Q1 2020 Earnings Call
This is cases drinking vice President Investor Relations. Thank you for joining today's first quarter earnings call to accompany this call because.
And I are dot Mccormick Dot com currently all participants are in listen only mode.
Mark we will begin a question answer session. If you need to read the operator at any time during the call me correct starred Europe will begin with remarks markers, Chairman, President and CEO and Mike Smith, Executive Vice President and CEO.
During our remarks, we will refer to certain non-GAAP financial measure. These include information in constant currency as well as adjusted operating income adjusted income tax rate adjusted earnings per share that exclude the impact of special charges. A reconciliation to the GAAP results are included in this mornings press release and side.
And our common certain percentage is around please refer to our presentation. A complete information. In addition, as a reminder, today's presentation contains projections and other forward looking statements as results could differ materially from those projected.
The company undertakes no obligation to update or revise publicly any forward looking statements, whether because of new information future events or other factor. It's important to note. These statements include expectations and assumptions, which will be shared related to the impact of the coding 19 pandemic I've seen on might like to our forward looking statements.
Also provides information on risk factors, including the impact of coking 19 that could affect our financial results. It is now my pleasure to turn the discussion over to Laurent.
Thank you Casey good morning, everyone. Thanks for joining us.
Start I'd like to comment on the extraordinary and continually evolving global impact cope with Nike.
On behalf of every one of the Mccormick I'd like to first expressed or people sympathy to all those who are affected by cope with Nike Inc. those working people say do this crisis.
I think is committed to maintaining critical could supply across all markets and supporting our community.
We're working through the challenges of today, while keeping our focus on the long term goals strata peaks and values that it made it so successful.
We were three priorities, while navigating through this period of volatility and uncertainty.
First to ensure the health and safety of our employees and the quality and integrity or product.
Second keep our brands and our customer friends on supply and maintained the financial strength or business.
Our third priority is to ensure Mccormick merger strong from that's about it will come to an end we won't come out a better company like driving our long term strategies responding to changing consumer behavior capitalizing on opportunities from our relative strength.
Taking steps to safely operate or business and supply or customers continue to operate or supply chain without significant disruption.
We have implemented contingency planning with most employees working remotely where possible.
Yep Global and regional price is teams in place continually monitoring rapidly evolving situation and recommending risk mitigation actions and we have implemented travel restrictions that are protocols and social dispensing practices as you would expect.
We've also recently announced incentives to further recognized and support for employees work onsite locations critical to keeping our operations running globally.
<unk> increased salary wages.
Other expenses placed to support family members and maintain salaries operations are suspended.
It's essential that we show our appreciate our appreciation to employees well doing our part for the betterment of public health and to support our community.
Moving to slide five to highlight a few points on the current conditions were seeing and central impact.
First as we mentioned to calculate the significant disruption and try and its consumption in the first quarter impacted our results events in China. During the second half of the quarter were extraordinary.
Total Mccormick sales follow the seasonal pattern, but the first quarter generally the light up the first quarter is typically our peak season in China.
Additionally, overhang or kind of business relates to away from coal consumption.
And who they probably is one of her most highly developed regions due to the dot child, Brent being filled it and they didn't we bought this made the trying to lock down with an extended lock down into bed.
But no opportunity for consumers the stock there pantries to be a significant attack.
We believe we cannot use to try to results to extrapolate overall impact for the rest of the company due to differences related to lock down duration pantry stocking opportunities as well, it's a different percentages foodservice business and other dynamics in each region.
The disruption or trying to resulted in a 3% reduction in total company first quarter sales and reduced our total consumer and flavor solutions segment sales, 5% and 1% respectively.
As a reminder, in China, our consumer segment includes the branded food service component because those food service products use the same packaging format and share a common distribution channel, particularly in traditional trade and on the smaller markets. That's other consumer products in China.
Lower operating income from trying to impacted the total companies growth in both adjusted operating income and adjusted earnings per share by 10%.
Currently during the early stages of recovery in China, We're seeing increased cooking at home and the surge in consumer retail demand both in stores as well as through E Commerce and start of a recovery in food service as most restaurants, and caterers reopened and consumer confidence gradually build.
We expect turned its results to be significantly impacted in the second quarter as well as the market begins to recover gradually blocks and who they continue through March and as recently announced is expected to be lifted in April.
For the year, we expect lower trying to sales from the covert 19 impact will reduce our total net sales growth by 1% to 2%.
And as I already mentioned, we currently believe cobot 19 impact in China, and not be extrapolated to the overall <unk> 19 impact for the rest of the company.
Turning to the current status of our major markets outside of China, our persons in trying to afforded us the insight, let's see how cobot 19 scenarios can unfold as well so take early action.
Supply chain business continuity plants have been in effect since January intercepts and implemented continuity plans to provide customers with continued supply.
To date, there's been no material impact on supply for most of our sourced material and for those impacted continuity plan. It's happened activated.
We're partnering with our customers to monitor and respond to changes in consumer demand, we're seeing increased consumer consumption, both door scanner data and ecommerce as well as do customer orders, including those for packaged food companies Center flavor solution segment.
This increase is impacted by short term pantry stocking, we expect some level of elevated demand for at home cooking to continue schools were closed people are staying at home and that contributes to real incremental at home consumption.
We also know from a sales performance during recessionary periods, we benefit from consumers eating at home or constant currency total consumer segment for Granix sales growth in 2001 in 2009 was 4% than 3% respectively.
On the other had in the away from home part of our flavor solution segment, which represents approximately 20% of our total company sales.
We're now seeing reduced demand from our foodservice customers as covert 19 measures have eliminated and any and services unlimited restaurants carry out for delivery only.
We expect this will have a significant negative impact on our near term performance, particularly in our M&A region as more people stay at home and away from home options remain limited.
And that's as much flexibility during this uncertain time, we've decided to moderate pace of our enterprise resource planning.
Or Pete replacement program.
But we remain excited about and committed to our global transformation initiative. We believed that it does more prudent given current challenges posed by the cobot 19 situation to rephrase the timing of this initiative as we focus on the three priorities that I previously described.
Now I'd like to focus on our first quarter results highlights from a consumer and flavor solutions segments and finally, our growth drivers in relation to the current environment.
Starting on slide seven and our first quarter the lower operating result from the Cobot 19 impact in China just mentioned.
So the otherwise solid sales adjusted operating income and adjusted earnings per share growth, we delivered driven by the successful execution of our strategy and engagement of employees. This well also making business transformation investments.
We have a broad and advantaged global flavor portfolio, which continues to position us to meet the demand for flavor around the world and grow our business.
Across our portfolio and our Americas, and Europe Middle Eastern Africa, or me a region, we drove particularly strong flavor solution sales growth in the first quarter.
Asia Pacific region, the China disruption significantly affected our first quarter sales growth across both segments of our across both of our segments with a greater impact in consumer.
Overall, we're confident that the breadth and reach of our portfolio will continue to be the foundation for sales growth and what we may experience temporary disruptions in parts of our business. We're confident that underlying consumer demand will continue to underpin long term growth.
Now, let me covered the highlights of our first quarter performance.
