Q3 2023 McCormick & Co Inc Earnings Call

October 3, 2023

Good morning. This is Boston, Frank Huh VP of Investor Relations. Thank you for joining today's third quarter earnings call to accompany this call. We have posted a satisfies on our IR website.

Me. This morning are Brendan Foley, President and CEO , Mike Smith, Executive Vice President and CFO , and Kasey Jenkins Chief growth Officer.

During this call we will refer to certain non-GAAP financial measures the nature of those non-GAAP financial measure and the related reconciliations to the GAAP results are included in this morning's press release and slides.

In our comments certain percentages are rounded please refer to our presentation for complete information today's presentation contains projections and other forward looking statements 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 slide.

For more information I will now turn the discussion over to Brendan.

Good morning, everyone and thank you for joining US let me start by saying how pleased I am to join you today for my first earnings call as President and CEO .

We're one month into my new role I am energized by our underlying business trends, which reinforced our competitive advantages and differentiation, let's turn to our results.

We drove another quarter of strong performance, reflecting sustained demand and effective execution of our growth strategies across our consumer and flavor solutions segments.

Our results were in line with our expectations across our business notwithstanding challenges for our consumer segment in Asia Pacific or APAC, where the pace of China's economic recovery has been slower than previously anticipated.

Let me start with the highlights for the third quarter.

We delivered solid constant currency sales growth, we continued to realize effective price realization and importantly volume performance, excluding China has improved each quarter throughout the year. We continued to see top line momentum in our business positioning Mccormick for sustained growth.

We drove meaningful year over year margin expansion underscoring our focus on profit realization.

Year to date cash flow from operations more than doubled relative to the prior year due to higher operating income and working capital improvements.

Our performance demonstrates the strength of our business fundamentals and the effective execution of our proven strategies, while leveraging the sustained demand for flavor.

Turning to slide five.

In the third quarter, we drove 6% sales growth in constant currency, demonstrating the strength of our broad global portfolio.

Our constant currency growth reflected strong business performance with an 8% contribution from pricing and a 2% decline in volume and product mix. This.

This decline in volume was driven by two factors.

1% volume decline attributable to the impact of a slower than expected economic recovery in China.

And a 1% decline related to the divestiture of kitchen basics, the exit of our consumer business in Russia, and the pruning of low margin business to optimize our portfolio.

All other underlying volume and mix performance was flat for the quarter, which is a sequential improvement from the second quarter, where total underlying volume growth was down approximately 1%.

I would like to now share a few highlights on gross margin and operating income for the quarter, which Mike will cover in more detail.

We drove strong gross margin improvement year over year, reflecting continued recovery of the cost inflation, our pricing lagged last year and cost savings from our CCI.

Programs.

We remain focused on improving our margins over the long term and believe that our recovery will be a continuous build.

Unknown Executive: Good morning.

And we expect to return to historical levels and believe there is a runway beyond that.

Faten Freiha: This is Faten Freiha, VP of Investor Relations. Thank you for joining today's third quarter earnings call. To accompany this call, we have posted a set of slides on our IR website. With me this morning, our Brendan Foley, President and CEO, Mike Smith, Executive Vice President and CFO, and T.C. Jenkins, Chief Growth Officer. During this call, we will refer to certain non-gap financial measures. The nature of those non-gap financial measures and the related reconciliation to the gap results are included in this morning's press release and slides.

Recognizing it will take some time.

Higher gross profit for the quarter was partially offset by lower than expected performance in China as well as higher SG&A as planned we continued to build back incentive compensation and increased brand marketing investments.

The net impact was a 5% increase in adjusted operating income versus the prior year.

Overall, we are pleased with our execution and results year to date. These.

These results combined with the strong demand, we continue to expect across our portfolio and.

Faten Freiha: In our comments, certain percentages are rounded. Please refer to our presentation for complete information. Today's presentation contains projections and other forward-looking statements. 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 statement slide for more information.

And our focused approach to optimizing our cost structure reinforce our confidence in our growth trajectory during the fourth quarter and beyond.

Moving into the fourth quarter, we can continue to expect.

Topline momentum across our portfolio, including growth in China, as we lap the COVID-19 related disruptions.

This growth however is expected to be less than originally anticipated, which way combined with this year to date performance has led to a lower full year 2023 benefit than we originally expected.

Brendan Foley: I'll now turn the discussion over to Brendan.

Brendan Foley: Good morning everyone and thank you for joining us.

Brendan Foley: Let me start by saying how pleased I am to join you today for my first earnings call as President and CEO. Just over one month into my new role, I am energized by our underlying business trends which reinforce our competitive advantages and differentiation.

Despite this impact however, we are reaffirming our sales outlook and now anticipate our results will be closer to the middle of our guidance range.

We are reaffirming our operating income outlook, which highlight stronger than originally expected profit realization on our business excluding China.

Brendan Foley: Let's turn to our results. We drove another quarter of strong performance reflecting sustained demand and effective execution of our growth strategies across our consumer and flavor solution segments. Our results were in line with our expectations across our business. Notwithstanding challenges for our consumer segment in Asia Pacific or APEC, where the pace of China's economic recovery has been slower than previously anticipated.

Demand is strong we are driving improvement in our margin profile and are optimizing our cost structure effectively.

Now for our performance by segment.

Yes.

Starting with our consumer segment on slide seven we saw solid results across the Americas, and EMEA, which were tempered by our APAC region due to China as I mentioned earlier.

Brendan Foley: Let me start with the highlights for the third quarter. We delivered solid constant currency sales growth. We continue to realize effective price realization and importantly, volume performance, excluding China, has improved each quarter throughout the year. We continue to see top-wide momentum in our business positioning McCormick for sustained growth. We drove meaningful year-over-year margin expansion, underscoring our focus on profit realization. Year-to-day cash flow from operations more than doubled relative to the prior year due to higher operating income and working capital improvements. Our performance demonstrates the strength of our business, fundamentals and the effective execution of our proven strategies while leveraging the sustained demand for flavor.

Notwithstanding China, we are pleased with our underlying performance.

Now for some highlights by regions.

First in the Americas.

Our total U S branded portfolio consumption as indicated by our IRI consumption data and combined with unmeasured channels through Approx approximately 4%.

Excluding the year over year impact of the kitchen basics divestiture and the exit of DSD direct store delivery of our bag. Hispanic spices.

There was a minor difference between our sales and consumption, which is attributable to listing fees for a significant increase in new distribution and new products. For example, our neutral Lula and Scotts items and tablet for Brown line extensions.

Importantly, our categories remain advantaged in terms of growth relative to overall macro trends and we are well positioned to drive future growth.

Brendan Foley: Turning to slide five, in the third quarter, we drove 6% sales growth in constant currency, demonstrating the strength of our broad global portfolio. Our constant currency growth reflected strong business performance with an 8% contribution from pricing and a 2% decline in volume in product mix.

The fundamental strength of the spices and seasonings category is evident as cooking at home has remained elevated since pre COVID-19 and consumers have an increase in demand for flavor.

U S spices and seasonings growth is continuing to outpace the total edible category in units and dollars.

Brendan Foley: This decline in volume was driven by two factors. A 1% volume decline attributable to the impact of a slower than expected economic recovery in China. And a 1% decline related to the divestiture of kitchen basics, the exit of our consumer business in Russia, and the perning of low margin business to optimize our portfolio. All other underlying volume and mixed performance was flat for the quarter, which is the sequential improvement from the second quarter, where total underlying volume growth was down approximately 1%.

We have the right plans in place and are taking the right actions to grow market share in this very attractive and competitive category we.

We have made progress and shown improvement relative to the beginning of the year.

We continue to restore distribution, which was lost because of supply issues.

As we look at our performance and our trends were happy to see total distribution point growth in the third quarter. We also continued to be pleased that our assortment on shelf is more productive than pre COVID-19.

Brendan Foley: I would like to now share a few highlights on gross margin and operating income for the quarter, which Michael will cover in more detail. We drove strong gross margin improvement year over year, reflecting continued recovery of the cost inflation our pricing lag last year and cost savings from our CCI and GOE programs. We remain focused on improving our margins over the long term and believe that our recovery will be a continuous build.

In addition, we have significant new distribution and innovation that is starting to come online as customers reset their shelves.

As we've said before restoration will take some time and we expect to drive growth as we continued to progress.

In addition to driving distribution gains we have a continued focus on supporting our brands and optimizing pricing.

As you would expect this.

This has become a more important part of our category management efforts in recent years, our diverse portfolio allows us flexibility to optimize our pricing effectiveness.

Brendan Foley: And we expect to return to historical levels and believe there is a runway beyond that, recognizing it will take some time. Higher gross profit for the quarter was partially offset by lower than expected performance in China as well as higher SGNA. As planned, we continued to build back incentive compensation and increased brand marketing investments. The net impact was a 5% increase in adjusted operating income versus the prior year. Overall, we are pleased with our execution and results year to date. These results, combined with a strong demand, we continue to expect across our portfolio and our focused approach to optimizing our cost structure, reinforce our confidence in our growth trajectory during the fourth quarter and beyond.

Look at both our everyday price and our promotional returns as well as user innovation, including price pack architecture to drive growth.

Our efforts are yielding results.

The renovation of our U S core everyday spice and Herb portfolio is rolling out according to plan at.

At the end of the third quarter, we have shipped about 40% of our renovated skus and notably products that have transitioned on shelf have seen high teens improvement in velocity.

And our significant brand marketing campaign, featuring the benefits of the new packaging ramped up at the end of the third quarter, leading into the holiday season.

