NYSE:MKC McCormick & Company, Incorporated Q3 2021 Earnings Report $74.56 -0.45 (-0.60%) Closing price 03:59 PM EasternExtended Trading$74.54 -0.02 (-0.02%) As of 05:49 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast McCormick & Company, Incorporated EPS ResultsActual EPS$0.80Consensus EPS $0.72Beat/MissBeat by +$0.08One Year Ago EPS$0.76McCormick & Company, Incorporated Revenue ResultsActual Revenue$1.59 billionExpected Revenue$1.54 billionBeat/MissBeat by +$56.46 millionYoY Revenue Growth+11.50%McCormick & Company, Incorporated Announcement DetailsQuarterQ3 2021Date9/29/2021TimeBefore Market OpensConference Call DateWednesday, September 29, 2021Conference Call Time8:00PM ETUpcoming EarningsMcCormick & Company, Incorporated's Q2 2025 earnings is scheduled for Thursday, June 26, 2025, with a conference call scheduled at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by McCormick & Company, Incorporated Q3 2021 Earnings Call TranscriptProvided by QuartrSeptember 29, 2021 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Good morning. This is Casey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today's Q3 earnings call. To accompany this call, we posted a set of slides at ir.mccormick.com. We'll begin with remarks from Lawrence Kurzius, Chairman, President and CEO I'm Mike Smith, Executive Vice President and CFO, and we will close with a question and answer session. Operator00:00:24During this call, we will refer to certain Non GAAP financial measures, the nature of those non GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. In addition, as a reminder, today's presentation contains projections and other forward looking statements. Actual results could differ materially from those projected. Operator00:00:53The company undertakes no obligation to update or revise publicly any forward looking statement, whether because of new information, future events or other factors. Please refer to our forward looking statement on Slide 2 for more information. I will now turn the discussion over to Lawrence. Speaker 100:01:10Thank you, Casey. Good morning, everyone. Thanks for joining us. Our 3rd quarter performance demonstrates again that the combination Our balance portfolio with the effective execution of our strategies to capitalize on accelerating consumer trends and the strong engagement of our employees Have positioned us well to drive differentiated growth. Remarkably, we delivered an 8% sales increase versus last year and 17% versus 2019. Speaker 100:01:38Our 3rd quarter results reflect a robust and sustained growth momentum as we delivered organic sales growth on top of our Exceptional Q3 performance last year. Our Q3 results also include strong contributions from 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 product, which was primarily driven by a robust recovery from last year's lower demand from our restaurant and other foodservice customers attributable to COVID-nineteen restrictions and consumers' reluctance to dine out. Our consumer segment results reflect the lapping of the year ago elevated demand in the lockdown days of the pandemic from consumers eating and cooking more at home As well as a sustained shift to consumer at home consumption higher than pre pandemic levels. Taken together, these results continue to demonstrate Strength and diversity of our offering. Speaker 100:02:36The breadth and reach of our portfolio with compelling offerings for every retail and customer strategy across all channels Create a balanced and diversified portfolio that enables us to drive consistency in our performance even in a volatile environment. Turning to Slide 5. Total 3rd quarter sales grew 8% from the year ago period or 5% in constant currency. Substantial constant currency sales growth in our flavor solutions segment more than offset slight constant currency sales decline in our consumer segment driven by the factors just mentioned. Adjusted operating income was comparable to the Q3 of last year, including a 3% favorable impact from currency. Speaker 100:03:18The benefit of higher sales was more than offset by higher cost inflation and industry wide logistics challenges as well as by a shift in sales between segments. On the bottom line, our 3rd 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've 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, Both of which include a 3% favorable impact from currency and we've grown adjusted earnings per share 8%. Speaker 100:04:03Year to date versus 2019, we've driven sales, adjusted operating income and adjusted earnings per share growth of nearly 20% I'd like to say a few words about the current cost environment's impact on our 3rd 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 Like the rest of the industry experiencing cost pressure, 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 time lag associated with pricing, Particularly with how quickly costs are escalating and therefore the phase in of most of our actions is taking place during the Q4. 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 costs. Speaker 100:05:06We're experiencing the highest inflationary period of the last decade or even 2. We, along with our peers and customers, are also facing additional pressure on our supply chain due to strained transportation capacity and labor shortages in 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 orders 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 Q3 segment business performance, Which includes comparisons to 2019 pre pandemic levels as we believe these will be more meaningful than the comparisons to 2020, given the dramatic shift Consumer consumption between at home and away from home experienced in the year ago period. Speaker 100:06:08Starting 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 in the year ago period. Our consumer segment organic sales momentum on a 2 year basis was up double digits, highlighting how the sustained Consumer consumption Continues to drive increased demand for our products and outpaces pre pandemic level. Our Americas constant currency sales declined 1% In the Q1, 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 Q3 of 2020, which results in a 19% increase on a 2 year basis. Speaker 100:07:56Demand has remained high and we are realizing the benefit Our U. S. Manufacturing capacity expansion, although some products remain stretched by sustained high demand. Shelf conditions are improving And we're seeing sequential improvement in our share performance. That said, as I mentioned moments ago, the current issues related to logistics pressures Continue to make it challenging for market leaders like McCormick to keep high demand products in stock, which has prevented us from making further Progress in replenishing both retailer and consumer inventories in the Q3. Speaker 100:08:31Importantly though, We're 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 Q3 of 2019 It was led by double digit growth in spices and seasonings, hot sauces, both Cholula and Frank's Red Hot and barbecue sauce as well as our Asian and frozen products. In pure play e commerce, we delivered triple digit growth compared to 2019 with McCormick branded consumption outpacing all major categories. Speaker 100:09:07This is the 6th consecutive quarter our U. S. Branded portfolio consumption grew double digits versus the same period 2 years ago, Which reflects the continuation of consumers cooking and using flavor more at home and the strength of our brand. Our key categories continue to outpace the center of store growth rates versus the same period 2 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. Speaker 100:09:37And when our consumers shop, they are buying more of our products 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 Q3, Frank's Red Hot, 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 2 ranking. Now turning to EMEA, which has continued its outstanding momentum. Speaker 100:10:06We had strong market share performance in the Q3 versus last year, maintaining or gaining share across the region in key categories following our strong gains In the Q3 of last year, compared to the Q3 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 has gained a significant share versus the 2 year ago period. Across the region, our household penetration and repeat rates have also grown versus the 2 year ago period. Our year to date higher brand marketing investments in the EMEA are proving to be effective as evidenced by the metrics I just discussed, As well as our achieving above benchmark rates for reach, engagement and click through for instance in our digital marketing. In the Asia Pacific region, 3rd quarter sales were strong reflecting our continued recovery from China's lower branded foodservice sales last Our consumer product demand in the region declined due to lapping significant growth last year. Speaker 100:11:10The region has 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 trending back toward 2020 levels with Frank's Red Hot already higher than 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 Q3 in the Americas, we began our search for the 1st Director of Taco Relations. Speaker 100:11:54This was a dream opportunity For the over 5,000 applicants who showcase their Taco expertise and enthusiasm for our products and their video application, To date, we have garnered over $1,000,000,000 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 4 in celebration of National Taco Day. We're 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 development partnership with social media influencer Tabitha Brown, Inspired by her joyful personality and health and wellness focused recipes, this salt free and gluten free Caribbean inspired blend Sold out in just 39 minutes, generating record sales from e commerce driven innovation and over $700,000,000 earned impressions. Our new product launches differentiate our brands and strengthen our relevance with consumers. And with our global leadership position in hot sauce, We are in the perfect position to capitalize on consumers' rising demand for hot and spicy flavors through a global heat platform. Speaker 100:13:11Our recent launches of Frank's Red Hot frozen appetizers and Chalhoub Wing sauces in the Americas as well as Frank's Red Hot craft flavors in the EMEA I've made strong contributions to growth in the Q3. Just in time for Halloween, EMEA is introducing dead hot gift sets for e commerce Featuring Frank's Red Hot. And in China, our recently launched ready to eat chili paste has the highest 30 day repeat rate of all McCormick direct to consumer products on 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's velocity over 30 We're changing the tile placement at a large retailer to reinventing the spice and seasoning now shopping experience. Speaker 100:14:03In the U. S, we're anticipating a cumulative implementation of our Spice Out program since it began in 2020 10,000 stores by year end versus 2019 to remove year over year noise, sales through 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's Branded Spice and Seasoning portfolio It's growing solid mid single digits faster in implemented stores versus stores which have not adopted the changes. And in Eastern Europe, the rollout of our 1st Choice bottle, which has perceived this premium in what was predominantly sachet only market, It's 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 that have come into our brand, We're having a good experience and are buying our products again. Speaker 100:15:04We're 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 3rd quarter results include the robust recovery from last year's lower demand from our restaurant Other foodservice customers, many of which are lapping the curtailment 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. Speaker 100:15:52On a 2 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 Consumer Packaged Food customers, new products and base business strength. Consumer's rising global demand for hot and spicy flavors It's driving growth for both our customer snacks and for our seasonings that flavor them. Compared to last year's Q3, snack seasonings We're high single digits with strong growth in core iconic products as well as new products and the innovation pipeline continues to be robust. Speaker 100:16:43Our confidence that Fona 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 to the quarter as our demand for this channel has continued to strengthened as more dining options reopen. In EMEA, we had strong growth versus both last year 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 Q3 of last year. And as packaged food and beverage companies, our performance was strong on top of last year's strong growth with the hot and spicy trend fueling growth in snack seasoning, particularly through new product innovation. Speaker 100:17:47Our 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 Q3 of last year, which increased restaurant traffic as COVID-nineteen restrictions lifted. As we've said in the past, limited time offers and promotional activities can cause some sales volatility from quarter to quarter. We recognize a part of our 3rd 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 in new product wins driven by our differentiated customer engagement and continuing momentum with QSR, Year to date versus 2019, we've delivered 13% constant currency growth, including Fona and Cholula at 6% constant currency organic growth. These results combined with our effective growth strategies bolster our confidence and continuation of our robust growth trajectory in our flavor solutions segment. Speaker 100:18:57Now on Slide 10, I'm excited to share some important Purpose led performance news. 