacity to innovate, accelerate speed to market, and drive differentiated solutions across retail and foodservice. Our capabilities are highly complementary. We bring our leadership in seasonings and heat and our expertise in natural ingredients. Unilever brings their emulsion technology, which enhances texture, and their ability to leverage protein as a flavor. All of this positions us to support customers to deliver on consumers' evolving dietary needs, as well as accelerate innovation across the portfolio. By combining our technology, culinary, and scientific expertise, we are building a differentiated flavor innovation engine designed to sustain growth and reinforce category leadership over the long term. As Fernando noted, McCormick is the natural home for Unilever Foods brands.

We have long thought about this combination and will bring it to lessons learned from our own M&A journey, which has been deliberate and strategic. As you can see on slide 15, we focus on strengthening our leadership in heritage herbs and spices, expanding internationally, building scale in condiments and sauces, and growing our business-to-business Flavor Solutions platform. Each transaction has aligned with our long-term vision and disciplined capital allocation strategy, and this combination with Unilever is no different. While this transaction is larger than prior deals, the core drivers of success are the ones we are familiar with. This will be my top priority, and we are approaching it with confidence and humility. We have already begun integration planning and partnership with the Unilever team. Let me share some of the details on slide 16.

We are building a detailed integration plan well ahead of close, positioning us to execute efficiently and with strong governance. Dedicated leaders from both companies have clear responsibilities, supported by experienced external integration partners. Unilever brings significant carve-out expertise and remains financially invested, including two years of board representation, ensuring alignment. Business continuity is central to our approach, with comprehensive TSA support across key functions. In addition, we have tremendous respect for the talent at Unilever Foods, and they are integral to the success of this integration and long-term value creation. We are defining the target operating model early and executing market by market to balance speed with precision. Synergy targets are aligned and backed up by a structured delivery roadmap, and a detailed IT transition plan is already in motion to ensure secure and seamless integration.

At the same time, we are proactively shaping the commercial agenda to unlock the growth potential of this portfolio from the outset. We know what works, welcoming extraordinary talent from Unilever Foods, retaining key capabilities, and applying proven playbooks to scale brands and accelerate innovation. This disciplined integration paired with intentional growth acceleration, a combination designed to deliver value while maintaining operational continuity from day one. Before turning it over to Marcos, let me highlight why this transaction makes so much sense right now on slide 17. We have long seen the benefits of the overwhelming strategic fit between the two businesses. Both businesses are in a strong and growing position, benefiting from structural tailwinds. Together, we will create a company that is stronger, more resilient, and ready to deliver on its full potential in a dynamic environment.

With that, I will turn it over to Marcos to discuss the combined company's financial profile.

Thank you, Brendan. This transaction represents a significant milestone for both companies. Together, we're creating a global flavor leader with expanded scale and capabilities, positioned in attractive high-growth categories and supported by a strong and compelling financial profile. Let's begin on slide 19 with an overview of the transaction structure, which was also outlined in our press release. This combination has been thoughtfully designed to create long-term value for each set of shareholders. The transaction is structured as a Reverse Morris Trust, as we are issuing a fixed number of McCormick shares as consideration for Unilever Foods upon closing. This issuance is expected to result in pro forma ownership of the combined company's equity of 65% for Unilever and its shareholders and 35% for McCormick shareholders. Unilever will also receive $15.7 billion in cash subject to customary closing conditions.

This is the optimal combination of debt and equity that allows McCormick shareholders to realize significant value from the transaction, supported by the borrowing capacity of the combined company, which is expected to generate strong operating cash flows. The transaction implies an enterprise value for Unilever Foods of approximately $44.8 billion and approximately $21 billion for McCormick, representing a multiple of approximately 13.8x calendar year 2025 EBITDA for both companies based on a one-month volume weighted average share price. From a governance and leadership standpoint, Brendan and I will continue in our current roles, ensuring continuity of strategy and execution. McCormick will remain globally headquartered in Hunt Valley, Maryland, reinforcing our commitment to our heritage while building a scaled global flavor leader.

In addition, the combined company's international headquarters will be in the Netherlands, where a substantial presence will be retained in areas like R&D, among others. Now moving to the financial profile of the combined company on slide 20. On a pro forma 2025 basis, annual net sales are $20 billion, supported by volume-driven growth and a best-in-class operating margins of 21%. Building from this foundation, we see clear opportunities to further enhance the profile through meaningful revenue and cost synergies. We plan to reinvest incremental revenue and cost synergies back into the business to accelerate growth. Specifically, approximately $100 million will be reinvested into our brands to increase marketing to support and innovation, fueling sustained volume growth and strengthening our competitive position.