Starting with our topline for the first quarter versus a year ago period, total sales declined 2%, including a 1% unfavorable impact from currency and the 3% unfavorable impact from China, partly offset by 2% growth contributed by the rest of the business driven by higher volumes and product mix as well as pricing.
Adjusted operating income was down 2% with minimal impact from currency and included 10% unfavorable impact from China results.
Partly offsetting this impact was the sales growth across the rest of the business and save influenced by our comprehensive continuous improvement program CCR.
During the quarter, we also had higher brand marketing ERP replacement program investments compared to last year.
At the bottom line or first quarter adjusted earnings per share of a dollar rate was lower than $1.12 than the prior period or declined to 4%. This decline includes a 10% unfavorable operating impact from China, and a 5% headwind due to a higher adjusted tax rate.
As we said on a year and earnings call in January and at Cagney in February we have confidence in our strategies and notwithstanding to cope with 19 impact our underlying foundation is strong. So we remain committed to our long term growth objectives now let me spend a few minutes on our business updates.
Starting on slide eight with our consumer segment constant currency sales declined 6% than the first quarter, excluding an unfavorable 5% China impact.
The America at constant currency sales declined 2%, we believe we substantially undershipped consumer consumption.
Normal seasonal trade inventory reduction versus building some inventory level in the first quarter of 2019, we estimate this resulted in a negative 4% impact to the Americas growth rate for the quarter. This is in line with our expected trade inventory impact and net sales for the year, which is also consistent with our historical before.
Formats today, it's hard to comprehend that there were retailers reducing inventory in the first quarter. The world's has changed so much.
In U.S. spices, and seasonings, we're maintaining the share of stabilization, we achieved last year, our IR data indicates U.S. Mccormick brand spices and seasonings scanner sales grew in line with a category and we had strong growth in measured channels, particularly in E commerce.
We believe for the combined channels Mccormick brand, it's slightly outpaced the spices and seasonings category growth.
And Mccormick brand to try recipe mixes we continued our growth momentum delivering share growth for the 10th straight for.
Our first quarter performance included our six sequential quarter accelerating consumption growth across our condiment portfolio.
Total we grew consumption, 4% as well as growing share many of our product line.
Thanks, Red Hot sauce that strong performance again.
Okay, driven by effective Super Bowl marketing and promotion programs.
That was barbecue and Mccormick mandates that grew double digits and French as muster continued its consumption and share growth momentum.
Our category management initiatives effective marketing support and merchandising execution expanded distribution to new products are all contributing to driving our category leadership and our momentum we're confident in our initiatives underway to continue our long term growth trajectory.
In March were seeing an unprecedented surgeon demand from customers and consumers. The dwarfs. The single digit changes were discussing related to our first quarter results I'll say more about this in a moment.
Now turning to the EMEA region, we had growth in UK, and France, driven partly by new products and brand marketing support.
New dry recipe mix products, such as the launch of our one Pan line.
Tribute to us not only gaining share in the quarter, but also to have the leading UK recipe mix position.
In the Asia Pacific region, or constant currency sales declined driven by the significant impact in China as I previously mentioned in other parts of the region. We continued to gain momentum for the fact that brand marketing and promotions as well as through E Commerce, our fundamentals in our consumer business remains strong.
Turning to slide nine or flavor solution segment. Our performance was excellent constant currency sales growth of 5% driven by the Americas EMEA regions, partially offset the decline in the Asia Pacific region.
Americas, we drove constant currency sales growth of 5%.
With broad based growth across our portfolio, both for a product category and customer perspective.
Strong growth to both packaged food companies and quick service restaurants was driven by new product and base business growth.
I mentioned that branded foodservice continue with robust growth driven by new products, such as old Bay Hot sauce promotional activity with operators and expanded distribution.
In addition to driving topline growth. We also continue to mid migrate our portfolio to more value added category.
Our sales grew up in EMEA was outstanding 9% in constant currency as the strong momentum we have built in this region continued into the first quarter, we're winning with our customers. Both quick service restaurant and packaged food companies through new product or promotional activities and expanded distribution.
In the Asia Pacific region, or constant currency sales declined driven by the significant impact China and other parts of the reagent sales to quick service restaurants drove growth.
Turning to slide tend to talk about our growth drivers in the current environment.
That's six weeks ago at Cagney, we shared with you our 2020 growth plan aligned to our strategies designed to build long term value for shareholders were no operating in a more dynamic and rapidly changing environment, then work acne and possibly ever before the need to be agile and responding to the current dynamics and the changing can.
Tumor behaviors.
Our overall growth plans have not changed although some have been adjusted and even strengthened to enable us to effectively execute in these challenging times and the balance of the year.
Capitalize on the opportunity to help our consumers and our customers through this difficult time.
First across both segments were currently focused on keeping our brands and our customer brands and supply, beating particularly strong demand for items in key categories course, spices and herbs seasoning blends providing flavor solutions dry recipe mixes offering convenience condiments rice mixes frozen products stocks and broad.
Okay and snacks eat.
The continuity of meeting demand, including the quality and integrity of our product is a critical priority.
Turning specifically to our consumer segment. Our 2020 plans include to further drive our undisputed leadership and Spice and seasoning.
Accelerator condiment global platform and fuel our growth in emerging markets and channel as well as an on trend fast growing platform.
We're strengthening or connection with the consumer, especially with digital E Commerce, and social media outreach, which is even more important today with consumers at home or looking for solutions simply put our consumer portfolio and plans are even more relevant today than they were before.
We're seeing an incredible surge in demand from consumer stocking their pantries cooking at home as our other consumer packaged goods companies for example for the weekend as March 15th scanner sales for the total Mccormick U.S. branded portfolio grew 65% with all major categories up double or triple digits.
Although we expect consumption will not continue at this extraordinary level, we do expect sustained growth from an increase in consumers cooking at home.
Taking a deeper look at our plants.
Fred marketing is a key driver sales girls and we're increasing our investments in 2020 as plant the speed and agility, we gain for their marketing excellence organization has enabled us to quickly pivot and adjust our messaging in light of the cold 19 developments for instance, we've changed content to focus on at home family ties, which is more realm.
Event in the current environment.
Few weeks ago, we launched our new U.S. Mccormick brand advertising campaign with the tagline, it's going to be great, which is the strongest worn campaign and our consumer testing history.
This TV and digital campaign is focused on consumer education on what to make out of repair and build confidence in the kitchen, which is all the more relevant today as consumers more at home.
Our plans to create even deeper connections whether consumers by bridging their physical and digital experiences have been underway. Since early this year, we continue to develop best in class content and opportunities for our consumers to connect with us and our strengthening our brands as an indispensable partner on their flavor journey.
These opportunities has now increased and even go beyond their flavor journey.
We were engagement with our Mccormick properties, such as Mccormick Dot Com, you tube and or social channel is increased high double digits in recent weeks both in visits and time spent and we have a steady stream of new real time content that is focused on solutions to the questions consumers are asking here are some examples.
The occupy the kids at home.
Of course with Kid friendly recipes from painted sugar cookies dissented slime ore window claims and we're seeing increased consumption and related product U.S. scanner sales show Vanilla is up 40, 54% for example, the weekend at March 15th.