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 ten principles for responsible business. We are honored by this recognition for our commitment to 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 a 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 and measures of social and environmental sustainability, as well as our partnership with Heifer International on the launch of the Cardiff Forestry Project, which aims to increase smallholder farmer resilience and improve the quality of cardamom and allspice in Guatemala. Speaker 100:20:01In addition, Latina Style Inc. Recently named us as one of the top 50 best companies for Latinas to work in the U. S. We are thrilled to be recognized for continued efforts around diversity and inclusion. 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. Speaker 100:20:22We 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. Speaker 100:20:54We've intentionally focused on great categories that are growing Generating a long term tailwind. We're 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're preparing for them 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. Speaker 100:21:35In addition, we're taking prudent steps to reduce discretionary spend where possible. We also expect the impact of COVID-nineteen 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 environments and cost pressures. Importantly, our strong growth trajectory supports our confidence in our long term financial algorithm To drive continuous value creation through 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, And now I'll turn it over to Mike. Speaker 200:22:27Thanks and good morning everyone. For the reasons Laurence mentioned, my comments will also include comparisons to 2019. Starting on Slide 13, Our top line growth continues to be strong. We grew constant currency sales 5% during the Q3 compared to last year, With incremental sales from our Cholula and Fona acquisitions contributing 4% across both segments, our volume and mix Drove our organic sales increase with flavor solutions growth offsetting a decline in the consumer segment. Versus the Q3 of 2019, We grew sales 15% in constant currency with both segments growing double digits. Speaker 200:23:06During the Q3, Our Consumer segment continued to lap last year's exceptionally high demand. Versus 2020, our 3rd quarter Consumer segment sales declined 1 percent in constant currency, which includes a 3% increase from the Cholula acquisition. Compared to the Q3 of 2019, Consumer segment sales grew 14% in constant currency. On Slide 14, Consumer segment sales in the Americas declined 1% in constant currency, lapping the elevated lockdown demand in the year ago period, as well as the logistics challenges Lawrence mentioned earlier. Incremental sales from the Cholula acquisition contributed 3% growth. Speaker 200:23:45Compared to the Q3 of 2019, sales increased 17% in constant currency led by significant growth in the McCormick, Lowery's, Grill Mates, Old Bay, Frank's Red Hot, Cholula, Zatarin's, Gourmet Garden, Simply Asia, Stubs and El Guapo branded products. That's a lot of brands, partially offset by a decline in private label. In EMEA, constant currency consumer sales declined 11% from a year ago, Also due to lapping the high demand across the region last year. Notably, this decline includes strong growth in our Eastern European market, On top of their significant volume growth last year, which was more than offset by declines in the region's other markets. On a 2 year basis, Sales increased 10% in constant currency, driven by strong growth in our chemist, Schwartz and Frank's RedHot branded products. Speaker 200:24:38Consumer sales in the Asia Pacific region increased 11% in constant currency due to the recovery of branded food service sales With a partial offset from the decline in consumer demand as compared to the elevated levels in the year ago period. Sales increased 4% compared to the 3rd Turning to our flavor solutions segment on Slide 17. We grew 3rd quarter constant currency sales 17%, including an 8% increase from our Fona and Chula acquisitions. The year over year increase led by the Americas and EMEA regions It was due to strong growth with both packaged food and beverage customers and in away from home products. Compared to the Q3 of 2019, Flavor Solutions segment sales grew 16% in constant currency. Speaker 200:25:32In the Americas, Flavor Solutions constant currency sales grew 19% year over year With FONA and Cholula contributing 12%. Volume and product mix increased, driven by significantly higher sales to branded foodservice customers, together with growth to packaged food and beverage companies with strength in snack seasonings. On a 2 year basis, Sales increased 15% in constant currency versus 2019, with higher sales from acquisitions and packaged food and beverage companies, partially offset by the exit of some lower margin business. In EMEA, In the Asia Pacific region, flavor solutions sales rose 1% in constant currency versus last year It increased 8% in constant currency versus Q3 of 2019, both driven by QSR growth and partially impacted by the As seen on Slide 21, Adjusted operating income, which excludes transaction and integration costs related to the Cholula and Fona acquisitions, as well as special charges, was comparable to the Q3 of last year, including a 3% favorable impact from currency. Adjusted operating income in the Consumer segment declined 10% to $188,000,000 or in constant currency 12%, driven by the cost pressures from inflation and logistics challenges, partially offset by CCI led cost savings. Speaker 200:27:12These logistics challenges not only impacted costs, but also negatively impacted sales. In the Flavor Solutions segment, adjusted operating income rose 32% to $84,000,000 or 27% in constant currency. Higher sales, CCI led cost savings and favorable product mix as we continue to migrate our portfolio more than offset the cost pressures in this segment. Across both segments, incremental investment spending for our ERP program was offset by lower COVID-nineteen cost compared to last year. During the quarter, we invested in brand marketing ahead of last year and notably we have increased our investments 11% on a year to date basis. Speaker 200:27:57As seen on Slide 22, adjusted gross profit margin declined 2 60 basis points driven primarily by the cost pressures we are experiencing and the lag in pricing. Our selling, general and administrative expense As a percentage of sales, declined 110 basis points driven by leverage from sales growth. These impacts netted to an adjusted operating margin decline 150 basis points. In addition to the factors I mentioned a few moments ago, the sales shift between segments unfavorably impacted both gross and operating margins. Turning to income taxes. Speaker 200:28:34Our 3rd quarter adjusted effective tax rate was 14.1% Compared to 19.3% in the year ago period, both periods were favorably impacted by discrete tax items, With the larger impact this year due to the favorable impact of a reversal of a tax accrual. Adjusted income from unconsolidated operations applying 5% versus the Q3 of 2020. Based on our year to date results, we now expect a mid single digit increase And our adjusted income from unconsolidated operations for 2021, up from our previous projections of a low single digit decrease. This improvement is driven by strong performance from our McCormick to Mexico joint venture. At the bottom line, as shown on Slide 25, 3rd quarter 2021 adjusted earnings per share was $0.80 compared to $0.76 for the year ago period. Speaker 200:29:30The increase was primarily driven by lower adjusted income tax rate. As compared to the Q3 of 2019, Our 10% increase in adjusted earnings per share was primarily driven by sales growth. On Slide 26, We've summarized highlights for cash flow and the quarter end balance sheet. Through the Q3 of 2021, Our cash flow from operations was $373,000,000 which is lower than the same period last year. The decrease was primarily due to the payment of transaction integration costs and higher use of cash associated with working capital. Speaker 200:30:08This includes the impact of planned higher inventory levels to support significantly increased demand and to mitigate supply and service issues, as well as buffer against cost volatility. Through the Q3, we've returned $272,000,000 of this cash to our shareholders through dividends and use $190,000,000 for capital expenditures. Our priority is to continue to have a balanced use of cash, funding investments to drive growth, returning a significant portion to our shareholders through dividends And paying down debt. Now turning to our 2021 financial outlook on Slides 2728. With our broad and advantaged flavor portfolio, our robust operating momentum and effective growth strategies, we are well positioned for another year of differentiated growth and underlying performance tempered by the higher inflation ahead of pricing and the logistics challenges we previously mentioned. Speaker 200:31:09For 2021, we are projecting top line and earnings growth from our strong base business and acquisition contribution, With earnings growth partially offset by incremental COVID-nineteen costs and ERP investment as well as a higher projected adjusted effective tax rate. We continue to expect an estimated 3 percentage points favorable impact of currency rates on sales. And for the adjusted operating income and adjusted earnings per share, A 2 percentage point favorable impact of currency rates. At the top line, due to our strong year to date results And robust operating momentum, we now expect to grow constant currency sales 9% to 10%, which is the high end of our previous Projection of 8% to 10% and includes a 4% incremental impact from the Cholula and Fona acquisitions. We had initially projected an incremental acquisition impact in the range of 3.5% to 4%. Speaker 200:32:10We anticipate our organic growth will be led by higher volume and product mix driven by our category management, brand marketing and new products as well as pricing. We are now projecting our 2021 adjusted gross profit margin to be 150 basis points to 170 basis points Lower than 2020 due to the increase in cost pressures I mentioned earlier. While we continue to expect a mid single digit increase in inflation for the year, It has moved higher and is now approaching a double digit increase in the 4th quarter. Overall, our projected adjusted gross margin compression Reflects unfavorable impacts from sales mix between segments, cost inflation and COVID-nineteen costs, partially offset by pricing and margin accretion from the Cholula and Fona acquisitions. As a reminder, we price to offset cost increases. Speaker 200:33:04We do not margin up. Our estimate for COVID-nineteen cost remains unchanged at $60,000,000 in 2021 versus $50,000,000 in 2020 And is weighted to the first half of the year. Reflecting the change in gross profit margin outlook, we are lowering our expected Our adjusted operating income growth rate reflects expected strong underlying performance From our base business and acquisitions, projected to be 8% to 10% constant currency growth, which includes the higher inflation ahead of pricing And logistics challenges and partially offset by a 1% reduction from increased COVID-nineteen costs compared to 2020 And a 3% reduction from the estimated incremental ERP investment. This results in a total projected adjusted operating income growth rate of 4% to 6% in constant currency. This projection includes the mid single digit inflationary pressure as well as our CCI led cost savings target of Approximately $110,000,000 It also includes an expected low single digit increase in brand marketing investments. Speaker 200:34:15Considering the year to date impact from discrete items, we now project our 2021 adjusted effective income tax rate to be approximately 21% as compared to our previous projection of 23%. This outlook versus our 2020 adjusted effective tax rate It is expected to be a headwind to our 2021 adjusted earnings per share growth of approximately 1%. We are lowering our 2021 adjusted earnings per share expectations to 5% to 7% growth, which includes a favorable impact from currency. This reflects our lower adjusted operating profit outlook and lower adjusted income tax rate As well as the higher adjusted income from unconsolidated operations. Our guidance range for adjusted earnings per share in 2021 It's now $2.97 to $3.02 This compares to $2.83 of adjusted earnings per share in 2020 It represents 8% to 10% growth in constant currency from our strong base business and acquisition performance, partially offset by the impacts related to COVID-nineteen costs, our incremental ERP investment and the tax headwind. Speaker 200:35:25I'll now turn it back to Lawrence. Speaker 100:35:29Now that Mike has shared our financial results and outlook in more detail, I would like to recap the key takeaways as seen on Slide 29. Our Q3 results reflect a robust and sustained growth momentum as we drove strong sales growth despite a challenging year over year comparison. Year to date versus 2019, we have driven significant double digit growth rates for sales, adjusted operating profit and earnings per share. We have a strong foundation and a balanced portfolio, which drives consistency in our performance. We expect higher at home consumption will persist beyond the pandemic And are continuing the momentum we are gaining in away from home consumption. Speaker 100:36:09We're confident the growth momentum of our business is sustainable. As a reminder, McCormick has grown and compounded that growth successfully over the years regardless of short term pressures. Our strong growth trajectory supports our confidence And our long term growth algorithm to drive continuous value creation through top line growth and margin expansion. We're driving McCormick forward and building value for our shareholders. Now let's turn to your questions. Speaker 300:36:38Thank you. At this time, we'll be conducting a question and answer session. Thank you. