McCormick's Gross Margin Under Pressure: Will Q4 Show Relief?

McCormick & Company Inc.’s MKC adjusted gross profit margin declined 120 basis points in the third quarter of 2025, reflecting the impact of higher tariffs, increased commodity costs, and expenses tied to expanding capacity for future growth. On a reported basis, the company’s gross margin declined 130 basis points, as ongoing cost pressures weighed on profitability.

Despite these challenges, McCormick’s Comprehensive Continuous Improvement (CCI) program continued to deliver meaningful savings. Efficiency gains from this initiative helped offset part of the inflationary burden, enabling the company to post a 2% increase in adjusted operating income and demonstrate solid execution under a difficult cost environment.

McCormick was also able to cut selling, general & administrative (SG&A) expenses by 100 bps, mainly thanks to reduced employee-related costs linked to the CCI program. These actions helped cushion the effects of elevated input costs and tariffs. The company also mentioned that it would continue taking measures to address tariffs throughout fiscal 2025, which should provide some additional relief in the coming quarters.

Looking ahead, McCormick expects cost pressures to persist through year-end, with its full-year gross margin now projected to remain flat versus its earlier outlook of flat to up 50 basis points. However, management anticipates a modest gross margin improvement in the fourth quarter, as savings initiatives gain momentum and mitigation efforts materialize.

While near-term headwinds remain, McCormick’s focus on cost optimization, productivity enhancements and strategic capacity investments is expected to support gradual margin recovery and sustain long-term operational resilience.

The Zacks Rundown for MKC

MKC’s shares have plunged 16.1% year to date compared with the industry’s decline of 13.7%. MKC carries a Zacks Rank #4 (Sell).

From a valuation standpoint, MKC trades at a forward price-to-earnings ratio of 19.92X, higher than the industry’s average 14.65X.

The Zacks Consensus Estimate for MKC’s fiscal 2025 and 2026 earnings implies a year-over-year rise of 2.4% and 6.9%, respectively.

Better-Ranked Stocks to Consider

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The consensus estimate for United Natural’s current fiscal-year sales and earnings implies growth of 2.5% and 167.6%, respectively, from the year-ago figures. UNFI delivered a trailing four-quarter earnings surprise of 416.2%, on average.

Lamb Weston Holdings, Inc. LW engages in the production, distribution and marketing of frozen potato products in the United States, Canada, Mexico and internationally. It sports a Zacks Rank #1 at present. Lamb Weston delivered a trailing four-quarter earnings surprise of 16%, on average.

The Zacks Consensus Estimate for Lamb Weston's current fiscal-year sales indicates growth of 1.3% from the prior-year levels.

Vital Farms VITL packages, markets and distributes shell eggs, butter and other products in the United States. It carries a Zacks Rank #2 (Buy) at present. Vital Farms delivered a trailing four-quarter earnings surprise of 35.8%, on average.

The Zacks Consensus Estimate for Vital Farms’ current fiscal-year sales and earnings implies an increase of 27.2% and 16.1%, respectively, from the prior-year levels.

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This article originally published on Zacks Investment Research (zacks.com).

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