What recipes and products help with health and wellness, our content and recipes to Merck and bone brought as well as soup recipes. For example has increased and we're continuing our work to promote the health benefits of spices and herbs are you less consumption growth on our stocks abroad was up 140% and tumor Cup, 22% during the same period.
Yes.
How to create flavorful meals with items that have been stockpile cantona eggs and passed our frequent circus and we haven't will continue to create content at flavor to these items in more consumers want more convenient solutions to add flavor as evidenced by recent hundred and 4% U.S. consumption growth in dry recipe mixes.
And finally consumers can now use our newly added ask Mccormick feature on our social channel, we respond real time with tips tricks recipes and product. We are now there with whatever consumers need to help them through these times.
The investments we've made in ecommerce have not only driven growth positioned us well for acceleration, which is what we're experiencing and for which we are prepared consumers shopping behavior is changing and the opportunities, we're activating and making all touch points shoppable are paying off.
In China traffic to our direct to consumer platform has increased four times driving sales growth up triple digits, increasing five fold since the beginning of the year.
Well, we're seeing increased traffic and sales as well our pure play and direct to consumer sales have tripled in recent weeks. This is also true m., yet with direct to consumer sales tripling as well.
We're making or products, even more discoverable to consumers with increased support.
Our exciting first half new product launches aligned with consumers demands for convenience help and transparency as well as flavor exploration and experimentation.
We continue to drive category leadership and in the U.S. are enthusiastic and committed about or initiative underway to reinvent the in store experience for spices and seasoning.
By introducing new merchandising elements.
We've had strong favorable customer reaction and began the rollout earlier this year.
As we partner with retailers to maintain stock shelves in business continuity, we will have some delay in our rollout plan was increased cooking at home expected to be a longer term trends. This initiative becomes even more exciting relevant.
Now turning to our flavor solution segment.
Our immediate focus is on responding to the volatility we're seeing across the segments.
As a reminder, and flavor solutions, we operate across a wide range of customers channels.
Silver manufacturers restaurants and distributors over.
Over 50% of our flavor solutions portfolio, our flavors and ingredient product categories.
Our primarily sold the packaged food companies demand from these customer is currently strong as they are experiencing the same increasing consumption as we are in our consumer segment.
In contrast, our restaurant and distributor customers are experiencing significant short term pain related to the reduction of people traveling shopping and dining out, but many restaurants and away from home heating locations close.
Consequently, we're expecting a sharp and negative impact on the demand for our products from these customers. While we expect this demand to return once the cobot 19 crisis passes similar to the beginning stages of recovery, we're seeing in China. The duration of this current period of reduced demand is uncertain given changing conditions across the <unk>.
World almost daily.
Our current flavor solutions priority is to work with all of our customers so seeing demand surge as well as those under pressure manage through the coming months.
We have confidence that strong differentiated partnerships, we have built with our customer which include the top 10, food and beverage companies as well as the top 10 foodservice restaurant chains enables the robust collaboration needed to navigate through the situation as best as possible.
Now I'd like to provide a few summary comments as seen on slide 12 before turning it over to Mike.
At the foundation of our sales growth, just the global and growing consumer demand for great taste and healthy eating as well as transparency around the source on quality of ingredients and the desire to buy brands from environmentally and socially responsible companies.
Labor continues to be an advantage global category, we inspire flavor exploration across all markets through all channel and are aligned with the consumers demand for taste convenience health and sustainably minded business practices.
Our alignment, but these long term trends for breadth and read and or execution of effective strategies positions us well to meet increased consumer demand both through our products and through our customers products and drive sales growth no matter, what where or when people are eating or drinking it is likely flavored by Mccormick.
We believe these long term behavior will remain intact following the current crisis.
We're continuing to drive long term sales growth balanced, but our focus on lowering costs to expand margins and sustainably realized long term earnings growth.
We have a solid foundation and an environment that continues to be dynamic and fast pace, we're ensuring we remain agile relevant and focused on long term sustainable growth.
Our experienced leaders and employees are executing on our strategies, which are designed to build long term value for shareholders are reacting to changes according accordingly, and capitalizing on opportunities.
Excluding the China Cobot 19 impact we delivered solid first quarter results again, proving our strategies are effective and we're confident they will drive future growth.
Well, we know the balance of the year will be impacted by an uncertain environment. We're confident our underlying foundation and performance remained strong.
I want to recognize Mccormick employees around the world for driving our momentum and success and thank them for their efforts engagement and for adapting to this new environment. During this volatile time.
Food and food products have been designated a critical industry I want to particularly thank our many employees. We're working hard every day to protect the food supply and a rallying to support Mccormick and their communities.
Thank you for your attention and it is now my pleasure to turn it over to Mike.
Thanks, Maurice and good morning, everyone.
Begin now by providing some additional comments on our first quarter performance and then discuss some of our expectations for the balance of the year.
Starting on slide 14 during the first quarter sales declined 1% constant currency driven primarily by the cobot 19 impact in China, which had a negative 3% constant currency effects on the total company.
Excluding the impact of China favorable volume and product mix from base business and new products as well as pricing drove sales growth.
The consumer segment sales declined 6% in constant currency, primarily driven by the Asia Pacific region.
On slide 15 consumer segment sales in the Americas declined 2% at constant currency versus the first quarter of 2019.
As Lawrence described earlier, the decline was driven by trade inventory reductions.
Partial offset from pricing actions, which were taking late during the first quarter.
In EMEA constant currency consumer sales were up 1% from a year ago, driven by pricing primarily related to the timing of trade promotional activities.
Consumer sales in Asia Pacific declined 28% in constant currency driven by the China disruption.
Growth was strong across the rest of the region.
Turning to our flavor solutions segment on slide 18, we from first quarter constant currency sales, 5% due to strong growth in the Americas and EMEA regions.
In the Americas.
Flavor solutions constant currency sales increased 5% driven by new products and based business volume growth with particular strength and snack seasonings and branded food service.
Additionally, pricing also contributed to growth across the portfolio.
In EMEA, we group labor solution sales, 9% in constant currency.
Sales increased two both quick service restaurants, and packaged food companies driven by new products and volume growth on the base business as well as pricing.
In the Asia Pacific region flavor solution sales declined to 4% in constant currency driven by the decline in China.
In other parts of the region for the for it.
Across both segments I've seen on slide 22, adjusted operating income, which excludes special charges declined to 2% in the first quarter versus the year ago period.
With minimal impact from currency.
Adjusted operating income in the consumer segment declined 12% to $120 million.
Switching constant currency wasn't an 11% decline.
Labour solution segment, adjusted operating income rose to $76 million in 19% increase with minimal impact from currency.
Both segments were negatively impacted by the Chinese disruption, which was a 10% impacts to the total company and was skewed more to the consumer segment.
Well as incremental investments related to our ERP replacement program.
Martial arts offsets from Cc, I'd like cost savings and lower incentive based compensation.
Additionally, the consumer segments adjusted operating income was unfavorably impacted by an increase in brand marketing expenses, if LIBOR solutions was favorably impacted by product mix.
Gross profit margin expanded 90 basis points in the first quarter versus year ago period, driven by PCIA led cost savings.