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions. Speaker 100:37:14Good morning, everybody. Hi, Andrew. Good morning, Andrew. Speaker 400:37:17Hi, there. Maybe to start out, at our recent Conference and then again this morning you alluded to costs and supply chain disruptions likely continuing into fiscal 2022. Others have made very similar Sort of comments. Of course, you'll have more pricing kicking in among other actions to mitigate some of the challenges. I think you also had mentioned that ERP costs could be offset by COVID expenses coming down. Speaker 400:37:42So I guess things remain very fluid of course and you're not obviously giving specific 2022 guidance as of yet. But I'm trying to get a sense of whether Sure. And on algorithm year, particularly on the profit side, would be too much to ask in fiscal 2022 at this stage, All things considered, particularly given what I assume will be continued margin pressure at least through the first half of next year. Speaker 100:38:04Right. Well, first of all, Andrew, thanks for the opportunity to talk about a pretty high level question Right out of the gate. In your question, you have included a couple of my points that I would actually make to answer it. Beginning with just to be clear, I'm not going to give guidance for next year. There are a lot of moving parts. Speaker 100:38:27Thanks, Art Fluid. We are right in the middle of putting together our budgets for next year right now. As we said in the call, our long we're very confident about our algorithm over the long term. I'm just not ready to talk about it in 2022 specifically just yet. But in Our prepared remarks, I did say we expect growth in both segments. Speaker 100:38:53And so I'll start there and then I'll bring it back to profit. McCormick It's unique and that we've been differentiated by strong growth. The underlying trends that support our business include the demographic tailwind From younger consumers that has nothing to do with the pandemic and then many of the consumption trends we believe were reinforced and accelerated By the pandemic. So we believe that going into the pandemic, our growth was differentiated already. Yes, through it, it's been differentiated and coming out. Speaker 100:39:27It continues to be differentiated. We've made investments, Including during the time of this pandemic, both organic and through smart acquisitions that put our portfolio More and more into high growth categories like hot sauce and flavor. And on top of this, we're going to have the top line benefit of pricing In 2022, so we have confidence and strong growth going forward. For operating profit, There are a lot of puts and takes. Over the last few years, we've had rising ERP investment. Speaker 100:40:02Over the last 2, we've had the shock of Ordinary COVID costs. And right now, we as everyone else, not just in our industry, but across business in general Our wrestling with decades high inflation and that's an area where we're not unique. Yes, the first two of these, rising European investment versus COVID costs, those should largely offset In 2022. And I think that given the magnitude of the costs as we've described previously, everyone should have And expectation around those largely offsetting. And versus the cost pricing is going to kick in. Speaker 100:40:43Pricing has lagged. We have our pricing in the U. S. Largely going into effect in the Q4 in particular. And so, I would expect that we would see you should expect to see the benefits from that not just in the top line, but running through the P and L. Speaker 100:41:03But Remember, the math says that margins compress when we take pricing. Our approach is to take pricing to pass through costs until Both the numerator and the denominator go up and so the fraction gets a little bit smaller. So while we do expect that pricing to come in, it would be reasonable to expect some level of margin compression. Nonetheless, With the pricing action and other steps we'll take to offset costs and spend the top line growth that we expect, I think it's very reasonable to expect solid operating profit growth next year. I'm not ready yet to say if it's exactly on algorithm. Speaker 400:41:48Great. I appreciate that color. That's helpful. And then one very quick follow-up and it may be tough to parse out. In the quarter though, are you able to sort of break out What impact some of the supply constraints may have had on overall sort of company organic growth. Speaker 400:42:03I think organic growth was up about 1%. I don't know if some of the supply constraints were significant enough that it would have meaningfully changed what organic growth looked like in the quarter. Speaker 500:42:12Thanks so much. Speaker 100:42:13It actually did have an impact on the 4th quarter. I think we're sorry, I missed it. Did I say 4th, I misspoke there, but it's 3rd quarter. And we haven't quantified that and I'm not prepared to, but it was material. We normally would not have a backlog at all. Speaker 100:42:35The idea of having a backlog of orders is unprecedented. We have backlog that's measurable in days. And so it did have a it definitely had an impact. Yes. It would have been our hope to actually continue to rebuild trade inventories as we went through the quarter, Which has not yet been fully recovered and we were not able to do so. Speaker 100:43:03We really wanted and planned To shift more of these logistics challenges are very real. We've gone from a For a very strategic discussion just now and a very tactical one, but just simply getting product out there has been A challenge in the face of the but it's still very high demand at the same time that We're having these logistical challenges. I'd say that the trade channels are still a bit starved for inventory. Speaker 200:43:36Plus, John, we've noticed we did narrow our range on sales The high end of the range, so we have very strong confidence in the Q4. Speaker 400:43:44Thanks so much. Speaker 300:43:47Thank you. Our next question is from the line of Ken Goldman with JPMorgan. Please proceed with your question. Speaker 600:43:54Hi, thank you. Just on pricing, are there any geographies or categories or brands where maybe getting the pricing you hoped for has been a little more challenging than in others? And I guess I'm curious, where are you in your, I guess, journey, so to speak, of taking incremental pricing to offset Some of the newer or more severe headwinds you're facing, I'm trying to figure out if you're still having conversations with customers, do you Most of the heavy lifting is done there for maybe some of the second rounds, Speaker 200:44:24that'd be helpful. Thank you. Speaker 100:44:28First of all, I won't say that there is These actions always have some degree of commercial tension in them. And so I don't want to get too specific. It's not so much that there are ongoing conversations with customers. I think that there are some new conversations All of our actions on pricing are on track, Particularly for the U. S, the price increases that we talked about earlier in the year I'll have that sold in. Speaker 100:45:05There is a time lag though, especially with how quickly costs have gone up. Yes, inflation has accelerated since we launched those pricing plans. And so There's more work to do in that area in 2022. The phase in of most of our actions is happening in Q4, And we would expect to see the benefit of that in 2022. Speaker 200:45:35And I think I'd point you back, Ken, to historical We've had high inflationary periods in the past in the 2008, 2009 timeframe, 2011, 2012 We successfully put in pricing. It's actually both Lawrence and I were at U. S. Consumer during one of those time periods and we're able to pass through the pricing. We also pull a lot of other levers, whether it's CCI, discretionary spending to get to Andrew's point about getting back on algorithm from a profit Great. Speaker 200:46:07Thank you. And I'll pass it on there. Speaker 300:46:12Next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question. Speaker 700:46:19Thanks. I think this question will sound like Ken's question, maybe a different tack though. Is the conversation different With retailers on how to take pricing or how to think about pricing in the latest In relation to the latest acceleration, because I think some retailers out there consider the supply chain Disruption to be temporary, the labor challenges will go away. And as a result, does that mean you have to shift more towards, I don't know, more variable actions on promotions or packaging changes rather than a straight up list price increase. Speaker 100:47:03Well, again, I'm going to say that I can't get specific about any one particular customer. Certainly, the pricing actions that we just took, we had a lot of company And going out there, and so I think retailers, what they heard from us was similar to what they heard From others, I'm not so sure. We have not gotten that kind of feedback that retailers think that these Increases are transitory. There's been some discussion about inflation not continuing to escalate, but There hasn't been any discussion about this not being a reset of pricing levels. And I think that there's broad recognition of that. Speaker 100:47:45And I will say that I was on a Call with Chairman Jerome Powell yesterday where he was saying very much the same thing. And so I think that the outlook is that these costs are not transient. They are here to stay and they are Eventually going to have to find their way through in the form of pricing that gets to the consumer and belt tightening across The entire supply chain, including us as a supplier to our customers. Speaker 700:48:19Okay, great. So what you're saying is It's similar types of conversations. There's no different types of pushback on the 2nd round compared to the 1st round. It's a similar conversation. Speaker 100:48:33Yes. I'm not differentiating between the two right now. I think if I go much further than that, I'm getting into specific center, but too granular and too perspective. Okay. Anything else you want to tell Speaker 200:48:52us about what Jerome Powell said or do you want to leave it Speaker 100:48:54at that? Just like us, he's got to do it in a public forum, so it's all Okay. Speaker 300:49:01Thank you. The next question is coming from the line of Adam Samuelson with Goldman Sachs. Speaker 800:49:11Yes, thank you. Good morning, everyone. Speaker 400:49:13Good morning. Speaker 100:49:13Good morning. Good morning. Speaker 800:49:15So I guess on the inflation Dynamics, you've highlighted specifically logistics and packaging. And I just want to be clear, Is that more on the ocean freight side? Is it domestic trucking? All of the above. And beyond those 2 discrete buckets, Is there anything notable in terms of your own wage rates? Speaker 800:49:40And are you seeing pressures in your own labor force domestically, given the rise in Given the broad based labor pressures you're seeing. Speaker 200:49:49Hey, Adam, it's Mike. I'll take this and then Lawrence may add a few comments. I mean, like we said on the call, it is you're right, it's 80% to 90% of this is really logistics, transportation, packaging, things like that. So we have a really good line of sight to our commodity costs in the Q4, obviously. It's really both ocean freight, but also domestic freight. Speaker 200:50:09You've actually seen after Hurricane Ida, some of the domestic rates have gone Again, so that's part of the new news that I think we're all experiencing in the U. S. In particular. You've seen globally in the UK, natural gas challenges and things like that too and So, it's both getting it here and getting it to customers. From a wage rate perspective, we've taken actions just like other companies have to aggressively attract talent In our manufacturing facilities and DCs with retention bonuses and other actions like that. Speaker 200:50:44So I think to Laurence's point, these labor rates Aren't going to go back down. These are there's been a reset of cost level that it may not escalate further. That's to be seen, but it's not We're not going to have deflation on labor rates. Speaker 100:50:59Right. And I'll tell you all just to add to that, that the cost increases that we're talking about are not these are not things that are unique McCormick et al. The biggest increases have been on packaged materials and on transportation costs Followed by raw material and labor. And I'd say that we look a lot like everybody else in that regard. Speaker 800:51:28Okay. That's helpful. And then if I could ask a more longer term margin question and it's really In the flavor solution business. And I guess, I'm thinking to the kind of couple of years pre COVID in that business and you've done a Through acquisition and internal initiatives, we've done a lot of heavy lifting to get the margins in that business to the kind of 14%, 15% level from About 10% back in 2015, 2016. And we're now back in the 13% to 14% range. Speaker 800:52:03I'm just trying to think about where that business can go from here once we maybe get Through some of these price cost imbalances in the near term, do you think there's a lot more room on mix to really push that business higher, There are investments in technology and R and D on the flavor side that you've got to accelerate to temper that. I'm just trying to think about That being a driver of earnings growth maybe beyond some of Speaker 700:52:28the shorter term inflationary pressures that we're experiencing right now. Speaker 100:52:32Adam, we're going to have to bring you in to help write some of our IR material. We have great confidence in the Margin trajectory of our flavor solutions business, we're really changing the portfolio. The big driver of our margin improvement over time has been the shift in the portfolio Yes, more value added technically insulated products. We've made organic investments in that Part of the business, we've done acquisitions in that part of the business to accelerate the growth. And as the portfolio It