Brendan Foley
President and Chief Executive Officer at McCormick & Company, Incorporated
Good morning, everyone, and thank you for joining us. As many of you have probably seen on the news this morning, the Francis Scott Key Bridge collapsed in Baltimore. Our thoughts go out to everyone impacted by this terrible tragedy. We have activated a team and are monitoring the situation. We are pleased to start the year with a strong first quarter. Our performance reflects the early success of our prioritized investments to improve volume trends and drive profitable growth.
I will begin my remarks this morning with an overview of our first quarter results focusing on top line drivers. Next, I will provide perspective on industry trends, highlight some early signposts of success as well as areas we continue to work on and review our growth plans. Mike will then go into more depth on the first quarter financial results and review our 2024 outlook. And finally, before your questions, I will have some closing comments.
Turning now to our results on Slide 4. In the first quarter, sales grew 2% in constant currency, reflecting a 3% contribution from pricing, partially offset by 1% decline in volume and product mix, primarily driven by the pruning of low margin business and our canning business divestiture. Underlying volume was flat compared to the prior year. Sequentially from the fourth quarter, volume trends improved in both Consumer and Flavor Solutions. We believe this improvement is an indication of continued progress as we remain focused on driving quality top-line growth throughout our portfolio.
In Consumer, volumes improved substantially from the fourth quarter in the Americas. In EMEA, we drove positive volume growth while continuing to benefit from pricing actions. In Asia Pacific, volume performance was impacted by the macro environment in China, as we expected. We continue to expect full-year 2024 China consumer sales to be comparable to 2023. Outside of China, we delivered strong sales growth driven by both price and volume.
In Flavor Solutions, our results were solid and growth was driven by price and underlying volume growth, partially offset by the impact of our canning divestiture. We are pleased with our performance, recognizing many of our customers, including consumer product companies or CPGs and quick serve restaurant or QSRs, continue to experience volume softness in their businesses. We are continuing to collaborate with our customers to navigate this challenging environment and we remain optimistic about our growth for the year. It's worth noting that volume trends and flavor solutions typically fluctuate from quarter to quarter, largely attributable to customer activity, including new product launches, limited time offers and their other promotional activity.
As we said at the CAGNY conference, McCormick is a growth company and 2024 is an important investment year to return to our long-term objectives. Our results demonstrate the early impact of investments we have made to fuel our top line and further capitalize on the underlying growth of our categories. We have a robust set of initiatives and continue to expect share gains in units to lead our trends and our results will build throughout 2024.
Let me share some of our perspectives on industry trends. We are in a unique position with our portfolio's breadth and reach in both Consumer and Flavor Solutions. Our shared insights give us a very strong understanding of consumers' flavor needs, preferences, behaviors and trends. Consumers remain challenged. Two years of steep inflation has had an impact and many are exhibiting value-seeking behavior. While food inflation is slowing, its compounded impact is still being felt by consumers. Budgets are stretched, resulting in choiceful spending decisions, a trend that is continuing from the fourth quarter.
In the first quarter, with higher inflation in the food service channel and slowing retail food prices, we broadly saw a shift from food away-from-home to food at-home consumption in our major markets. We are also seeing improvement in center store categories and some softness in restaurant traffic across all regions. As we said, the current state of the consumer is not defined by any one trend, it remains dynamic, and we are responding with speed and agility. I am encouraged by the early success of our key initiatives. We have the right plans in place that are continually influenced by what matters most to our consumers and customers and fit within our strategic priorities.
Moving to Slide 5, let me highlight for the quarter some of the key signposts of our success that demonstrate we have the right plans in place. Starting with spices and seasonings. In Americas, EMEA and Asia Pacific, excluding China, we grew volumes. In the U.S., our unit share performance continues to improve and we drove dollar share gains in Eastern Europe. In recipe mixes, we strengthened our performance with volume growth in the Americas, reversing the trends from the fourth quarter. Recipe mixes were a significant driver of U.K. volume growth and homemade desserts were also a substantial driver of France's volume growth. In both, we realized both unit and dollar market share gains.
