Q4 2021 McCormick & Company Inc Earnings Call

January 27, 2022

Good morning, Kasey Jenkins senior Vice President of corporate strategy and Investor Relations. Thank you for joining today's fourth quarter earnings call to accompany this call because it satisfies at IR, Don Mccormack Dot Com, we'll begin with remarks from Mark for this.

Chairman, President and CEO , and Mike Smith, Executive Vice President and CFO , and we will close with a question and answer session.

During this call we will refer to certain non-GAAP financial measures. The nature of these non-GAAP financial measures and the related reconciliation 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.

Refer to our forward looking statements on slide two for more information I will now turn the discussion over to Lawrence.

Casey Good morning, everyone. Thanks for joining us.

Starting on slide four our fourth quarter completed another year of robust and sustained growth.

2021, we remain focused on growth performance and people driving another year of strong results and continuing our momentum.

Drove record sales growth by executing on our long term strategies actively responding to changing consumer behaviors are capitalizing on new opportunities all while remaining forward looking in an ever changing global environment.

Driven by our strong sales growth in 2021, while tempered by the well known headwinds of higher inflation and broad based supply chain challenges was also strong.

Our 2021 operating performance underscores the strength of our business model the value of our products and capabilities and the resilience of our employees.

We have a demonstrated history of managing through short term pressures and did so again in the fourth quarter and we expect to do the same through this inflationary environment using pricing and other levers to fully offset cost pressures over time.

The breadth and reach of our global flavor portfolio ideally position us to fully meet the growing demand for flavor around the world and drive continued differentiated growth.

This has never been more evident than over the last two years as consumers adapted to the ever changing environment.

Our compelling offerings in our consumer and flavor solutions segment for every retail and customer strategy across all channels.

<unk> diversified portfolio to drive growth and consistency in our performance.

It also gives us significant flexibility to adapt to changing conditions wherever they may arise and continue on our growth trajectory.

This is a significant differentiator in the dynamic environment in which we currently operate we're delivering flavor experiences for every meal occasion, regardless of whether the occasion is consumed at home or away from home.

Our products and our customers' products, we are end to end flavor.

Now turning to slide six and our fourth quarter results. Our performance was at the high end of the guidance range. We provided for sales and adjusted operating profit on our last earnings call and exceeded the guidance range, we provided for adjusted earnings per share.

On our top line versus the year ago period, we grew fourth quarter sales of 11%.

Both of our segments delivered strong growth with contributions from base business growth driven by higher volume and pricing actions as well as new products and acquisitions.

Our fourth quarter adjusted operating income and adjusted earnings per share both increased 6% driven by growth from higher sales and CCI led cost savings, partially offset by cost inflation.

Let's turn to our fourth quarter segment business performance, which includes some comparisons to 2019 pre pandemic levels, which we believe are meaningful given the level of demand volatility from quarter to quarter experienced in 2020.

Starting on slide seven consumer segment sales grew 10%, including incremental sales from our Tallulah acquisition. The increase was driven by strong volume growth and the impact of pricing actions phased in during the quarter as we discussed on our last earnings call.

Our consumer segment organic sales momentum on a two year basis was up double digits, highlighting how the sustained shift in consumer consumption continues to drive increased demand for our products and outpaces pre pandemic level.

Our Americas sales growth was 13% in the fourth quarter with incremental sales from our <unk> acquisition contributing 3% growth.

Our total Mccormick U S branded portfolio construction as indicated in our IRI consumption data and combined with unmeasured channels grew 1% following a 17% consumption increase in the fourth quarter of 2020.

Which resulted in a 19% increase on a two year basis.

As we've previously discussed in the year ago period elevated demand challenged our supply chain, whereas in 2020 , one, but the actions we took to add capacity and increase resilience, we were far better positioned and able to shift in line with consumption.

And that has remained high and we continue to realize the benefit of our U S manufacturing capacity expansion, although some products remains stressed by sustained high demand shelf.

Shelf conditions are improving as is our share performance with another sequential improvement in the fourth quarter as we expected.

We continue to see further improvement in our recent performance as we begin 2022.

Importantly, and as I just mentioned, we are better positioned than we were a year ago and are confident in our continued momentum.

Focusing further on our U S branded portfolio are 19% consumption growth versus the fourth quarter of 2019 was the seventh consecutive quarter that our U S branded portfolio consumption grew double digits versus the two year ago period. Our key categories also continued to outpace the center of store.

Our growth rates versus the two year ago period.

Household penetration and repeat rates have also grown versus 2019, and when consumer shop their buying and therefore using more of our products than they were pre pandemic.

Now turning to EMEA during the fourth quarter, we continued our momentum with strong consumption growth in key categories compared to the fourth quarter of 2019 for.

For the full year, we gained market share in key categories and across the region similar to the U S. Our household penetration and repeat rates have also grown versus the two year ago period, and when consumers shop, they are buying more than they were pre pandemic.

And then the Asia Pacific region, our fourth quarter performance continued to reflect the recovery of China's lower branded foodservice sales last year as well as consumer consumption growth across the region.

Turning to slide nine our flavor solutions segment grew 14%, reflecting higher base volume growth and new product as well as pricing actions to partially offset cost inflation and contributions of our bona until the lula acquisitions on a two year basis. Our sales also increased double digits with <unk>.

Strong growth in all three regions and.

In the Americas, our phone and Tallulah acquisitions made a strong contribution to our fourth quarter growth. Additionally, we continue to see robust growth momentum for their consumer packaged food customers as well as the recovery of demand for branded foodservice customers as more dining out options are open versus a year ago. We.

We continue to execute on our strategy to shift our portfolio to more value added and technically insulated products in the region. Both through the addition of bona Angela to our portfolio as well as the exit of some lower margin business.

Turning to EMEA, which has continued its strong momentum we are winning in all channels with double digit fourth quarter growth to quick service restaurants, or <unk> branded foodservice customers in packaged food and beverage customers.

Recovery has been robust in the away from home part of the portfolio and growth in our at home offerings has been outstanding notes.

Notably for the full year on a two year basis, we have driven 19% constant currency growth across the portfolio.

And APC, our momentum with our <unk> customers remained strong driving double digit growth versus 2020 as well as on a two year basis.

As for the fourth quarter and in line with what we've said in the past limited time offers and promotional activities can cause some sales volatility from quarter to quarter.

Moving to our fourth quarter results I'm pleased to share highlights of our full fiscal year, including an update on our Tallulah in Florida acquisitions, starting on slide 10.

We drove record sales growth in 2021 growing sales, 13% to $6 3 billion with strong organic sales growth and 4% contribution from our <unk> and photo.

Physicians, notably on a two year basis, we grew sales, 18%, reflecting a robust and sustained growth momentum in both of our segments.

Our consumer segment sales growth of 9% was driven by consumer sustained preference for cooking more at home fueled by our brand marketing strong digital engagement and new product as well as growth from Tallulah.

Versus 2019, we grew sales, 20%, which reflects the continuation of consumables cooking and using flavor more at home and the strength of our brands.

Our flavor solutions segment growth of 19% reflected the strong continued momentum the at home products in our portfolio, including a record year of new product growth and a robust recovery from last year's lower demand for away from home products as well as contributions from phone and Tallulah, notably growth was driven equally.

From both the at home and away from home products in our portfolio.

On a two year basis, we grew sales, 15% driven by the at home part of our portfolio, but demand for the away from home portion recovery to pre pandemic levels.

We have consistently driven industry, leading sales growth, resulting in mccormick being named to the latest Fortune 500, we're proud of our sustained performance and for being included in this prestigious group of industry leading companies.

At year end, our board of directors announced a 9% increase in our quarterly dividend, marking our 36th consecutive year of dividend increases we have paid dividends every year since 1925 and are proud to be a dividend aristocrat.

Finally, we continue to be recognized for doing what's right for people communities and the planet during.

During the year Mccormack was named the United Nations Global Compact lead company and awarded the inaugural terracotta steel from his Royal Highness, Prince of Wales, our industry leadership, and creating a sustainable future and just lastly, corporate Knights ranked Mccormick in their 2022 global 100 sustainability.

Index as the worlds 14th most sustainable Corporation and for the sixth consecutive year of number one and the food product sector.

Moving to the one year anniversary of our two fantastic recent acquisition.

And Florida are creating value achieving synergies and delivering our results. According to our plan.

Accordingly, we achieved our one year sales and earnings per share accretion expectations for both <unk> and <unk>.

Kona.

I'd like to share some comments about the successful execution of our growth plan and then in a few moments Mike will cover in more detail our delivery all the acquisition plants.