continues to shift in that direction. Speaker 100:53:16It's going to drive a kind of really a structural improvement in margin. Those are just Categories that command a better margin and it's going to mix the business up. And at the same time, we've made decision to get out of some of the lower margin Stuff, some of which is really low margin and we found graceful ways of exiting some of that without Getting on the wrong side of customer relationships. So I'd say our long term outlook for Continued expansion of our flavor solution is one of the things that underpins our confidence in our long term algorithm. Speaker 200:53:57I think the Fono acquisition has even given us more confidence in continuing to migrate that portfolio with really combining their technical Expertise with ours. Speaker 100:54:07And I'll just chime in. There's been a number of the notes are going to try and parse it organic sales out from acquisition and so on. Yes, we're going to we're reporting 100% of what we sell at Fona as acquisition related, but we have grown that business tremendously since we bought it. And same with Tallulah as well. But your question specifically is about flavored solutions That's really good. Speaker 100:54:34That's really part of that portfolio migration. Okay. That's helpful color. I'll pass it on. Thanks. Speaker 300:54:44Our next question is coming from the line of Chris Growe with Stifel. Please proceed with your question. Speaker 200:54:49Hi, good morning. Speaker 300:54:51Good morning. Speaker 500:54:52Hi. I just had a Speaker 900:54:53question for you, if Speaker 500:54:53I could, in relation to pricing. Just understand, would you expect that your pricing would offset your inflation Once all your pricing is in place. Speaker 100:55:05I was going to say that all of the levers that we're going to pull will. Speaker 500:55:09Yes, fair enough. Speaker 100:55:10Part of what CCI does is offset inflation to an extent. Part of it offsets cost increases and part of it We bring into reinvest in the business in other ways and part of it makes its way to the bottom line and that's the intent. So expecting that over time, our market will recover all of the costs through all of the levers. It won't be 100% through pricing. Speaker 500:55:36Okay. Speaker 100:55:37Yes. Speaker 500:55:40I understand. Yes. Thank you. And I understand. And the Speaker 900:55:43other question I was going Speaker 500:55:43to say was just as you get into is You would have a lot of these levers pulled by say Q1 of 2022. I know you've got some pricing going into place in the Q4. Not trying to get to an exact time or guidance for next year. Just to understand the timeframe around pulling all these levers. Speaker 100:56:01I think that I don't want to get too deep into talking about 2022. Yes. I didn't want to give guidance for the year and I Don't want to give guidance for any of the quarter. But I do think that this is something that's going to unfold over time. We've taken pricing action. Speaker 100:56:19We've said that inflation has continued to accelerate, so there's more to go. And I think that to think it's all going to be in place in Q1 is probably not. Speaker 200:56:28Yes. And also you realize there's a lot of focus on the U. S. Timing, but this happens around the world at different time Speaker 100:56:34points based on local. So we'll have Speaker 200:56:36a lot more Say it in the January call. Speaker 500:56:39Understood. Okay. And I had just one other question and it's just more to understand kind of this inventory situation, we'll call it, I guess, in rebuilding. We can debate IRI or Nielsen data, but it shows like your U. S. Speaker 500:56:51Sales down 11%. And again, we can debate that number. I see your Americas business again not a perfect representation totally of the U. S. Being down 4%. Speaker 500:56:59Is that gap, the sort of inventory build you expected for this Quarter, year over year, knowing that you were shipping below inventory below consumption a year ago? Or is there more inventory build to come? I guess, is what I'm trying to get to. Speaker 100:57:12If you do the math Looking back 2 years, so look at the undisturbed 2019, last year, you're right, we weren't shipping to consumption, demand It was extraordinarily elevated. And if you strip out the acquisition, you have demand, consumption is up 19%, Our shipments are up 13%. So just the straight math on that would suggest we under shipped by about 6 percentage points, which is very We did that same math in Q2 and it was we were ahead by 4. So it would look like we've unwound Some of the inventory build that we did, but in 2019, we had a holiday terms program in place, which we normally would do. Normally in the Q3, we're starting to build trade inventories for the heavy fall season. Speaker 100:58:03And so that would have been Part of the underlying demand. So when you net that all out, we think we're pretty close to EBIT on shipping Versus the true change in consumption, But that includes not being able to build for the trade inventories for the holiday as we would have hoped. And so We do think that we're a bit as I said one of the questions earlier that the trade channel right now It's a good start for inventory in the U. S. Now we think of that as really sloshing Between 3rd Q4 and it's still going to end up getting captured within the year. Speaker 100:58:56So it doesn't Let's change our outlook for the full year because it makes us anticipate a pretty strong 4th quarter. But to bring it back to where we are in rebuilding, we're not as far along as we would have hoped. Speaker 500:59:12Okay. That was good color. Thanks for that time. Speaker 300:59:19Our next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your questions. Speaker 900:59:24Yes. Hey, thanks. And you might have just I think you sort of addressed this In response to Chris' question, but just to play it back. So when we think about your intention to fully offset Appreciating that there's a rolling process to this. I think I don't know if Chris was if you were speaking to Chris' Responses specifically on pricing or just all the offsets, but I guess what I'm trying to get a sense for is just On those rolling offsets, when do you think you hit Your run rate achievement of those offsets, is that a middle of next year type of timeline or is it more realistic think that it progresses all the way through and it's not until the closer to the end of 'twenty two where you hit the full offset run rate. Speaker 901:00:16Just trying to get a sense order of magnitude, Speaker 101:00:20The pacing of your efforts. Speaker 201:00:22Yes, I mean, obviously, I mean, a lot depends on the future cost environment too on this. I mean, we put in pricing in the U. S. This is going to partially hit in the Q4 like we said last quarter. The full impact is going to be in 2022. Speaker 201:00:37Now If costs continue to accelerate, we'll have to address that with other actions. But I think it's speculative at this point to try to call 22. Speaker 101:00:47And the timing by quarter than by halves. Speaker 901:00:51Okay. Fair enough. Can I ask just a clean up on tax And for appreciating the discrete benefits you've now realized in 2021? And I'm not asking for 2022. Just on a normalized basis, how should we think about your sort of the tax run rate For the business going forward. Speaker 901:01:12And if you have any color on cash taxes versus GAAP taxes, that would be great as well. Speaker 201:01:20No, it's a great question. And obviously, we talk about this actually our 10 Q discloses amount. We talk About a kind of an underlying rate of 24% to 25% based on the country mix, the underlying The tax rates that we have and our expectations for the year and generally what happens and what happened this quarter, there are discrete either Programs that our tax team runs, there are acquisitions in the past that we clean up some of the assumptions or estimates or there's statutes of limitations that drop off where Yes, we've tended to realize some discrete tax benefits. So that's exactly what happened this quarter. But under the current tax regime With GILTI and Citi and all these things globally, it's 24% to 25%. Speaker 201:02:01Obviously, we're all waiting to see what happens in Washington to see what future rates are. And I'd say our cash taxes are pretty close to that too. We pay our fair share. Speaker 901:02:12Yes. Thank you very much. Speaker 301:02:16Our next question is from the line of Rob Dickerson with Jefferies. Please proceed with your question. Speaker 1001:02:21Great. Thank you. I just wanted to touch on private label for a second, given I think you still operate that side of the business a bit, as well as brands. Obviously, there's been kind of this ongoing discussion kind of where state of that overall industry kind of sits as we kind of get through the pandemic. So I'm just curious, Given some of the comments around, let's say, trade inventory not exactly where you want it to be going full bake And pricing forthcoming. Speaker 1001:02:52I'm just kind of curious what you've seen or heard The retailers as of late around demand for kind of your private label products versus brands? And Speaker 101:03:04then just Speaker 1001:03:05kind of how you think about price gaps as you kind of enter this pricing phase? That's first question. Speaker 101:03:11Sure. Generally across all categories, private label has lost share due to the pandemic and the brand as a group I've gained and in the recent results that we just announced, our brands were strong, private label is one of the soft points. When it comes to pricing, the costs are going up for every raw materials, Seeing labor and transportation and that applies to private label as well. And so the pricing actions that we're going forward look for our Included the private label products that we manufacture and I would expect that in many cases, just because They are priced at a lower price point that they may see a higher percentage inflation rate, because the same dollar cost going through, It's going to be a bigger percentage. Speaker 1001:04:07Okay, fair enough. And then just quickly, We've obviously heard from a lot of different companies that so far, you know, elasticity measures look great, right, relative to history, Given some of this elevated demand, I'm just curious, again, I know you're not giving 'twenty two guidance, but you have to have some thoughts as to And what you might be baking in on the elasticity side, kind of what I'm hearing is that there's growth expected in both segments next year And pricing coming, I'm kind of assuming that the answer here is that there could be some incremental distribution gains to offset some Elasticity demand remains elevated. So just kind of any comments around that kind of volume side versus the price side and where you think elasticity could shake out? Thanks. Speaker 101:04:55Sure. The demand remains elevated. Our categories were that we're already growing before the pandemic and we need to grow through it. And There's we've talked endlessly about the underlying demand for flavor growing, the younger consumers are fueling that. And as we've gone through the pandemic, we've gained household penetration, usage rates are up And we haven't talked about it much, but we've I think we had a comment about it in the prepared remarks. Speaker 101:05:28The Purchases per purchase occasion are up a lot. And so consumers are buying more Of our products and we expect that to continue to be the case. So I'd say our outlook continues to be Positive for strong sales growth. And if you look at consensus sales for next year that are out there, Yes, they're pretty anemic and I guess we're trying to gently suggest that there's a reason to reconsider that. Speaker 1001:06:05All right. Thank you. It's very helpful, Lawrence. Appreciate it. Speaker 301:06:10Thank you. Our final question is a follow-up from the line of Robert Moskow with Credit Suisse. Please proceed with your question. Speaker 701:06:17Hey, just very quickly. Lawrence, I think you Quantified, on a 2 year basis, Americas shipments up 13%, consumption up 19%, And doesn't that also include your private label business being down in that 2 year period? So therefore, the GAAP isn't really 600 basis points, it might be a little bit less? Speaker 101:06:42It's a very small number overall compared Speaker 201:06:45to our Our branded portfolio has changed, definitely Speaker 101:06:49less than 1% differential. Speaker 701:06:50Less than 1%. Speaker 201:06:52Okay. Thanks for the math. Speaker 301:06:56Thank you. At this time, I'll turn the floor back to management for closing remarks. Speaker 101:07:06Oh my gosh, we're out of questions. Great. Thanks everyone for your questions and for participating on today's call. McCormick is differentiated by the breadth and the reach of our balanced portfolio, which has sustainably positioned us for growth. We're very pleased with our outstanding year to date operating performance, which proves the strength of our business model, the value of our products and capabilities as a company. Speaker 101:07:28Looking ahead, we expect to drive even further growth as we continue to execute on our strategy, actively respond to changing consumer behavior and capitalize on new Kennedy, thank you for your time this morning. Operator01:07:41Thank you, Lawrence, and thanks to everyone for joining today's call. If you have any further questions regarding today's information, Please reach out to me. This concludes this morning's call. Have a good day everybody.