Lawrence E. Kurzius
Chairman, President and Chief Executive Officer at McCormick & Company, Incorporated
Thank you, Kasey. Good morning, everyone. Thanks for joining us. Our third quarter performance demonstrates again that the combination of our balanced portfolio with the effective execution of our strategies to capitalize on accelerating consumer trends and strong engagement with our employees have positioned us well to drive differentiated growth. Remarkably, we delivered an 8% sales increase versus last year and 17% versus 2019.
Our third quarter results reflect a robust and sustained growth momentum, as we delivered organic sales growth on top of our exceptional third quarter performance last year. Our third quarter results also included strong contributions from our Cholula and FONA. Sales growth in our Flavor Solutions segment was broad-based, with the at-home products in our portfolio, flavors and seasonings growing at approximately the same rate as our away from home products, which was primarily driven by a robust recovery from last year's lower demand from our restaurant and other foodservice customers attributable to COVID-19 restrictions and consumers' reluctance to dine out.
Our Consumer segment results reflect the lapping of the year-ago elevated demand in the lockdown phase of the pandemic, from consumers eating and cooking more at home, as well as the sustained shift to consumer at-home consumption higher than pre-pandemic levels. Taken together, these results continue to demonstrate the strength and diversity of our offering, the breadth and reach of our portfolio with compelling offerings for every retail and customer strategy across all channels creates a balanced and diversified portfolio that enables us to drive consistency in our performance even in a volatile environment.
Turning to slide 5. Total third quarter sales grew 8% from the year-ago period or 5% in constant currency. Substantial constant currency sales growth in our Flavor Solution segment more than offset a slight constant currency sales decline in our Consumer segment, driven by the factors I just mentioned. Adjusted operating income was comparable to the third quarter of last year, including a 3% favorable impact from currency. The benefit of higher sales was more than offset by higher cost inflation and industry logistics challenges as well as by a shift in sales between segments. On the bottom line, our third quarter adjusted earnings per share was $0.80 compared to $0.76 in the year-ago period, driven by higher sales and a lower tax rate, partially offset by cost pressures.
As we have stated previously, we expect growth to vary by quarter in 2021. Importantly, we have delivered outstanding year-to-date performance. Sales and adjusted operating income are up 13% and 9% year-over-year respectively, both of which include a 3% favorable impact from currency and we've grown adjusted earnings per share of 8%. Year-to-date versus 2019, we've driven sales, adjusted operating income and adjusted earnings per share growth of nearly 20% across all three metrics.
I'd like to say a few words about the current cost environments impact on our third quarter results as well as our outlook, which Mike will cover in more detail. We stated in our July earnings call we are operating in a dynamic cost environment and like the rest of the industry experiencing cost pressures, we're seeing broad-based inflation across our raw and packaging materials as well as transportation costs to partially offset rising costs, we have raised prices where appropriate, but as usual, there is a timeline associated with pricing, particularly with how quickly costs are escalating and therefore the phasing of most of our actions has taken place during the fourth quarter. Those pricing actions are on track and we appreciate our customers working with us to navigate this environment.
In the last few months, inflation has continued to ratchet up, mainly with packaging and transportation cost. We are experiencing the highest inflationary period of the last decade or even two. We, along with our peers and customer are also facing additional pressure on our supply chain due to strained transportation capacity and labor shortages and distribution. These pressures not only impact costs but also negatively impact sales as the addition of further supply chain complexity makes it harder to get order shipped and received by customers. And this pressure is amplified by continued elevated demand. Overall, we have a demonstrated history of managing through inflationary period with a combination of pricing and cost savings and we expect to manage through this period as we have in the past.
Now let's turn to our third quarter segment business performance, which includes comparisons to 2019 pre-pandemic levels as we believe these will be more meaningful than the comparison for 2020 given the dramatic shift in consumer consumption between at-home and away from home experienced in the year-ago period.
Starting on Slide 7, Consumer segment sales grew 1%, including a 2% favorable impact from currency and incremental sales from our Cholula acquisition compared to the highly elevated demand levels of the year-ago period. Our Consumer segment organic sales momentum on a two-year basis was up double digits, highlighting how the sustained shift in consumer consumption continues to drive increased demand for our products and outpaces pre-pandemic level.
Our Americas constant currency sales declined 1% in the first quarter, with incremental sales from our Cholula acquisition contributing 3% growth. Our total McCormick U.S. branded portfolio consumption as indicated in our IRI consumption data and combined with unmeasured channels declined 10% following a 31% consumption increase in the third quarter of 2020, which results in a 19% increase on a two-year basis. And that has remained high and we are realizing the benefit of our U.S. manufacturing capacity expansion, although some products remain stressed by sustained high demand. Shelf conditions are improving and we're seeing sequential improvement in our share performance. That said, as I mentioned a moment ago, the current issues related to logistics pressures continue to make it challenging for market leaders like McCormick to keep high demand products and stock, which has prevented us from making further progress in replenishing both retailer and consumer inventories in the third quarter. Importantly though, we are better positioned than we were last year entering the holiday season and are confident in our holiday merchandising plans.