Starting with pillar on Slide 12. The addition of this be loved iconic brand with authentic Mexican flavor is accelerating the growth of our global content platform and our consumer.

<unk> segment, we're unlocking tallulah significant growth potential are using our category management expertise leveraging e-commerce investments launching new products and optimizing branch marketing expense.

We executed on the initiatives this past year, including optimizing shelf placement and assortment expanding into new channels.

Any momentum in e-commerce virtual Lula had been underpenetrated, increasing awareness, both through brand marketing investments and brand partnerships, such as with door dash and leveraging promotional scale across the Mccormick brand.

We're excited about the results of our initiatives are yielding during 2021, we gained significant momentum on top of lapping elevated growth in 2020, adding over 1 million new households, and growing <unk> consumption, 13% in 2021 versus last year.

Lula is continuing to outpace category growth and gain share.

Bank with 19% total distribution point growth in the fourth quarter of 2021. It is clear our plants are driving accelerated growth.

And notably we drove to a little bit to the number two hot sauce brand in the U S. Joining Frank's Red Hawk. The number one ranked at the top of the category.

We are just as excited about <unk> performance as part of our flavor solutions portfolio.

Our broad presence across the foodservice channel, we have strengths central <unk> go to market model through 2021, we continue to build a bunch of little a strong front of house presence, which builds trial and brand awareness beyond foodservice.

Significant double digit growth of portion control packs as more restaurant meals are now consumed as delivery or takeaway.

Leveraging leveraging our culinary foundation and insights on menu trends, we've also driven double digit growth in our backup house foodservice penetration.

Subpoena inspiration and increasing <unk> menu participation.

We're growing with big National accounts, and smaller independent restaurants, as well as expanding distribution through leveraging the strength of our distributor relationships for Toledo was less developed here.

We are succeeding with new menu items, including both permanent ones and limited time offer.

Our momentum with Chipotle is very strong.

Confident our initiatives will continue to build with consumers growing passion for heat and drive further growth of this fantastic brands.

Now turning to <unk>. The addition of this leading north American flavor manufacturer is accelerating the growth of our global flavors platform. We're thrilled our first year of owning phone. It has been a record year for the business with double digit sales growth compared to last year.

Beverages with particular strength in the fast growing performance nutrition category continued to drive significant growth for Florida up 15% compared to last year.

<unk>, new product wins and its pipeline potential I've also hit record highs in fueling future growth.

We're continuing to drive growth and create new opportunities with our global footprint.

We are leveraging <unk> infrastructure to expand photos flavors into the EMEA region.

Our <unk> region, the combination of our infrastructure, which includes our recent flavor capability investments in China and some of those local applications.

Flavor creation talent is unlocking further potential to accelerate flavor growth in that region.

Just a few months ago, we began our expansion of bonus footprint to increase our Americas flavor manufacturing capacity and investment we planned as part of our acquisition model, enabling us to deliver the future growth we expect.

By expanding our breadth and depth developing flavor, while also combining our infrastructure provides greater scale as well as increasing our manufacturing capacity and technical bench strength, we are providing our collective customers with a more comprehensive product offering at fueling more opportunities for growth across our <unk>.

Your portfolio.

We're cross selling products across our customer base and we've also realized the benefit of our combination within our own portfolio for instance, with Volvo now leveraging mccormick's, USDA savory flavors and developing flavors for pet food applications.

The combination of our capabilities has created new opportunities to participate on briefs that capitalize on our core strengths across Mccormick consult us, enabling us to build a robust pipeline of opportunities and importantly win and grow with our customers.

We are thrilled with both children and filling up our enthusiasm for these acquisitions as well as our confidence that we will continue to achieve our plans accelerate growth of these portfolios and drive shareholder value has only continued to strengthen.

In summary for 2021, we continue to capture the momentum we have gained in our consumer segment and the at home part of our flavor solutions segment, we have successfully navigated through the pandemic related disruption in the away from home portion of our flavor solutions segment, and Tallulah installer have proven to be fantastic additions to our portfolio.

All of this reinforces our confidence for continued growth in 2022.

Global demand for flavor remains the foundation of our sales growth and we are intentionally focused on great fast growing category and we will continue to differentiate our performance. We're capitalizing on the long term consumer trends that accelerated during the pandemic healthy and flavorful cooking increased digital <unk>.

<unk> trusted brands at purpose minded practices. These long term trends and the rising global demand for great taste are as relevant today as ever with the younger generations fueling that I'm at a greater rate.

Our alignment with these consumer trends combined with the breadth and reach of our global portfolio and the successful execution of our strategies sustainably positions us for future growth.

In this current dynamic and fast paced environment, we remain focused on long term sustainable growth.

As I mentioned earlier, we continue to experience cost pressures from higher inflation and broad based supply chain challenges similar to the rest of the industry.

To partially offset rising cost, we raised prices where appropriate late last year and began to realize the impact of those actions in our fourth quarter sales growth.

As costs have continued to accelerate we are raising prices again, where appropriate in 2022. These pricing actions are on track and we appreciate our customers working with us to navigate this environment.

Additionally, our plans to mitigate cost pressures that include our CCI led cost savings revenue management initiatives, and taking prudent steps to reduce discretionary spend where possible.

Throughout our history, we have grown and compounded our growth regardless of short term pressures and plan to do so again in 2022, as we continue to accelerate our momentum and drive growth from a position of strength.

Across our consumer segment. Our 2022 plants include continuing to build consumers' confidence in the kitchen.

Fire their home cooking and flavor exploration and accelerate flavored usage, including delivering on the global demand for heat.

We also plan to strengthen our consumer relationships at every point of purchase as well as created delicious healthy and sustainable future.

Our investments in brand marketing category management, and new products, we expect to drive further sales growth.

For our flavor solutions segment, the execution of our strategy to migrate our portfolio to more technically insulated and value added categories will continue in 2022. Our plans include targeting opportunities to grow with our customers in attractive high growth category continuing to leverage our broad technology platform to <unk>.

<unk> clean and natural solutions that taste, great and strengthening our leadership in heat with.

With our culinary inspired innovation and our passion for creating a flawless customer experience. We plan to continue our new product momentum and drive further sales growth.

Our achievements in 2021, our effective growth strategies as well as our robust operating momentum all bolster our confidence confidence in delivering another strong year of growth and performance in 2022.

Looking forward to sharing more details regarding our 2022 growth plan in just a few weeks at Cagny.

In summary, we have a strong foundation and are well equipped to navigate through this ever changing environment, responding with agility to volatility and disruption.

Remaining focused on our long term objectives strategies and values that have made us so successful.

We're in attractive categories and are capitalizing on the long term consumer trends that are in our favor.

The combination of our strong business model the investments we've made the capabilities, we've built and the power of our people position us well to continue our robust growth momentum.

Importantly, our strong growth trajectory supports our confidence and our long term financial algorithm to drive continuous value creation through topline growth and margin expansion are fundamental momentum and growth outlook are stronger than ever.

Mccormick employees around the world has done a tremendous job of navigating this past year's volatile environment their agility teamwork and passion for flavor drive our momentum and success and I want to thank them for their dedicated efforts and engagement.

Now I'll turn it over to Mike.

Thanks, and good morning, everyone.

Before I provide additional remarks on our fourth quarter and full year results I would like to build upon Lawrence has comments on Lula and sauna and highlight how we have delivered on our acquisition plans now that we have completed the first year.

On slide 19 as long as already shared we have created value by driving sales growth. According to our plans. In addition, cholewa was margin accretive to the gross and operating margins in both of our segments and Sonya was accretive to the margins in the flavor solutions segment.

We are delivering against our synergy and one time cost estimates in fact doing better than our acquisition plan.

Starting with our original synergy targets for Cholewa, we've achieved the targeted $10 million to be fully realized by 2022.

For <unk>, we are on track to achieve our targeted $7 million by the end of 2023.

We are also achieving revenue synergies as expected.

Our transaction and integration costs, which Hulu led to find out are both lower than our acquisition plans.

Early in 2021, we took the opportunity in a low interest rate environment to optimize our long term financing following the acquisitions raising $1 billion through the issuance of five year, 9% notes and 10 year, 185% notes and therefore realize lower interest expense than we originally projected. Additionally.

Our ongoing amortization expenses favorable favorable to both the acquisition models.

In summary, we executed our ear worn acquisition plans in line with and in some areas better than our models, including the adjusted earnings per share accretion we expected.