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallMcCormick & Company, Incorporated Q3 202100:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) McCormick & Company, Incorporated Earnings HeadlinesMcCormick & Company, Incorporated (NYSE:MKC) Receives $83.14 Average Target Price from BrokeragesApril 24 at 2:23 AM | americanbankingnews.comMKC Quantitative Stock AnalysisApril 14, 2025 | nasdaq.comTrump’s treachery Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 25, 2025 | Porter & Company (Ad)Is McCormick & Company (MKC) One of the Best Packaged Food Stocks to Buy Now?April 11, 2025 | msn.comCommunitech announces Sheldon McCormick as new CEOApril 10, 2025 | businesswire.comJefferies Sticks to Its Buy Rating for McCormick & Company (MKC)April 9, 2025 | markets.businessinsider.comSee More McCormick & Company, Incorporated Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like McCormick & Company, Incorporated? Sign up for Earnings360's daily newsletter to receive timely earnings updates on McCormick & Company, Incorporated and other key companies, straight to your email. Email Address About McCormick & Company, IncorporatedMcCormick & Co., Inc. engages in the manufacturing, marketing, and distribution of spices, seasoning mixes, condiments, and other flavorful products to retail outlets, food manufacturers, and foodservice businesses. It operates through the Consumer and Flavor Solutions segments. The Consumer segment sells spices, seasonings, condiments, and sauces. The Flavor Solutions segment includes seasoning blends, spices and herbs, condiments, coating systems, and compound flavors. The company was founded by Willoughby M. 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There are 11 speakers on the call. Operator00:00:00Good morning. This is Casey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today's Q3 earnings call. To accompany this call, we posted a set of slides at ir.mccormick.com. We'll begin with remarks from Lawrence Kurzius, Chairman, President and CEO I'm Mike Smith, Executive Vice President and CFO, and we will close with a question and answer session. Operator00:00:24During this call, we will refer to certain Non GAAP financial measures, the nature of those non GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. In addition, as a reminder, today's presentation contains projections and other forward looking statements. Actual results could differ materially from those projected. Operator00:00:53The company undertakes no obligation to update or revise publicly any forward looking statement, whether because of new information, future events or other factors. Please refer to our forward looking statement on Slide 2 for more information. I will now turn the discussion over to Lawrence. Speaker 100:01:10Thank you, Casey. Good morning, everyone. Thanks for joining us. Our 3rd quarter performance demonstrates again that the combination Our balance portfolio with the effective execution of our strategies to capitalize on accelerating consumer trends and the strong engagement of our employees Have positioned us well to drive differentiated growth. Remarkably, we delivered an 8% sales increase versus last year and 17% versus 2019. Speaker 100:01:38Our 3rd quarter results reflect a robust and sustained growth momentum as we delivered organic sales growth on top of our Exceptional Q3 performance last year. Our Q3 results also include strong contributions from 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 product, which was primarily driven by a robust recovery from last year's lower demand from our restaurant and other foodservice customers attributable to COVID-nineteen restrictions and consumers' reluctance to dine out. Our consumer segment results reflect the lapping of the year ago elevated demand in the lockdown days of the pandemic from consumers eating and cooking more at home As well as a sustained shift to consumer at home consumption higher than pre pandemic levels. Taken together, these results continue to demonstrate Strength and diversity of our offering. Speaker 100:02:36The breadth and reach of our portfolio with compelling offerings for every retail and customer strategy across all channels Create a balanced and diversified portfolio that enables us to drive consistency in our performance even in a volatile environment. Turning to Slide 5. Total 3rd quarter sales grew 8% from the year ago period or 5% in constant currency. Substantial constant currency sales growth in our flavor solutions segment more than offset slight constant currency sales decline in our consumer segment driven by the factors just mentioned. Adjusted operating income was comparable to the Q3 of last year, including a 3% favorable impact from currency. Speaker 100:03:18The benefit of higher sales was more than offset by higher cost inflation and industry wide logistics challenges as well as by a shift in sales between segments. On the bottom line, our 3rd 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've 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, Both of which include a 3% favorable impact from currency and we've grown adjusted earnings per share 8%. Speaker 100:04:03Year to date versus 2019, we've driven sales, adjusted operating income and adjusted earnings per share growth of nearly 20% I'd like to say a few words about the current cost environment's impact on our 3rd 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 Like the rest of the industry experiencing cost pressure, 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 time lag associated with pricing, Particularly with how quickly costs are escalating and therefore the phase in of most of our actions is taking place during the Q4. 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 costs. Speaker 100:05:06We're experiencing the highest inflationary period of the last decade or even 2. We, along with our peers and customers, are also facing additional pressure on our supply chain due to strained transportation capacity and labor shortages in 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 orders 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 Q3 segment business performance, Which includes comparisons to 2019 pre pandemic levels as we believe these will be more meaningful than the comparisons to 2020, given the dramatic shift Consumer consumption between at home and away from home experienced in the year ago period. Speaker 100:06:08Starting 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 in the year ago period. Our consumer segment organic sales momentum on a 2 year basis was up double digits, highlighting how the sustained Consumer consumption Continues to drive increased demand for our products and outpaces pre pandemic level. Our Americas constant currency sales declined 1% In the Q1, 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 Q3 of 2020, which results in a 19% increase on a 2 year basis. Speaker 100:07:56Demand has remained high and we are realizing the benefit Our U. S. Manufacturing capacity expansion, although some products remain stretched by sustained high demand. Shelf conditions are improving And we're seeing sequential improvement in our share performance. That said, as I mentioned moments ago, the current issues related to logistics pressures Continue to make it challenging for market leaders like McCormick to keep high demand products in stock, which has prevented us from making further Progress in replenishing both retailer and consumer inventories in the Q3. Speaker 100:08:31Importantly though, We're 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 Q3 of 2019 It was led by double digit growth in spices and seasonings, hot sauces, both Cholula and Frank's Red Hot and barbecue sauce as well as our Asian and frozen products. In pure play e commerce, we delivered triple digit growth compared to 2019 with McCormick branded consumption outpacing all major categories. Speaker 100:09:07This is the 6th consecutive quarter our U. S. Branded portfolio consumption grew double digits versus the same period 2 years ago, Which reflects the continuation of consumers cooking and using flavor more at home and the strength of our brand. Our key categories continue to outpace the center of store growth rates versus the same period 2 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. Speaker 100:09:37And when our consumers shop, they are buying more of our products 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 Q3, Frank's Red Hot, 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 2 ranking. Now turning to EMEA, which has continued its outstanding momentum. Speaker 100:10:06We had strong market share performance in the Q3 versus last year, maintaining or gaining share across the region in key categories following our strong gains In the Q3 of last year, compared to the Q3 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 has gained a significant share versus the 2 year ago period. Across the region, our household penetration and repeat rates have also grown versus the 2 year ago period. Our year to date higher brand marketing investments in the EMEA are proving to be effective as evidenced by the metrics I just discussed, As well as our achieving above benchmark rates for reach, engagement and click through for instance in our digital marketing. In the Asia Pacific region, 3rd quarter sales were strong reflecting our continued recovery from China's lower branded foodservice sales last Our consumer product demand in the region declined due to lapping significant growth last year. Speaker 100:11:10The region has 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 trending back toward 2020 levels with Frank's Red Hot already higher than 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 Q3 in the Americas, we began our search for the 1st Director of Taco Relations. Speaker 100:11:54This was a dream opportunity For the over 5,000 applicants who showcase their Taco expertise and enthusiasm for our products and their video application, To date, we have garnered over $1,000,000,000 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 4 in celebration of National Taco Day. We're 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 development partnership with social media influencer Tabitha Brown, Inspired by her joyful personality and health and wellness focused recipes, this salt free and gluten free Caribbean inspired blend Sold out in just 39 minutes, generating record sales from e commerce driven innovation and over $700,000,000 earned impressions. Our new product launches differentiate our brands and strengthen our relevance with consumers. And with our global leadership position in hot sauce, We are in the perfect position to capitalize on consumers' rising demand for hot and spicy flavors through a global heat platform. Speaker 100:13:11Our recent launches of Frank's Red Hot frozen appetizers and Chalhoub Wing sauces in the Americas as well as Frank's Red Hot craft flavors in the EMEA I've made strong contributions to growth in the Q3. Just in time for Halloween, EMEA is introducing dead hot gift sets for e commerce Featuring Frank's Red Hot. And in China, our recently launched ready to eat chili paste has the highest 30 day repeat rate of all McCormick direct to consumer products on 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's velocity over 30 We're changing the tile placement at a large retailer to reinventing the spice and seasoning now shopping experience. Speaker 100:14:03In the U. S, we're anticipating a cumulative implementation of our Spice Out program since it began in 2020 10,000 stores by year end versus 2019 to remove year over year noise, sales through 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's Branded Spice and Seasoning portfolio It's growing solid mid single digits faster in implemented stores versus stores which have not adopted the changes. And in Eastern Europe, the rollout of our 1st Choice bottle, which has perceived this premium in what was predominantly sachet only market, It's 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 that have come into our brand, We're having a good experience and are buying our products again. Speaker 100:15:04We're 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 3rd quarter results include the robust recovery from last year's lower demand from our restaurant Other foodservice customers, many of which are lapping the curtailment 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. Speaker 100:15:52On a 2 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 Consumer Packaged Food customers, new products and base business strength. Consumer's rising global demand for hot and spicy flavors It's driving growth for both our customer snacks and for our seasonings that flavor them. Compared to last year's Q3, snack seasonings We're high single digits with strong growth in core iconic products as well as new products and the innovation pipeline continues to be robust. Speaker 100:16:43Our confidence that Fona 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 to the quarter as our demand for this channel has continued to strengthened as more dining options reopen. In EMEA, we had strong growth versus both last year 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 Q3 of last year. And as packaged food and beverage companies, our performance was strong on top of last year's strong growth with the hot and spicy trend fueling growth in snack seasoning, particularly through new product innovation. Speaker 100:17:47Our 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 Q3 of last year, which increased restaurant traffic as COVID-nineteen restrictions lifted. As we've said in the past, limited time offers and promotional activities can cause some sales volatility from quarter to quarter. We recognize a part of our 3rd 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 in new product wins driven by our differentiated customer engagement and continuing momentum with QSR, Year to date versus 2019, we've delivered 13% constant currency growth, including Fona and Cholula at 6% constant currency organic growth. These results combined with our effective growth strategies bolster our confidence and continuation of our robust growth trajectory in our flavor solutions segment. Speaker 100:18:57Now on Slide 10, I'm excited to share some important Purpose led performance news. 