McCormick (MKC): $750M Mexico Deal Consolidates Growth While Cash Flow Softens

McCormick’s decisive Mexico move lands as cash-flow momentum softens#

McCormick & Company’s most consequential near-term development is explicit and material: on August 21, 2025 the company agreed to buy an additional 25% of McCormick de Mexico for $750 million, raising its ownership to 75% and converting the JV into a majority-owned, consolidated business (transaction cited in the company press release). The deal folds an operation that management pegs at approximately $810 million of annual net sales into McCormick’s Consumer segment and is expected to be accretive to adjusted EPS in the first full year after close, according to the company announcement McCormick Investor Relations – McCormick Advances Flavor Leadership In Mexico (press release). This is a clear strategic accelerant for Latin America expansion, but it arrives alongside a mixed FY2024 operating picture: revenue growth was modest while free cash flow retreated meaningfully year-over-year.

The timing creates tension. Consolidating a business with near-term mid-single-digit growth aspirations helps McCormick tilt its revenue mix toward higher-margin condiments and sauces, yet the parent’s FY2024 cash-generation profile shows a deterioration that narrows near-term capital flexibility. For FY2024 McCormick reported $6.72B in revenue (a +0.90% increase vs FY2023), $788.5MM in net income (+15.86% YoY) and $647MM of free cash flow (-33.53% YoY). Those figures come from McCormick’s FY2024 reporting and the company’s public filings (FY results filed 2025-01-23) and help frame the trade-offs between growth-by-acquisition and internal cash return priorities company filings and presentation material.

Parsing this development requires balancing three linked questions: what the Mexico consolidation does to McCormick’s growth and margin trajectory, whether the company has the balance-sheet and cash-flow bandwidth to fund integration while preserving payouts, and how the market should view the near-term trade-offs between accretive EPS and weakened free-cash-flow dynamics.

Financial performance: steady top line, stronger earnings, weaker cash conversion#

McCormick’s FY2024 results show a company delivering stable revenue, expanding margins and rising net income, even as cash conversion weakened. Revenue rose from $6.66B in FY2023 to $6.72B in FY2024, a +0.90% year-over-year increase calculated as (6.72 - 6.66) / 6.66. Operating income increased to $1.06B and operating margin expanded to 15.77% (1.06 / 6.72), while reported net income improved to $788.5MM, a +15.86% YoY rise versus $680.6MM in FY2023. These outcomes underscore that price/mix, cost control and margin management have been effective drivers of earnings performance.

But the cash-flow story is the counterpoint. Net cash provided by operating activities fell from $1.24B in FY2023 to $921.9MM in FY2024, a decline of -25.57% (921.9 - 1240) / 1240. Free cash flow dropped from $973.4MM to $647MM, a -33.53% change, reversing a multi-year trend of improving FCF in prior years. Calculated free-cash-flow conversion — FCF divided by net income — fell from about 143% in FY2023 to roughly 82% in FY2024 (647 / 788.5). That single-year swing materially changes available cash for discretionary capital allocation (M&A, buybacks, or supplemental dividends) absent offsetting financing.

There are balance-sheet signals to watch. On a reported FY2024 basis McCormick carried $186.1MM in cash and short-term investments and $4.51B of total debt, producing net debt of $4.32B. Using the stated FY2024 EBITDA of $1.3B, net debt/EBITDA computes to ~3.32x (4.32 / 1.3). Enterprise value, calculated as market capitalization ($19.03B) plus total debt ($4.51B) minus cash ($0.186B), is about $23.36B, producing an EV/EBITDA of ~17.96x (23.36 / 1.3). Those metrics show a levered profile consistent with investment-grade food peers but not immune to recessionary consumption risks.

FY2021–FY2024 summary (income statement metrics)#

(All line items are drawn from McCormick’s FY statements filed with the company’s FY2024 submissions; margins are computed from reported revenue.)

Balance sheet and cash-flow snapshot (selected metrics, FY2024)#

(Values and calculations use the FY2024 line items reported in company filings and the market quote provided.)