We had adjusted operating margin compression of 10 basis points driven by the factors I just mentioned.
Turning to income taxes on slide 24, our first quarter adjusted effective income tax rate was 18.4%.
Compared to 13.9% in the ever go period.
This quarter's adjusted rate was favorably impacted by discrete tax items, primarily related to refinements to our entity structure.
Which had a more significant impact last year.
Income from unconsolidated operations was $10 million in the first quarter of both years.
At the bottom line as shown on slide 26 first quarter 2020 adjusted earnings per share was one dollar an eight cents as compared to $1.12 cents for the year ago period.
The decline was primarily driven by the China disruption impacts and a higher adjusted income tax rate from last year.
Partial offsets from higher adjusted operating income growth, excluding China and lower interest expense.
On slide 27, we summarized highlights for cash flow in the quarter end balance sheet.
Our cash flow provided from operations was $45 million in the first quarter of 2020 compared to $104 million in the first quarter of 2019.
This decrease was driven by timing associated with working capital as well as employee incentive that benefit payments.
We continue to see improvements in our cash conversion cycle, finishing the first quarter at 40 days down three days versus our fiscal yearend.
We returned $82 million of cash to shareholders through dividends and use $39 billion for capital expenditures this period.
We believe that we have adequate liquidity to meet our operating investing a financial needs through or operating cash flows as well as our access to bank lines and commercial paper.
We've been able to access commercial paper markets as needed during the recent period of market volatility and currently have underutilized capacity under our $1 billion corporate revolver.
We have no material debt maturities until 2021, and we expect no material change to our capital allocation.
We continue to evaluate the market to determine if there's an opportunity to further bolster our position given the low underlying interest rates.
Let's now move to discussion about our outlook and some of our expectations for the balance of the year as seen on slide 28.
As a reminder, the guidance we issued in January and discuss the Cagney did not include any impact from code and 19.
Our operating in a very fluid environment, and our ability to assess the financial impact of Cobot 19 on our business is affected by both the speed at which the situation is evolving as well as the high degree of uncertainty related to the duration and the extent of the impact on consumer demand in all channels and the global economy.
We're also still early in our fiscal year with three quarters remaining including those that are typically our largest ones.
We therefore, our with withdrawing our previously issued 2020 financial outlook discussed on our January earnings call I.
I would like to however, provide additional perspective to highlight some current expectations.
First as we have already mentioned there was a significant coded 19 impact from China to our first quarter results every project disruption in China continuing into the second quarter.
We expect to lower sales from the Cobot 19 impact in China will reduce our total global net sales growth by 1% to 2% for the year.
We believe the China impact not be extrapolated to the overall impact for the rest of the company due to the reasons Lawrence already mentioned earlier.
France is related to lock down durations, and pantry stocking opportunities as well as a different percentages of foodservice business and other dynamics in each region.
We expect a shift in consumer consumption will continue with our consumer segment positively impacted by initial pantry stocking.
Followed by an increase preference for cooking at home.
In a flavor solutions segment, we expect increased demand from our packaged food customers similar to our consumer segment. However in the away from home part of our flavor solutions portfolio, which represents approximately 20% of our total company sales, we expect sharp declines in demand from our restaurant and other food service customers.
Given the current economic environment, we're closely following the movements in foreign exchange rates and our anticipated a negative impact on our full year financial results.
And finally as Lawrence mentioned, we're moderating the piece of our ERP replacement program.
As a result this decision we are projecting our program operating expenses in 2020 to be comparable to 2019.
We continue to closely monitor the situation and expect to resume guidance during our second quarter earnings call at the end of June when we shouldn't anymore.
We have managed through multiple business cycles for 130 years and have a consistent history of growth.
We are well positioned given our financial strength stable cash generation access to liquidity and had rapidly implemented appropriate mitigation plans.
We are confident we will manage the short term period of volatility and continue on our long term growth trajectory.
I'd like to now I'll turn it back to the warrants for some additional remarks before we move to your questions.
Thank you Mike now that Mike is shared a financial results and outlook in more detail I'd like to recap the key takeaways as seen on slide 29.
We delivered solid first quarter results, excluding the cobot 19 impact on China and recognize the balance of the year will be impacted by a broader challenging environment for effectively executing our strategies and are confident in our underlying foundation.
We are responding to cope with 19 developments with agility and working through the challenges of today, while keeping our focus on the long term goals strategies and values that have made a so successful.
We are the consistent history of growth and very positive fundamentals in place to manage through this short term period of volatility and continue on our long term growth trajectory.
Our commitment to our long term financial objectives has not changed their sustainably position for growth and we'll continue to deliver differentiated result.
Now, let's turn to your questions.
Thank you well now be conducting a question and answer session. If you like to asking questions. Please press star one on your telephone keypad and the confirmation don't indicate your line is in the question Q.
You mean press star to accumulate your move your question during the Q.
Just since using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.
Thank you. Our first question comes from the line of Ken Goldman with Jpmorgan.
Hi, Good morning, everyone, and obviously I hope everyone and your families are safe and sound Crazy times.
All right. Thank you Ted Utica.
I wanted to just quickly ask one can you give us a little more clarity on maybe the quarter to date performance in both of your segments, even if just on a rough basis.
Two obviously you do secure some.
Some of your products from areas of the world are experiencing some challenges right. Now can you just walk us through a little bit maybe what you're doing just sort of secure.
Your inputs, maybe secure your supply chain, a little bit beyond what you've told us to find out would be helpful. Thank you.
Okay great.
Well first of all we're seeing all phases of the for on the virus prices as a company.
From the.
Early phases of recovery in China, So for the new Epicenters that a that were all experiencing in EMEA and then the than us.
We've got a yeah, we are seeing the early stages of of recovery in China as we've said in the.
Prepared remarks that we can be pretty well quantify that we see a.
At Ford there the.
Even sub outlook on that.
In the Americas, and EMEA, we're seeing very strong sales of retail products.
As our others, especially in the Americas that cuts across all channels on the of the that our retail consumer oriented product, especially strong in E commerce.
We we just actually got in a fresh and our data this morning ourselves.
I mentioned.
A moment ago, but that we were up about 65% as a total company through the.
Scanner for the most recently that we had data for we just we just got last week's information and it's even stronger than that it's nearly 90% at say so it's a little over 89% for the for total company.
Yes.
Our total company in the U.S.
Total consumer there so so really have strong performance.
On that side, yes, driven by the consumer pantry stocking up UK behavior, and I think that you all probably got Nielsen data that covers a covers the same timeframe that would be consist roughly consistent with that.
Typically are on measured channels are stronger than the measured channel.
I would expect that to be you can you should expect that to be the same.
Yes.
On the in our flavor solutions portion of our business.
The portion of the business, that's a little over 50 propel that's that's over 50% that services. The other CPG manufacturers is seeing an equally strong.
Search and.
Demand as those.
Customers are are having the same oh.
Retail offtake and.
We are part of their supply chain itself. So.
So we're experiencing that the food service portion of the business goes goes the other way and we've tried to give some additional color on the size of our foodservice business and these remarks, when we've given them in the past. So I don't think the previous they really quantified how big are our total away from home consumption exposure is that between.