Brendan Foley: Moving into the fourth quarter, we can continue to expect top-line momentum across our portfolio, including growth in China, as we left the COVID-related disruptions. China's growth, however, is expected to be less than originally anticipated, which way, combined with its year-to-date performance, has led to a lower full year 2023 benefit than we originally expected. Despite this impact, however, we are reaffirming our sales outlook and now anticipate our results will be closer to the middle of our guidance range.

Our larger size Super deal herbs, and spices continues to gain share.

Saw strong performance in the third quarter, driven by pricing and higher unit volume.

Expanded distribution has been a major driver for our performance as well as consumers that are seeking value and trading up to larger sizes.

We have the right assortment in this environment, our household penetration on larger sizes is greater than pre COVID-19.

We are confident this product line will continue to drive growth as we expand distribution further and launch new line extensions.

Brendan Foley: We are reaffirming our operating income outlook, which highlights stronger than originally expected profit realization on our business, excluding China. Demand is strong, we are driving improvement in our margin profile and are optimizing our cost structure effectively.

Our drilling performance was strong this quarter supported by our fire up campaign as well as contribution for new product launches that we discussed on our earnings call in June .

<unk> Red Hot sauces, French's mustard, and Stubbs barbecue sauce, grubs as well as lotteries Marinates all delivered significant growth in the third quarter relative to the prior year.

Brendan Foley: Now for our performance by segment. Starting with our consumer segment on slide 7, we saw solid results across the Americas and EMEA, which were tempered by our APAC region due to China, as I mentioned earlier. Notwithstanding China, we are pleased with our underlying performance.

We drove double digit sales growth with contributions from pricing and volume across our total grilling portfolio.

And we drove market share gains and mustard barbecue sauce and <unk> in the third quarter.

Brendan Foley: Now for some highlights by regions. First in the Americas, our total US branded portfolio consumption has indicated by our IRI consumption data and combined with unmeasured channels, who are approximately 4%, excluding the year-over-year impact of the kitchen basics to bestiture, and the exit of DSD direct storage delivery of our back to Hispanic spices. There is a minor difference between our sales and consumption, which is attributable to listing fees for a significant increase in new distribution and new products.

Our expansion into the fast growing Mexican aisle with neutral Lula Taco recipe mixes and <unk> is continuing to build distribution and performance to date is outperforming our expectations.

Finally in the Americas, we continue to drive double digit consumption growth in E. Commerce led by spices and seasonings. We are realizing high returns on our investments gaining new customers and growing with new products.

Turning to EMEA, where.

Where we delivered a great quarter, our strongest quarterly sales performance in more than two years with double digit sales growth.

Brendan Foley: For example, our new Chalula and Stubbs items and Tabitha Brown line extend. Inc. Unfortunately, our categories remain advantaged in terms of growth relative to overall macro trends, and we are well positioned to drive future growth. The fundamental strength of the Spices and Seasons category is evident as cooking at home has remained elevated since pre-COVID and consumers have an increase in demand for flavor. U.S. Spices and Seasons growth is continuing to outpace the total edible category in units and dollars.

Notably in the UK and France, we drove volume growth as pricing remained elevated.

In both countries, we delivered significant growth in the discount channel driven by expanded distribution with new and existing customers.

In other parts of the region. We are also making meaningful progress in this fast growing channel.

We grew our business in the discount channel by over 30% across EMEA in the third quarter.

Our grilling activations with key retailers in France, and our promotional activities in the UK, along with brand marketing support drove strong third quarter growth across the grilling portfolio.

Brendan Foley: We have the right plan in place and are taking the right actions to grow market share in this very attractive and competitive category. We have made progress and shown improvement relative to the beginning of the year. We continue to restore distribution which was lost because of supply issues. As we look at our performance and our trends, we are happy to see total distribution of point growth in the third quarter. We also continue to be pleased that our assortment on shelf is more productive than pre-COVID.

E Commerce also contributed meaningfully to our growth in both countries.

Consumption data continues to indicate that the consumer is holding up well in our categories with consumption trends continues to accelerate across the region. We grew share in herbs spices and seasonings for our total EMEA business with the UK Eastern Europe , Italy, and France, all contributing France grew share for the first time.

Brendan Foley: In addition, we have significant new distribution and innovation that is starting to come online as customers reset their shelves. As we said before, restoration will take some time and we expect to drive growth as we continue to progress. In addition to driving distribution gains, we have a continued focus on supporting our brand and optimizing pricing. As you would expect, this has become a more important part of our category management efforts in recent years.

In two years.

And UK recipe mixes, we extended our leading share position during the third quarter, new products and effective in store promotions drove share gains. We also continued to drive hot sauce category growth in the U K.

With Tallulah, leading the growth in the third quarter.

And we are also building distribution of Cholewa in France.

In our APAC region, while the pace of recovery in this business has been slower than expected. We continue to believe in the long term growth trajectory of our business in China.

Brendan Foley: Our diverse portfolio allows us flexibility to optimize our pricing effectiveness. We look at both our everyday price and our promotional returns, as well as using innovation including price pack architecture to drive growth. Our efforts are yielding results. The renovation of our U.S, core everyday spice and herb portfolio is rolling out according to plan. At the end of the third quarter, we have shift about 40% of our renovated SKUs. And notably, products that have transitioned on shelf have seen high-teens improvement in velocity.

Notwithstanding the slower recovery in China in all regions and our consumer segment, our investments in brand marketing category management initiatives and new products are proven to be effective in driving strong growth across our categories.

We are making sequential improvement on volume advancing our heat platform and are pleased with our performance.

We continue to fuel our growth with the power of our brands and increased innovation and brand marketing.

Brendan Foley: And our significant brand marketing campaign featuring the benefits of the new packaging ramped up at the end of the third quarter leading into the holiday season. Our larger size, superdeal, herbs and spices continues to gain share. We saw strong performance in the third quarter driven by pricing and higher unit volume. Expanded distribution has been a major driver for our performance, as well as consumers that are seeking value and trading up to larger sizes.

We are also forming strategic partnerships to reach and enhance brand awareness with loyal Wilson audiences.

Building on the success, we have with our tap of the Brown partnership in light of new products in the U S where growth continues to accelerate we are partnering with Ngati <unk> Hussain.

A celebrity British US who won the six series of Bdcs, the great British bake off in EMEA.

We are launching a delicious range of Schwartz seasonings recipe mixes and Neil kits with not yet and are helping build the confidence of UK consumers in the kitchen with cook along videos and recipe ideas.

We are thrilled to partner with Nordea and preliminary results are very positive. We are looking forward to working with her on various future initiatives across the region to expand our brand awareness and accelerate new product growth.

Brendan Foley: Our grilling performance was strong this quarter, supported by our fire up campaign, as well as contribution for new product launches that we discussed on our earnings call in June. Frank's red hot sauces, French's mustard, and stumps barbecue sauce grotesque, as well as long resmed marinates all delivered significant growth in the third quarter relative to the prior year. We drove double-digit sales growth with contributions from pricing and volume across our total grilling portfolio, and we drove market share gains in mustard barbecue sauce and marinades in the third quarter.

Our brand marketing efforts continued to drive awareness and strengthen our brands as you may have seen in July we partnered with Mars and launched a limited edition French's mustard flavors skittles. The objective of the campaign was to create top of mind awareness for Frenchies through a buzzworthy moment to further strengthen the power of our brand and of <unk>.

Course, you could always have fun with mustard.

We are thrilled that this was our most successful earned campaign to date with a record 5 billion impressions.

Brendan Foley: Our expansion into the fast growing Mexican aisle with new Chalula taco recipe mixes and salsa's, it's continuing to build distribution and performance to date is outperforming our expectations. Finally, in the Americas, we continue to drive double-digit consumption growth in e-commerce led by spices and seasonings. We are realizing high returns in our investments, gaining new customers and growing with new products.

It is also a perfect example of how we leverage our strengths across both segments underscoring their complementary nature, our flavor solutions team created the mustard flavor for this limited edition product, which builds awareness for both our consumer and foodservice businesses or segments are working together to further bolster.

Our french's success.

I am passionate about how our two segments consumer and flavor solutions complement each other reinforces reinforcing what differentiates mccormick and enabling us to drive sustainable growth.

Brendan Foley: Turning to EMEA, where we delivered a great quarter, are strong this quarterly sales performance in more than two years with double-digit sales growth. Notably, in the UK and France, we drove volume growth as pricing remained elevated. In both countries, we delivered significant growth in the discount channel driven by expanded distribution with new and existing customers. In other parts of the region, we are also making meaningful progress in the fast growing channel.

Looking ahead to the fourth quarter, we are excited about the holiday season, and our related brand marketing plans across all regions importantly, with our supply issues resolved we are better positioned than we were last year entering this season.

We are increasing our merchandising levels to one similar to pre Covid and are supporting our portfolio with holiday brand marketing campaigns across all regions. We are expecting a strong holiday season.

Brendan Foley: We grew our business in the discount channel by over 30 percent across EMEA in the third quarter. Our grilling activations with key retailers in France and our promotional activities in the UK, along with brand marketing support, drove strong third quarter growth across the grilling portfolio. Ecommerce also contributed meaningfully to our growth in both countries. Confunction data continues to indicate that the consumer is holding up well in our categories. With consumption trends continues to accelerate across the region.

Wrapping up the consumer update our year to date results bolster our confidence that we will continue to drive sales growth as we have in the past the supply issues. We experienced last year are resolved and we are using our strengths and category management to increase distribution and drive Mccormick and category growth.

We believe the execution of our growth plans will be a win for consumers customers or categories and Mccormick.

Brendan Foley: We grew share in herbs, spices and seasonings for our total EMEA business, with the UK, Eastern Europe, Italy, and France all contributing. France grew share for the first time in two years. In UK recipe mixes, we extended our leading share position during a third quarter. New products and effective in-store promotions drove share gains. We also continued to drive hot sauce category growth in the UK, with Chalula leading to growth in the third quarter. And we are also building distribution of Chalula in France.