Successful acquisitions are a key part of our long term growth strategy importantly, we have a proven track record of driving value through acquisitions and increasing the performance of acquired businesses and to Lula and <unk> are adding to that history.

Now for our fourth quarter and full year performance starting on slide 20.

Our fourth quarter capped off a year of record sales growth.

During the fourth quarter, we grew constant currency sales, 10% with higher volume and product mix acquisitions and pricing each contributing to the increases in both segments.

Our organic sales growth was 6% driven by strong growth in both the consumer and flavor solutions segments and incremental sales from our two Lula and <unk> acquisitions contributed 4% across both segments.

<unk> is the fourth quarter of 2019, we grew sales 15% in constant currency with both our consumer and flavor solutions segments growing double digits.

During the fourth quarter, our consumer segment sales grew 9% at constant currency, driven by higher volume and product mix pricing actions and a 2% increase from Akshay Lula acquisition the.

The year over year increase was led by double digit growth in the Americas and Asia Pacific regions.

Paired to the fourth quarter of 2019 sales grew 14% in constant currency led by the Americas.

On slide 21 consumer segment sales in the Americas increased 13% in constant currency, driven primarily by higher volume and product mix as the sustained shift to at home consumption continues to drive increased demand as well as lapping last year's capacity constraints.

Pricing actions and a 3% increase from the <unk> acquisition also contributed to sales growth.

Compared to the fourth quarter of 2019 sales increased 19% in constant currency.

Driven by broad based growth across branded products as well as an increase from the <unk> acquisition.

A decline in private label sales, partially offset the branded growth.

In EMEA constant currency consumer sales declined 5% from a year ago due to lapping the high demand across the region last year.

On a two year basis sales increased 5% in constant currency driven by growth in spices, and seasonings hot sauce and mustard.

Consumer sales in the Asia Pacific region increased 11% in constant currency due to the recovery of branded foodservice sales in China for away from home products and higher sales of cooking at home products across the region.

Compared to the fourth quarter of 2019 sales were flat with growth across the region offset by a sales decline in India due to the exit of some lower margin business.

Turning to our flavor solutions segment on slide 24.

We grew fourth quarter constant currency sales, 12%, including a 7% increase from our phone and Cholewa acquisitions a.

The year over year increase was led by double digit growth in the Americas and EMEA regions.

Compared to the fourth quarter of 2019 flavor solutions segment sales grew 16% in constant currency.

In the Americas flavor solutions constant currency sales grew 13% year over year with Kona and she lula contributing 11%.

Organic sales growth was driven by the recovery of demand from branded foodservice and other restaurant customers higher sales to packaged food and beverage companies with strength in snack seasonings and pricing.

On a two year basis sales increased 15% in constant currency versus 2019, driven by higher sales from acquisitions in packaged food and beverage companies, partially offset by the exit of some lower margin business and other parts of the portfolio.

In EMEA constant currency sales grew 16% compared to last year due to increased sales to <unk> and branded foodservice customers as well as continued growth momentum with packaged food and beverage companies.

Constant currency sales increased 26% versus the fourth quarter of 2019, driven by strong sales growth with packaged food and beverage companies and <unk> customers.

In the Asia Pacific region flavor solutions sales rose, 1% in constant currency versus last year and increased 8% in constant currency versus the fourth quarter of 2019.

Both driven by <unk> growth and partially impacted by the timing of our customers' limited time offers and promotional activities.

As seen on slide 28, adjusted operating income, which excludes transaction and integration costs related to the chula and fill in acquisitions as well as special charges increased 6% in the fourth quarter versus the year ago period with minimal impact from currency.

Adjusted operating income in the consumer segment increased 14% constant currency, 13%.

Sales in CCI led cost savings more than offset cost pressures from inflation and logistics challenges.

Brand marketing investments as planned were 10% lower in the quarter. Following an 818% consumer segment increased in the fourth quarter of last year.

For the full year, we increased our brand marketing investments 3%.

In our flavor solutions segment, adjusted operating income declined 16% or 15% in constant currency.

Higher sales and CCI led cost savings were more than offset by the cost pressures in this segment unfavorable product mix and costs related to supply chain investments.

Across both segments incremental investment spending for our ERP program was offset by lower COVID-19 cost compared to last year.

As seen on slide 29, adjusted gross profit margin declined 150 basis points, driven primarily by the net impact of cost pressures, we are experiencing and the phasing of our pricing actions.

Our selling general and administrative expense as a percentage of sales declined 70 basis points driven by leverage from sales growth and the reduction in brand marketing I just mentioned.

These impacts netted to an adjusted operating margin decline of 80 basis points as we had expected.

For the fiscal year adjusted gross profit margin declined 140 basis points, primarily driven by the cost pressures, we experienced in the second half of the year and the lag in pricing.

Adjusted operating income grew 6% in constant currency with the consumer segment's adjusted operating income increasing 1% in the flavor solutions segment, 23%.

Both segments were driven by higher sales and CCI led cost savings, partially offset by cost pressures and incremental strategic investment spending.

Adjusted operating margin declined 80 basis points for the fiscal year driven by the adjusted gross profit margin decline.

Turning to income taxes, our fourth quarter adjusted effective tax rate was 21, 3% compared to 22, 9% in the year ago period.

Both periods were favorably impacted by discrete tax items for the full year, our adjusted tax rate was 21% comparable to 19, 9% in 2020.

Adjusted income from unconsolidated operations declined 40% versus the fourth quarter of 2020 and 5% for the full year.

The elimination of higher earnings associated with minority interest impacted both comparisons unfavorably.

Our adjusted income from operations was also unfavorably impacted by the elimination of ongoing income from eastern continents. Following the sale of our minority stake earlier this year.

For the fiscal year. This was partially offset by strong performance from our Mccormick to Mexico joint venture.

At the bottom line as shown on slide 32 fourth quarter 2021, adjusted earnings per share increased to 84.

From 79 in the year ago period and for the year adjusted earnings per share increased 8% to $3 <unk> for fiscal year 2021.

The increases for both comparisons were driven by higher adjusted operating income attributable to strong sales growth.

On slide 33, we summarized highlights for cash flow and the year end balance sheet.

Our cash flow from operations for the year was $828 million.

The decrease from last year was primarily due to the higher use of cash associated with working capital and the payment of transaction and integration costs.

The working capital comparison includes the impact of higher inventory levels to support significantly increased demand and to mitigate supply and service issues as well as a buffer against cost volatility.

We've returned $363 million of this cash to our shareholders through dividends and used $278 million for capital expenditures in 2021.

Our capital expenditures included growth investments and optimization projects across the Globe. For example, our new UK flavor solutions manufacturing facility, our ERP business transformation additional hot sauce capacity in the U S and our new U S northeast distribution center.

In 2022.

Our capital expenditures to be higher than 2021, as we continue to spend on the initiatives, we have in progress as well as to support our investments to fuel future growth.

We expect 2022 to be a year of strong cash flow driven by profit and working capital initiatives and 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 2022 financial outlook on slide 34.

We are well positioned for another strong year of growth and performance in 2022 were.

We are projecting strong top line and operating performance with earnings growth, partially offset by a higher projected effective tax rate.

We also expect there will be an estimated one percentage point unfavorable impact of currency rates on sales adjusted operating income and adjusted earnings per share.

On the top line, we expect to grow constant currency sales, 4% to 6%.

As Lawrence mentioned, we are taking further pricing actions in 2022 and as a result expect pricing to be a significant driver of our growth.

We expect volume and product mix to be impacted by elasticities, although at a lower level than we've experienced historically.

We plan to drive growth through the strength of our brands as well as our category management brand marketing new products and customer engagement growth plans are.

Volume and product mix will also continue to be impacted by a pruning of lower margin business from our portfolio.

Our 2022 adjusted gross margin is projected to range between comparable to 2021 to 50 basis points lower than 2021.

This adjusted gross margin compression reflects the anticipated impact of a mid teens increase in cost inflation and unfavorable impact of sales mix between segments.

The favorable impacts from pricing and CCI led cost savings.

As a reminder, we price to offset dollar cost increases we do not margin up.

This has a dilutive impact on our adjusted gross margin and is the primary driver of our projected compression.

We expect to grow our adjusted operating income, 8% to 10% in constant currency, which reflects our robust operating momentum a reduction in COVID-19 related costs and our continuing investment in ERP business transformation.

This projection includes inflationary pressure in the mid teens, a low single digit increase in brand marketing investments and our CCI led cost savings target of approximately $85 million.