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 ten principles for responsible business. We are honored by this recognition for our commitment to 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 a 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 and measures of social and environmental sustainability, as well as our partnership with Heifer International on the launch of the Cardiff Forestry Project, which aims to increase smallholder farmer resilience and improve the quality of cardamom and allspice in Guatemala. Speaker 100:20:01In addition, Latina Style Inc. Recently named us as one of the top 50 best companies for Latinas to work in the U. S. We are thrilled to be recognized for continued efforts around diversity and inclusion. 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. Speaker 100:20:22We 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. Speaker 100:20:54We've intentionally focused on great categories that are growing Generating a long term tailwind. We're 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're preparing for them 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. Speaker 100:21:35In addition, we're taking prudent steps to reduce discretionary spend where possible. We also expect the impact of COVID-nineteen 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 environments and cost pressures. Importantly, our strong growth trajectory supports our confidence in our long term financial algorithm To drive continuous value creation through 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, And now I'll turn it over to Mike. Speaker 200:22:27Thanks and good morning everyone. For the reasons Laurence mentioned, my comments will also include comparisons to 2019. Starting on Slide 13, Our top line growth continues to be strong. We grew constant currency sales 5% during the Q3 compared to last year, With incremental sales from our Cholula and Fona acquisitions contributing 4% across both segments, our volume and mix Drove our organic sales increase with flavor solutions growth offsetting a decline in the consumer segment. Versus the Q3 of 2019, We grew sales 15% in constant currency with both segments growing double digits. Speaker 200:23:06During the Q3, Our Consumer segment continued to lap last year's exceptionally high demand. Versus 2020, our 3rd quarter Consumer segment sales declined 1 percent in constant currency, which includes a 3% increase from the Cholula acquisition. Compared to the Q3 of 2019, Consumer segment sales grew 14% in constant currency. On Slide 14, Consumer segment sales in the Americas declined 1% in constant currency, lapping the elevated lockdown demand in the year ago period, as well as the logistics challenges Lawrence mentioned earlier. Incremental sales from the Cholula acquisition contributed 3% growth. Speaker 200:23:45Compared to the Q3 of 2019, sales increased 17% in constant currency led by significant growth in the McCormick, Lowery's, Grill Mates, Old Bay, Frank's Red Hot, Cholula, Zatarin's, Gourmet Garden, Simply Asia, Stubs and El Guapo branded products. That's a lot of brands, partially offset by a decline in private label. In EMEA, constant currency consumer sales declined 11% from a year ago, Also due to lapping the high demand across the region last year. Notably, this decline includes strong growth in our Eastern European market, On top of their significant volume growth last year, which was more than offset by declines in the region's other markets. On a 2 year basis, Sales increased 10% in constant currency, driven by strong growth in our chemist, Schwartz and Frank's RedHot branded products. Speaker 200:24:38Consumer sales in the Asia Pacific region increased 11% in constant currency due to the recovery of branded food service sales With a partial offset from the decline in consumer demand as compared to the elevated levels in the year ago period. Sales increased 4% compared to the 3rd Turning to our flavor solutions segment on Slide 17. We grew 3rd quarter constant currency sales 17%, including an 8% increase from our Fona and Chula acquisitions. The year over year increase led by the Americas and EMEA regions It was due to strong growth with both packaged food and beverage customers and in away from home products. Compared to the Q3 of 2019, Flavor Solutions segment sales grew 16% in constant currency. Speaker 200:25:32In the Americas, Flavor Solutions constant currency sales grew 19% year over year With FONA and Cholula contributing 12%. Volume and product mix increased, driven by significantly higher sales to branded foodservice customers, together with growth to packaged food and beverage companies with strength in snack seasonings. On a 2 year basis, Sales increased 15% in constant currency versus 2019, with higher sales from acquisitions and packaged food and beverage companies, partially offset by the exit of some lower margin business. In EMEA, In the Asia Pacific region, flavor solutions sales rose 1% in constant currency versus last year It increased 8% in constant currency versus Q3 of 2019, both driven by QSR growth and partially impacted by the As seen on Slide 21, Adjusted operating income, which excludes transaction and integration costs related to the Cholula and Fona acquisitions, as well as special charges, was comparable to the Q3 of last year, including a 3% favorable impact from currency. Adjusted operating income in the Consumer segment declined 10% to $188,000,000 or in constant currency 12%, driven by the cost pressures from inflation and logistics challenges, partially offset by CCI led cost savings. Speaker 200:27:12These logistics challenges not only impacted costs, but also negatively impacted sales. In the Flavor Solutions segment, adjusted operating income rose 32% to $84,000,000 or 27% in constant currency. Higher sales, CCI led cost savings and favorable product mix as we continue to migrate our portfolio more than offset the cost pressures in this segment. Across both segments, incremental investment spending for our ERP program was offset by lower COVID-nineteen cost compared to last year. During the quarter, we invested in brand marketing ahead of last year and notably we have increased our investments 11% on a year to date basis. Speaker 200:27:57As seen on Slide 22, adjusted gross profit margin declined 2 60 basis points driven primarily by the cost pressures we are experiencing and the lag in pricing. Our selling, general and administrative expense As a percentage of sales, declined 110 basis points driven by leverage from sales growth. These impacts netted to an adjusted operating margin decline 150 basis points. In addition to the factors I mentioned a few moments ago, the sales shift between segments unfavorably impacted both gross and operating margins. Turning to income taxes. Speaker 200:28:34Our 3rd quarter adjusted effective tax rate was 14.1% Compared to 19.3% in the year ago period, both periods were favorably impacted by discrete tax items, With the larger impact this year due to the favorable impact of a reversal of a tax accrual. Adjusted income from unconsolidated operations applying 5% versus the Q3 of 2020. Based on our year to date results, we now expect a mid single digit increase And our adjusted income from unconsolidated operations for 2021, up from our previous projections of a low single digit decrease. This improvement is driven by strong performance from our McCormick to Mexico joint venture. At the bottom line, as shown on Slide 25, 3rd quarter 2021 adjusted earnings per share was $0.80 compared to $0.76 for the year ago period. Speaker 200:29:30The increase was primarily driven by lower adjusted income tax rate. As compared to the Q3 of 2019, Our 10% increase in adjusted earnings per share was primarily driven by sales growth. On Slide 26, We've summarized highlights for cash flow and the quarter end balance sheet. Through the Q3 of 2021, Our cash flow from operations was $373,000,000 which is lower than the same period last year. The decrease was primarily due to the payment of transaction integration costs and higher use of cash associated with working capital. Speaker 200:30:08This includes the impact of planned higher inventory levels to support significantly increased demand and to mitigate supply and service issues, as well as buffer against cost volatility. Through the Q3, we've returned $272,000,000 of this cash to our shareholders through dividends and use $190,000,000 for capital expenditures. Our priority is to continue to have a balanced use of cash, funding investments to drive growth, returning a significant portion to our shareholders through dividends And paying down debt. Now turning to our 2021 financial outlook on Slides 2728. With our broad and advantaged flavor portfolio, our robust operating momentum and effective growth strategies, we are well positioned for another year of differentiated growth and underlying performance tempered by the higher inflation ahead of pricing and the logistics challenges we previously mentioned. Speaker 200:31:09For 2021, we are projecting top line and earnings growth from our strong base business and acquisition contribution, With earnings growth partially offset by incremental COVID-nineteen costs and ERP investment as well as a higher projected adjusted effective tax rate. We continue to expect an estimated 3 percentage points favorable impact of currency rates on sales. And for the adjusted operating income and adjusted earnings per share, A 2 percentage point favorable impact of currency rates. At the top line, due to our strong year to date results And robust operating momentum, we now expect to grow constant currency sales 9% to 10%, which is the high end of our previous Projection of 8% to 10% and includes a 4% incremental impact from the Cholula and Fona acquisitions. We had initially projected an incremental acquisition impact in the range of 3.5% to 4%. Speaker 200:32:10We anticipate our organic growth will be led by higher volume and product mix driven by our category management, brand marketing and new products as well as pricing. We are now projecting our 2021 adjusted gross profit margin to be 150 basis points to 170 basis points Lower than 2020 due to the increase in cost pressures I mentioned earlier. While we continue to expect a mid single digit increase in inflation for the year, It has moved higher and is now approaching a double digit increase in the 4th quarter. Overall, our projected adjusted gross margin compression Reflects unfavorable impacts from sales mix between segments, cost inflation and COVID-nineteen costs, partially offset by pricing and margin accretion from the Cholula and Fona acquisitions. As a reminder, we price to offset cost increases. Speaker 200:33:04We do not margin up. Our estimate for COVID-nineteen cost remains unchanged at $60,000,000 in 2021 versus $50,000,000 in 2020 And is weighted to the first half of the year. Reflecting the change in gross profit margin outlook, we are lowering our expected Our adjusted operating income growth rate reflects expected strong underlying performance From our base business and acquisitions, projected to be 8% to 10% constant currency growth, which includes the higher inflation ahead of pricing And logistics challenges and partially offset by a 1% reduction from increased COVID-nineteen costs compared to 2020 And a 3% reduction from the estimated incremental ERP investment. This results in a total projected adjusted operating income growth rate of 4% to 6% in constant currency. This projection includes the mid single digit inflationary pressure as well as our CCI led cost savings target of Approximately $110,000,000 It also includes an expected low single digit increase in brand marketing investments. Speaker 200:34:15Considering the year to date impact from discrete items, we now project our 2021 adjusted effective income tax rate to be approximately 21% as compared to our previous projection of 23%. This outlook versus our 2020 adjusted effective tax rate It is expected to be a headwind to our 2021 adjusted earnings per share growth of approximately 1%. We are lowering our 2021 adjusted earnings per share expectations to 5% to 7% growth, which includes a favorable impact from currency. This reflects our lower adjusted operating profit outlook and lower adjusted income tax rate As well as the higher adjusted income from unconsolidated operations. Our guidance range for adjusted earnings per share in 2021 It's now $2.97 to $3.02 This compares to $2.83 of adjusted earnings per share in 2020 It represents 8% to 10% growth in constant currency from our strong base business and acquisition performance, partially offset by the impacts related to COVID-nineteen costs, our incremental ERP investment and the tax headwind. Speaker 200:35:25I'll now turn it back to Lawrence. Speaker 100:35:29Now that Mike has shared our financial results and outlook in more detail, I would like to recap the key takeaways as seen on Slide 29. Our Q3 results reflect a robust and sustained growth momentum as we drove strong sales growth despite a challenging year over year comparison. Year to date versus 2019, we have driven significant double digit growth rates for sales, adjusted operating profit and earnings per share. We have a strong foundation and a balanced portfolio, which drives consistency in our performance. We expect higher at home consumption will persist beyond the pandemic And are continuing the momentum we are gaining in away from home consumption. Speaker 100:36:09We're confident the growth momentum of our business is sustainable. As a reminder, McCormick has grown and compounded that growth successfully over the years regardless of short term pressures. Our strong growth trajectory supports our confidence And our long term growth algorithm to drive continuous value creation through top line growth and margin expansion. We're driving McCormick forward and building value for our shareholders. Now let's turn to your questions. Speaker 300:36:38Thank you. At this time, we'll be conducting a question and answer session. Thank you. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions. Speaker 100:37:14Good morning, everybody. Hi, Andrew. Good morning, Andrew. Speaker 400:37:17Hi, there. Maybe to start out, at our recent Conference and then again this morning you alluded to costs and supply chain disruptions likely continuing into fiscal 2022. Others have made very similar Sort of comments. Of course, you'll have more pricing kicking in among other actions to mitigate some of the challenges. I think you also had mentioned that ERP costs could be offset by COVID expenses coming down. Speaker 400:37:42So I guess things remain very fluid of course and you're not obviously giving specific 2022 guidance as of yet. But I'm trying to get a sense of whether Sure. And on algorithm year, particularly on the profit side, would be too much to ask in fiscal 2022 at this stage, All things considered, particularly given what I assume will be continued margin pressure at least through the first half of next year. Speaker 100:38:04Right. Well, first of all, Andrew, thanks for the opportunity to talk about a pretty high level question Right out of the gate. In your question, you have included a couple of my points that I would actually make to answer it. Beginning with just to be clear, I'm not going to give guidance for next year. There are a lot of moving parts. Speaker 100:38:27Thanks, Art Fluid. We are right in the middle of putting together our budgets for next year right now. As we said in the call, our long we're very confident about our algorithm over the long term. I'm just not ready to talk about it in 2022 specifically just yet. But in Our prepared remarks, I did say we expect growth in both segments. Speaker 100:38:53And so I'll start there and then I'll bring it back to profit. McCormick It's unique and that we've been differentiated by strong growth. The underlying trends that support our business include the demographic tailwind From younger consumers that has nothing to do with the pandemic and then many of the consumption trends we believe were reinforced and accelerated By the pandemic. So we believe that going into the pandemic, our growth was differentiated already. Yes, through it, it's been differentiated and coming out. Speaker 100:39:27It continues to be differentiated. We've made investments, Including during the time of this pandemic, both organic and through smart acquisitions that put our portfolio More and more into high growth categories like hot sauce and flavor. And on top of this, we're going to have the top line benefit of pricing In 2022, so we have confidence and strong growth going forward. For operating profit, There are a lot of puts and takes. Over the last few years, we've had rising ERP investment. Speaker 100:40:02Over the last 2, we've had the shock of Ordinary COVID costs. And right now, we as everyone else, not just in our industry, but across business in general Our wrestling with decades high inflation and that's an area where we're not unique. Yes, the first two of these, rising European investment versus COVID costs, those should largely offset In 2022. And I think that given the magnitude of the costs as we've described previously, everyone should have And expectation around those largely offsetting. And versus the cost pricing is going to kick in. Speaker 100:40:43Pricing has lagged. We have our pricing in the U. S. Largely going into effect in the Q4 in particular. And so, I would expect that we would see you should expect to see the benefits from that not just in the top line, but running through the P and L. Speaker 100:41:03But Remember, the math says that margins compress when we take pricing. Our approach is to take pricing to pass through costs until Both the numerator and the denominator go up and so the fraction gets a little bit smaller. So while we do expect that pricing to come in, it would be reasonable to expect some level of margin compression. Nonetheless, With the pricing action and other steps we'll take to offset costs and spend the top line growth that we expect, I think it's very reasonable to expect solid operating profit growth next year. I'm not ready yet to say if it's exactly on algorithm. Speaker 400:41:48Great. I appreciate that color. That's helpful. And then one very quick follow-up and it may be tough to parse out. In the quarter though, are you able to sort of break out What impact some of the supply constraints may have had on overall sort of company organic growth. Speaker 400:42:03I think organic growth was up about 1%. I don't know if some of the supply constraints were significant enough that it would have meaningfully changed what organic growth looked like in the quarter. Speaker 500:42:12Thanks so much. Speaker 100:42:13It actually did have an impact on the 4th quarter. I think we're sorry, I missed it. Did I say 4th, I misspoke there, but it's 3rd quarter. And we haven't quantified that and I'm not prepared to, but it was material. We normally would not have a backlog at all. Speaker 100:42:35The idea of having a backlog of orders is unprecedented. We have backlog that's measurable in days. And so it did have a it definitely had an impact. Yes. It would have been our hope to actually continue to rebuild trade inventories as we went through the quarter, Which has not yet been fully recovered and we were not able to do so. Speaker 100:43:03We really wanted and planned To shift more of these logistics challenges are very real. We've gone from a For a very strategic discussion just now and a very tactical one, but just simply getting product out there has been A challenge in the face of the but it's still very high demand at the same time that We're having these logistical challenges. I'd say that the trade channels are still a bit starved for inventory. Speaker 200:43:36Plus, John, we've noticed we did narrow our range on sales The high end of the range, so we have very strong confidence in the Q4. Speaker 400:43:44Thanks so much. Speaker 300:43:47Thank you. Our next question is from the line of Ken Goldman with JPMorgan. Please proceed with your question. Speaker 600:43:54Hi, thank you. Just on pricing, are there any geographies or categories or brands where maybe getting the pricing you hoped for has been a little more challenging than in others? And I guess I'm curious, where are you in your, I guess, journey, so to speak, of taking incremental pricing to offset Some of the newer or more severe headwinds you're facing, I'm trying to figure out if you're still having conversations with customers, do you Most of the heavy lifting is done there for maybe some of the second rounds, Speaker 200:44:24that'd be helpful. Thank you. Speaker 100:44:28First of all, I won't say that there is These actions always have some degree of commercial tension in them. And so I don't want to get too specific. It's not so much that there are ongoing conversations with customers. I think that there are some new conversations All of our actions on pricing are on track, Particularly for the U. S, the price increases that we talked about earlier in the year I'll have that sold in. Speaker 100:45:05There is a time lag though, especially with how quickly costs have gone up. Yes, inflation has accelerated since we launched those pricing plans. And so There's more work to do in that area in 2022. The phase in of most of our actions is happening in Q4, And we would expect to see the benefit of that in 2022. Speaker 200:45:35And I think I'd point you back, Ken, to historical We've had high inflationary periods in the past in the 2008, 2009 timeframe, 2011, 2012 We successfully put in pricing. It's actually both Lawrence and I were at U. S. Consumer during one of those time periods and we're able to pass through the pricing. We also pull a lot of other levers, whether it's CCI, discretionary spending to get to Andrew's point about getting back on algorithm from a profit Great. Speaker 200:46:07Thank you. And I'll pass it on there. Speaker 300:46:12Next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question. Speaker 700:46:19Thanks. I think this question will sound like Ken's question, maybe a different tack though. Is the conversation different With retailers on how to take pricing or how to think about pricing in the latest In relation to the latest acceleration, because I think some retailers out there consider the supply chain Disruption to be temporary, the labor challenges will go away. And as a result, does that mean you have to shift more towards, I don't know, more variable actions on promotions or packaging changes rather than a straight up list price increase. Speaker 100:47:03Well, again, I'm going to say that I can't get specific about any one particular customer. Certainly, the pricing actions that we just took, we had a lot of company And going out there, and so I think retailers, what they heard from us was similar to what they heard From others, I'm not so sure. We have not gotten that kind of feedback that retailers think that these Increases are transitory. There's been some discussion about inflation not continuing to escalate, but There hasn't been any discussion about this not being a reset of pricing levels. And I think that there's broad recognition of that. Speaker 100:47:45And I will say that I was on a Call with Chairman Jerome Powell yesterday where he was saying very much the same thing. And so I think that the outlook is that these costs are not transient. They are here to stay and they are Eventually going to have to find their way through in the form of pricing that gets to the consumer and belt tightening across The entire supply chain, including us as a supplier to our customers. Speaker 700:48:19Okay, great. So what you're saying is It's similar types of conversations. There's no different types of pushback on the 2nd round compared to the 1st round. It's a similar conversation. Speaker 100:48:33Yes. I'm not differentiating between the two right now. I think if I go much further than that, I'm getting into specific center, but too granular and too perspective. Okay. Anything else you want to tell Speaker 200:48:52us about what Jerome Powell said or do you want to leave it Speaker 100:48:54at that? Just like us, he's got to do it in a public forum, so it's all Okay. Speaker 300:49:01Thank you. The next question is coming from the line of Adam Samuelson with Goldman Sachs. Speaker 800:49:11Yes, thank you. Good morning, everyone. Speaker 400:49:13Good morning. Speaker 100:49:13Good morning. Good morning. Speaker 800:49:15So I guess on the inflation Dynamics, you've highlighted specifically logistics and packaging. And I just want to be clear, Is that more on the ocean freight side? Is it domestic trucking? All of the above. And beyond those 2 discrete buckets, Is there anything notable in terms of your own wage rates? Speaker 800:49:40And are you seeing pressures in your own labor force domestically, given the rise in Given the broad based labor pressures you're seeing. Speaker 200:49:49Hey, Adam, it's Mike. I'll take this and then Lawrence may add a few comments. I mean, like we said on the call, it is you're right, it's 80% to 90% of this is really logistics, transportation, packaging, things like that. So we have a really good line of sight to our commodity costs in the Q4, obviously. It's really both ocean freight, but also domestic freight. Speaker 200:50:09You've actually seen after Hurricane Ida, some of the domestic rates have gone Again, so that's part of the new news that I think we're all experiencing in the U. S. In particular. You've seen globally in the UK, natural gas challenges and things like that too and So, it's both getting it here and getting it to customers. From a wage rate perspective, we've taken actions just like other companies have to aggressively attract talent In our manufacturing facilities and DCs with retention bonuses and other actions like that. Speaker 200:50:44So I think to Laurence's point, these labor rates Aren't going to go back down. These are there's been a reset of cost level that it may not escalate further. That's to be seen, but it's not We're not going to have deflation on labor rates. Speaker 100:50:59Right. And I'll tell you all just to add to that, that the cost increases that we're talking about are not these are not things that are unique McCormick et al. The biggest increases have been on packaged materials and on transportation costs Followed by raw material and labor. And I'd say that we look a lot like everybody else in that regard. Speaker 800:51:28Okay. That's helpful. And then if I could ask a more longer term margin question and it's really In the flavor solution business. And I guess, I'm thinking to the kind of couple of years pre COVID in that business and you've done a Through acquisition and internal initiatives, we've done a lot of heavy lifting to get the margins in that business to the kind of 14%, 15% level from About 10% back in 2015, 2016. And we're now back in the 13% to 14% range. Speaker 800:52:03I'm just trying to think about where that business can go from here once we maybe get Through some of these price cost imbalances in the near term, do you think there's a lot more room on mix to really push that business higher, There are investments in technology and R and D on the flavor side that you've got to accelerate to temper that. I'm just trying to think about That being a driver of earnings growth maybe beyond some of Speaker 700:52:28the shorter term inflationary pressures that we're experiencing right now. Speaker 100:52:32Adam, we're going to have to bring you in to help write some of our IR material. We have great confidence in the Margin trajectory of our flavor solutions