Which differentiates us even more and strengthening our leadership in our core categories.

Now turning to flavor solutions on slide 10.

Our growth momentum in this segment continues to be exceptional.

Third quarter marks our 10th consecutive quarter with double digit constant currency sales growth.

Our growth was led by pricing actions in all three regions. We are price to cover current year inflation and are continuing to recover the cost inflation, our pricing lagged the last two years.

We remain committed to restoring our flavor solutions profitability.

Brendan Foley: In our APAC region, while the pace of recovery in this business has been slower than expected, we continue to believe in the long-term growth trajectory of our business in China. Notwithstanding the slow recovery in China, in all regions in our consumer segment, our investments in brand marketing, category management initiatives, and new products are proving to be effective and driving strong growth across our categories. We are making sequential improvement on volume, advancing our heat platform, and our police with our performance.

And in the third quarter, we again drove significant margin expansion versus prior year and expect continued progress toward our objective to build back our margin in this segment.

Let me turn to our highlights by region.

Our Americas third quarter strong sales growth was led by pricing with an increase in volume contributing as well.

Both the flavors and branded foodservice product categories grew by double digits.

With flavors or seasonings growth was strong including volume growth related to new products, we are helping our customers grow with the strength of our brands.

Brendan Foley: We continue to fuel our growth with the power of our brands and increased innovation in brand marketing. We are also forming strategic partnerships to reach and enhance brand awareness with loyal built-in audiences. Building on the success we have with our tap at the Brown Partnership and light of new products in the US, where growth continues to accelerate.

Our continued success with providing the seasonings for co branded items included new ones with Frank's Red Hot and stubs this quarter contributed to our growth.

Strengthen our customers iconic products also contributed to our seasonings growth, particularly related to our heat platform.

Brendan Foley: We are partnering with Nadia Hussein, a celebrity British chef, who won the sixth series of BDCs, the Great British Bake Off in the EMEA. We are launching a delicious range of short seasonings, recipe mixes, and meal kits with Nadia, and are helping build the confidence of UK consumers in the kitchen with cook along videos and recipe items. We are thrilled to partner with Nadia and preliminary results are very positive. We are looking forward to working with her on various future initiatives across the region to expand our brand awareness and accelerate new product growth. Our brand marketing efforts continues to drive awareness and strengthen our brands.

We also have strong momentum in flavors for our performance nutrition beverages, and health and market applications are growth is outpacing the market fueled by the advantages of our proprietary technologies.

Importantly, we are winning with new products for existing and new customers largely across our mid market customer base, who are category leaders in specific markets or a high growth innovators and whose growth is outpacing larger customers.

We continue to have a robust pipeline of new products and our conversion rate is strong.

We're creating preferred flavors, enabling our customers to continue to win in the marketplace.

In branded foodservice, we gained share in spices and seasonings this quarter.

Brendan Foley: As you may have seen in July, we partnered with Mars and launched a limited edition French's mustard flavor Skittles. The objective of the campaign was to create top of our brand awareness for French's through a buzzwordy moment to further strengthen the power of our brand. And of course, you can always have fun with mustard. We are thrilled that this was our most successful, earned campaign to date with a record 5 billion impressions is also a perfect example of how we leverage our strengths across both segments, underscoring their complimentary nature. A flavor solutions team created the mustard flavor for this limited edition product, which built awareness for both our consumer and food service businesses. Our segments are working together to further bolster French's success.

Additionally, our recent new products, Frank Smiled source, and Frank's Nashville Hot seasoning are performing very well and are exceeding our expectations.

We have both been well received by our customers reinforcing that the demand for heat is growing at both the miles and hot end of the spectrum.

We are excited for continued growth in these items as well as the overall breadth of opportunity and heat.

Moving to EMEA, we continue to drive broad based growth across the portfolio with strong growth in both our quick service restaurant and packaged food and beverage customers pricing drove the growth as some of our customers in both channels continue to experience softness in the volume within their own businesses.

Brendan Foley: I am passionate about how our two segments consumer and flavor solutions complement each other, reinforcing, reinforcing what differentiates McCormick and enabling us to drive sustainable growth.

As we continue to prune low margin business in our flavor solutions segment, while it did not impact the third quarter I want to mention that we divested a small canning business, which was part of our <unk> operations in Italy.

Brendan Foley: Looking ahead to the fourth quarter, we are excited about the holiday season and our related brand marketing plans across all regions. Importantly, with our supply issues resolved, we are better positioned than we were last year entering this season. We are increasing our merchandising levels to one similar to pre-COVID and are supporting our portfolio with holiday brand marketing campaigns across all regions. We are expecting a strong holiday season. Driving up the consumer update, our year-to-date results bolster our confidence that we will continue to drive sales growth as we have in the past.

This divestiture allows us to focus our resources on our core flavors product category and drive further growth.

Mike will have more in the future impact of this divestiture on the EMEA region in a few minutes.

And in APAC, while the economic recovery in China was not as strong as anticipated China contributed to the regional pricing and volume growth.

Across the region, we benefited from our <unk> customers increase in promotional activity.

The strength of our flavor solutions portfolio and capabilities, including our differentiated customer engagement and culinary inspired and avail innovation are driving outstanding flavor solutions momentum our.

Brendan Foley: The supply issues we experienced last year are resolved and we are using our strength and category management to increase distribution and drive McCormick and category growth. We believe the execution of our growth plans will be a win for consumers, customers, our categories, and McCormick, which differentiates us even more and strengthening our leadership in our core categories.

Our flavors product category are 100% focus on flavor, our breadth and reach our unrivaled consumer insights and our proprietary technology platform gives us an advantage and positions us well to continue to win in the technically insulated and value added part of our portfolio.

Brendan Foley: Turning to flavor solutions on slide 10, our growth momentum in this segment continues to be exceptional. The third quarter marks our 10th consecutive quarter with double-digit constant currency sales growth. Our growth was led by pricing actions in all three regions. We are priced to cover current year inflation and are continuing to recover the cost inflation our pricing lagged the last two years. We remain committed to restoring our flavor solutions profitability. And in the third quarter, we again drove significant margin expansion versus prior year and expect continued progress toward our objective to build back our margin in this segment.

Driving growth and advancing our flavor leadership.

And in branded Foodservice, we expect new products increased many penetration culinary partnerships and our expertise in heat to drive continued growth.

Our robust growth plans in flavor solutions and effective execution of our proven strategies bolster our confidence in continuing our growth trajectory and driving our flavor solutions leadership as well as margin restoration.

Now I'd like to turn it over to Mike to provide details on our financial performance.

Thanks, Brendan and good morning, everyone.

Starting on slide 13, our topline constant currency sales growth grew 6% compared to the third quarter of last year, reflecting 8% from pricing, partially offset with a 2% volume and mix decline at.

Brendan Foley: Let me turn to our highlights by region. Our America's third quarter strong sales growth was led by pricing with an increase in volume contributing as well. Both the flavors and branded food service product categories grew by double digits. With flavors, our seasonings growth was strong, including volume growth related to new products. We are helping our customers grow with the strength of our brains. Our continued success with providing the seasonings for co-branded items included new ones with Frank's Red Hot and Stubbs, this quarter, contributed to our growth.

As Brendan already mentioned there were impacts of volume related to the slower than expected recovery in the China consumer business, the divestiture of kitchen basics, the exit of our consumer business in Russia, and strategic decisions, we made related to optimizing the portfolio of profitability of our portfolio.

As a result at the total company level. Excluding these items underlying volume performance was flat for the quarter and improved sequentially from the second quarter.

Brendan Foley: Strengthen our customers' iconic products, also contributed to our seasonings growth, particularly related to our heat platform. We also have strong momentum in flavors for performance nutrition beverages and health and market applications. Our growth is outpacing the market due by the advantages of our proprietary technologies. Importantly, we are winning with new products for existing and new customers, largely across our mid-market customer base, who are category leaders in specific markets or a high-growth innovators, and whose growth is outpacing larger customers.

In our consumer segment constant currency sales increased by 1%, reflecting a 5% increase in pricing actions, partially offset by a 4% volume decline.

Included in this volume decline or a 2% decline due to a lower than expected recovery in China, and a 2% decline attributable to the kitchen basics divestiture, our business exit in Russia, and the Hispanic product DSD exit to optimize margins.

On slide 14 consumer sales in the Americas increased 2% in constant currency and included a 4% increase from pricing actions, partially offset by a 2% volume decline due to the kitchen basics divestiture and DSD items I just mentioned.

Brendan Foley: We continue to have a robust pipeline of new products and our conversion rate is strong. We are creating preferred flavors enabling our customers to continue to win in the marketplace. In branded food service, we gain share in spices and seasonings this quarter. Additionally, our recent new products, Frank's mild sauce and Frank's Nashville Hot Seasoning are performing very well and are exceeding our expectations. They have both been well received by our customers, reinforcing that the demand for heat is growing at both the mild and hot end of the spectrum. We are excited for continued growth in these items, as well as the overall breadth of opportunity in heat.

In EMEA constant currency consumer sales increased 10% with a 13% increase from pricing actions, partially offset by a 3% volume decline primarily from exiting Russia.

Excluding Russia sales growth was broad based across all markets and categories.

Constant currency consumer sales in the APAC region decreased 11% driven by a 15% volume decrease primarily due to a slower than expected recovery in China.

Also contributing to the decline was the impact of lapping strong China demand in the prior year following significant extended lockdowns during the second quarter of last year.