Our cost savings target reflects the challenges of realizing commodity and packaging cost savings in the current inflationary environment. Importantly, we believe there continues to be a long runway to achieve cost savings in 2022 and beyond.

Based on the expected timing of certain items, we expect our profit growth to be weighted to the second half of the year.

Our additional 2022 pricing actions are expected to be phased in during the second quarter.

Cost inflation will have a more significant impact in the first half of 2022 as cost pressures accelerated in the back half of last year.

We also expect our ERP investment to be higher earlier in the year for 2021.

As a reminder, we are also lapping a very strong business performance in the first quarter of 2021.

Our 2022 adjusted effective income tax rate is projected to be 22% to 23% based upon our estimated mix of earnings by geography, as well as factoring in a level of discrete impacts.

This outlook versus our 2021 adjusted effective tax rate is expected to be a headwind to our 2022 adjusted earnings per share growth of approximately 3%.

Our 2022 adjusted earnings per share expectations reflect strong operating profit growth of 8% to 10% in constant currency.

Partially offset by the tax headwind I just mentioned.

This results in an increase of 4% to 6%.

Four 5% to 7% in constant currency.

Our guidance range for adjusted earnings per share in 2022 is $3 17 to $3 22.

Compared to $3 <unk> of adjusted earnings per share in 2021.

In summary, we are well positioned with our broad and advantaged flavor portfolio, a robust operating momentum and effective growth strategies to drive another year of strong growth and performance.

Now that Mike has shared our financial results and outlook in more detail I would like to recap the key takeaways as seen on slide 35.

We drove record sales growth in 2021, our strong operating performance underscores the strength of our business model the value of our products and capabilities and the resilience of our employees.

Cheap or one year.

And Florida acquisition plans.

<unk> have proven to be fantastic conditions for our portfolio.

We have a demonstrated history of managing through short term pressures on driving growth as we did in the fourth quarter Mccormick has grown a compounded that growth successfully over the years, regardless of the environment.

We have a strong foundation, we're in attractive categories and we're capitalizing on the long term consumer trends that are in our favor.

Confident that our broad and advantaged flavor portfolio, a robust operating momentum and effective growth strategies, we will drive another year of strong growth in 2022 and build value for our shareholders now lets turn to your questions.

Thank you we will now be conducting a question and answer session.

If you'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

You May press Star two if you like to move to your questions from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Thank you and our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Great Thanks, everybody and good morning.

Good morning, Andrew Good morning.

Mccormick is essentially guiding to and an algorithm year in what has obviously been described is still pretty difficult industry wide operating environment. I was hoping you could walk us through maybe some of the really the key puts and takes in a little more detail, but to provide you with the visibility to achieve this and maybe what I'm getting at is more detail on the dynamics.

Still very much at play as you mentioned some of them in your first quarter.

Basically investors are trying to get a better handle on sort of the achieve ability of the full year.

In light of all of the Devil difficult dynamics that are playing out in <unk>.

And to try and get a sense of just how backend loaded the year is and again your level of visibility there. So any any more detail on that would be helpful.

Great. Thanks, Andrew well first of all I don't think anyone should be overly surprised by the top line guidance.

Guidance.

I think at the end of.

Third quarter, we indicated that we expect it to grow in 2022 and tried to indicate that we caught everyone's outlook for us was a bit pessimistic.

And you can see that we have.

Pretty upbeat view of where our sales are growing.

The underlying trends that support our business that we've talked about in our prepared remarks.

Our strong the demand for flavor is not.

Cyclical or obsolescence.

Pandemic.

Related but.

Under guarded by.

Real demographics.

And older generations, fueling that demand and we think that the consumption.

The shift to consumption at home.

As happened in <unk>.

<unk> is just a continuation of a long term trend.

That supports our business from an underlying standpoint, and all the things that we do on our strategies for brand building and so on and continue to be supportive of.

Growth.

The year also includes a significant impact on the top line from pricing.

Which maybe underestimated previously.

So that's going to that's going to factor factor.

Factor into it, but we get the shape of the year.

Our fourth quarter is always the strongest part of the year. The first quarter is also always.

Smallest part and.

That may be compounded a bit this year by the fact that.

The full impact of our pricing actions.

Florida gone into effect in the first quarter.

The pricing actions that we took last year of course are in effect now the next round.

Pricing won't go into effect until.

So as we go through the second half.

So as we go through the second quarter.

And that's going to affect both the top line and the bottom line I'll pass it over to Mike now for some comments on operating profit and yeah, just to highlight a little bit to getting into that on sales in the first quarter were really comparing against a really strong first quarter of last year.

<unk> was up fairly dramatically, so theres going to be a bit of a segment mix challenge in the first quarter.

You're talking about the first half also.

Cost.

Is pricing will grow during the year cost, though which we talked about a mid teens increase will be.

In effect in the first quarter there'll be a tough comparison, there too because the pricing one offset that if you remember back to last year, we had low single digit inflation earlier last year that rose to the high.

High single digits at the end of the year now at mid single teens, Thats, a tough comp for the first quarter, primarily in the first half.

Other thing we have also is the ERP spend to be talked about and we can talk about that later, a little bit but the timing of that.

Last year, we had some minimal spending in Q1 also.

A bunch of drivers that we think the profit will be back loaded in the year.

Bit of a tough comp in Q1.

Got it and then I guess lastly, with mid teens inflation expected for the full year sort of would suggest maybe call. It high single digit pricing would be needed to sort of protect profit dollars and I guess that would imply maybe.

Closer to maybe a mid single digit decline in volume for the year is that kind of broadly the right way to think about the balance and what does that suggest in terms of elasticity and sort of comparing to historic levels. I think you mentioned.

You are building in some elasticity of course, there is more pricing kicks in but maybe not to the extent that you've seen historically, if you could just give us a sense of what's driving that thought process, yes, sure Andrew I think that you've got that you've got the.

At a high level the share price, but maybe you're too extreme.

On the handset.

I think that characterize pricing, including the wrap from last year.

To be more in the mid to high range and.

Sure.

For the.

Volume impact.

Total company level to be more flattish to low single digit decline, we have modeled in elasticity, but not at the rates that we've seen historically.

Do think that were new and uncharted territory versus all of the elasticity models.

At least from the actions that we've taken so far.

Assumed lower price elasticity and Thats, what we seem to be experiencing if anything we may be seeing.

Slightly even less elasticity than we've assumed but we're conscious that with us.

With more than one price increase.

Coming in relatively short timeframe that there may be a cumulative effect. So we have we have modeled in price elasticity, Mike do you want to elaborate on that as well as do you have anything to add.

No.

Covenant.

Great. Thanks, very much everybody.

Our next question is from the line of Ken Goldman with Jpmorgan. Please proceed with your question.

Okay.

Good morning.

Oh, sorry, I was on mute thanks, so much.

You're guiding to operating profit growing 200 basis points faster than sales, which is of course normal as per your algo, but I think typically you might expect gross margins to be a positive driver toward that and this year they might be a slight negative so.

I guess the burden to grow operating profit falls harder on SG&A savings where leverage than usual this year and I kind of just wanted to quickly go over the drivers of your confidence that SG&A can be just helpful. I mean, we do have market and growing at a slower pace in sales I appreciate that and you of course have lower COVID-19 costs, there, but I was under the impression.

You'd also have maybe.

ERP implementation cost kind of offsetting those COVID-19 cost reductions you did mentioned CCI savings will be less of a tailwind. So forgive the lengthy question, but I'm just not quite sure I get why operating income will be up so much unless theres something in the SG&A efficiencies.

Quite not getting yet so thank you for that.

No. It's a good question Ken.

I'll start off.

You highlighted exactly what were seeing A&P is up low single digits, we are continuing to invest in the business.

Other SG&A is kind of flattish if you think about it.

In our high we gave you our CCI number and in a year, where CCI is down versus the previous year because of the toughness of getting through CCI reductions in things like packaging costs and commodity costs.

G&A there as well.

<unk> hard on SG&A from our CCI perspective, so you should see a positive there.

Covid costs did not only hit the gross margin lines COVID-19 costs, and the distribution side of things, which which will go away in <unk>.

2022, we're taking discretionary actions to really.

In a high cost environment, we're doing the prudent things.

To make sure we.

We can make our numbers and I would say things like incentive comp we've had two really strong years.

<unk>.

And yes, we budget towards hitting our targets and we'd love to exceed it but that is a part of the comparison too.

Awesome.

Well I don't know your personal stake.

Stefan they're too high.

Hi, topline growth and flattish SG&A.

What's the gross margin flat to slightly down in that range, it's kind of youre going to get operating leverage that's going to drop drop through.