Focusing further on our U.S. branded portfolio, our 19% consumption growth versus the third quarter of 2019 was led by double-digit growth in spices and seasonings, hot sauces, both Cholula and Frank's RedHot, and barbecue sauce, as well as our Asian frozen product. In pure play e-commerce, we delivered triple-digit growth compared to 2019, with McCormick branded consumption outpacing all major categories. This is the sixth consecutive quarter our U.S. branded portfolio consumption grew double digits versus the same period two years ago, which reflects continuation of consumers cooking and using flavor more at home and the strength of our brands.
Our key categories continued to outpace the center of store growth rates versus the same period of two years ago, favorably impacting not only the McCormick brand but our smaller brands as well. Household penetration and repeat rates have also grown versus 2019. And when our consumers shop, they're buying more of our products than they were pre-pandemic. McCormick continues to win in hot sauce. Across our brands, McCormick grows to be the number one hot sauce manufacturer globally earlier this year. In the third quarter, Frank's RedHot, the number one brand in the U.S., was joined at the top of the category by Cholula, which we have driven to the number two ranking.
Now turning to EMEA, which has continued its outstanding momentum. We had strong market share performance in the third quarter versus last year, maintaining or gaining share across the region and key categories following our strong gains in the third quarter last year. Compared to the third quarter of 2019, our total EMEA region we drove double-digit consumption growth in herbs, spices and seasonings. And turning up the heat, Frank's RedHot has grown consumption 75% and had gained a significant share versus the two year-ago period. Across the region, our household penetration and repeat rates have also grown versus the two year-ago period. Our year-to-date higher brand marketing investments in EMEA are proving to be effective as evidenced by the metrics I just discussed, as well as our achieving above benchmark rates, the reach, engagement and click-through for instance in our digital marketing.
In the Asia-Pacific region, third quarter sales were strong, reflecting our continued recovery from China's lower branded foodservice sales last year. Our consumer product demand in the region declined due to lapping significant growth last year. The region is also experienced supply chain challenges with ocean freight capacity constraints impacting the quarter's growth. In Australia, we continue to see strong consumption growth versus 2019, with key brands recently turning back towards 2020 levels, with Frank's RedHot already higher than the last year's elevated consumption.
Across all regions in our Consumer segment, we are continuing to fuel our growth with our strong brand marketing, new product launches and our category management initiatives. We're making brand marketing investments across our portfolio to connect with our consumers, particularly online. Early in the third quarter in the Americas, we began our search for the first Director of Taco Relations. This was a dream opportunity for the over 5,000 applicants to showcase their Taco expertise and enthusiasm for our product and their video application. To date, we have garnered over 1 billion earned impressions related to our search, and these will continue to grow upon the announcement of our new Director of Taco Relations next week, on October 4th, in celebration of National Taco Day.
We are not only creating buzz through our digital marketing, but also with our e-commerce direct to consumer new product launches. In the Americas, we drove new passionate users to our brands and digital properties with the launch of Sunshine All Purpose Seasoning, a new product developed in partnership with social media influencer Tabitha Brown, inspired by her joyful personality and health and wellness focused recipes, the salt-free and gluten-free Caribbean inspired blend sold out in just 39 minutes, generating record sales from e-commerce driven innovation and over 700 million earned impressions.
Our new product launches differentiate our brands and strengthens our relevance with consumers. And with our global leadership position in our sauce, we are in the perfect position to capitalize on consumers' rising demand for hot and spicy flavors through a global heat platform. Our recent launches of Frank's RedHot frozen appetizers and Cholula Wing sauces in the Americas, as well as Frank's RedHot craft flavors in EMEA have made strong contributions to growth in the third quarter. Just in time for Halloween, EMEA is introducing dead hot gift sets for e-commerce, featuring Frank's RedHot. And in China, our recently launched ready to eat chili paste as the highest 30-day repeat rate of all McCormick direct to consumer products on Tmall.
Turning to category management. Our initiatives are designed to strengthen our category leadership by driving growth for both McCormick and retailers. These initiatives include simply changing shelf placement. For instance, increasing Cholula velocity over 30% or changing the tile [Phonetic] placement at a large retailer, to reinventing the spice and seasoning of shopping experience. In the U.S., we are anticipating a cumulative implementation of our spice aisle [Phonetic] program, so it began in 2020 at 10,000 stores by year-end versus 2019 to remove year over year noise, sales in the beginning of August show retailers that have adopted the spice aisle changes are growing the category faster than those who have not, and McCormick branded spices and seasoning portfolio is growing solid mid-single digits faster in implemented stores versus stores which have not the adopted the changes.
And in Eastern Europe, the rollout of our first choice bottle, which has perceived this premium and what was predominantly sachet only market is elevating the spices and seasoning category and driving increased share in our Eastern European market. Moving forward, we are confident that we will continue the momentum of our Consumer segment. We have more consumers than pre-pandemic. They have come into our brands, are having a good experience and our buying our products again. We are excited about our growth trajectory and expect long lasting growth from the sustained shift to consumers cooking more at home, fueled by our brand marketing, new products and category management initiatives.