Turning to our flavor solutions segment, and slide 17, we grew third quarter constant currency sales, 11%, reflecting a 10% increase from pricing and a 1% increase from volume and product mix. Our volume growth was partially offset by the pruning of low margin business.

Brendan Foley: As we continue to prune low-margin business in our flavor solution segment, while it did not impact the third quarter, I want to mention that we divested a small canning business, which was part of our GIadi operations in Italy. This divestiture allows us to focus our resources on our core flavors product category and drive further growth.

In the Americas flavor solutions constant currency sales rose, 10%, reflecting a 9% increase from pricing and a 1% volume and product mix growth.

Growth was broad based across the portfolio with strength in flavors, including seasonings and specialty flavors as well as branded foodservice.

In EMEA constant currency sales increased 15% with pricing actions, partially offset by lower volume and product mix, including a 1% impact from exiting the private label product line mentioned earlier.

Brendan Foley: Mike will have more on a future impact of this divestiture on the EMBA region in a few minutes. And in APEC, while the economic recovery in China was not as strong as anticipated, China contributed to the regional pricing and volume growth. Across the region, we benefited from our QSR customers' increase in promotional activity. The strength of our flavor solution portfolio and capabilities, including our differentiated customer engagement and culinary inspired innovation, our driving outstanding flavor solutions momentum.

Outside of this product discontinuation volumes declined due to softness in some of our customers' volume within their own businesses.

Regarding the divestiture of the <unk> business Brendan mentioned earlier.

We expect this divestiture to impact EMEA flavor solutions by approximately 3% starting in the fourth quarter of 2023 through the third quarter of 2024.

For the total flavor solutions segment, we expect an approximately 1% impact and for the total company less than 1%.

Brendan Foley: Our flavor product category, our 100% focus on flavor, our breadth and reach, our enrivaled consumer insights, and our proprietary technology platform, gives us an advantage and positions us well to continue to win in the technically insulated and value-rated part of our portfolio. Driving growth and advancing our flavor leadership, and in branded food service, we expect new products, increased manufacturing, culinary partnerships, and our expertise in heat to drive continued growth. Our robust growth plans and flavor solutions and effective execution of our proven strategies bolster our confidence in continuing our growth trajectory and driving our flavor solutions as well as margin restoration.

In the APAC region flavor solutions sales grew 13% in constant currency with a 7% contribution from pricing and 6% volume growth driven by our customers' promotional activities and limited time offers across the region.

As seen on slide 21, gross profit margin expanded 150 basis points in the third quarter versus the year ago period, reflecting our steadfast focus on increasing profit realization favor.

Favorable drivers in the quarter, where our CCI programs and the continued recovery of the cost inflation, our pricing lagged over the past two years.

Michael Smith: Now, I'd like to turn it over to Mike to provide details on our financial performance.

We expect to finish 2023 meeting the cost recovery plans, we set as we entered the year.

Michael Smith: Thanks, friend, and a good morning, everyone. Starting on slide 13, our top line constant currency sales grew 6% compared to the third quarter of last year, reflecting 8% from pricing, partially all set with a 2% volume and mixed decline. As Brendan already mentioned, there were impacts of volume related to the slower than expected recovery in the China consumer business, the divestiture of kitchen basics.

We are very pleased with our gross margin expansion for the quarter historically, our third quarter gross margin has been higher than the second quarter. This year. However, they were comparable at approximately 37% because we realized our highest level of both pricing and cost recovery from prior years and the second quarter.

We expect to continue to drive margin improvement in the balance of the year and as evidenced by our full year outlook and year to date results. We expect a higher gross margin in the fourth quarter compared to the third quarter of this year as well as the expansion from the fourth quarter of 2022.

Michael Smith: The exit of our consumer business in Russia and strategic decisions we made related to optimizing the profitability of our portfolio. As a result, at the total company level, excluding these items, underlying volume performance was flat for the quarter and improved sequentially from the second quarter. In our consumer segment, constant currency sales increased by 1%, reflecting a 5% increase in pricing actions, partially all set by a 4% volume decline. Included in this volume decline are a 2% decline due to a lower than expected recovery in China and a 2% decline attributable to the kitchen basics, divestiture, our business exit in Russia and Hispanic product DST exit to optimize margins.

Now moving to slide 20 to selling general and administrative expenses or SG&A increased relative to the third quarter of last year as higher employee incentive compensation expenses and distribution costs were partially offset by CCI led cost savings.

Brand marketing also increased compared to the third quarter of last year, and we continue to expect a low single digit increase in brand marketing for the full year.

As a percentage of net sales SG&A increased 160 basis points.

Michael Smith: On slide 14, consumer sales in the Americas increased 2% in constant currency, and included a 4% increase in pricing actions, partially all set by a 2% volume decline due to the kitchen basics, divestiture, and DST items I just mentioned. In the EMEA, constant currency consumer sales increased 10% with a 13% increase in pricing actions, partially all set by a 3% volume decline primarily from exiting Russia. Excluding Russia, sales growth was broad based across all markets and categories.

Strong sales growth and gross margin expansion, partially offset by higher SG&A costs resulted in a constant currency increase in adjusted operating income of 5% compared to the third quarter of 2022.

In constant currency adjusted operating income in the consumer segment, which was impacted by a slower China recovery and brand marketing investments declined 5% and in the flavor solutions segment adjusted operating income increased 42%.

Turning to interest expense and income taxes on slide 2023, our interest expense increased significantly over the third quarter of 2022, driven by the higher interest rate environment.

Michael Smith: Concentrously consumer sales in the APEC region decreased 11%, driven by a 15% volume decrease, primarily due to a slower than expected recovery in China. Also contributing 2 to 2% decline put the impact of laughing strong China demand in the prior year following significant extended lockdowns during the second quarter of last year. Turning to our flavor solution segment and slide 17, we grew 3rd quarter constant currency sales 11%, reflecting a 10% increase in pricing and a 1% increase in volume and product mix.

And quickly touching on tax our third quarter adjusted effective tax rate was 21, 4% compared to 21, 2% in the year ago period.

Our income from unconsolidated operations in the third quarter reflects strong performance in our largest joint venture Mccormick de Mexico.

We are a market leader with the Mccormick branded mayonnaise marmalades and muster product lines in Mexico, and the business continues to contribute meaningfully to our net income and operating cash flow results.

Michael Smith: Our volume growth was partially all set by the pruning of low margin business. In the Americas, flavor solutions constant currency sales grows 10%, reflecting a 9% increase in pricing and a 1% volume and product mix growth. Growth was broad based across the portfolio with strength and flavors, including seasonings and specialty flavors, as well as branded food service. In EMEA, constant currency sales increased 15%, with pricing actions partially all set by lower volume and product mix, including a 1% impact from exiting the private label product line mentioned earlier.

At the bottom line as shown on slide 25 third quarter 2023 adjusted earnings per share was <unk> 65.

As compared to 69 for the year ago period.

The decrease was driven by lapping a favorable impact primarily related to an optimization of our debt portfolio included in other income in the third quarter of last year.

This impact is also a headwind to our full year results.

On slide 26, we summarized highlights for cash flow in the quarter end balance sheet.

Michael Smith: Outside of this product discontinuation, volume decline due to softness of some of our customers' volume within their own businesses. Regarding the divestiture of the geodicanting business brand and mentioned earlier, we expect this divestiture to impact EMEA flavor solutions by approximately 3% starting in the 4th quarter of 2023 to the 3rd quarter of 2024. For the total flavor solution segment, we expect an approximately 1% impact. And for the total company, less than 1%.

Our cash flow from operations year to date was very strong $660 million in 2023 compared to $250 million for the same period last year.

164% increase the.

The increase was primarily driven by higher operating income and working capital improvements, including lower inventory.

We returned $314 million of cash to our shareholders through dividends and used $187 million of cash for capital expenditures through the third quarter.

Michael Smith: In the APEC region, flavor solution sales grew 13% in constant currency with a 7% contribution from pricing and 6% volume growth driven by our customers promotional activities and limited time offers across the region. As seen on slide 21, Chris Prophetmarge and expanded 150 basis points in the third quarter versus the year ago period, reflecting our steadfast focus on increasing profit realization. Favorable drivers in the quarter were our CCI and GOE programs and the continued recovery of the cost inflation are pricing lagged over the past two years.

We expect 2023 to be a very strong year of cash flow as evidenced by our 2023 year to date cash flow from operations of $660 million, which is already slightly higher than our full year cash flow in 2022.

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.

We remain committed to a strong investment grade rating with our improving gross margin and lower inventory, we are well positioned to continue paying down debt and we now expect to delever to approximately three times earlier in 2024 than we originally expected.

Now turning to our updated 2023 financial outlook on slide 27.

Our 2023 outlook reflects our continued positive topline growth momentum and with the optimization of our cost structure increased profit realization.

We expect to drive margin expansion with strong sales and adjusted operating income growth.

Adjusted operating income growth is expected to be partially offset by higher interest expense and a higher projected effective tax rate.

Michael Smith: And as evident by our full year outlook and year-to-date results, we expect a higher gross margin in the fourth quarter compared to the third quarter of this year as well as expansion from the fourth quarter of 2022. Now moving to slide 22, selling general and administrative expenses for SGNA increased relative to the third quarter of last year as higher employee incentive compensation expenses and distribution costs for partially offset by CCI led and GOE cost savings.

We also anticipate minimal impact from currency rates, although there will be a timing aspect as we realized an unfavorable impact year to date through the third quarter and project a favorable impact in the fourth quarter.

We are reaffirming our sales and operating profit outlook for 2023, despite a slower recovery in China.

We no longer expect a 1% contribution to our sales from lapping last year's Covid disruptions in China.