Yes, no that's helpful. Thank you.

And then quickly I wonder if you can update US maybe you said it and I didn't quite hear it but what are your customer inventories stand today as you estimate them to be versus what might be considered normal and if your outlook to any extent that assumes that any kind of inventory refill takes place. This year I know you've been waiting for something like this for all of our companies for a long time, just curious what you're modeling.

Sure.

We have not restocked, our customers to the extent that we would have hoped in 2021.

We started to make some progress on that and then we ran into the same kind of supply chain disruptions at many of our peers and others in other industries.

Talked about and so and so we actually pulled down customer inventories again in Q.

Three and in Q4 with the high elevated demand, even though our supply chain wasn't much better condition, we are really able to ship to the consumption.

Rather than <unk>.

The stock so we think that theres still some restocking of customer inventory buildup.

Still to be done on your own experience would probably tell you that if you wanted to store that condition still aren't perfect.

Backrooms and distribution channels.

Likewise still have some gaps.

So there is there's still more work to do in that area.

I live in New York City, the state of grocery stores here is always at a low level. So it's kind of hard to tell.

What's bad versus what's normal, but thank you very much I appreciate it sure I will say.

Don't want those comments to be misunderstood I think that we saw peak disruption of our supply chain in Q4, and we've seen steady improvement since then.

Feedback we've gotten from our larger customers is that.

Yes.

Sure.

Much better shape than some of our peer companies.

Thank you.

Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.

Hi, Thanks for the question.

One follow up for Mike.

Is it fair to say that your COVID-19 costs will be a benefit in 2000 $20 million to $60 million just comparing to 'twenty one.

And then how do I compare that to ERP costs are your ERP costs going to be higher in 2022 compared to 21 can you give us a rough estimate.

And then secondly on.

On private label, if you look back into history private label does gain a lot of share during inflationary periods.

Especially in your category can you talk about.

What you've seen from your customers demand for private label heading into 2022.

And how do you expect it to perform in 'twenty two in a rising price environment.

Rob I'll take the first part of that Laurence I'll take the second first great. Great question, you know closing cost and ERP are big drivers on our P&L because it costs. We did talk about how two years ago, we spent $50 million last year $60 million. If you remember we highlighted.

A large chunk of that was co packing costs.

So as we our supply chain has improved over last year in the fourth quarter, we eliminated most of those costs, but we still have underlying cost, but frankly, we're not treating as COVID-19 costs anymore, we're treating as an ongoing business cost of labor.

Premium pay things like that there is going to continue into the future. So.

Yes, im not going to give you an exact number it's not $60 million. So a significant part of that is going away in 'twenty two.

Related to ERP.

If you remember from our <unk>.

Third quarter call last year, we were talking about it at the time.

The decrease in Colgate costs in 'twenty, we expect a decrease in COVID-19 costs in 'twenty, two offset by an increase in ERP costs.

That being said, what we're saying now is we're.

We're still spending significant amounts on ERP in 2002, we spent we.

<unk> got we had talked last year about spending in 'twenty, one around $50 million.

21 came in a little heavier than that.

And in 2022, where it is not as significant headwinds, but it's still a significant investment I'd say, it's up slightly wasn't big enough to mention in our guidance.

What has changed since three months ago.

One elevated and strong demand, we're really happy with that demand as we went through our planning process, which we always do in the fall.

Combination of that elevated demand.

As you know our fourth quarter. It was really important to us than we had planned on significant go lives in 2022.

One to protect our customer service and to make sure we're prudent.

The go lives, we have slid into the into the fourth quarter, because we have to build inventories and things like that to get ready for these matrix go lives. We made the decision to slide those major go lives out into 2023.

End result of all of those moves.

Roughly between 'twenty, one 'twenty, two and 'twenty three.

At the same level of expense is very smooth so it kind of eliminates that noise between years, which help help help you look at our underlying growth of operating profit over that time, but we're still really excited about the ERP investment, but we just made the decision.

As I just talked about.

Alright got it okay.

Okay.

Question, Rob so far.

First of all.

The last couple of years private label actually underperformed in the category.

Heard on our remarks that although our fourth quarter.

Strong.

The private label portion of it.

Actually it was actually not a contributor to that strength and.

And we're really just we're currently not seen consumers move to private label in our category.

Categories and in fact, it's really to move more to brands.

Private label.

<unk>.

Past times, one third spent a recessionary environment.

Don't know that we're.

We're expecting a recession in 2022.

But even in <unk>.

So that we're more economically tough our products Samsung.

Very well.

Yes.

Our products contribute pennies.

For a fraction of the cost of a meal are actually part of the consumers' way to manage their total inflation basket.

Meet its going up 40% one way you can stretch for grocery dollar does too.

Less expensive and use.

Use herbs and spices and our recipe brokers. So so actually we tend to do pretty well both in good and bad economic times.

I'm confident that we've got a portfolio of products that touches the consumer at every price point.

I know in our internal discussions around pricing, we've been very conscious of the lower income consumers and how to make sure that that we're still able to meet their needs for flavor.

Okay got it thank you.

Our next question is from the line of Adam Samuelson with Goldman Sachs. Please proceed with your questions.

Yes, Thank you and good morning, everyone. Good morning, good morning.

So I guess my first question, maybe is around the fourth quarter and really turning to the flavor solutions business.

And I guess, the operating profit and margin performance in that business the contracted pretty sharply with.

Consumer and I know this is a big consumer quarter, but maybe if you could just talk about some of the profit and margin drivers in flavor solutions in the fiscal fourth quarter and maybe into 'twenty two outlook. How we should think about the relative segment performance between consumer and flavor solutions versus your total.

Company, claiming.

Adam It's Mike I'll take that yes.

Fourth quarter flavor solutions did have a bit of margin pressure I mean similar.

Similar to consumer.

Obviously the cost last year came ahead of our pricing actions so that.

Obviously that impacted flavor solutions.

But as we catch up into the into the first quarter and second quarter that should that should be.

Salt.

But they did increase very quickly for us to me Theres pass throughs with contractual agreements, so theres timing elements, but a lot of our flavor solutions business.

That being said one of the you're seeing also the great volume growth and sales growth. We've had in flavor solutions over the past couple of years, and we're making strategic investments such as the UK flavor manufacturing plant.

These investments have cost associated with them so in the fourth quarter.

We're starting to bring that plant life into next year and you should expect an early 2022 also a bit of a drag early in the year of flavor solutions.

You'll see it you'll see.

Date of that due to these strategic investments of which the UK flavor manufacturing plant is just one and we did have a little bit of.

Unfavorable mix in the quarter, even though we were pruning continue to prune some of our.

Lower margin business, there was a bit of a hard comparison versus <unk> of last year I'll say, if there is an area, where we still have some ongoing.

I'd say extraordinary costs.

Let's say flavor solutions might be a little bit more impacted by that.

Where we've had.

Just because of supply chain disruption.

And pork force disruption, where we've had a bit more incremental cost.

Things like overtime premium pay and so forth.

Okay, and then maybe just continuing in flavor solutions that I'm thinking about it as part of the bridge in 'twenty two right at the company level being tight on SG&A is clearly a key element of hitting the total company profit growth targets.

In contrast in flavor solutions, a big part of the growth has been to remix the portfolio up into some of these higher value segments, which obviously come with higher gross margins.

But also typically will have a higher SG&A burden in terms of the R&D and technical sales associated with that.

Are you still able to make this both through the facility and the head count investments necessary.

On the flavor solutions side to support those the growth there.

Oh definitely I mean, I think as I alluded, we're making those investments.

There will be timing impacts like I said first half a bit with some of these investments for some strategic things but.

We recover those things by the end of the year and we feel very good about the ability and acquisitions.

So not continue and the growth profile of those businesses gives us more confidence over time.

Positivity of those investments to flavor solutions.

Okay.

And everybody is that our flavor solutions tend to be a bit lumpy as well.

Driven by.

Yeah.

The activities of some of our large customers.

Got it.

All helpful I'll pass it on thank you.

Yes.

Our next question comes from the line of Chris Growe with Stifel. Please proceed with your question.

Thank you good morning.

Just a couple of questions for you.

Just curious the level of inflation that we're seeing this year kind of mid teens inflation was more than I expected and I just want to get a sense of how much was it in 2021, where you're kind of up against this past year just to get a sense.

Total amount of inflation and then also just to understand that I've heard about is there is there any more inflation in flavor solutions versus consumer is there one that's going to require more pricing as we move through the year.

