Lawrence Kurzius
Chairman and Chief Executive Officer at McCormick & Company, Incorporated
Good morning, everyone. Thanks for joining us. We are pleased with the start of the year. We delivered solid first-quarter results that reflects strong demand and early results from our actions to increase our profit realization in 2023. Our sales performance reflects the strength of our broad global portfolio and the effective execution of our strategies.
Our Global Operating Effectiveness, or GOE program is yielding results with first-quarter cost savings in line with our expectations. The progress we are making on gross margin improvement reflects the level of urgency with which we are addressing the pressure points from last year. These results combined with the strong demand we continue to expect across our portfolio and our diligent approach to optimizing our cost structure, bolster our confidence in our plan and our 2023 full-year outlook.
Turning to Slide 5, in the first quarter, we drove 3% sales growth for 5% in constant-currency. The constant-currency sales growth reflected strong underlying business performance with 11% contribution from pricing, partially offset by a 3% decline in underlying volume and product mix. A planned 1% decline from our Kitchen Basics divestiture and the exit of our Consumer business in Russia and unexpected 1% Year-over-Year volume decline from lower consumption due to COVID related disruption in China which expect to see a return towards normal consumption trends in coming quarters.
Our underlying first-quarter sales performance positions us well for continued top-line growth for the balance of the year. Our growth in the first quarter was led by outstanding performance in our Flavor Solutions segment, with positive momentum continuing in all three regions. And our Consumer segment, our underlying sales growth was led by the Americas region.
Moving to profit, our adjusted operating income was comparable to the first quarter of last year in constant currency to increase 2%. Higher interest expense and a higher effective tax-rate more than offset are adjusted operating income growth in the quarter, resulting in a 6% decline in adjusted earnings per share.
I'd like to say a few words about our gross margin performance, which Mike will cover in more detail in his discussion of our adjusted operating income growth drivers in a few moments. We drove considerable improvement in our gross margin performance in the first quarter. Our gross margin reflects the continued recovery of the cost inflation of pricing lags over the last two years, as well as cost-savings for our CCI and GOE programs. As we've said previously, in 2023, we plan to fully recover the inflation, on pricing previously lagged, as well as offset current year inflation for our pricing actions and other levers.
The gross margin also reflects the results of our diligence and optimizing our cost towards GOE program, this is progressing as planned and remains a key focus. We expect the impact on our GOE program to scale up as the year progresses and we remain on track to realize $75 million of cost-savings in 2023, which we will take to the bottom line because of our actions to normalize our supply-chain costs and to streamline our organization.
We remain confident that we have the right plans in place and are taking the right actions. It's still early, but our first-quarter results speak for themselves, and we expect to continue driving profitable growth at an accelerated rate, the balance of the year. Demand is strong, we're driving improvement in our margin profile and optimizing our cost structure effectively.
Now let's move to the first-quarter business update for each of our segments, as well as discussion of our growth plans. Turning to our Consumer segment on Slide 6, our underlying performance was strong reflecting the effective execution of our pricing actions and continuing positive momentum in our consumption front even with lapping the elevated at-home consumption in the first quarter of 2022 due to Omicron the Americas and the EMEA regions.
That performance was partially offset by the impacts related to the sale of Kitchen Basics, exit of Russia and the COVID related disruption in China. Beginning in the second quarter, the activation of exciting growth initiatives, as well as lapping the impact of last year's COVID-related shutdowns in China and the exit of our Consumer business in Russia, which we began to exit in the second-quarter of last year is expected to drive an acceleration of our Consumer segment growth.
Now for some highlights by regions starting with the Americas. Our total U.S. branded portfolio consumption as indicated by our IRI consumption data and combined with unmeasured channels grew 5% in line with our shipments. As we anticipated, the dynamics between consumption and retail inventory levels have begun to normalize as we moved beyond the holiday season impact, and we anticipate greater alignment between consumption and shipments going-forward. Importantly, our volume performance in the first quarter was better than the fourth quarter on higher price realization.