Branded food service and the quick service restaurant industry, It's a little over 20, 20% of most of that runs through flavor solutions in China, and India that goes through the consumer segment.
Because that they share a common distribution channels called attacks.
Rolled up in that way.
In the foodservice, we're seeing a.
And foodservice in QSR, we're seeing a sharp slowdown we came into the month strong, but as we've talked as above that have slowed significantly l., specifically say in EMEA EMEA. The QSR a portion has come to a near halt as a whole as most of our customer so completely.
Shows that our restaurants, the different Supreme Europe, and the U.S. has done in the US drive through at pickup has remained open that's not the case and most of the major countries in Europe, and so that part of the business. It's a it's going up strongly at that.
Oh, and you asked about supply chain. So let me take the second part of that they are global sourcing organization has really been an advantage for us we.
And they experience that we had in China allowed us to see pretty early the that we were going to need to do contingency planning, we started that the but a very early on.
Yeah, we have.
Actual people on the ground and the countries that we sort problem, which has really been helpful and working with the local authorities that local closures and restrictions and in particular working up transportation logistics we.
Source over 14 cows raw materials from over 85 countries in the world.
We have we're really well prepared for this and I'd say that this has been a real area of advantage for US. We're currently not constraint on any production due to raw material or packaging a shortage. We've had some minor items I mean, they I could talk with you about.
Yeah, that's a particular stepped up and show Chile that that is needed for our Hispanic business here and to US. It's got a cost about $3000 worth of product Schwartz I mean, we're tracking it at that granular level I think that were it not really good shape from supply chain standpoint.
Very comprehensive thank you very much.
Our next questions from the line of Andrew Lazaro with Barclays.
Please proceed with your question.
Good morning, everybody wondering entering there I'm just two quick ones for me if I could.
In listening learned to your comments around the various portions of the business, thus far sort of through the quarter is it Tom is it simply that it's it's I'm.
Still a bit too fluid and dynamic.
Just sort of take those three big buckets, if you will the consumer piece.
Part a flavor solutions that goes to package food manufacturers and then and then a pure foodservice side I guess, it's really thinking through the quarter, thus far to even suggest maybe how those things might balance out I realized for the full year, that's probably a much tougher exercise, but even in thinking through the second quarter.
Just given some of the the magnitude of some of the numbers on on both ends of the spectrum, even even sort of directionally as are way to say that you know the two positive sort of outweigh the negatives or do we still just really not have at that level of clarity I know just kind of have yet bolt for <unk> for the year of course, we.
So much uncertainty on how this is going to unfold I know others have given some guidance here those tended to be companies that are in their fourth quarter already so they're basically giving you guidance for the next six weeks.
We've got that we've got a whole year ahead of US. This is just the end of our first quarter.
One month into Q2 and there the changes in ships have been so dramatic over just the last couple of weeks that I think that were.
Comfortable event, we don't normally give quarterly guidance and we'd be even less comfortable doing so right now, we really don't know that duration and the extent of that.
Back on the on the restaurant industry in particular.
There are areas of the world that are still open for business. There are areas that are close that could reopen and that we think that there's too much uncertainty for us to give you credible.
Meaningful guidance right now.
I will say that I would expect that the restaurant industry impact will be pretty heavy in the in the second quarter. Yeah. That's that again, the complete closure of restaurants in some areas of even though it's the minority of our of our business is going to be a drag that I think.
It's hard to see the consumer side overcoming.
In this particular quarter.
Understood. Thank you for that and then just quickly on just the ERP spend I think you said about the same amount of incremental offend. This years last year. So I think initially it was going to be if I'm not mistaken an incremental 60 million of ERP spend this year and I think there was 20 last year. So basically everything there is now an incremental 20. This year instead of 60. Thank you very much.
Hey, Andrew it's Mike.
You're correct. We spent around 28 last year in 2019 were going to spend around 20. This year a 2020, so it's not incremental it's at the same thats comparable between fiscal years Henry.
Well I just want to elaborate on that.
We are pausing the ERP program, but we are committed to our long term success and and as a company. We take hold a long term view of our program. So that we're investing behind our employees right now, we're continuing to invest and brand marketing.
It's our intent to continue the ERP program. So with so we do have a team that will continue to work on it through the year and we would expect too that the go lives that we were planning are going to slide out.
12 months or so and.
Looking back at right now.
There are two drivers for our decision to postpone it one is just the executional reality.
You know our our pilots for one of our pilots was in Italy for example.
And and it has become as an executional matter impossible to do that pilot.
The other pilot.
Also in an area, where it because of travel restrictions. It just wasn't possible due to the training and work that it takes to actually bring the system framing system up.
No no pilots there are no go lives and so you know so from an executional standpoint, because share practicality required us to get to push the program out and then secondly, as we have prioritized keeping our brands that our customers brands in supply and maintaining business continuity yeah, yeah. The resources that were going.
Looking into the program or better, but right now on the urgent needs and adapting to the rapidly changing supply requirements.
Thank you stay well everybody.
Thanks, Andrew.
Your next question is from the line of Science.
Your bank. Please proceed with your question.
Yes, hi, good morning.
So I wanted to talk a little bit about you know your commercial initiatives in the consumer segment.
You had talked about how there have been some changes I know we were talking about chowdhry sets and Cagney Oh. So just wanted to get more color around you know how how those are changing just given what's happening at you know because of cobot, especially in the last.
You bet, so surprised that we've changed stuff.
First of all we've continued to deliver that Brad marketing.
We had at play into it but some of the messaging and the vehicles that were using.
Shifted this is part of the advantage of having our.
In house.
Marketing Excellence organization, we're able to change you have produced new cause had been changed the content.
Very rapidly and so we've made the message is a bit more relevant I gave some examples in our.
Prepared remarks and.
I think that that has said that good good impact weve resource up an area, where consumers can right in and get real time answers to their questions.
That's a that's somewhat people intensive thing, but very much appreciate it up by.
By consumers.
The new products that we talked about a cagney were already largely being launched and so well retailers have focused more on a.
Core items and as they have scrambled to keep their their shelf stock and we had a lot of placement on those items and a lot of acceptance on those on those items already and although we didn't talk about our second half new items that cagney.
Our R&D teams have continued to work on it our commercial paint commercialization teams have continued work on those and I would expect.
You should exceed you should expect to see a reasonable pipeline of new products in the second half of the year as well the shelf resets that we talk it talked about also was already under way and so the picture for example that they use that tag date was an actual store it was not a yellow of some kind of oh.
Retail laptop as if that was an actual store installation and we have a number of them up right now those installations have stopped because of the the immediate emas at retail and and everybody tried to minimize.
Extra people in the store, but.
Yes, as the as the all these.
Shelter and placed rules and so on get lifted and things hopefully returned to normal the second half of the year.
I would expect that to remain we didnt quantify how many.
Fourth we said we would have I think I said Academy that we would have thousands of done though we we still expect to have thousands but fewer than we would've thought okay.
Great. Thank you.
The next questions from the line of Alexia Howard with Bernstein. Please proceed with your question.
Good morning, everyone.
Good morning, Hi, I'm.