Hey, Chris It's Mark I'll answer that last year, we started out the year as you remember low single digits and we transitioned into mid single digits around I think around the third quarter call in the fourth quarter call. We talked about the fourth quarter costs were up high single digits, which made the whole year high end of the mid single digit range.

Casey.

Just to remind you where we were this year is the mid teens.

Driven by large commodity packaging and freight increases that we've all seen.

Yeah from a flavor solutions versus consumer.

They're both impacted by all of this I mean ocean freight, which is a big item for us because as you think about our peers and we get a lot of our products from Asia or other parts of the world, where shipping containers and things like that that ocean cost has gone up a lot that impacts both the consumer and the flavor solutions.

Equitably.

Other items like pepper, garlic things like that we use them both sides. So I'd say, it's roughly the same overall materially okay. Yes. That's.

That's helpful. Thank you.

And the other question I had was just you talked a little bit before I think it was to Rob's question about.

The third part using third parties to manufacture your products in that kind of thing it sounds like you've gotten out of a lot of that and I know that was a gross margin drag throughout the past couple of years.

And I think a lot of what you call. The COVID-19 costs. So just to be clear that's something that will largely go away in 2022, and I guess related to that well go ahead go ahead.

Yes, the incremental portion that's going to go like we always have a certain okay.

That makes sense for our business for a variety of reasons.

More in line with the historical level of co packing does that incremental co packing.

At a time when everybody was looking for the capacity.

What's that.

That created all of those premium costs that.

We absorbed ourselves and.

Which we've gotten out of the business.

Okay.

I guess.

Really getting to is I guess.

Are you able to or you're able to produce at the level of demand growth today, that's something that every company is struggling with I'm. Just curious can where mccormick stands right now I guess as you pull back on these incremental third parties youre, indicating you do have the internal capacity to meet demand is that right.

Yes that is right, Chris and I would say that the challenge has always been in the Americas first of all so we've been able to meet the demand.

We're out the entire pandemic.

And the rest of the world. It's been a it's been in America's demand or just between the scale of the business.

And.

Yes.

The sheer elevation.

The demand and the fact that our capital investments head for the previous number of years been directed towards.

Building capacity overseas.

That left us a little underinvested in the U S. It gave us a real challenge.

In the early days.

And then it but we've done an enormous amount of work to increase our.

Our U S manufacturing capacity and.

And confident that we've got the capacity to meet that demand and that's why that co packing expense that's gone away.

Route.

The improvement in our service to our customers the restoration of.

Product on the shelf the recovery of share.

Yes.

Our supply chain.

It has always been a competitive advantage from global sourcing to operating excellence and.

And I would say that.

It will never be good enough to my satisfaction.

<unk> come a long way and it takes a competitive advantage again.

So we continue to work with our vendors who struggle with the same challenges that all of our peers struggle with the supplying bottles and things like that and there'll be sporadic challenges along the way but.

Not broad based.

Okay.

Thanks for all your time.

Great. Thanks.

Our next question comes from the line of Peter Galbo with Bank of America. Please proceed with your question.

Hey, guys. Good morning, Thank you for taking the question good morning.

Mike I guess, we're getting some questions. This morning, just trying to square the gross margin guidance.

Just given the level of cost inflation and I know you spoke about.

No.

Ocean freight and commodities I guess.

One is that cost inflation line, just only pertinent to cost of goods does it include outbound freight, which I think you guys capture in SG&A.

And maybe how we should think about just the cadence of gross margin throughout the course of the year.

Well first on outbound freight as consider cost of goods sold for us so very similar to our peers.

I mean, if you look at our gross margin, we're guiding comparable to down 50 basis points.

Whole impact of pricing mid single teens inflation is a big drag on that so we're thinking of 250 basis point dilution just because of pricing to cover cost.

From a timing, but that's offset the good.

Positives are CCI savings.

Turning to prune lower margin business in the Covid costs, we've talked about previously.

Next year has a little bit of a segment mix headwinds headwind as you know.

<unk>.

But I'd say from a timing perspective, as we talked about the timing of our pricing come in second pricing covenant that impact in the second quarter. It will build during the year.

Cost, which will be with us for full year. So the first quarter will be heavily impacted as we talked about in the first half, but a bit of that too. So it's a bit of a first half second half plan as we've talked about from a gross margin perspective.

I'll also just chime in that we have great brands that we invest behind.

And most of our categories and most of our markets, where not only the the share of voice leader in terms of speaking to the consumer but in many cases, we have now close to a 100% of the share of voice, we've got great position on the shelf with that we've done a lot to build loyalty with consumers.

Keep our brands relevant and we believe that we have.

Got the pricing power to pass these costs through and.

Okay.

Continue to drive.

In the future beyond that.

Got it okay. Thanks, very much and Laurence maybe just a separate question.

I know theres nothing.

In the at least initial outlook as it relates to M&A, but I think there's been some headlines obviously about some some potential brands that that could be nice adjacencies for you guys that could come to market, just how youre thinking about M&A.

M&A this year, where maybe you think the target leverage ratio needs to be before you think about taking on another deal. Thanks very much Paul.

There have certainly done some exciting headlines on what it's supposed to be a boring industry.

There is a lot going on out there yeah, let's say that.

All of these are alert to.

Strategic assets.

To which we apply our financial discipline, we've got a great track record of.

<unk> great assets.

And integrating them they were still coming up fairly recent acquisition of two very good assets Tallulah and phone.

Got it.

Performed very well for us, but we still got a painful and.

And so right now our primary focus is on deleveraging.

Building more dry powder.

I won't say I'm, not going to say never but but but that's our primary focus right now.

Thanks, very much guys.

Thank you. Our final question today comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Great. Thanks, so much good morning.

So just just to clarify.

As we got through 'twenty, and obviously in fiscal 'twenty, one right demand has been strong for her.

In in home baking.

You benefited obviously I mean it seems.

Seems like as you said kind of in the call that.

U S 60 miles are probably a little bit all over the place just kind of given where we are in terms of transit consumer and increasing prices. So I mean, it sounds like.

Your perspective from here is that the consumption levels, even with an increase in price and potentially let's say an increase in our ability as we get through the year.

Really shouldn't be kind of waning that much right.

The field demographically with the.

Incremental purchase rate, let's say repeat from millennials that hey, even if prices go up maybe private label doesn't take them a share and kind of overall demand seems to be somewhat stable I just kind of want to get clarification on that demand piece, just given mobility and trade doubtless that's all.

Okay well that's.

Taken us.

Primarily U S centric.

Uh huh.

But.

We do expect that the shift.

Consumption two more cooking at home.

Consumer behavior.

Stick to an extent, we've never said that all of it is going to stay but we do expect that a significant portion of that is going to stay and that this has been a step up in our category.

Consumers are still working from home and it looks like work from home is going to be a permanent part of that.

The work environment.

<unk>.

<unk> proprietary research with consumers, so that only a tiny fraction.

Less than 10% expect to cook at home than they do now most of us expected.

Sure.

And so.

Based on what we see happening in <unk>.

Heidi.

So consumers are saying.

But we are still experiencing from elevated demand.

You said that.

And it's going to continue to be strong and.

Just say also that we are in categories that we've chosen to be in that are strong to begin with.

And there has been.

Strong underlying growth.

All of the flavor categories that we're in.

Overtime.

In the.

The increment that has happened from the shift in consumption during the last two years.

Early has accelerated growth by maybe a year or two of those of those categories. So it's not as extraordinary as everyone thinks so just talk that much with Paul.

Yes.

Okay, Yeah, that's that's fair.

And then quickly just.

Mike I'm.

Just on free cash flow.

I think you said you expect it to be up year over year kind of a good strong free cash flow year.

Capex seems to be up a little bit year over year. However.

And then we saw free cash flow kind of down a little bit last year relative to the prior call. It three or four years. So just when you say kind of a good strong free cash flow year debt.

Obviously, you're implying it's up year over year, but maybe it's a little bit more in line with the prior few years, just trying to get a little bit more sense of clarity on kind of how youre viewing free cash flow and that's it. Thanks, Yeah I think that's that's fair Rob I think.

This year with the significant build in inventories to protect our customers and sales.

Some of the transaction cost we talked about early in the year from M&A, possibly a little drag on that but.

As we see into the future because some of those things.

Get solved so back to previous year's levels.

It makes sense.

Alright, great. Thanks, so much.

Thanks.

At this time, if we change the question and answer session I will turn the floor back to Lawrence Cortina for closing remarks.