In spices and seasonings, both consumption dollars and units accelerated sequentially from the last several quarters with strengthened our seasoning blends, which provide consumers with convenience and flavor exploration. Early results of our Lawry's everyday spice range, our Lawry's innovation launch since pre-pandemic continue to be positive. We have seen incremental sales and profit to the category over half of the purchases are from new buyers to McCormick and overall incremental to the category.
Hot Sauce remains on fire with double-digit growth of both Cholula and Frank's red-hot in the U.S. and Canada. We continue to build excitement with our hot sauce brand marketing initiatives and reach the younger generation. Most recently, through gaming an outbring game campaign during the quarter our Flavor packed version of Fortnite, the Florida's [Phonetic] flavor had players navigating an immersive chicken wing shape, Taiwan and volcano [Phonetic] that spewed Frank's Red-Hot and included in partnership with TGI Friday's and DoorDash are free chicken wings offer. This was our best big game campaign capture and over 1 billion impressions in North America. And with the resolution of the long-running shortage of Frank's [Phonetic] French's Mustard bottle, we drove over 20% consumption growth for the second consecutive quarter. Our Creamy Mustard launched last year continues to perform very well, but another flavor launch coming this year.
Finally, in the Americas, we continue to drive double-digit consumption growth in e-commerce, led by spices and seasonings. We are realizing higher returns on our investments, gaining new customers and growing with new product. For instance, McCormick popcorn seasonings and Frank's variety packs are both off to a great start following their online introductions earlier this year.
In EMEA, we continue to have solid share performance of herbs, spices and seasonings, in the U.K., Eastern Europe and Italy, somewhat offset by softer performance in France. We're continuing to gain share on Frank's Red-Hot in the U.K. and are building momentum with Cholula. We're driving the U.K. hot sauce category growth. We're taking meaningful progress across the region in expanding our distribution and gaining share in the fast-growing discount channel.
Our investments in brand marketing merchandising and new products are proven to be effective in driving growth. In the Asia-Pacific region, growth for the quarter and the year was impacted by the exit of low-margin business in India, which we will have after this quarter as well as the COVID related disruptions in China. As we have moved past the Chinese New Year, we are seeing a return to normalization. We continue to expect the benefit beginning in the second quarter from lapping the impact of last year's disruptions.
Outside of the China, in India infact [Phonetic] growth in the region was driven by new products and brand marketing initiatives. Frank's Red-hot and Cholula performance was strong in Australia and extending the power of our brands, we have launched Old Bay into the Australian market and Cholula into Southeast Asia.
As always, we continue to fuel our Consumer segment growth with the power of our brand as well as our brand marketing, new products and category management initiatives, we're excited about the growth plans, we're executing and expect they will drive an acceleration of growth for the balance of the year.
First, as we mentioned at CAGNY, we are completely renovating our U.S. core everyday spices of our portfolio with consumer preferred packaging as well as leveraging new flavor seal technology. The atmosphere in the bottle nitrogen flushed to remove oxygen, which means visibly fresher flavor brighter color and stronger aroma, the modern new snap [Indecipherable] that seals in the aroma and freshness. We're also printing the product name and it's easy to read best by date on the top.
The new high-quality bottle and label design highlights the transparency and quality of our spices and herbs and the bottle is made 50% post-consumer recycled plastic approximately a 20% carbon footprint reduction from the current package. We are really excited about these changes and so our consumers. Testing has confirmed 40% higher freshness perception, two times higher preference and a 25% increase in loyalty among current buyers. The products began rolling out last month, the transition on-store shelves will happen over the course of the year, supported with our highest spend marketing campaign of the past five years.
Importantly, the new packaging fits right into the existing shelf spots. This is a seamless transition for our retail partners that we expect to drive category performance. These initiatives coupled with other new product introductions, that I'll mention in a minute, along with our stabilized service levels will build total distribution points and market-share improvement as we go through the year as we outlined last month at CAGNY.
We're also expanding into the fast-growing Mexican aisle with authentic Mexican flavor of Cholula in new formats. We are launching Cholula Taco recipe mixes as well as salsas based on authentic Mexican formulas and crafted in Mexico, using locally sourced fresh tomatoes and tomatillos. Retail acceptance has been strong and consumers will find these new products and the authenticity they are looking for on U.S. shelves soon. Product began shipping yesterday ahead of Cinco de Mayo and the rollout will continue over the course of the second quarter.