Asked about the behavioral changes that you're seeing you talked about people cooking channel do you have any trouble data to show how many more people are our cooking at home, but its each household or what have you and then similarly on the behavioral change on the continent side.
Obviously very impressive growth that do you have any day to on how many of them how much is outlet driven by new sign off.
People try it to the five trying both existing and chairman and how profitable in is that channel. These days for you.
And then I have a quick follow up.
Okay, I'm not sure I've got the answers to the exact questions that you're asking but I do though that that we set the consumer behavioral changes that we're seeing our are up.
Again, and rather than then thinking of a panel data, we actually have we're actually doing all right real time.
[noise] consumer tracking and so we haven't we have our own data that shows.
How behaviors are unfolding, there's definitely an interest in cooking at home more more kind of around comfort foods, a little bit around.
So the same trends that some of the trends that we have talked about previously or actually are just magnified or accelerated so shopping online.
Some more adventurous cooking.
Mike you want to yeah. Thank you know we're doing a lot of a research even with our employees on one of the one of the question is one of the comments we got back for employees are snacking, a lot more at home because their home working in the snacks are right. There. So we're seeing a huge lift and cooking activities and every everything food as people people being adventuresome too they're trying to.
Use what's in there in their pantry, Jasmine up a bit and we've seen very strong sales and a lot of exotic spices and flavorings.
And then a quick follow up on the flexibility of your manufacturing.
Fabric production B.
We tools to make more on the consumer side of the business or is it going to be quite challenging.
Maybe how much is staying peering into why the restaurant channel it down.
Eight retail sales so Oh I do you worry it's the same kind of level that broad maybe kind of leveling off to the pantry loading up finishes.
Having that sort of switch is that a challenge for you worry about fairly easy to manage thank you know.
I'd like to its a very quickly.
Most of bulk so let me take products for both segments of our business and so we can move resources within within those facilities of some of the food service items are being re purpose to the club store channel right now.
As as well and so we're able to do that and then even beyond the manufacturing facilities.
We were able to move.
Our our people to focus in on the on the on the right areas. So a somewhat we have a lot of flexibility on that there. There are a couple of exceptions, we we do have.
One manufacturing facility in Europe that is heavily dedicated to sauces for the QSR and food service and.
Demand is very very slow there and it's difficult to re purpose that but generally speaking, yes, we've got a 118 facilities.
Around the world we stuff.
So we have 49 production plants.
They are they're all they're all able to operate and and were able to shift volume around the.
To meet the need to current demand.
Great. Thank you very much take everyone, Greg will come to you.
That's it.
The next question is from the line as Steve <unk> with you've yes. Please proceed with your questions.
Hi, good morning, and it's great to hear that Mccormicks taken the Longview share not surprising and taking care of its employees and stakeholder started these volatile times. So I appreciate it.
[laughter]. So at question two part question first won't be a consumer behavioral question.
Lawrence you are keen to point out that right now we're going through phase, one maybe where consumers are pantry loading, but ultimately will that people are behaviorally at home more they should be cooking more so can you walk us through what you would expect.
Oversimplified model as to how we may be migrate through on the consumer piece over the next few months. Some investors are asking do we go through a big pantry load period. That's followed by subsequent do you load or just be the spike and then a moderates to a better baseline growth level. If you could just help us understand that curve.
Actually we lean towards the latter a few the Oh this pantry stocking behavior, obviously as a as a as a onetime surge that isn't sustainable, but there is real incremental consumption that's happening.
Yeah. The kids are staying are in from school people are trying to stay close to home either voluntarily or buy but not by government order and people as a result or or getting used to the idea of cooking at home and our learning new cooking behaviors weird, our our demand for recipes and.
How to videos on or digital properties, absolutely through the roof or the kind of questions for getting for our real time response.
All about cooking tips, and how to prepare or what to prepare.
We think that there is going to be a sustained.
Shipped for for a period of time.
To to more at home cooking, which.
In the past its been a net benefit to us the other thing I don't want to Miss is that the kind of the after.
However, the that cobot 19 situation plays out it's like they were going to be followed by a recessionary period as well and historically weve performed well during a recessionary period.
As consumers tend to cook more at home.
But when they're cutting back into other areas they tend to reward themselves.
A little bit.
The foods that they they consumed at home and and our historical track record just looking back at the at the 2001 end to the 2008 nine a time periods. We've had strong growth in our consumer business. That's been a positive for all of the company.
I appreciate that and as a Maryland or I'm rewarding myself with some old day Hot sauce.
Which is fantastic bounce on.
One quick question from I can then I'll pass it along.
To follow up with Angela's ours question on the ERP spend I appreciate given.
The servicing rates to the customers right now is a priority now Mike postponed the Sep implementation upgrade but should we think about that $60 million of Incrementality. Therefore kind of shifting into fiscal 2001 in what was earmarked for fiscal 2001 kind of shifting fiscal 22, so basically the whole waves series goes over by year I know.
Difficult to comment on right now, but any high level would be a commentary be appreciated. Thank you.
So Steve just like we're not giving second quarter guidance or 2020 guidance, we're not going to give 2021 or 22, I mean, there will be some type of shift we just it's really too early we need to be plan. This project work around or manufacturing Dizzy seasons, and things like that so I'd I'd I'd hesitate <unk> I can't give it really any guidance there and there.
And some expense at work has been done this year, which which contributes to it also so the shape of it will likely be different.
Understood. Thank you.
Thanks.
Next question is from the line of Robert Moskow with Credit Suisse. Please proceed with your question.
Hi, Thanks for the question a lot of people are <unk> are trying to think through the cost to execute all these increases in in manufacturing capacity the higher labor costs.
I mean, if you'd asked me, though you know.
What's the what's the net benefit here of producing SK use that are really popular and long production runs I would argue that that would offset higher cost for for labor.
Is there any way you can can walk us through the pros and that the nets in negatives of bad or positives and negatives of that and then secondly promotional price discounts I mean.
Mccormick still need to.
Have promotional price points.
At retail in this environment.
Yes, part of that's hard to answer and goes to the uncertainty that makes us not want to give guidance at the time and that there are puts and takes and there, but the changing so fast that that that.
No that we can get that.
If that were not 100, plus we're not sure enough on on how those balance out your point as well taken that by by a longer run on more core items that that that but that's a very efficient way to run our manufacturing facility are also a lot of extra costs related to expediting it.
Overtime the overtime shift.
Yeah. The employee the <unk> Yeah, we just announced that were we are paying premium wages to people who come to work.
You know, we haven't talked about it but we're doing it you're going to doing adding temperature scans at all but they had census for quality because as a cost.
And and so we're we're at say that right now there's some uncertainty about how those are going to balance out that we will sort through.
If we were maybe two more weeks into it we'd have a better handle on it but these are things that are literally changing day by day. So things like transportation me to fuel rates are down and see that at the gas pump, but there's some shipping rates are up too so it.
It's too early at this point.
Okay. That's follow up Easter you typically have a lot of seasonals that go into market for Easter is that still going to happen or our retailers shifting merchandising away from Easter.
Oh, you know you asked about promotions and so that's kind of goes go to that so we are running fewer promotions.
Got it had that in our prepared bucket prepared comments, but.