Michael Smith: Brand marketing also increased compared to the third quarter of last year and we continue to expect a low single digit increase in brand marketing for the full year. As a percentage of net sales SGNA increased 160 basis points. Strong sales growth and gross margin expansion, partially offset by higher SGNA costs resulted in a constant currency increase in adjusted operating income of 5% compared to the third quarter of 2022. In constant currency, adjusted operating income into consumer segment, which was impacted by the slower China recovery and brand marketing investments declined 5% and in the flavor solution segment adjusted operating income increased 42%.

And we are also revising the benefit from a China recovery to our operating income from 300 basis points to 100 basis points.

At the topline we continue to expect 5% to 7% growth and anticipate our results will be closer to the middle of our guidance range, given the lower than expected China recovery.

The wrap of last year's pricing actions as well as the impact of new ones in 'twenty three are the primary drivers of growth.

Several factors are expected to impact our volume and product mix for the year.

<unk> price elasticities.

Which are consistent with 2022 at lower levels than we have historically experienced but in line with the current environment.

The divestiture of our kitchen basics business in August of last year, and the exit of our consumer business in Russia during last year's second quarter.

Michael Smith: Turning to interest expense and the income taxes on slide 2023 are interest expense increased significantly over the third quarter of 2022 driven by the higher interest rate environment. And quickly touching on tax, our third quarter of adjusted effective tax rate was 21.4% compared to 21.2% in the year ago period. Our income from unconsolidated operations in the third quarter reflects strong performance in our largest joint venture, McCormick to Mexico. We are the market leader with the McCormick Bay branded mayonnaise, formulae and mustard product lines in Mexico and the business continues to contribute meaningfully to our net income and operating cash flow results.

The continual pruning of lower margin business from our portfolio. We continue to estimate the Americas consumer segment, DSD exit and the EMEA flavor solutions private label discontinuation to be approximately a 1% impact on the year, which began to impact us in the second quarter of 2023.

And finally, the divestiture of <unk> scanning business, which closed on the first day of the fourth quarter, we will have a minimal impact on total company sales for the year.

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

Michael Smith: At the bottom line, as shown on slide 25, third quarter 2023 adjusted earnings per share with 65 cents as compared to 69 cents for the year ago period. The decrease was driven by laughing a favorable impact primarily related to an optimization of our debt portfolio included in other income in the third quarter of last year. This impact is also a headwind to our four year results. This is the same period last year, a 164% increase.

Our 2023 gross margin is projected to range between 110 to 140 basis points higher than 2022 compared to our prior guidance of 50 to 100 basis points.

This gross margin expansion reflects a favorable impact from pricing cost savings from our CCI led and <unk> programs and portfolio optimization, partially offset by the anticipated impact of a low to mid teens increase in cost inflation.

It also reflects more than offsetting cost pressures with pricing actions as we recover the cost inflation, our pricing lagged the last two years.

Moving to adjusted operating income, we continue to expect 10% to 12% constant currency growth. There are some discrete items expected to impact our 2023 adjusted operating profit growth.

Michael Smith: The increase was primarily driven by higher operating income and working capital improvements, including lower inventory. We returned $314 million of cash to our shareholders through dividends and used $187 million of cash for capital expenditures through the third quarter. We expect 2023 to be a very strong year of cash flow as evidenced by our 2023 year-to-date cash flow from operations of $660 million, which is already slightly higher than our four year cash flow in 2022.

First remaining consistent with our prior outlook, we expect our <unk> program to have an 800 basis point favorable impact and the kitchen basics divestiture to have an unfavorable 100 basis point impact.

<unk> I already mentioned the expected 100 basis point benefit related to China, which is lower than the originally anticipated 300 basis points.

Finally, we expect a 900 basis point unfavorable impact from building back incentive compensation slightly ahead of our prior projection of 800 basis points given the increase in earnings expectations since the beginning of the year.

Michael Smith: Our priority is to continue to have a balance use of cash, funding investments to drive growth, returning a significant portion to our shareholders' dividends and paying down debt. We remain committed to a strong investment-grade rating. With our improving growth margin and lower inventory, we are well positioned to continue paying down debt. And we now expect to do ever to approximately three times earlier in 2024 than we originally expected.

The net impact of these discrete items is an unfavorable 100 basis points as compared to a 200 basis point favorable impact in our previous outlook.

The reaffirmation of our adjusted operating income outlook, despite the unfavorable change in the impact from discrete items.

Michael Smith: Now turning to our updated 2023 financial outlook on slide 27. Our 2023 outlook reflects our continued positive top-line growth momentum and with the optimization of our cost structure, increased profit realization. We expect to drive margin expansion with strong sales and adjusted operating income growth. Adjusted operating income growth is expected to be partially offset by higher interest expense and a higher projected effective tax rate. We also anticipate minimal impact from currency rates, although there will be a timing aspect as we realize an unfavorable impact year-to-date through the third quarter and project a favorable impact in the fourth quarter.

Highlights stronger than originally expected profit realization on our underlying business, which is now expected to be 11% to 13% growth compared to 8% to 10% growth previously.

We are reaffirming our low single digit increases in brand marketing investments, our CCI led cost savings target of approximately $85 million. Our interest expense outlook of an estimated range from $200 million to $210 million in 2023, and our 2023 adjusted effective income tax rate projection of approximately 22%.

We are increasing our income from unconsolidated operations projections to a 30% expected increase from 2022, reflecting the strong performance, we expect in our largest joint venture Mccormick de Mexico.

Michael Smith: We are reaffirming our sales and operating profit outlook for 2023, despite a slower recovery in China. We no longer expect a 1% contribution to our sales from lapping last year's COVID disruptions in China. And we are also revising the benefit from a China recovery to our operating income from 300 basis points to 100 basis points. At the top line, we continue to expect 5% to 7% growth. An anticipator's results will be closer to the middle of our guidance range given the lower than expected China recovery.

To summarize our 2023 adjusted earnings per share expectations reflect strong underlying business growth of 14% to 16%.

Above our prior projection of 10% to 12% <unk>.

Combining this 14% to 16% underlying growth with a 1% unfavorable impact from the discrete items on adjusted operating profit and the combined interest and tax headwind of 9%, resulting in an expected increase of 4% to 6% or our projected guidance range of adjusted earnings per share in 2023 of $2 six.

Michael Smith: The rap of last year's pricing actions, as well as the impact of new ones in 23, are the primary drivers of growth. Several factors are expected to impact our volume and product mix for the year, including price elasticity, which are consistent with 2022 at lower levels than we have historically experienced, but in line with the current environment. The divestiture of our kitchen-based business in August of last year and the exit of our consumer business in Russia during last year's second quarter.

<unk> two <unk> to $2 67.

We are projecting strong operating performance in 2023 with continued topline momentum significant optimization of our cost structure and strong adjusted operating profit growth as well as margin expansion and strong cash flow.

We remain confident in the underlying strength of our business and delivering on our profitable growth reflected in our 2023 financial outlook.

Michael Smith: The continual pruning of lower margin business from our portfolio. We continue to estimate the America's consumer spending at the SDX and the EMEA's flavor solutions private label discontinuation to be approximately a 1% impact on the year, which began to impact us in the second quarter of 2023, and finally, the divestiture of the Audi's candy business, which closed on the first day of the fourth quarter, will have a minimal impact on total company sales for the year.

Thank you Mike before we turn it over to Q&A I would like to provide some closing comments.

Global demand for flavor remains the foundation of our sales growth and we are intentionally focused on great fast growing categories.

Our alignment with long term consumer trends healthy and flavorful cooking trusted brands increased digital engagement and purpose minded practices continued to create a tailwind for growth.

<unk> is uniquely positioned to capitalize on this demand for great flavor with the breadth and reach of our strong global flavor portfolio. We are end to end flavor for our consumers and customers.

We remain a different kind of CPG company, one differentiated by our growth platform. The results that we have achieved over the last years and our culture.

Michael Smith: Prior guidance of 50 to 100 basis points. This gross margin expansion reflects a favorable impact from pricing, cost saving from our CCI led and GOE programs and portfolio optimization, partially offset by the anticipated impact of a low to mid-teens increase in cost inflation. It also reflects more than offsetting cost pressures with pricing actions as we recover the cost inflation are pricing lagged the last two years. Moving to adjusted operating income, we continue to expect 10 to 12% cost and currency growth.

We play in great in fast growing categories are two segments consumer and flavor solutions complement each other reinforcing our differentiation the <unk>.

Scale insights and technology that we leverage from both segments are meaningful and driving sustainable growth.

We continue to leverage the strength of our culture and the power of people to drive success.

I want to thank Mccormick employees worldwide as their energy and excitement for the business is coming through in our results now.

Michael Smith: There are some discrete items expected to impact our 2023 adjusted operating profit growth. First, remaining consistent with our prior outlook, we expect our GOE program to have an 800 basis point favorable impact and the kitchen basics divestiture to have an unfavorable 100 basis point impact. Next, I already mentioned the expected 100 basis point benefit related to China, which is lower than the originally anticipated 300 basis points. Finally, we expect a 900 basis point unfavorable impact from building back incentive compensation, slightly ahead of our prior projection of 800 basis points, given the increase in earnings expectations since the beginning of the year.

Now to recap the key takeaways as seen on slide 30.

Our third quarter performance was strong reflecting sustained demand and the effective execution of our growth strategies.

And our volume performance, excluding China continued to improve.

We drove meaningful year over year margin expansion underscoring our focus on profit realization.

Our year to date cash flow from operation results with strong already equal to our full year 2022 results.

I'll reaffirm sales and operating profit guidance, despite lower than expected China recovery highlights the growing strength of the rest of the business.

The strength of our business model the value of our products and capabilities and execution of our proven strategies bolsters, our confidence in our growth trajectory over the long term.