Great. Thanks, everyone for your questions and for participating on today's call Mccormick is differentiated by the breadth and reach of our balanced portfolio, which is sustainably positioned us for growth I am incredibly proud of Mccormick's 2021 accomplishments, we drove strong performance, while remaining focused on growth committed to people and driven.

Purpose during another dynamic here, we're disciplined and our focus on the right opportunities and investing in our business. We are continuing to accelerate our momentum and drive further growth as we successfully execute on our long term strategies actively respond to changing consumer behavior and capitalize on opportunities from our relative strength.

We are well positioned for continued success and long term shareholder value creation. Thank you for your time this morning.

Thank you Mark and thanks to everybody for joining today's call. If you have.

Any further questions regarding today's information please feel free to contact me. This concludes this morning's call.

[music].

Good morning isn't Kasey Jenkins senior Vice President of corporate strategy and Investor Relations. Thank you for joining today's fourth quarter earnings call to accompany this call because instead of slides at IR Mccormick Dot Com, we'll begin with remarks from our chairman President and CEO and Mike Smith.

Executive Vice President and CFO , and we will close with a question and answer session.

Actual 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 factors. Please refer to our forward looking statements on slide two for more information I will now turn the discussion.

Over to Laurent.

Thank you Casey good morning, everyone. Thanks for joining us.

Starting on slide four our fourth quarter completed another year of robust and sustained growth.

2021, we remain focused on growth performance and people driving another year of strong results and continuing our momentum.

Drove record sales growth by executing on our long term strategies actively responding to changing consumer behavior and capitalizing on new opportunities all while remaining forward looking in an ever changing global environment.

Driven by our strong sales growth in 2021, while tempered by the well known headwinds of higher inflation and broad based supply chain challenges was also strong.

Our 2021 operating performance underscored the strength of our business model the value of our products and capabilities and the resilience of our employees we.

The breadth and reach of our global flavor portfolio ideally position us to fully meet the growing demand for flavor around the world and drive continued differentiated growth.

This has never been more evident than over the last two years as consumers adapted to the ever changing environment.

Our compelling offerings in our consumer and flavor solutions segment for every retail and customer strategy across all channels.

<unk> diversified portfolio to drive growth and consistency in our performance.

It also gives us significant flexibility to adapt to changing conditions wherever they may arise and continue on our growth trajectory.

Our products and our customers' products, we are end to end flavor.

On our top line versus the year ago period, we grew fourth quarter sales up 11%.

Both of our segments delivered strong growth with contributions from base business growth driven by higher volume and pricing actions as well as new products and acquisitions.

Our fourth quarter adjusted operating income and adjusted earnings per share both increased 6% driven by growth from higher sales and CCI led cost savings, partially offset by cost inflation.

Let's turn to our fourth quarter segment business performance, which includes some comparisons to 2019 pre pandemic level, which we believe are meaningful given the level of demand volatility from quarter to quarter experienced in 2020.

Starting on slide seven consumer segment sales grew 10%, including incremental sales from our <unk> acquisition. The increase was driven by strong volume growth and the impact of pricing actions phased in during the quarter as we discussed on our last earnings call.

Our America sales growth of 13% in the fourth quarter with incremental sales from our Tallulah acquisition contributing 3% growth.

Which resulted in a 19% increase on a two year basis.

And that has remained high and we continue to realize the benefit of our U S manufacturing capacity expansion, although some products remains stressed by sustained high demand shelf.

Shelf conditions are improving as is our share performance with another sequential improvement in the fourth quarter as we expected.

We continue to see further improvement in our recent performance as we begin 2022.

Importantly, and as I just mentioned, we are better positioned than we were a year ago and are confident in our continued momentum.

Our growth rates versus the two year ago period.

Bold penetration and repeat rates have also grown versus 2019, and when consumer shop their buying and therefore using more of our products than they were pre pandemic.

Now turning to EMEA.

The fourth quarter, we continued our momentum with strong consumption growth in key categories compared to the fourth quarter of 2019.

For the full year, we gained market share in key categories and across the region similar to the U S. Our household penetration and repeat rates have also grown versus the two year ago period, and when consumer shop, they are buying more than they were pre pandemic.

Turning to slide nine our flavor solutions segment grew 14%, reflecting higher base volume growth and new products as well as pricing actions to partially offset cost inflation and contributions of our bona until the lula acquisitions.

On a two year basis, our sales also increased double digits with strong growth in all three regions.

In the Americas, our phone and Lula acquisitions made a strong contribution to our fourth quarter growth. Additionally, we continue to see robust growth momentum for their consumer packaged food customers as well as the recovery of demand for branded foodservice customers as more dining out options are open versus a year ago.

Recovery has been robust in the away from home part of the portfolio and growth in our at home offerings hesitant outstanding.

Notably for the full year on a two year basis, we have driven 19% constant currency growth across the portfolio.

And APC, our momentum with our <unk> customers remained strong driving double digit growth versus 2020 as well as on a two year basis.

As for the fourth quarter and in line with what we have said in the past limited time offers and promotional activities can cause some sales volatility from quarter to quarter.

Moving to our fourth quarter results I'm pleased to share highlights of our full fiscal year, including an update on our Tallulah in Florida acquisitions, starting on slide 10.

We drove record sales growth in 2021 growing sales, 13% to $6 3 billion with strong organic sales growth and 4% contribution from our solar in Florida acquisitions.

Notably on a two year basis, we grew sales, 18%, reflecting a robust and sustained growth momentum in both of our segments.

Versus 2019, we grew sales, 20%, which reflects the continuation of consumables cooking and using flavor more at home and the strength of our brands.

Our flavor solutions segment growth of 19% reflected the strong continued momentum, but the at home products in our portfolio, including a record year of new product growth and a robust recovery from last year's lower demand for away from home products as well as contributions from phone and Tallulah, notably growth was driven equally.

From both the at home and away from home products in our portfolio.

On a two year basis, we grew sales, 15% driven by the at home part of our portfolio, but demand for the away from home portion recovery to pre pandemic levels.

Finally, we continue to be recognized for doing what's right for people communities and the planet during the year Mccormack was named the United Nations Global Compact lead company and awarded the inaugural terracotta seal from his Royal Highness, the principal <unk>, our industry leadership, and creating a sustainable future and.

Just lastly, corporate Knights ranked Mccormick in their 2022 global 100 sustainability index as the World 14th most sustainable Corporation and for the sixth consecutive year of number one and the food product sector.

Moving to the one year anniversary of our two fantastic recent acquisition Tallulah in Florida are creating value achieving synergies and delivering our results. According to our plan importantly, we achieved our one year sales and earnings per share accretion expectations for both total and photos.

I'd like to share some comments about the successful execution of our growth plan and then in a few moments Mike will cover in more detail our delivery on acquisition plan.

Starting with pillar on Slide 12. The addition of this be loved iconic brand with authentic Mexican flavor is accelerating the growth of our global Covenant platform.

In our consumer segment, we are unlocking tallulah significant growth potential are using our category management expertise leveraging e-commerce investments launching new products and optimizing brand marketing expense, we executed while initiatives this past year, including optimizing shelf placements and assortment expanding into new channels.

Gaining momentum in E Commerce, where tallulah had been underpenetrated, increasing awareness, both through brand marketing investments and brand partnerships, such as with door dash and leveraging promotional scale across the Mccormick brand.

We're excited about the results our initiatives are yielding during 2021, we gained significant momentum on top of lapping elevated growth in 2020, adding over 1 million new households, and growing <unk> consumption, 13% in 2021 versus last year.

Lula is continuing to outpace category growth and gained share.

Bank with 19% total distribution point growth in the fourth quarter of 2021. It is clear our plants are driving accelerated growth.

And notably we drove tallulah to the number two hot cost per head in the U S. Joining Frank's red Hot the number one ranked at the top of the category.

We are just as excited about tableau this performance as part of our flavor solutions portfolio.

Our broad presence across the foodservice channel we have strengths central Lula is go to market model through 2021, we continue to build a bunch of little a strong front of house presence with Philips trial and brand awareness beyond foodservice.

Significant double digit growth of portion control packs as more restaurant meals are now consumed as delivery or takeaway.

Leveraging leveraging our culinary foundation and insights on menu trends, we've also driven double digit growth in our backup house foodservice penetration through recipe inspiration and increasing <unk> menu participation. We are growing with big national accounts, and smaller independent restaurants, as well as expanding distribution.

Through leveraging the strength of our distributor relationships, where tallulah was less developed.

We are succeeding with new menu items, including both permanent and limited time offer.