Volume growth in our flavors business is strong across key categories, including outpacing the category in alcoholic beverages and performance nutrition. Finally, we grew volume in branded food service and realized market share gains in spices and seasonings and on tabletop in hot sauces.
Before I get into our growth plans, let me touch on some areas where there is some pressure. We continue to experience volume declines in the prepared food categories that we participate in like Frozen and Asian. In Americas consumer, importantly, these items represent a small part of our portfolio and the improved volume trends in our core categories is beginning to offset these declines. For mustard in Americas consumer, as we discussed in our last earnings call, we continue to experience extremely low price points for private label, which is impacting our consumption and driving down category dollars. While performance in mustard improved relative to the fourth quarter, we still have work ahead of us. We plan to drive further volume improvement by narrowing price gaps and increasing promotions, new products including Creamy Dill Pickle and importantly through recent distribution wins.
Moving to hot sauce, in Americas consumer of consumption, volume trends improved from the fourth quarter, particularly coinciding with our successful Super Bowl activation campaign. Reflecting on our first quarter performance, it highlights two dynamics. First, we have underlying strength in our base business and strong consumer loyalty. Our growth plans remain consistent, fueling growth through increasing both Cholula and Frank's RedHot brand marketing, with Frank's activated year round for the first time, as well as exciting innovation aligned with consumer trends and expanding distribution.
Second, recently we have seen a surge in $1 price point trial sizes from new and existing small players, which is incremental to the category and is pressuring our share performance. We remain the leader in this attractive, fragmented and growing category. New buyers present a great opportunity to win new households using our growth levers as well as our scale and capabilities. In flavors, our growth with quick-serve restaurants and flavor solutions was impacted by slower QSR traffic in EMEA and Asia Pacific.
Finally, some of our consumer packaged food customers continue to experience softness in volumes within their own business. In both Americas and EMEA, we are focused on working with our customers to support their innovation plans and continue to diversify our customer base over time.
Before I talk to our growth plans in detail, let me touch on spices and seasonings. At a global level, we are pleased with the growth in consumption we delivered in the quarter. Specifically, looking at U.S. spices and seasonings, we are driving significant improvements. Our new packaging continues to increase velocity on shelf and we are recapturing distribution points and our sequential improvement led to positive unit share gains at the end of the quarter. In addition, our growth is supported by our increased brand marketing and new products.
Lastly, we expect to largely start seeing the impact of our actions in our results during the second half of the year, following most of our customers' shelf resets at the end of the second quarter.
Let's now move to our growth plans on Slide 6, which are leading our strong first quarter performance and will continue to drive our success in 2024 and beyond. Brand marketing, new products and packaging innovation, category management, proprietary technologies and customer engagement continue to be the initiatives behind our growth levers.
Starting with brand marketing, our plans across all categories are supported by our global brand marketing initiatives. We are prioritizing investments to connect with consumers and fuel growth. Our differentiated brand marketing is driven by a combination of factors. In addition to maintaining a high share of voice, we are committed to having the best content in our categories, content that inspires and educates consumers and reaches them at the right points on their path to purchase and their flavor journey, from flavor exploration and menu planning, to shopping and cooking, and even to eating and sharing the experience online.
In Q1, brand marketing spend was up significantly compared to the prior year as expected. This increase was broad-based across all regions and was an important driver in improving volumes. Through our efforts across multiple channels, particularly in retail media, we are driving further household penetration and increasing buy rates across spices and seasonings, recipe mixes and condiments. Our holiday campaigns across our regions proved successful. Our marketing campaigns in the Americas highlight our everyday value and point of difference to consumers and are supporting our improved volume trends and share improvement.
Our Frank's Super Bowl activation campaign with Jason Kelce, now a retired NFL player, was very successful. We gained new buyers and media and consumer sentiment, as well as engagement from other big brands was incredibly positive. We continue to benefit from new products and packaging. It is one of the primary drivers of our growth and as we said at CAGNY, the performance of our launches continues to improve. We are continuing to realize growth from our 2023 launches. For example, our Cholula salsas and recipe mixes are driving new buyers to the category and are exceeding our expectations since launch. And we continue to build U.S. distribution and are also launching both formats in Canada this year.