Michael Smith: The net impact of these discrete items is an unfavorable 100 basis points as compared to a 200 basis point favorable impact in our previous outlook. The reaffirmation of our adjusted operating income outlook, despite the unfavorable change in the impact from discrete items, highlights stronger than originally expected profit realization on our underlying business, which is now expected to be 11 to 13% growth compared to 8 to 10% growth. We are reaffirming our low single-digit increases in brand marketing investments, our CCI led cost savings target of approximately 85 million dollars, our interest expense outlook of an estimated range from 200 million to 210 million dollars in 2023, and our 2023 adjusted effective income tax rate projection of approximately 22%.

Now for your questions.

Thank you.

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One moment please poll for questions. Thank you.

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

Thanks, very much good morning, everybody.

Andrew Good morning, I guess, maybe just start off with.

Obviously as you mentioned saw some sequential volume improvement in consumer Americas in the fiscal third quarter.

Michael Smith: We are increasing our income from unsolidated operation projection to a 30% expected increase from 2022, reflecting the strong performance we expect in our largest joint venture, McCormick to Mexico. To summarize, our 2023 adjusted earnings per share expectations reflect strong underlying business growth of 14 to 16%. Above our prior projection of 10 to 12%. Combining this 14 to 16% underlying growth with a 1% unfavorable impact from the discrete items on adjusted operating profit and the combined interest and tax headwind of 9%.

And youre lapping an easier and even easier I guess down 11.

Volume decline in the year ago period in the fourth quarter. So I guess my question is would you expect volume in the consumer Americas segment, two to flip positively in the fourth quarter.

And if not I guess, what would be the key factors that would that would keep you from doing so obviously all in the context of an industry volume backdrop that remains kind of.

Subdued.

Well Thanks, Andrew for your question, just maybe speak first to last year's fourth quarter.

Michael Smith: Result in an expected increase of 4 to 6%. Or projected guidance range of adjusted earnings per share in 2023 of $2.62 to $2.67. We are projecting strong operating performance in 2023 with continued top line momentum, significant optimization of our cost structure and strong adjusted operating profit growth, as well as margin expansion and strong cash flow.

Yeah.

I think our sales grows back back in 2022 was down about.

One 7% pick on sales.

That was up without kitchen basics that we were lapping the 2021 retail inventory build and a high level.

I think we as we talked about on that call entered the 2022 holiday with just what's stronger inventory that we have.

Michael Smith: We remain confident in the underlying strength of our business and delivering on the profitable growth respected in our 2023 financial outlook.

We're counting on are predicting or forecasting.

So.

The way, we're looking at it as the net sales impact really was up about four a little over 4% in the fourth quarter last year. So we're not seeing that necessarily as an easy comparison.

Michael Smith: Thank you Mike.

Brendan Foley: Before we turn it over to Q&A I would like to provide some closing comments. Global demand for flavor remains the foundation of our sales growth and we have intentionally focused on great fast growing categories. Our alignment with long-term consumer trends, healthy and flavorful cooking, trusted brands, increased digital engagement and purpose-minded practices continue to create a tailwind for growth. McCormick is uniquely positioned to capitalize on this demand for great flavor with the breadth and reach of our strong global flavor portfolio. We are end-to-end flavor for our consumers and customers.

Overall, but just talking to $1 <unk>.

It is kind of our view is just we're still looking at a pretty robust fourth quarter from a year ago, just knowing that we had that comparison.

The fourth quarter now they look at this year's fourth quarter.

As we said on the call here earlier, you will see the impact of that DSD continuation in our Hispanic bag spices part of our business. It just tends to be that business tends to be heavier in the fourth quarter because of the holidays, so that'll be a little bit stronger than <unk>.

Brendan Foley: We remain a different kind of CPG company, one differentiated by our growth platform, the results that we have achieved over the last years and our culture. We play in great and fast growing categories. Our two segments consumer and flavor solutions complement each other reinforcing our differentiation. The scale, insights and technology that we leverage from both segments are meaningful and driving sustainable growth. We continue to leverage the strength of our culture and the power of people to drive success.

Thanks to our spices and seasonings business, we continue to see improving trends in that part of our portfolio and you should expect to see that.

In the fourth quarter that sequential improvement in performance overall.

And we feel like we're going to have a strong holiday.

The reasons why we feel good about the direction of that part of our portfolio is when you heard it on the call, we're gaining share and we're gaining distribution on super deal herbs and spices.

On the <unk> opening price point platform, we're still getting really good performance for that but still also building out distribution and.

Brendan Foley: I want to take McCormick employees worldwide as their energy and excitement for the business is coming through in our results.

We have one value retailer that we've only begun just starting shipments on and they'll start to build out and fill out more store locations.

Brendan Foley: Now to recap the key takeaways as seen on flight 30. Our third quarter performance was strong reflecting sustained demand and the effective execution of our growth strategies. And our following performance, excluding China, continued to improve. We drove meaningful year-over-year margin expansion, underscoring our focus on profit realization. Our year-to-date cash flow from operation results was strong, already equal to our full year 2022 results. Our reaffirmed sales and operating profit guidance, despite lower than expected China recovery, highlights the growing strength of the rest of the business. The strength of our business model, the value of our products and capabilities and execution of our proven strategies bolsters our confidence in our growth trajectory of the long term.

Brendan Foley: Now for your questions. Thank you.

Because we have like just in that one particular count 85% of locations still yet to come so we still see distribution build happening behind lower.

Overall.

And that renovation that we launched here this year, we talked about in the second quarter.

He is doing really well, where we see it getting on shelf that we shipped about 40%, but what's appearing on shelf is probably just a little bit different because we don't really have that data, but what we're seeing with when we see that new package come on shelf is that the <unk> improves quite a bit. So we're really encouraged by our performance there and we're definitely seeing strong consumer reaction to two.

The new package and so that will obviously continue to build in the fourth quarter and we're also turning on our media right now.

Advertising is the <unk>.

Unknown Executive: Well now we conducted the question and answer session. If you like to ask a question today, please press star one from your telephone keypad and a confirmation tone will indicate your line in the question queue. You may press star two if you'd like to remove your question from the queue. For participants who are using speaker equipment, maybe necessary to pick up your handset before pressing the star keys. One moment please so we pull for questions. Thank you.

<unk> as a package, but then we're also having holiday campaigns starting to run too. So we feel like there's a lot of good momentum in the pipeline. Obviously a lot of that will carry into 2024, but we still feel really good about the strength of that part of our business going into the fourth quarter.

It's also helping US though is that our core categories are performing a little bit stronger than overall total elbow in the grocery stores. So we see continued strength.

Strength, there just from a category standpoint.

Andrew Lazar: Now first question is coming from the line of Andrew Lazar with Barclays. Please receive your questions. Great. Thanks very much. Good morning everybody. Good morning. I guess we would just start off with McCormick obviously as you mentioned saw some sequential volume improvement in consumer America's in the fiscal third quarter. In your lap in easier and even easier, I guess down 11 volume decline in the year ago period in the fourth quarter.

We had good performance across our other core categories like recipe mix.

Condiments and sauces, so we expect pretty good performance there.

But there are some categories, where work can be participate along with our food peers.

We had a much smaller scale, but these are categories like frozen or the Asian category.

We've seen more volume decline like we've seen in the rest of the center of store and that part of our business.

Andrew Lazar: So I guess my question is would you expect volume in the consumer America segment to flip positively in the fourth quarter? And if not, I guess what would be the key factors that would that would keep you from doing so obviously all the context of an industry volume backdrop that remains kind of. Well, thanks Andrew for your question. Just to maybe speak first to last year's fourth quarter. I think our sales growth back in 2022 was down about 1.7% thick on sales.

As just one part of.

The portfolio I'll, just give you some color on it we're seeing definitely the type of softness that youre seeing in other categories.

But the fundamental trends have not shifted despite this recovery in China being a lot slower U S and Europe are performing as expected and as you heard in the call the kind of reaffirmed our guidance on sales despite China, which is meant to indicate that we still see a strengthening the performance of our business overall.

Great. Thanks, I'll pass it on and leave it there. Thanks so much.

Our next questions come from the line of Alexia Howard with Bernstein. Please proceed with your question.

Andrew Lazar: And that was up without kitchen basics. And we were lapping the 2021 retail inventory build in a high level. I think we, you know, as we talked about on that call, entered the 2022 holiday with just a watch stronger inventory than we have, you know, we're counting on or predicting or forecasting. So the way we're looking at it is the net sales impact really was up about 4.5% over 4% in the fourth quarter last year.

Good morning, everyone. Good morning.

And can I ask about the market share trends that we're seeing in Americas Kenai.

W think that under pressure for some time because of the distribution losses, and so on but I am wondering instead light at the end of the tunnel in terms of button, either the comparable got easier.

Innovation helps to turn it around and just wondering what the.

The outlook is there and then I have a follow up.

Andrew Lazar: So we're not seeing that necessarily is an easy comparison overall. But they're just talking to dollars first. You know, that's kind of our view is just we're still looking at a pretty robust fourth quarter from the year ago, just knowing that we had that comparison in the fourth quarter. Now, look at this year's fourth quarter. As we said on the call here earlier, you know, you will see the impact of that DSD continuation in our Hispanic back spices part of our business.

Thanks, Alexia I think.

As we take a look at our performance overall in terms of shares et cetera, just talking making specifically the spices and seasonings.

Or a bit tricky, because we're seeing private label and our competitors taking more price right now in the last couple of months to catch up with the pricing that we've taken in the marketplace. So this is helpful. Obviously, because it starts to closed price gaps.

<unk>.

So I think youre seeing some stronger dollar performance there, but from a unit standpoint, we believe we're performing even better.