We're launching new products in the first half of 2023 to inspire consumers flavor exploration as well as deliver the convenience concerns are looking-forward. In the Americas, we are kicking off the grilling season, with new flavors, including a grillers choice marinate you can use as three different flavors and we're really excited about our new [Indecipherable] Series made with technology from our FONA acquisition these dry seasonal rubs [Phonetic] capture real, authentic hardwood smoked flavor.
Leveraging the product successes of 2022, we are extending our [Indecipherable] to the brown line, with new flavors formats and channels, and we're also launching French's Creamy Roasted Garlic Mustard. In direct to consumer. We continue to grow our platform with new innovative flavors as a testing ground. And in the club channel, we're launching the world flavors line.
In EMEA, we are enabling consumers to discover the authentic taste of America by introducing Old Bay to the U.K. market, as well as introducing a new line of products, leveraging the French's brands, including Americas -- American favorites recipe kit. In the U.K., we also just launched Schwartz brand gravies which are beating the top competitor on taste.
In APZ, we've recently launched [Indecipherable] basis a favorite Kane's recipes [Phonetic] and we'll be launching a Gourmet Garden Zesty Lemon paste both making consumers flavor exploration easier. In China, we've introduced new packaging for chicken bouillon product a pouch with a resealable port cap that makes it convenient for consumers and extends the open product shelf-life by blocking out moisture.
We're continuing to build our heat platform across all regions, with the launch of new products, including in the U.S. Grill Mates Nashville hot chicken seasoning, Frank's RedHot Dill Pickle Hot Sauce and Cholula Reserva crafted with 100% agave tequila. And our flavor forecast of the year, Vietnamese Cajun Style Seasoning. In China, we're introducing iconic Chinese to this spicy blend and in the U.K. Frank's red-hot spicy recipe mixes.
Across all regions, we're increasing our brand marketing investments in 2023. You can expect the most significant Year-over-Year increase in the second-quarter. We will continue to support our brands with messaging on everyday use, value and the superiority of our ingredients and flavors and more specifically with mustard supply issues resolved, we've launched a flavor on campaign for mustard for elevating our mother of sauce Cholula campaign to support the launch of the new format and capitalize on take [Indecipherable] and of course with grilling season starting during the quarter we plan to reach grillers with our just flame in flavor campaign.
A robust growth plans give us confidence in continuing to drive positive momentum, we believe they will all be a win for consumers, customers are categories and McCormick differentiating us even more and strengthening our Flavor leadership in core categories.
Turning to Flavor Solutions on Slide 9, our sales performance in this segment continues to be outstanding. This was our eighth consecutive quarter with double-digit sales growth. Our first-quarter growth was led by pricing actions in all three regions, which as we expect accelerated versus previous quarters.
Now for regional highlights. Our Americas first quarter strong sales growth was led by our Flavors product category. Within flavor, snack seasoning growth was strong, including volume growth-related to new products and strengthen our customers iconic product partially fueled by their marketing as well as our improved ability to service our customers as we begin to realize the benefit of the capacity we're bringing online.
Flavors for Performance Nutrition and Health end-market applications also contributed to our strong performance as we continue driving double-digit sales growth. We are winning with new customers and new products. Volume was tempered in the quarter by the pruning of some low-margin business, the impact of a very cold December on the away-from-home part of our portfolio and lower-volume of alcoholic beverage flavor due to what must-have been a driver change for [Indecipherable] the last year.
In the EMEA, we continue to drive broad-based growth across the portfolio, which was led by higher sales to quick-service restaurant customers in the first-quarter. Overall, our price realization nearly doubled versus last quarter.
And an APZ, we delivered solid volume growth in the markets outside of China, driven by demand from quick-service restaurants or QSRs, for our products to heat-up our hot and spicy offerings. Overall Flavor Solutions demand has remained strong, particularly in certain parts of our business in our Americas and EMEA regions. As we continue to bring additional capacity online and reduced both supply-chain pressure and the extraordinary cost to service our customers. We appreciate their patience and collaboration.