And that's really in collaboration with our customers, who frankly are having a hard time executing against Oh, that's probably going to have some impact on Easter, but I think that whatever impact there was on Easter is gonna be loss than the shuffle.
Because of the tremendous surge right now we are seeing the right seasonal items.
Doing so we get up and the Miller.
For for baking as the.
Big item right now yeah Easter is a less important holiday for Cormick, Yeah, we often talk about Easter because you've got to get that Easter displays down to get the grilling displays up and the real grilling season season starts after Easter and I'd say, that's the biggest the bigger factor for us.
Yeah. This is getting the grilling items out there and honestly with people staying at home or actually expect our grilling season to be really good.
Great all right. Thank you.
Thanks.
Our next questions from the line of Rob Dickerson with Jefferies. Please proceed with your questions.
Great. Thank you so much.
Okay everyone's well.
So you know you I know you said tender that week anymore should change.
Vanella was up I think you said there was 50% plus.
Obviously people at home cooking more need Noah.
You know how do you think your first question is just about destock potential right because a lot of questions around is it to consumption shift or is it really pantry load I'm just in general and then secondly.
Just on the margin I know Theres no guidance.
But you know as if with respect to Q1 fit to the flavor solutions segment actually a decent op margin.
And then I'd say kind of going forward you hopefully we get some some volume leverage left up but maybe given kind of that shifting flavor solutions on the on the food service side. If there is there an offset or just kind of how like some structural framework. How we can think about that that yeah, maybe there could be some.
Benefits on the on the consumer side, but we're not sure and kind of the same goes for flavor solutions. Thanks, Yeah I'm not on the pantry stocking you know I think that this if there's real incremental consumption and that it's not going to be something that's gonna have to beat the loaded.
Yeah, we're talking about spices used to that spices and seasonings cotton that used to the recipe mixes used to cook near foothold and there is more food consumption happening at whole consumers really are beating this up it's not like.
Toilet paper, where at some time theres kind of there being such a glut on the market that that it's going to freeze up yeah. This is there's there's real incremental usage here.
That that we think it's not going to require any kind of consumer pantry loading at least as near as we can measure up at the time, but I'd say that.
Probably play into the uncertainty about it but we have a point if you bought it.
I think on the your question about kind of a structural margin you're right. We had it had a really great first quarter from a margin perspective at the gross margin mine a flavor solutions. We continue the portfolio migration or CCRI teams have done a great job and we'll continue to do a great job. During this crisis, we have a lot of volume favorability is that the problem is going forward, Rob if some of that.
Drops off some of those go away from overhead absorption perspective so.
I can't really counting those to continue but obviously, who will give you more guidance as we as we can.
Okay Super and then just a quick follow up I think I heard you say.
Earlier that maybe the that's the pressure so far away from your perspective, you see coming through March.
And that 20% of the business foodservice restaurants.
And flavor solutions could be maybe a little bit more pronounced then.
Consumer might be able to offset.
So I just wanted to clarify that comment just given.
Piece is 20% and the other piece the business Dallas.
Rob I also want to so I bought a remind you that yet but you know.
China was largely a lock down through the most of them out the margin. So there is going to be pretty and there's going to be a significant impact from China. So there. They are in recovery now, but you know who they province actually just reopening now.
And so.
For for example, so so there's going to be a an impact from that as well.
Okay. So it sounds like that 1% to 2% you know expected pressure on China for the year is.
Really at this point it more of a Q2 of that.
I'd say, it's mostly at first half of it yeah. Okay cool all right. Thank you so much stay safe backdrop.
Our next question is from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Thank you I appreciate you guys squeezing the into that.
Yes, the first coming back I know, it's an earlier question from a different lines, just thinking about trade marketing and the current in the current period and I know Lawrence you talked about promotions generally, but just trade spend generally I mean, how how does that evolve when it seems almost indiscriminate what the consumer is taking.
And as long as yet if you haven't on the shelf in the center to source seems like people are buying it.
Just I, how does that become part of the margin kind of earnings equation over the balance of there.
Right I wish it was that easy.
But you know I think a lot of what yeah, I mean, right now or I mean trade marketing, it's really a customer support and.
And working with our customers collaboratively to keep them in supply, but the items that are selling the fastest.
And so you know the reason that Theres a reduction of promotion activity is frankly that customers can't keep up with it so.
So you've stopped so there was so there so we've sold.
Since have stopped so weve so we have.
Tailed some you know some promotions be a it's hard to see how that is going to go to.
Play out yeah, as we as we go through the year I think that we're just going through it gets an extraordinary period right now that will reach at new equilibrium.
It will to continue Illinois promotional activity, that's meaningful circus and there's more consumers really go online digital work and we've been migrating our trade spend to digital or the last couple of years, so you'll see more of that fair.
Okay. That's helpful.
And then second question just on the Pantries stock that's been happening I mean, your your portfolio, meaning pretty complex kind of assortment of skews that have kind of different kind of consumption patterns and kind of normal sales velocity and just from the debt then you've seen have you been surprised it.
Velocity sales velocity of things that normally wouldn't turn faster just I guess some of your things I would think can stay in the Patrick for some time are you seeing bigger uplifts in those items, where could take longer to get that restock again in several months or the faster turning skews returning even faster I think that this.
The extent of the consumer.
Pantry stocking and the suddenness with which it hit its a surprise to.
Everyone, but in terms of when you look when you when to tease that apart and you look at orders of magnitude the items with the highest velocities are not a surprise yeah recipe mixes are condiments, Frank asphalt actually.
These items are our Uh huh.
There are not items that are that are stockpiles, but that are tend to be consume pretty quickly and Uh huh.
That are the ones that are seeing some of the biggest increases.
Okay I appreciate the color everyone Healtheintent.
Thank you. Our next question is from the line of Chris Growe, Even Stifel. Please proceed with your question.
Hi, good morning.
Yeah, I'll add my God, you all are doing well and safe. So I'm just two questions. If I could the first would be I want to understand as we think about the restaurant business overall the area that's being pressured the most is that a higher margin business overall.
In particular I'm curious.
In China. There was this a larger profit effect from that the soft softness that business and I want to get my head around the size of profitability. There even general terms and then I had a second question just on the U.S. I know you had a bit of an increase in inventory in the first quarter last year, obviously that compares this year.
Where do we inventories student numbers only the building in this environment I just want to understand how that could play out going forward and how to expect that to influence your business. Thank you.
Hey, Chris This is Mike if you remember the the flavor, we always show the flavor solutions, a breakout where we have about 45% of our.
Flavor solutions businesses flavors, that's generally the higher margin business and we talked about per fully migration more to that custom condiments codings ingredients generally lower margin business.
Yeah, we have pockets of really good margin in there. So I don't want to characterize the whole group, but it's generally lower than the flavor size of the business.
Specifically talking about China.
China is a very developed market for us we have scale their large manufacturing facilities lots of people. So the margins. There are generally good across consumer and flavor solution. So that's why you're seeing a pretty significant impact in Q1 from a from a profit perspective.
And going forward you know they know the wheel that life was talking about the branded food service component that's markets that are comparable to where consumable business.