Andrew Lazar: It just tends to be that business tends to be heavier in the fourth quarter because of the holiday. So that'll be a little bit stronger than. But to our spices and seasonings business, we continue seeing improving trends in that part of our portfolio and you should expect to see that in the fourth quarter that sequential improvement and performance overall. And we feel like we're going to have a strong holiday. I mean, I think the reasons why we feel good about the direction of that part of our portfolio is, you know, when you heard it on the call.

That lag is even less and so as we then look to the pipeline of activities that we have going on much like I just mentioned.

On the previous question, whether it's parts of our product line that are really starting to build momentum or distribution that builds momentum.

We see a strong pipeline across that part of our portfolio as well as just stronger overall.

Andrew Lazar: We're gaining share and we're we're gaining distribution on super deal or some spices on the Lowry's opening price point platform. We're still getting really good performance for that. But still also building out distribution and we have one value retailer that we've only begun just starting shipment on and they'll start to build out, you know, fill out more store locations. Because we have like just in that particular account, you know, 85% of locations still yet to come.

Marketing initiatives now that we have really assured supply across all of our portfolio. So when we talk about light at the end of the tunnel, we just see a sequential improvement over the course of time as we claw back on distribution points, which we've grown this quarter.

As well as just the pipeline of activity in renovation that we have across our portfolio. You are seeing a good a good view of that right now, but there's more to come and so we do feel pretty confident about our ability to continue driving sequential improvement, whether it's in spices and seasonings or across other categories. I think too we think that some of the same things we've done in <unk>.

Andrew Lazar: So we still see distribution build happening behind Lowry's overall. And that renovation that we launched here this year, we talked about in the second quarter. It's doing really well. We'll see it getting on shelf. Now, we should about 40%. But, you know, what's appearing on shelf is probably just a little bit different because we don't really have that data. But what we're seeing with when we see that new package come on shelf is that the washing improves quite a bit.

Europe for example, where they had as we mentioned today on the call really good share performance and volume performance in markets like UK, and France, which are similar to the U S. So those type of.

The activities, we're doing whether it's innovation.

Upgrading renovating the line and have had success over there too.

Andrew Lazar: So we're really encouraged by our performance there and we're definitely seeing strong consumer reaction to the new package. And so that will obviously continue to build in the fourth quarter. And we're also turning on our media right now, you know, advertising. You know, the benefits of the package, but then we're also having holiday campaigns start to run too. So we feel like there's a lot of good momentum in the pipeline. Obviously, a lot of that will carry into 2024, but we still feel really good about the strength of that part of our business going into the fourth quarter.

Great. Thank you and just as a quick follow up you talked about the free cash flow, allowing you to delever more quickly than expected.

What's your level of appetite for acquisitions next year, where the priority is Disney consumer flavor solutions domestic international.

Just wondering how youre thinking about the pipeline on the M&A side and I'll pass it on thank you.

Yeah Alexia.

As you said to be weak.

We're having really good success on our operating cash flow, we're really excited about that as we said on the call today, we're going to delever faster than we thought.

Andrew Lazar: You know, it's also helping us though is that, you know, our core categories are performing a little bit stronger than overall total available in the grocery store. So we see it continued strength there just from a category standpoint. We have good performance across other core categories like recipe mix, you know, condiments and sauces. So we expect pretty good performance there. But, you know, there are some categories where we participate in one of our food peers, probably at a much smaller scale.

To get back to our three times target, we're always looking at acquisitions I mean, we have a corporate development team is always working with internally to look at those.

Those assets.

We have an appetite as part of our long term growth algorithm, a third of our 4% to 6% long term growth algorithm is M&A. However, we're still in the process of paying down debt I think fourth quarter is our biggest cash flow quarter generally.

Andrew Lazar: But these are, you know, categories like frozen or the Asian category where we've seen more volume decline like we've seen in the rest of the center of store. And that part of our business, that's just one part of the portfolio. I just gave you some color on it. You know, we're seeing definitely the type of softness that you're seeing in other categories. But the fundamental trends have not shifted, you know, despite this recovery in China being a lot slower, US and Europe are performing as expected and if you heard in the call to kind of reaffirmed our guidance on sales, despite China, which just meant to indicate that we still see a strength in the performance of our business overall. Great. Thanks. I'll pass it on. Leave it there. Thanks so much.

As we get into next year, though as we get closer to our targets I think.

Assets come up that are attractive and whether they're consumer flavor solutions domestic U S. International we really look for things that yes.

Don't dilute our sales growth our top line is really important to us and you look at the past with Chula and Kona and R&D. Those are the type of assets really like will be likely to be a bit more international yes.

Flavor solutions now also is an area, where we've really really.

We like that and look at the photo and CRT is past acquisitions, we're really happy with.

Sorry for the long winded answer, but I think we're getting back to where we want to be to enter back in the M&A market and as long as it meets their strategies.

Alexia Howard: Our next question is come from the line of Alexia Howard with Bernstein. Please excuse your questions.

In both consumer flavor solutions for attractive assets will be will be buyers hopefully at the right price right now paying down our debt as a priority.

Alexia Howard: Good morning, everyone. Good morning. Can I ask about the market share trends that we're seeing in America's concealer. It's obviously been under pressure sometime because of the distribution losses and so on, but I'm wondering if there's light at the end of the tunnel in terms of when either the comparables get easier or innovation helps to turn it around and just wondering what the outlook is there and then I have a follow up.

Thank you very much I'll pass it on.

Our next question is from the line of Max comfort with BNP Parma. Please proceed with your question.

Hey, Thanks for the question a number of your broader U S. Packaged food Terry had been talking about value seeking behavior, whether it's moving down and cheap by brands and private label our channel shifting our.

Alexia Howard: Thanks, Alexia. Yeah. I think you know, if you take a look at our performance and you know, overall in terms of shares, et cetera, you know, just talking maybe specifically devices and seasonings and dollars are a bit tricky because we're seeing private label and our competitors take more price right now in the last couple of months to catch up to the pricing that we've taken in the marketplace. But this is helpful, obviously, because it starts to close price gaps.

Simply buying less units.

You mentioned some comments.

Earlier about the movement to larger package sizes that youre seeing that I'm curious if you can talk more broadly about how value seeking behavior is impacting your business.

Particularly given Europe , often a large producer of private label spices and seasonings, thanks very much.

Alexia Howard: And so, you know, I think you're seeing some stronger dollar performance there, but from a unit standpoint, we believe that performing even better that lag is even less. And so as we then look to the pipeline activities that we have going on much like I just mentioned on. On the previous question, you know, whether it's parts of a product line that are really starting to build momentum or distribution that builds momentum.

Well thanks for the question.

We're seeing value play out.

Through many different types of actions.

From consumer some are going to larger sizes, and we see that quite a bit and as an example of where we're taking an opportunity to continue growing even more quickly.

Part of our portfolio, we're definitely seeing sustainable continued trends towards larger sizes and what's also interesting about larger sizes at least into categories with.

Alexia Howard: You know, we see a strong pipeline, you know, across that part of our portfolio as well as just stronger overall, you know, marketing initiatives now that we have really secure supply across all of our portfolio. So when we talk about light again, the tunnel, we just seek sequential improvement over the course of time as we fall back on distribution points, which we've grown this quarter, as well as just the pipeline of activity and renovation that we have across our portfolio.

That we have.

Especially spices and seasonings is that the purchase rate is still just as fast as it was with a smaller size. So people are going through when they have it in the house will be growing through a little bit.

Just as fast or more quickly, but the other way value kind of.

Presents itself to us opportunities like this opening price point with the pricing that has happened in the market as we've talked about before.

Alexia Howard: You're seeing a good view of that right now, but there's more to come. And so we do feel pretty confident about our ability to continue driving sequential improvement, whether it's in spices and seasonings or across other categories. Then, too, we think some of the same things we've done in Europe, for example, we had, as we mentioned today in the call, really good share performance and volume performance in markets like you pay in France, which are similar to the US. So there's a type of activities we're doing, whether it's the innovation, upgrading and renovating the mine that has had success over there too.

It created price pocket that we feel like we needed to fill with a brand like lotteries and so that'll that's playing a role in our portfolio, that's offering a brand to consumers and a lot of consumers still.

For our brands and it's allowing them to move towards a brand thats.

A lower opening price point and fills the need and were seeing a lot of success with that too, but the other way, we're really talking a lot about value is directly to the consumer.

Especially if you think about a lot of our communication right now over the past year has to be value oriented and we're talking about the role that.

Brendan Foley: Great. Thank you. And just as a quick follow up, you talked about the free cash flow allowing you to de-level more quickly than expected. What's your level of appetite for acquisitions next year? Where are the priorities? Is it consumer? Is it flavor solutions, domestic international? Just wondering how you're thinking about the pipeline on the M&A side, and I'll pass it on. Thank you. Let's see, as you said, we have really good success on our covering cash flow.

Our portfolio plays in terms of providing flavor for pennies of serving them.

And that is really having a positive impact plus a lot of our content is also focusing on how consumers continue to save money by creating let's say for example, just larger batch sizes of food and so they can have leftovers for a couple of nights in a row or tricks and hacks like that that allow consumers to create even more value in it.

Brendan Foley: We're really excited about that as we said in the call today. We're going to deliver faster than we thought to get back to our three times target. We're always looking at acquisitions. I mean, we have a corporate development team that is always working internally to look at those assets. We have an appetite as part of our long-term growth algorithm. A third of our four to six percent long-term growth algorithm is M&A.

<unk> further that's where we see our category really playing a role in the household, especially during this kind of.

Where theres a lot of consumer concern around inflation, our categories are playing a helpful role in that so we're looking at it from a number of different angles, but I just illustrated three right. There that we are hitting pretty hard during this period of time.