business, we're really changing the portfolio. The big driver of our margin improvement over time has been the shift in the portfolio Yes, more value added technically insulated products. We've made organic investments in that Part of the business, we've done acquisitions in that part of the business to accelerate the growth. And as the portfolio It continues to shift in that direction. Speaker 100:53:16It's going to drive a kind of really a structural improvement in margin. Those are just Categories that command a better margin and it's going to mix the business up. And at the same time, we've made decision to get out of some of the lower margin Stuff, some of which is really low margin and we found graceful ways of exiting some of that without Getting on the wrong side of customer relationships. So I'd say our long term outlook for Continued expansion of our flavor solution is one of the things that underpins our confidence in our long term algorithm. Speaker 200:53:57I think the Fono acquisition has even given us more confidence in continuing to migrate that portfolio with really combining their technical Expertise with ours. Speaker 100:54:07And I'll just chime in. There's been a number of the notes are going to try and parse it organic sales out from acquisition and so on. Yes, we're going to we're reporting 100% of what we sell at Fona as acquisition related, but we have grown that business tremendously since we bought it. And same with Tallulah as well. But your question specifically is about flavored solutions That's really good. Speaker 100:54:34That's really part of that portfolio migration. Okay. That's helpful color. I'll pass it on. Thanks. Speaker 300:54:44Our next question is coming from the line of Chris Growe with Stifel. Please proceed with your question. Speaker 200:54:49Hi, good morning. Speaker 300:54:51Good morning. Speaker 500:54:52Hi. I just had a Speaker 900:54:53question for you, if Speaker 500:54:53I could, in relation to pricing. Just understand, would you expect that your pricing would offset your inflation Once all your pricing is in place. Speaker 100:55:05I was going to say that all of the levers that we're going to pull will. Speaker 500:55:09Yes, fair enough. Speaker 100:55:10Part of what CCI does is offset inflation to an extent. Part of it offsets cost increases and part of it We bring into reinvest in the business in other ways and part of it makes its way to the bottom line and that's the intent. So expecting that over time, our market will recover all of the costs through all of the levers. It won't be 100% through pricing. Speaker 500:55:36Okay. Speaker 100:55:37Yes. Speaker 500:55:40I understand. Yes. Thank you. And I understand. And the Speaker 900:55:43other question I was going Speaker 500:55:43to say was just as you get into is You would have a lot of these levers pulled by say Q1 of 2022. I know you've got some pricing going into place in the Q4. Not trying to get to an exact time or guidance for next year. Just to understand the timeframe around pulling all these levers. Speaker 100:56:01I think that I don't want to get too deep into talking about 2022. Yes. I didn't want to give guidance for the year and I Don't want to give guidance for any of the quarter. But I do think that this is something that's going to unfold over time. We've taken pricing action. Speaker 100:56:19We've said that inflation has continued to accelerate, so there's more to go. And I think that to think it's all going to be in place in Q1 is probably not. Speaker 200:56:28Yes. And also you realize there's a lot of focus on the U. S. Timing, but this happens around the world at different time Speaker 100:56:34points based on local. So we'll have Speaker 200:56:36a lot more Say it in the January call. Speaker 500:56:39Understood. Okay. And I had just one other question and it's just more to understand kind of this inventory situation, we'll call it, I guess, in rebuilding. We can debate IRI or Nielsen data, but it shows like your U. S. Speaker 500:56:51Sales down 11%. And again, we can debate that number. I see your Americas business again not a perfect representation totally of the U. S. Being down 4%. Speaker 500:56:59Is that gap, the sort of inventory build you expected for this Quarter, year over year, knowing that you were shipping below inventory below consumption a year ago? Or is there more inventory build to come? I guess, is what I'm trying to get to. Speaker 100:57:12If you do the math Looking back 2 years, so look at the undisturbed 2019, last year, you're right, we weren't shipping to consumption, demand It was extraordinarily elevated. And if you strip out the acquisition, you have demand, consumption is up 19%, Our shipments are up 13%. So just the straight math on that would suggest we under shipped by about 6 percentage points, which is very We did that same math in Q2 and it was we were ahead by 4. So it would look like we've unwound Some of the inventory build that we did, but in 2019, we had a holiday terms program in place, which we normally would do. Normally in the Q3, we're starting to build trade inventories for the heavy fall season. Speaker 100:58:03And so that would have been Part of the underlying demand. So when you net that all out, we think we're pretty close to EBIT on shipping Versus the true change in consumption, But that includes not being able to build for the trade inventories for the holiday as we would have hoped. And so We do think that we're a bit as I said one of the questions earlier that the trade channel right now It's a good start for inventory in the U. S. Now we think of that as really sloshing Between 3rd Q4 and it's still going to end up getting captured within the year. Speaker 100:58:56So it doesn't Let's change our outlook for the full year because it makes us anticipate a pretty strong 4th quarter. But to bring it back to where we are in rebuilding, we're not as far along as we would have hoped. Speaker 500:59:12Okay. That was good color. Thanks for that time. Speaker 300:59:19Our next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your questions. Speaker 900:59:24Yes. Hey, thanks. And you might have just I think you sort of addressed this In response to Chris' question, but just to play it back. So when we think about your intention to fully offset Appreciating that there's a rolling process to this. I think I don't know if Chris was if you were speaking to Chris' Responses specifically on pricing or just all the offsets, but I guess what I'm trying to get a sense for is just On those rolling offsets, when do you think you hit Your run rate achievement of those offsets, is that a middle of next year type of timeline or is it more realistic think that it progresses all the way through and it's not until the closer to the end of 'twenty two where you hit the full offset run rate. Speaker 901:00:16Just trying to get a sense order of magnitude, Speaker 101:00:20The pacing of your efforts. Speaker 201:00:22Yes, I mean, obviously, I mean, a lot depends on the future cost environment too on this. I mean, we put in pricing in the U. S. This is going to partially hit in the Q4 like we said last quarter. The full impact is going to be in 2022. Speaker 201:00:37Now If costs continue to accelerate, we'll have to address that with other actions. But I think it's speculative at this point to try to call 22. Speaker 101:00:47And the timing by quarter than by halves. Speaker 901:00:51Okay. Fair enough. Can I ask just a clean up on tax And for appreciating the discrete benefits you've now realized in 2021? And I'm not asking for 2022. Just on a normalized basis, how should we think about your sort of the tax run rate For the business going forward. Speaker 901:01:12And if you have any color on cash taxes versus GAAP taxes, that would be great as well. Speaker 201:01:20No, it's a great question. And obviously, we talk about this actually our 10 Q discloses amount. We talk About a kind of an underlying rate of 24% to 25% based on the country mix, the underlying The tax rates that we have and our expectations for the year and generally what happens and what happened this quarter, there are discrete either Programs that our tax team runs, there are acquisitions in the past that we clean up some of the assumptions or estimates or there's statutes of limitations that drop off where Yes, we've tended to realize some discrete tax benefits. So that's exactly what happened this quarter. But under the current tax regime With GILTI and Citi and all these things globally, it's 24% to 25%. Speaker 201:02:01Obviously, we're all waiting to see what happens in Washington to see what future rates are. And I'd say our cash taxes are pretty close to that too. We pay our fair share. Speaker 901:02:12Yes. Thank you very much. Speaker 301:02:16Our next question is from the line of Rob Dickerson with Jefferies. Please proceed with your question. Speaker 1001:02:21Great. Thank you. I just wanted to touch on private label for a second, given I think you still operate that side of the business a bit, as well as brands. Obviously, there's been kind of this ongoing discussion kind of where state of that overall industry kind of sits as we kind of get through the pandemic. So I'm just curious, Given some of the comments around, let's say, trade inventory not exactly where you want it to be going full bake And pricing forthcoming. Speaker 1001:02:52I'm just kind of curious what you've seen or heard The retailers as of late around demand for kind of your private label products versus brands? And Speaker 101:03:04then just Speaker 1001:03:05kind of how you think about price gaps as you kind of enter this pricing phase? That's first question. Speaker 101:03:11Sure. Generally across all categories, private label has lost share due to the pandemic and the brand as a group I've gained and in the recent results that we just announced, our brands were strong, private label is one of the soft points. When it comes to pricing, the costs are going up for every raw materials, Seeing labor and transportation and that applies to private label as well. And so the pricing actions that we're going forward look for our Included the private label products that we manufacture and I would expect that in many cases, just because They are priced at a lower price point that they may see a higher percentage inflation rate, because the same dollar cost going through, It's going to be a bigger percentage. Speaker 1001:04:07Okay, fair enough. And then just quickly, We've obviously heard from a lot of different companies that so far, you know, elasticity measures look great, right, relative to history, Given some of this elevated demand, I'm just curious, again, I know you're not giving 'twenty two guidance, but you have to have some thoughts as to And what you might be baking in on the elasticity side, kind of what I'm hearing is that there's growth expected in both segments next year And pricing coming, I'm kind of assuming that the answer here is that there could be some incremental distribution gains to offset some Elasticity demand remains elevated. So just kind of any comments around that kind of volume side versus the price side and where you think elasticity could shake out? Thanks. Speaker 101:04:55Sure. The demand remains elevated. Our categories were that we're already growing before the pandemic and we need to grow through it. And There's we've talked endlessly about the underlying demand for flavor growing, the younger consumers are fueling that. And as we've gone through the pandemic, we've gained household penetration, usage rates are up And we haven't talked about it much, but we've I think we had a comment about it in the prepared remarks. Speaker 101:05:28The Purchases per purchase occasion are up a lot. And so consumers are buying more Of our products and we expect that to continue to be the case. So I'd say our outlook continues to be Positive for strong sales growth. And if you look at consensus sales for next year that are out there, Yes, they're pretty anemic and I guess we're trying to gently suggest that there's a reason to reconsider that. Speaker 1001:06:05All right. Thank you. It's very helpful, Lawrence. Appreciate it. Speaker 301:06:10Thank you. Our final question is a follow-up from the line of Robert Moskow with Credit Suisse. Please proceed with your question. Speaker 701:06:17Hey, just very quickly. Lawrence, I think you Quantified, on a 2 year basis, Americas shipments up 13%, consumption up 19%, And doesn't that also include your private label business being down in that 2 year period? So therefore, the GAAP isn't really 600 basis points, it might be a little bit less? Speaker 101:06:42It's a very small number overall compared Speaker 201:06:45to our Our branded portfolio has changed, definitely Speaker 101:06:49less than 1% differential. Speaker 701:06:50Less than 1%. Speaker 201:06:52Okay. Thanks for the math. Speaker 301:06:56Thank you. At this time, I'll turn the floor back to management for closing remarks. Speaker 101:07:06Oh my gosh, we're out of questions. Great. Thanks everyone for your questions and for participating on today's call. McCormick is differentiated by the breadth and the reach of our balanced portfolio, which has sustainably positioned us for growth. We're very pleased with our outstanding year to date operating performance, which proves the strength of our business model, the value of our products and capabilities as a company. Speaker 101:07:28Looking ahead, we expect to drive even further growth as we continue to execute on our strategy, actively respond to changing consumer behavior and capitalize on new Kennedy, thank you for your time this morning. Operator01:07:41Thank you, Lawrence, and thanks to everyone for joining today's call. If you have any further questions regarding today's information, Please reach out to me. This concludes this morning's call. Have a good day everybody.Read morePowered by