Our momentum is very strong and we are confident our initiatives will continue to build while consumers growing passion for heat and drive further growth of this fantastic brand.

Now turning to Florida. The addition of this leading north American flavor manufacturer is accelerating the growth of our global flavors platform. We're thrilled our first year of owning Florida has been a record year for the business with double digit sales growth compared to last year.

Beverages with particular strength in the fast growing performance nutrition category continued to drive significant growth for fanta up 15% compared to last year.

Bonus new product wins and its pipeline potential I've also hit record highs in fueling future growth.

We're continuing to drive growth and create new opportunities with our global footprint.

We are leveraging <unk> infrastructure to expand photos flavors into the EMEA region, and our <unk> region. The combination of our infrastructure, which includes our recent flavor capability investments in China, and thoroughness local applications and flavor creation talent is unlocking further potential to accelerate.

Flavor growth in that region, and just a few months ago, we began our expansion of bonus footprint to increase our Americas flavor manufacturing capacity and investment we planned as part of our acquisition model, enabling us to deliver future growth we expect.

By expanding our breadth and depth and developing flavor, while also combining our infrastructure to provide greater scale as well as increasing our manufacturing capacity and technical bench strength.

We are providing our collective customers with a more comprehensive product offering at fueling more opportunities for growth across our entire portfolio.

We're cross selling products across our customer base and we have also realized the benefit of our combination within our own portfolio for instance, with builder now leveraging mccormick's USDA secondary flavors and developing flavors for pet food applications.

We are thrilled with both drilling and filling up our enthusiasm for these acquisitions as well as our confidence that we will continue to achieve our plans accelerate growth of these portfolios and drive shareholder value has only continued to strengthen.

In summary for 2021, we continue to capture the momentum we have gained in our consumer segment and the at home part of our flavor solutions segment, we have successfully navigated through the pandemic related disruption in the away from home portion of our flavor solutions segment, and Tallulah installers have proven to be fantastic additions to our portfolio.

All of this reinforces our confidence for continued growth in 2022.

Global demand for flavor remains the foundation of our sales growth and we are intentionally focused on great fast growing category and will continue to differentiate our performance. We're capitalizing on the long term consumer trends that accelerated during the pandemic healthy and flavorful cooking increased digital <unk>.

Our alignment with these consumer trends combined with the breadth and reach of our global portfolio and the successful execution of our strategies sustainably positions us for future growth.

In this current dynamic and fast paced environment, we remain focused on long term sustainable growth.

As I mentioned earlier, we continue to experience cost pressures from higher inflation and broad based supply chain challenges similar to the rest of the industry.

To partially offset rising cost, we raised prices where appropriate late last year and began to realize the impact of those actions in our fourth quarter sales growth.

Additionally, our plans to mitigate cost pressures that include our CCI led cost savings revenue management initiatives, and taking prudent steps to reduce discretionary spend where possible.

Across our consumer segment. Our 2022 plants include continuing to build consumers' confidence in the kitchen inspired their home cooking and flavor exploration and accelerate flavored usage, including delivering on the global demand for heat.

We also plan to strengthen our consumer relationships at every point of purchase as well as created delicious healthy and sustainable future.

Our investments in brand marketing category management, and new products, we expect to drive further sales growth.

<unk> clean and natural solutions that taste, great and strengthening our leadership in heat for.

With our culinary inspired innovation and our passion for creating a flawless customer experience. We plan to continue our new product momentum and drive further sales growth.

Looking forward to sharing more details regarding our 2022 growth plan in just a few weeks at Cagny.

In summary, we have a strong foundation and are well equipped to navigate through this ever changing environment responding with agility to volatility and disruption while remaining focused on our long term objectives strategies and values that have made us. So successful we are.

We're in attractive categories and are capitalizing on the long term consumer trends that are in our favor.

The combination of our strong business model the investments we've made the capabilities, we've built and the power of our people position us well to continue our robust growth momentum.

Importantly, our strong growth trajectory supports our confidence in our long term financial algorithm to drive continuous value creation through topline growth and margin expansion are fundamental momentum and growth outlook are stronger than ever.

<unk> employees around the world has done a tremendous job of navigating this past year's volatile environment their agility teamwork and passion for flavor drive our momentum and success and I want to thank them for their dedicated efforts and engagement now I'll turn it over to Mike.

Thanks, and good morning, everyone.

Before I provide additional remarks on our fourth quarter and full year results I would like to build upon Lawrence has comments on Lula and <unk> and highlight how we have delivered on our acquisition plans now that we have completed the first year.

Starting on slide 19, as long as already shared we have created value by driving sales growth. According to our plans. In addition to Lula was margin accretive to the gross and operating margins in both of our segments and <unk> was accretive to the margins in the flavor solutions segment.

We are delivering against our synergy and one time cost estimates in fact doing better than our acquisition plan.

Starting with our original synergy targets for Cholewa, we've achieved the targeted $10 million to be fully realized by 2022.

<unk>, we are on track to achieve our targeted $7 million by the end of 2023.

We are also achieving revenue synergies as expected.

Our transaction and integration costs, which Hulu led its own app are both lower than our acquisition plans.

Early in 2021, we took the opportunity in a low interest rate environment to optimize our long term financing following the acquisitions raising $1 billion through the issuance of five year, 9% notes and 10 year, 185% notes and therefore realized lower interest expense than we originally projected. Additionally.

Our ongoing amortization expenses favorable favorable to both the acquisition models.

In summary, we executed our ear worn acquisition plans in line with and in some areas better than our models, including the adjusted earnings per share accretion we expected.

Successful acquisitions are a key part of our long term growth strategy and importantly, we have a proven track record of driving value through acquisitions and increasing the performance of acquired businesses and to Lula and <unk> are adding to that history.

Now for our fourth quarter and full year performance starting on slide 20.

Our fourth quarter capped off a year of record sales growth during the fourth quarter, we grew constant currency sales, 10% with higher volume and product mix acquisitions and pricing each contributing to the increases in both segments.

<unk> is the fourth quarter of 2019, we grew sales 15% in constant currency with both our consumer and flavor solutions segments growing double digits.

During the fourth quarter, our consumer segment sales grew 9% at constant currency, driven by higher volume and product mix pricing actions and a 2% increase from Akshay Lula acquisition the.

The year over year increase was led by double digit growth in the Americas and Asia Pacific regions.

Impaired to the fourth quarter of 2019 sales grew 14% in constant currency led by the Americas.

Pricing actions and a 3% increase from the <unk> acquisition also contributed to sales growth.

Compared to the fourth quarter of 2019 sales increased 19% in constant currency driven.

Driven by broad based growth across branded products as well as an increase from the <unk> acquisition.

A decline in private label sales, partially offset the branded growth.

In EMEA constant currency consumer sales declined 5% from a year ago due to lapping the high demand across the region last year on.

On a two year basis sales increased 5% in constant currency driven by growth in spices, and seasonings hot sauce and mustard.

Compared to the fourth quarter of 2019 sales were flat with growth across the region offset by a sales decline in India due to the exit of some lower margin business.

Turning to our flavor solutions segment on Slide 24, we grew fourth quarter constant currency sales, 12%, including a 7% increase from our <unk> and <unk> acquisitions the.

The year over year increase was led by double digit growth in the Americas and EMEA regions.

Compared to the fourth quarter of 2019 flavor solutions segment sales grew 16% in constant currency.

In the Americas flavor solutions constant currency sales grew 13% year over year with Kona and she lula contributing 11%.

Constant currency sales increased 26% versus the fourth quarter of 2019, driven by strong sales growth with packaged food and beverage companies and <unk> customers.

In the Asia Pacific region flavor solutions sales rose, 1% in constant currency versus last year and increased 8% in constant currency versus the fourth quarter of 2019.

Both driven by <unk> growth and partially impacted by the timing of our customers' limited time offers and promotional activities.

As seen on slide 28, adjusted operating income, which excludes transaction and integration costs related to the two lula and <unk> acquisitions as well as special charges increased 6% in the fourth quarter versus the year ago period with minimal impact from currency.

Adjusted operating income in the consumer segment increased 14% constant currency, 13%.

Sales in CCI led cost savings more than offset cost pressures from inflation and logistics challenges.

Brand marketing investments as planned were 10% lower in the quarter. Following an 818% consumer segment increased in the fourth quarter of last year.

For the full year, we increased our brand marketing investments 3%.

In our flavor solutions segment, adjusted operating income declined 16% or 15% in constant currency.

Higher sales and CCI led cost savings were more than offset by the cost pressures in this segment unfavorable product mix and cost related to supply chain investments.