The rollout of our U. S. everyday urban spice portfolio is on plan and expected to be fully shipped by the end of the second quarter. Our Nadiya Hussain range of Schwartz seasonings and recipe mixes continue to drive our innovation performance and expand household penetration with younger consumers. As we look ahead to the rest of the year, with our renovated recipe mixes, we have opportunities to win more dinner occasions with new global cuisine seasonings in both Americas and EMEA and reshaping the portfolio by shifting offerings to meet consumers' growing preference for non-red meat proteins.
In seasoning blends, an exciting growth opportunity we mentioned at CAGNY, we are launching new Lawry's seasoning blends in large sizes, which offer a value price point to consumers and we are really excited about the Frank's RedHot dips and popular flavors in a squeeze bottle format we just launched and are looking forward to another campaign featuring Jason Kelce.
In Flavor Solutions, we are leveraging our proprietary technologies to support our innovation in flavors, to win new customers, diversifying our customer base and drive share gains across our portfolio. Our momentum with our flavors customers continues to be strong and fuel our new product pipeline. We are collaborating with many of our customers to heat up their products from snacking to beverages. Our heat brief [Phonetic] win rates are strong across our regions. We continue to dedicate resources where we have the right to win.
In branded foodservice, we have a strong innovation agenda, including launching a Cattlemen's Hawaiian [Phonetic] barbecue flavor, expanding our seasonings portfolio with Ducros line extensions and extending McCormick Mayonesa, which has had great performance in our Consumer segment into this channel.
Let's turn to category management, where I'd like to review our revenue management efforts and expanding distribution. First, revenue management remains a capability and we have a history of optimizing pricing on shelf to benefit both McCormick and the retailer. We continue to take a surgical approach to managing our price gaps to private label and branded competitors. Our price investments are primarily focused in Americas consumer where they impact about 50% of our portfolio in that segment. Revenue management will continue to be an important tool for driving growth and we will consistently leverage real-time analytics and insights to refine our plans.
In terms of expanding distribution, we continue to make progress on restoring a majority of the distribution that was lost due to supply issues. We have secured wins and new distribution. To further strengthen our value proposition, in EMEA, we have grown distribution in the fast-growing discount channel, and in the U.S., our Lawry's opening price point is expanding across the stores of a leading discounter, and in China, we are expanding in small format stores which have grown rapidly in recent years, as well as into third and fourth tier cities. We are meeting the consumer where they live and shop.
Let me briefly mention our heat platform. As you heard in my remarks, heat-infused products span our portfolio and are driving growth. We expect heat to continue to be a long-term growth accelerator globally for McCormick. Consumers, particularly younger generations, continue to drive demand in this flavor profile. We are uniquely positioned to win in heat with our global iconic brands and our meaningful scale and expertise that we have been building for decades.
To wrap up, we believe the execution of our growth plans will be a win for consumers, customers, our categories and McCormick, which will differentiate and strengthen our leadership.
As we look ahead to 2024, we are maintaining our outlook. Mike will share more of the details. At a high level, we expect our top line to be at the mid to high end of our guidance range given the momentum we saw in the first quarter. We are confident in our initiatives and we have provided proof points of where they are working. That said, we also continue to reflect on the uncertainty in the consumer environment in our outlook for 2024.
Before I pass the call to Mike, let me reiterate a few points. We are deliberately focused on attractive, high growth categories across both segments, resulting in a significant long-term tailwind to drive profitable growth. That said, it's crucial that we continue to capitalize on this position of strength. The long-term trends that fuel our categories, consumer interest in healthy, flavorful cooking, flavor exploration and trusted brands continue to be very strong. And importantly, consumer enjoyment in cooking is growing.
We remain dedicated to improving volumes. We continue to refine our plans and are prioritizing our investments to drive impactful results and return to differentiated and sustainable volume-led growth and you should continue to expect improvement over the coming year and into 2025 and beyond.
Now, over to Mike.