Strategic rationale: turning a local champion into a regional platform#

McCormick frames the transaction as strategic consolidation intended to accelerate execution in Latin America. Buying the remaining stake gives the company full governance to align pricing, R&D, and marketing and to consolidate the Mexican business into the Consumer segment, enhancing cross-border rollouts and scale economics. Management’s public commentary and the press release position the move as central to converting brand equity (notably in mayonnaise and condiments) into a platform for adjacent-category growth and regional distribution expansion McCormick press release.

The deal’s headline valuation — $750M for 25% of the JV — implies an enterprise value for the Mexican business roughly consistent with mid-to-low double-digit EBITDA multiples, and the company has indicated the transaction values the business at about 12x 2025 EBITDA in public commentary and analyst write-ups. From a strategic perspective, full ownership reduces execution friction, allows faster SKU rollouts, and creates more direct margin-capture opportunities through procurement, pricing and shared services. Those are credible levers for operating-margin expansion if integration is smooth.

But converting local strength into regional advantage requires more than finance; it requires repeatable execution. Multi-market rollouts demand channel relationships, logistics optimization and consumer marketing tailored by country. The acquisition reduces governance friction and gives McCormick the ability to centralize R&D and marketing spend, but success depends on translating brand equity (e.g., McCormick Mayonesa) into differentiated SKUs and on defending local distribution against entrenched domestic players and global competitors.

Integration, synergies and the math of accretion#

Management has stated the deal will be accretive to adjusted EPS in the first year after close, even after transaction-related costs. The mechanics are predictable: consolidation adds roughly $810M in reported net sales to the Consumer segment, assumed mid-single-digit growth, and a higher-margin profile that should lift segment operating margins. Procurement, manufacturing and SG&A rationalization are the principal synergy sources management cited in the release and supporting presentation materials MarketScreener – presentation.

Quantitatively, modest synergies or a few hundred basis points of operating-margin increment on $810M of sales can move consolidated operating income by tens of millions of dollars — enough to produce measured EPS accretion against McCormick’s reported adjusted earnings given its current share count and margin profile. The company’s claim that the transaction is accretive in year one therefore appears plausible on a mathematical basis if integration costs are contained and if mid-single-digit topline growth is realized.

Still, the cash-flow implication matters. Even if the acquisition is EPS-accretive on an adjusted basis, the structure consumes $750M of cash up front. Given FY2024’s free cash flow of $647MM, the company must rely on a mix of existing cash, debt capacity or alternative financings to complete the deal without materially altering its dividend policy. That constraint frames the near-term capital-allocation trade-offs and explains investor interest in how McCormick funds the purchase.

Capital allocation and valuation context: disciplined but constrained#

McCormick’s capital allocation has historically balanced dividends, buybacks and selective M&A. The company continues to pay a meaningful dividend — $1.77 annually per share, which at a $70.88 share price implies a yield of ~2.50%. The payout ratio sits in the 60% range on reported metrics, consistent with a shareholder-friendly posture. However, the Mexico purchase is large relative to one year of free cash flow, so funding the deal without materially reducing shareholder distributions requires either drawing on debt or moderating buybacks.

On valuation multiples the company trades near a ~24.5x price-to-earnings ratio using TTM EPS ~$2.89 and the current market price (70.88 / 2.89 = ~24.52x). The EV/EBITDA multiple computed from FY2024 inputs is ~17.96x, in line with the company’s peer group for branded consumer-food companies with stable cash flows. Forward P/E estimates embedded in consensus forecasts show gradual multiple compression over time as EPS grows, but those forecasts depend on the combined revenue and margin dynamics post-integration.

Importantly, funding the transaction with incremental debt would lift net-debt/EBITDA above current levels (~3.32x) until synergies and incremental cash flow mitigate the increase. Credit metrics remain manageable but closer to thresholds where rating agencies and leveraged-buyout counterparties begin to focus. The company’s stated intention to preserve dividends suggests prioritization of shareholder yield but also signals that buybacks or other discretionary uses may be scaled to absorb the purchase.