In addition, we anticipate $600 million in annual run rate cost synergies, representing approximately 8% of McCormick's 2025 pro forma sales, including McCormick de México. The synergy expectations are compelling given the limited overlap and existing efficiency levels of both organizations and reinforce our confidence in the value creation potential of this combination. Importantly, synergy delivery will be supported by our proven capabilities in partnership with the Unilever team. Our Comprehensive Continuous Improvement program, or CCI, has consistently delivered cost discipline, productivity gains, and operational efficiency across the organization. By applying this established framework to the combined business, we're well-positioned to execute with rigor and translate scale into sustainable margin expansion and long-term value creation. Turning to slide 21, we outline the key areas where we see clear opportunities to unlock cost savings across the combined company.

Through a comprehensive diligence process, leveraging cross-functional teams from both organizations, we have identified actionable savings across procurement, media, manufacturing, logistics, and SG&A. This resulted in a balanced set of opportunities across cost of goods and SG&A. We expect to realize the $600 million in synergies by year three, with approximately 2/3 captured by the end of year two, reflecting a disciplined and phased integration plan. Turning to slide 22. When you combine the strength and momentum of both standalone businesses with the impact of this revenue and cost synergies, the result is a structurally advantaged, best-in-class financial profile. This is about focus, scale, and profitable growth. The combination is expected to deliver meaningful accretion in the first full year across sales growth, adjusted operating margin, and adjusted earnings per share.

By year three, as synergies are realized, we expect sustainable organic sales growth of 3%-5%, supported by deliberate reinvestment in our brands and an enhanced innovation engine. At the same time, operating margins are expected to expand to approximately 23%-25%, reflecting structural efficiencies, procurement scale, supply chain optimization, and SG&A leverage. Together, this creates a higher growth, higher margin platform with stronger cash generation, positioning the combined company for durable long-term value creation and sustained profitability. Moving to slide 23. The combined company will maintain a solid and resilient balance sheet, underpinned by strong, consistent operating cash flow and a disciplined capital allocation framework. This foundation supports meaningful deleveraging while enabling McCormick's long-standing practice of returning capital to shareholders through dividends for the combined company.

Both McCormick and Unilever have long-standing commitments to shareholder returns and historically have dividend payout ratios of approximately 60%. We expect the combined company to maintain a dividend consistent with its history. Strengthening the balance sheet is a clear priority. We expect net leverage to be at or below 4x at closing and plan to reduce it to approximately 3x within two years, supported by robust cash generation and disciplined execution. Throughout this period, we expect to maintain our strong investment grade profile and preserve the financial flexibility that has long differentiated McCormick. With that, I'll turn the call back to Brendan.

Thank you, Marcos. Before I wrap up, Fernando and I would like to summarize the benefits of this deal for our respective shareholders. Strategically, this combination meaningfully expands our portfolio with iconic, high growth potential and local favorite brands, strengthens our presence in attractive geographies, and enhances our scale with customers around the world. McCormick becomes a preeminent global flavor powerhouse, advancing our vision to be a global leader in flavor. Financially, the combination is compelling for our shareholders. We expect it to be accretive to McCormick growth, adjusted operating margin, and adjusted earnings in the first full year, with continued long-term growth and upside to our financial performance. We expect to maintain a strong balance sheet supported by disciplined capital allocation and clear deleveraging priorities. Our commitment to returning cash to shareholders through dividends remain unchanged.

Ultimately, McCormick shareholders gain access to a larger, more diversified business with faster growth, a stronger margin profile, and continued commitment to shareholder returns.

For Unilever shareholders, this is about unlocking trapped value, giving shareholders exposure to a pure-play home and personal care company and to the upside in the global flavor leader.

Thank you, Fernando. To wrap up on slide 25, we hope that you take away from our call today is the following. This combination is strength plus strength, with two highly complementary flavor leaders coming together. Together, we are creating a scaled global flavor-focused company with leading brands in attractive advantage categories. We see multiple levers to accelerate growth while leveraging the power of leading iconic brands, high growth potential brands, and local favorites. At the same time, we have plans to deliver clear, achievable cost synergies and building on a best-in-class financial profile with meaningful accretion, strong margins, and a compelling return profile, supporting our continued investments in growth. We recognize that the integration is crucial and recognize the work ahead.

We are prepared to execute, supported by a detailed integration plan, positioning us to execute efficiently and with strong governance. Through it all, McCormick will be McCormick, grounded in 137 years of leadership and guided by a passion for flavor. With that, operator, please open the line for questions.