We're continuing our positive sales growth momentum in flavor solutions, and we're committed to restoring profitability in this segment, recovery margin, while ensuring we keep our customers and supply and driving growth for both McCormick, and our customers. We are confident we will achieve margin recovery.
In our January earnings call, we set our price increases had just begun to catch-up with the pace of inflation and we are beginning to recover the cost inflation, our pricing lag for the last two years. This is continuing at an even greater rate than the first quarter. And earlier I discussed, optimizing our costs for GOE program, which will contribute to the Flavor Solutions margin recovery. GOE will have a significant impact in the flavor solutions segment.
And finally, we continue to focus on driving growth and high-margin parts of our portfolio, such as the flavor product category volume growth, I mentioned a few minutes ago in the Americas region. Now, I'm excited to share the growth plans, we're executing on and expect will continue to drive our growth momentum. We continued to fuel our Flavor Solutions segment growth, using our differentiation, including our culinary foundation, our unique and powerful consumer insights advantage, our proprietary technologies and our passion for providing our customers with a differentiated collaborative experience. While we cannot get too specific about product development, following strong year of innovation in 2022, we carried a robust new product pipeline into 2023.
As we mentioned at CAGNY, we are specifically targeting opportunities to grow in high-growth end-markets. Applications such as savory snacks, alcoholic beverages and performance nutrition and an outpaced market growth, and as I just shared a robust growth momentum continued in the first quarter as we expect it will the balance of the year, capabilities we've built for these categories are creating significant topline opportunity.
The power of McCormick and Fona continues to fuel greater opportunities for growth. This acquisition is exceeding our expectations. We are capitalizing on opportunities to increase our sales to existing customers by cross-selling across our more comprehensive product offering and target new customers. We're leveraging our global footprint and capabilities to drive our future growth. We are currently in the process of expanding performance nutrition into Canada as well as localizing confectionery flavors [Indecipherable] for a Fona customer.
Finally in branded foodservice, we have a robust 2023 innovation agenda, launching more than double the new items then in 2022, including Frank's RedHot Nashville Hot, Lime and Cholula Street Tacos, McCormick culinary global brand and our French's Dijon portion-controlled package.
Our plans included continuing to leverage our culinary partnerships inspired many new ideas with our customers, win placements on away-from-home menus, including with quick-service-restaurants and drive growth with promotional activity. Our robust growth plans in flavor solutions also give us confidence in continuing our growth trajectory and drive our Flavor Solutions leadership.
Now for summary comments before turning it over to Mike, turning to Slide 11, global demand for flavor remains the foundation of our sales growth and we've intentionally focused on great fast-growing categories that will continue to differentiate our performance, we continue to capitalize on the long-term consumer trends, healthy and flavorful cooking increased digital engagement trusted brands that purpose [Indecipherable] practices.
McCormick is uniquely positioned to capitalize on this demand for great taste, with the breadth and reach of our strong global flavor portfolio. We are delivering flavor experiences for every meal occasion through our products and our customers products and are driving growth. We are end-to-end flavor. The strength of our business model, the value of our products and capabilities. The execution of our proven strategies give us confidence in our growth momentum and ability to continue navigating the dynamic global environment.
As we look-ahead to the balance of the year, we will continue to focus on capitalizing on strong demand, optimizing our cost structure and positioning McCormick to deliver sustainable growth. We have robust growth plans in place including building momentum with our new products and heat platform and are delivering on our commitment to increasing our profit realization. We are confident with the successful execution of our plans and concrete actions we will drive profitable growth for 2023.
I want to recognize McCormick employees around the world as they drive our momentum and success. I want to also thank all of our customers, suppliers and investors for their collaboration and patience as we move beyond the unique environment we been operating in, since the onset of the pandemic. The fundamentals that drove our historical financial performance remain intact and we are confident we will continue to not only deliver strong sales growth, but also drive total shareholder return at an industry-leading pace.
Now, I'll turn it over to Mike.