Competitive and execution risks: market, tariffs, and integration friction#

The Mexican condiments market is attractive: premiumization, convenience formats and evolving flavor preferences are structural drivers. Yet competition is layered — global conglomerates (Nestlé, Unilever) and nimble local players each present different threats. McCormick’s advantage is focused flavor expertise and branded assets, but realizing regional expansion stretches that advantage across distribution systems and cultural tastes that vary by market.

Macro and policy risks matter for an emerging-market play. Tariff changes, currency volatility, or cost inflation in input commodities would compress margins in Latin America more rapidly than in McCormick’s developed markets. Several analyst notes and market commentary post-announcement flagged tariff risk and integration friction as principal downside scenarios Investing.com – analyst commentary.

Operational integration is an execution risk in itself. Procurement synergies and shared services produce benefits only after conversion costs and a period of retooling. If realized synergies are slower or smaller than management’s assumptions, reported EPS accretion could be muted while leverage ratios temporarily worsen. That timing mismatch is the primary execution risk to watch in the next 12–24 months.

What this means for investors#

Investors should view the transaction as an explicit trade: McCormick is swapping near-term cash (and some balance-sheet headroom) for a larger, majority-owned Latin American operating platform that should lift revenue growth and, over time, margin. The deal is strategically coherent — McCormick’s product, brand and R&D strengths map to condiments and sauces — but it is not without cost. On the numbers, the purchase price is meaningful relative to FY2024 free cash flow and raises near-term net-debt/EBITDA unless offset by external financing or immediate cash generation from the acquired business.

Key monitorables for investors in the coming quarters include: the company’s announced funding plan for the $750M purchase and any incremental leverage it creates; the pace of consolidation and reported synergies once McCormick de Mexico is consolidated; quarterly free-cash-flow conversion trends and whether FCF recovers toward historical levels; and any guidance updates tying the Mexico acquisition to segment-level margins and EPS accretion specifics. These items will determine whether accretion on an adjusted EPS basis translates into sustainable, cash-backed earnings growth.

From a valuation lens, the transaction supports a narrative of higher-quality revenue mix if McCormick can execute on premiumization and cross-border rollouts. But with FY2024 showing a -33.53% drop in FCF, investors should demand tangible proof of cash conversion and measurable synergy capture rather than rely solely on adjusted EPS accretion claims.

Key takeaways#

• $750M purchase increases stake in McCormick de Mexico to 75%, consolidating an operation reported at ~$810M of net sales and positioned for mid-single-digit growth McCormick press release.

• FY2024 showed revenue +0.90% YoY to $6.72B, net income +15.86% to $788.5MM, but free cash flow fell -33.53% to $647MM — a meaningful swing in cash generation that constrains near-term allocation flexibility (calculations based on company FY2024 filings).

• Balance-sheet metrics: net debt ~$4.32B, net debt/EBITDA ~3.32x, and EV/EBITDA ~17.96x on FY2024 inputs; those ratios are manageable but sensitive to additional financing for the acquisition.

• The deal is mathematically plausibly EPS-accretive given expected margins and mid-single-digit growth, but the critical test will be speed and scale of synergy capture and restoration of cash-flow conversion to historical norms.

Conclusion#

McCormick’s purchase of the remaining 25% of McCormick de Mexico for $750M is a strategic consolidation that increases the company’s exposure to a higher-growth, higher-margin segment of the food market. The move aligns with McCormick’s flavor-led specialization and offers credible levers to lift revenue growth and operating margins across Latin America. Numerically, the transaction is consistent with accretive EPS math if integration proceeds on plan and if management realizes procurement and SG&A synergies.

That said, the timing highlights a notable tension: FY2024’s decline in free cash flow tightens near-term funding flexibility. The acquisition can be financed, and it may well create value, but investors should watch the company’s funding decisions, quarter-by-quarter FCF recovery, and concrete synergy milestones. Absent visible cash-conversion improvement, the market will appropriately demand proof that adjusted EPS accretion is backed by cash and sustainable margin progress rather than transitory accounting benefits.

This is a defining strategic step for McCormick in Latin America; its success depends on integration execution, prudent financing and a return of cash-generation momentum.