Turning to Slide 9, our Flavor Solutions segment grew 21% or 17% in constant currency, reflecting both strong base business growth and contributions from our FONA and Cholula acquisition. Our third quarter results includes the robust recovery from last year's lower demand from our restaurant and other foodservice customers, many of which are lapping the curtailment approach of away from home dining, as well as strong continued momentum with our packaged food and beverage customers. Notably, growth was driven equally from both the at-home and the away from home products in our portfolio. On a two-year basis, our sales also increased double digits, with strong growth in all three regions.
In the Americas, our FONA and Cholula acquisitions made a strong contribution to our significant third quarter growth, and we're executing on our strategy to shift our portfolio to more value-added and technically insulated products. We continue to see outstanding growth momentum with our consumer packaged food customers to new products and base business constrain. Consumers' rising global demand for hot and spicy flavors is driving growth for both our customer and for our seasonings that flavor them. Compared to last year's third quarter, snack seasonings grew high single digits with strong growth in core iconic product as well as new products, and the innovation pipeline continues to be robust.
Our confidence will accelerate our global flavors platform continues to be reinforced by their excellent performance with double-digit sales growth compared to last year. Beverages are driving significant growth with particular strength in the fast growing Performance Nutrition category. And finally in the Americas, branded foodservice contributed significant growth for the quarter and our [Indecipherable] channel has continued to strengthen as more dining options reopen.
In EMEA, we had strong growth versus both last year and 2019 across all markets and channels. Quick service restaurants or QSRs are driving growth through increased promotional activities and limited time offers. Our branded foodservice sales with easing restrictions in the hospitality industry increased at a double-digit rate versus the third quarter of last year and as packaged food and beverage companies our performance was strong on top of last year's strong growth, but the hot and spicy trends fueling growth in snack seasonings particularly through new product innovation.
Our sales growth in the Asia Pacific region was partially impacted by the timing of our QSR customers strong limited time offers and the promotional activities in the third quarter of last year, which increased restaurant traffic as COVID-19 restrictions lifted. As we've said in the past, limited time offers and promotional activities and cause some sales volatility from quarter to quarter.
We recognize a part of our third quarter Flavor Solutions results were due to the comparison to low away from home demand last year. Notably, our growth also includes strong contributions from FONA and Cholula, robust growth with packaged food and beverage customers both in the base business and the new product wins, driven by our differentiated customer engagement and continuing momentum with QSR. Year-to-date versus 2019, we delivered 13% constant currency growth, including FONA and Cholula and 6% constant currency organic growth. These results combined with our effective growth strategies bolster our confidence and a continuation of our robust growth trajectory in our Flavor Solutions segment.
Now on Slide 10, I'm excited to share some important purpose-led performances. Just a few days ago, we were named as a global compact lead company by the United Nations for our ongoing commitment to the UN Global Compact and its 10 principles for responsible business. We are honored by this recognition for our commitment to sustainability and to be one of only 37 companies in the world and the only U.S.-based food producer to be included on this prestigious list. Sustainable sourcing is the top priority and we've been actively working on initiatives such as our sustainability-linked financing partnership with IFC and Citi, which provides our urban spice suppliers in Indonesia and Vietnam with financial incentives linked to improvements in measures of social and environmental sustainability, as well as our partnership with Heifer International on the launch of the Cardaforestry project, which aims to increase smallholder farmer resilience and improve the quality of cardamom and all spice in Guatemala. In addition, Latina Style, Inc. recently named us as one of the top 50 best companies for Latinos to work in the U.S. We are thrilled to be recognized for our continued efforts for our diversity and inclusive.
We are committed to the long-term vitality of the people, communities and the planet we share and are proud of our impact in these areas. We look forward to sharing more about these accomplishments as well as many others with you through our purpose-led performance report, which will be issued early next year. Before turning it over to Mike, I'd like to make some qualitative comments regarding 2022. To be clear, we are not providing 2022 guidance at this time. We are a growth company and we expect to grow in both of our segments next year. At the foundation of our sales growth is the rising consumer demand for flavor, fueled by younger generations. We've intentionally focused on great categories that are growing and generating a long-term tailwind. We are capitalizing on the long-term consumer trends that accelerated during the pandemic and for successfully executing on our strategies and initiatives.
In this dynamic and fast-paced environment, we are ensuring that we remain focused on long-term sustainable growth. Recently, cost pressures have rapidly accelerated and we are preparing for that to remain in 2022. We plan to mitigate these costs, which we expect to fully offset over time through a combination of CCI-led cost savings, revenue management initiatives and pricing actions as needed. In addition, we're taking prudent steps to reduce discretionary spend where possible. We also expect the impact of COVID-19 to persist into 2022, which will create continued broad-based supply chain challenges. We successfully demonstrated in the past our ability to manage through inflationary environment and cost pressures. Importantly, our strong growth trajectory supports our confidence that our long-term financial algorithm to drive continuous value creation to top line growth and margin expansion. We have a strong foundation and remain focused on the long-term goals, strategies and values that have made us so successful. Around the world, McCormick employees drive our momentum and success and I thank them for their hard work, engagement and dedication, particularly in such a volatile environment.
And now, I'll turn it over to Mike.