So there's a there's a mix a margin structures within that there was the brand at foodservice, but.
Oh consumer like margins and there's just a quick service restaurant piece, which is part of the doesn't sort of generally characterized as low margin.
It was the second part of question, Chris what was it.
That was just on the Oh in inventory changes and you'll be again when do they were down and are up in the first quarter last year, there for a tough comp, but how to think about those going forward that seems like they should grow from here. It would seem you would think I mean, I think customers are trying to grow their inventories right.
I don't know, they're being successful I mean, if you walk into any store you're going to see they don't have stock on their shelves.
And the at a lot of areas, it's hard to I don't know where that is.
It's going to go to stabilize it.
Right now I don't think anyone in the.
The.
Oh, the retailer or customer side is thinking about inventory reduction I think right now there are scrambling to stay itself.
To that point, then Laurence are you should be the head to head of consumption than you'd just from abroad I'm not trying to get it back number but I understand you know the degree to which you're able to ship now can you ship ahead of consumption then.
Yeah, I can't really.
I would really be speculating on what we are I would say we are keeping up with the.
The demand is challenging right now due to keep up with that demand and I would say that to that we had not been.
As well prepared as we were on the supply chain side and also frankly building some inventory in preparation for our ERP ship, but that looks like.
It goes out all the way through our supply chain.
We would really we'd be even more stress than we are right now.
<unk>.
Our next question comes from the line of David Driscoll with DD research dishes use your question.
Great really appreciate you guys get me and I understand the time here. So just some follow ups and I I hope. These are Ah enhances the first question I don't think you said what the magnitude of declined in the foodservice business the 20% of the company in March but can you I appreciate the the pop.
The numbers on though on the consumer side, but just trying to get a sense of this 20% in foodservice business you have a sense of what the magnitude of did decline is in March no attack, we definitely see not.
He said, what it was and and you know we're we're.
Not going to say more than its significant as a fast changing but situation you know restaurant openings and closures are.
Or being.
No, it's almost daily and I think that its a.
<unk>.
I think that we're really not limits that then position to give.
You or or or your or your or your colleagues meaningful credible guidance in the area.
We can't say, it's different different reasons with world like we said before EMEA, you've seen a significant downturn because of the government actions without shutting down.
Everything.
Okay, and then add just two other quick follow ups. Mike can you just talk about FCC I program in an environment like Ben.
As it does it even unfold over the rest of the year as you originally thought it would mean can you execute these programs are given the demand that you have going on do you just re task your people to making sure that you've got product going out the door I don't really understand how to think through this show any thoughts you give right. There are our big help and then last question I had for you guys. We've just.
New products versus the big SK use you've kind of talked around this a little bit but just directly are you reducing your you're focused on some of the new products and increasing you're focused on your on your big SK used in terms of your manufacturing runs that's it for me thanks guys.
Hey, Dave This is Mike <unk>. She's got good question 60, I've spent a long term program for us since 2009, we have a really strong pipeline of projects coming into this year and you know its ingrained in our culture. We have teams still working on C.C.I. programs, you're right, though it puts a lot of stress on the organization that competing priorities.
But that is not any that's not a factor in any withdrawal of our guidance, we still feel confident about or <unk>, we see I program.
Again in the second quarter, we always say this too shall pass to some degree and hopefully things get back to the new normal but.
We still feel real confident in our in RCC I program and achieving those results and likewise on NPD I've already commented on the on the first quarter. So I won't repeat Oh, sorry, first happened I wont wont repeat that but again as we take a long term perspective on our business or or.
Our R&D teams and our at our and our marketing teams and commercialization teams are continuing to work.
And P.D. it.
Hi, good pipeline.
This this will pass and ER and they'll be and they'll be there's a there's gonna be it at important.
Place for new products, just as or whatever but.
Thank you.
Thanks.
Thank you. Our final question today comes from the line of Peter Gambles Bank of America, such as your questions.
Hey, guys. Good morning, and thank you for putting me and Laurentide I just wanted to ask about squaring. So some of the math around China, obviously, a 3% had kind of in the first quarter and then one of that are 1% to 2% kind of hit for the full year <unk>, what sort of imply a similar 35.
Five to 40 million dollar hit in the second quarter I try to make sure I'm thinking about that right and I know you know you've also just given some some early commentary, but put anything you're hearing from your foodservice customers in China on the ground maybe outside of the Hubei province would be helpful.
Sure so.
So your math is bright I wouldn't say that it's all second quarter, but but we do see or a ramping up of the business by the strong impactful second quarter and and that's a.
Sure you're on the you're on the order of magnitude.
There in terms of the.
In fact, we expect regarding the food service industry in China. Most of our customers have gone publicly stated that their restaurants are open and and they are and consumer traffic is slowly building up that if you know for that opening as occurred over.
For a period of of weeks, but.
But you know our teams.
Confirmed that the restaurants are open that depending on the on the.
On the on the region yell at some of them some of the areas for.
Recovery is furthest along in like in Shanghai and what.
They are seeing a 30% or the the as much as 50% of normal a normal traffic in places like who Bay you know the openings are only a they're only a like a few days or weeks into and Doug and consumers are still not confidence enough or or have the freedom of movement.
Two.
Get into those those restaurants.
Good to some good color.
That's on cardio, we've got we've got almost 3000 people.
In China, including a thousand lots, so we have pretty good.
Good good ultimate actually happening on the ground there.
Got it now that that's that's very helpful. You also gave some some helpful commentary just around you know mccormicks broader performance during recessionary periods, you know I think one of the questions. It that we've been getting is just.
In general what kind of happens with private label.
You know recessionary period. So just anything you can speak to that what you saw kind of in Indiana and want to maybe in 2009.
Some of your categories, where its competition from private label.
Our experience is that a that we've done well during those recessionary times I don't forget that were supplier of of private label and Ah.
As a private label does fall so to what sort of more brands we've had good growth.
Yes, again look back at the last two recessionary period and in our consumer business growth was a Elizabeth small I think you mentioned those numbers on that.
In the prepared remarks, I'd say that our U.S. consumer business was actually slightly stronger than the numbers that we quoted for total company.
Great. Thanks, very much guys.
Yeah.
Thank you I'll turn the call Maxim Lawrence Kurzius for closing remarks.
Great. Thanks, everyone for your questions and for participating on today's call. Thanks for your patience for saying over we didn't want to take all of the questions.
And so we've run a little bit law, a karmic as a leader in flavor and for differentiated the brought an advantage portfolio, which continues to drive growth, we have a growing and profitable business and operate in an environment that is changing it I never faster pace, we deliver flavor to all markets and channels, while responding readily to changes in the industry and the world with new ideas and.
Patient at purpose.
One of the most significant risks to any company is being unprepared to respond with agility to a significant unexpected disruption. We are all experiencing that disruption now and Mccormick is well prepared but only to manage through it but to emerge stronger for the relentless focus on growth performance and people, we're confident or strategies will enable us to become.
Even better positioned to drive future growth and build long term value for shareholders.
Thank you lines and thanks, everyone for joining todays call you have any further questions regarding today's information. Please reach out to me. It conclude the call. This morning, having a good day and everyone stay healthy insane.
[laughter].