McCormick held its year, but guidance implies a weaker fourth quarter and thin per-share gains

Operating profit rose far faster than earnings per share

McCormick's results for the August 2026 quarter carry two numbers, and the one a holder waits for is not the one in the headline. Adjusted operating income, the profit from running the business before interest and tax, rose 22.1%. Adjusted earnings per share rose 1.2%. Almost all of the gain stopped before it reached the share.

The gap has several parts: a higher tax rate (16.1% to 22.6%), the loss of equity income from the old half-stake in the Mexican business, a minority partner's share of the Mexican profit, and interest. The company now controls McCormick de Mexico (75%) and consolidates all of its profit in operating income, with the partner's share taken out further down. So the operating gain is not like-for-like with last year, and the per-share figure is closer to what an owner kept.

Part of the beat was moved from the fourth quarter

On 25 June the company guided this quarter's adjusted operating income to grow by high single digits to low double digits. It came in about nine to ten points above the top of that range. Asked about the fourth quarter, the chief financial officer, Marcos Gabriel, said "quite a bit of expenses got shifted into Q4". Some productivity savings, he added, were pulled forward into the third quarter, and on the call, no size was given for either shift.

The year itself was left alone. The company kept its full-year adjusted earnings guidance. Subtracting the nine months already reported from that range, by our arithmetic, leaves a fourth quarter that at the midpoint is about 10% below the $0.86 of adjusted EPS reported on 22 January 2026 for the same quarter a year earlier. The guidance holds because the fourth quarter is allowed to fall. The company also lifted its cost-inflation guidance from mid-single digits, and the finance chief said the guidance implies some year-on-year gross margin compression. He named rising commodity and freight costs, trade investment in Consumer Americas and a favourable prior-year tax rate as the other weights on the fourth quarter.

Volume improved less than hoped; Q4 growth is in doubt

That same day management said consumer volume should improve from one quarter to the next in the third quarter and grow in the fourth. The third-quarter improvement was delivered, but small: Consumer Americas volume fell 2.5% last quarter, a smaller decline than the roughly 3% fall the quarter before, by our arithmetic. Total volume slipped while price rose, so price carried all of the organic growth.

For the fourth quarter the company now flags a packaging-component shortage that could take up to a point off total volume, and the chief executive said the recovery in recipe mixes is taking longer than he expected. The release still describes full-year volume as stable. That leaves a fourth quarter with less volume help, less cost help and a guidance range to meet.

Cash covered the first half, not the third quarter

Operating cash flow for the nine months is well above last year, and management called cash generation strong. But the gain came in the first half. By our arithmetic from the filed nine months and quarterly rows, operating cash flow for the third quarter alone was about 35% below a year earlier, and its free cash flow fell short of the dividend paid. Borrowings on the filed balance sheet were about a quarter higher than at the last fiscal year-end, after the company paid for the Mexican business.

That matters because the Unilever Foods deal takes leverage to about 4x at closing, by the CFO's account, and the plan to pay it down rests on cash flow of the kind the exhibit below shows moving from year to year.

What we do not know yet: next year and the deal

The company has begun to prepare holders for next year. The finance chief said an initial perspective on next year arrives with fourth-quarter results in January and that cost inflation should continue. He appeared to say margins and earnings face more pressure (the transcript text reads 2026, in a passage about 2027). "We expect inflation to actually to continue into next year". The chief executive added that pricing in the US consumer business will perhaps contribute less than so far this year.

The detailed transition-services plan, and the synergy and growth-plan detail, were deferred to the next few months, though the release says the operating model and leadership team are announced. On 25 June the company said it expected to share more on the operating model, cost synergies, growth plans and transition services by the end of September. The day after that deadline, the finance chief pointed to the next few months, hopefully in time for the January results. On the call and in the release, the company gave no size for the shifted fourth-quarter costs and no figure for the transition services (the CFO said those costs are in the deal model); next year's outlook comes in January.

What the record here shows is narrow. The year's guidance held, while the volume turn and the detailed Unilever plan each moved later. A company that keeps the figure it is judged on can let the pressure settle somewhere else: in the next quarter, in next year, and in a date that has passed.