Brendan Foley: However, we're still in the process of paying down that. I think the fourth quarter is our biggest cash flow quarter, generally. As we get into next year, though, as we get closer to our targets, I think assets come up that are attractive. Whether they're consumer flavor solutions to U.S, international, we really look for things that don't dilute our sales growth. Our top line is really important to us. You look at the past with Chalula and Phona and RB.

Thanks, very helpful I'll pass it along.

Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

Yes, Thank you and good morning, everyone.

Good morning, I guess, maybe trying to take Andrew's question, and maybe a slightly different kind of light.

And then is there any way to help frame the distribution gains that you are seeing and expect to see.

Brendan Foley: Those are the types of assets we really like. Would we like it to be a bit more international? Yes. If flavor solutions now also is an area where we really like that and look at Phona and Geode as past acquisitions we're really happy with. We're getting back to where we want to be, to get back in the M&A market and as long as it meets those strategies in both consumer flavor solutions for attractive assets, we'll be buyers, hopefully, at the right price. Right now, paying down our debt is our priority. Thank you very much.

Over.

In coming quarters any way to quantify.

How we should think about total distribution growth and where that will peak from TDP perspective.

2024.

It's harder to fully see that expansion in the scanner data and so I'm wondering if part of it is growth in non measured channels, our value retailers that arent captured.

Nielsen.

Well, Adam just a few things around <unk>.

Going to be talking about what to expect in 2024.

Brendan Foley: I'll pass it on.

We'll talk about that guidance as we look at.

Max Gumport: Our next question is from the line of Max Gumport with BMP Parama. Let me just use your question. Hey, thanks for the question. A number of your broader US package food theorists have been talking about value-seeking behavior, whether it's moving down to cheaper brands in private label or channel shifting or simply buying less units of food. If you mentioned some comments earlier about the movement to larger package sizes that you're seeing, but I'm curious if you can talk more broadly about how value-seeking behavior is impacting your business, particularly given you're also a large producer of private label spaces and seasonings.

Early next year.

Just talking a little bit more about GDP performance. It remains an important area of focus for us and we've been taking a lot of actions with the store distribution.

Max Gumport: Thanks very much. Thanks for the question. You know, receive value play out through many different types of actions, you know, from consumer. Some are going to larger sizes and we see that quite a bit and as an example of where we're taking an opportunity to continue growing and eating more quickly. In that part of our portfolio, we're definitely seeing sustainable continued trends towards larger sizes. It was also interesting about larger sizes, at least in the categories of it, that we have, especially spices and seasonings is that the purchase rate is still just as fast as it was with a smaller size.

Which was really lost the supply over the last one or two years I think it's an important reminder, that about half of those TDP losses are a result of just proactive discontinuation that we made.

And those who are not likely to be restored, but we are starting to see GDP growth something which we said will start to come this year and the third quarter and we believe that the performance.

Improved versus like the previous two quarters of the year.

And I would also just share with you that our assortment on shelf now has even more productive and that was versus pre COVID-19. So that philosophy of those turns that we get on shelf from that.

Assortment, there is actually even more productive not only for Mccormick, but also for the retailer and so thats something really important to pass along.

We will start to see more distribution come online as retailers reset their shelves, we're seeing a better back half and right now as we speak going into the fourth quarter, but we expect to see even more of that as we go into 'twenty four so thats, one I think context around tdp's in distribution.

<unk> provides context and color.

Max Gumport: So, you know, people are going through when they have it in the household, they're going through a little bit, you know, just as faster and more quickly. But the other way, you know, value kind of presents itself too is opportunities like this opening price point. You know, with the pricing that's happened in the market, as we talked about before, it created a price pocket that we feel like we needed to fill with a brand like Lowry's.

We will continue to accelerate innovation and that's something that we did in 2023, we'll continue to do that in future fiscal years. That's we'll also build on the sort of the GDP momentum in distribution.

Both FCC I think.

Those are some of the points that I think that without calling out a specific TDP number and gain to access we continue to see continued improvement sequential improvement as we look at this over time and as we mentioned in previous calls it will take a little bit of time to get it back, but we are still making forward progress on this.

Max Gumport: And so that's playing a role in our portfolio that's offering a brand of consumers and a lot of consumers still prefer brands. And it's allowing them to move towards a brand that's a lower opening price point and feels the need and we're seeing a lot of success with that too. But the other way we're really, you know, talking a lot about value is directly to the consumer, especially if you think about a lot of our communication right now over the past year, has to value oriented.

Okay. That's helpful and if I could just ask a separate question on the flavor solutions segment and as you think about some of the different customer types that you have in geographies. How do you how would you frame kind of recent inbound kind of bid activity in rfps and contract win rates.

Max Gumport: And we're talking about the role that, you know, our portfolio plays in terms of providing flavor for pennies of serving. And that is really having a positive impact. Plus, a lot of our content is also focusing on how consumers can continue to save money by creating what's safe, for example, just larger batch sizes of foods they can have leftovers for a couple nights in the row. Or tricks in hacks like that that allow consumers to create more value and stretch the food dollar further.

Are you seeing your customers accelerate their innovation agenda to try.

Tried to drive growth in their business.

Or is activity levels slowing down and just any color I, just think what that pipeline of new business wins kind of how would you frame that.

I point to our performance in the Americas as an example, as to how to think about our current momentum on our flavor business.

Max Gumport: That's what we see our category really playing a role in the household, especially during, you know, this kind of, you know, where there's a lot of consumer concern around inflation, our categories are playing a helpful role in that. So we're looking at it from a number of different angles, but I just illustrated three right there that we are hitting pretty hard during this period of time. Thanks, very helpful. I'll pass that along. Thank you.

We had really good sales growth, where we also had some volume growth and that's an example of what we're seeing not.

Not only through our flavors business, but also branded foodservice and we are starting to we are growing share in a number of the.

Strong categories that we participate in and we've talked about performance nutrition or the.

The health and market, we see it happening there or even an alcoholic beverages.

We have been seeing some nice growth and gains in that part of our business that was there anything particularly unique at this point in the year versus what it was like early in the year No I don't think I can point to anything that's terribly unique that we haven't already talked about before but this has been an element of sort of continued sequential improvement in performance.

Adam Samuelson: Our next question is from the line of Adam Samuelson with Goldman Sachs. Please excuse me. Yes, thank you.

Adam Samuelson: Good morning, everyone. Good morning. I guess maybe trying to take Andrew's question and maybe a slightly different kind of light. Brendan, is there any way to help frame the distribution kind of gains that you're seeing and expect to see over the incoming quarters? Any way to quantify kind of how we should think about total distribution growth and where that will peak from the TDP perspective into 2024? It's harder to fully see that expansion in the scanner data.

Enable to grow a little bit of volume here, probably because of the strength of our products and technology that goes into the categories be plan.

And so that's I think some of the context, there we're happy to be growing share ware.

I believe that we have the right plans now if you look at elsewhere within flavor solutions.

Our EMEA business tends to be more heavily weighted towards the <unk> part of our.

But where our customer base, they're not seeing or type of traffic and promotions that they have in let's say the prior year. So we still see a little bit of pressure on overall volumes there.

Adam Samuelson: And so I'm wondering if part of it is growth and certain non-measured channels or value retailers that aren't captured in Wilson? Well, Adam, just a few things around TDPs. I'm not going to be talking about what to expect in 2024 because we'll talk about that guidance as we look at early next year. But just talking a little bit more about TDP performance. It remains an important area of focus for us and we've been taking a lot of action to the store distribution, which we've really lost the supply of last one to years.

Conversely in Asia Pacific Our <unk> business, there is actually doing quite well customers are turning back on promotions. They are trying to drive more traffic in their stores and so we as a result, we're also seeing some some nice volume growth in that part of our portfolio in flavor solutions with dialing back to.

Adam Samuelson: I think it's an important reminder that about half of those TDP losses are resulted just proactive discontinuations that we made. And those are not likely to be restored, but we are starting to see TDP growth, something which we said would start to come this year in the third quarter. And we believe that performance has improved versus like the previous two quarters of the year. And I would also just share with you that our assortment on shelf now is even more productive than it was before COVID, so that velocity, those turns that we get on shelf from that assortment there is actually even more productive, not only for McCormick, but also for the retailer.

Sort of that flavor part of our category, we're pleased with the performance that we've.

We have made so far this year and it's continued momentum, but nothing that renewables inflection point to share with you.

Okay I appreciate all that color I'll pass it on thanks.

Our next questions come from the line of Steve powers with Deutsche Bank. Please proceed with your question.

Hey, great and good morning, Thank you.

Yes.

Hey, so I wanted to ask on.

The incremental gross margin improvement that you.

You see in your outlook this quarter building on a range that happened last quarter as well and just if you could put a little bit.

Adam Samuelson: And so that's something really important to pass along. And we'll start to see more distribution come online as retailers reset their shelves. We're seeing a bit of that happened right now as we speak going into the fourth quarter, but we expect to see the more of that as we go into 2024. So that's one, I think context around TDPs and distribution that we think provides context and color. We will continue to accelerate innovation, and that's something that we did in 2023 will continue to do that in future fiscal years.

Okay.

Context, some detail around exactly what's driving that incremental gross margin upside question number. One question number two is as we've seen that gross margin tick up over the balance of the year. We haven't seen you change your.

Our reinvestment strategy in terms of brand marketing.

I, just wanted a little bit of color and context as to as to.

Why that isn't a source of reinvestment as you do realize that gross margin upside.

Adam Samuelson: That's will also build on the sort of the TDP momentum and distribution growth that we see. I think those are some of the points that I think that are without calling out a specific TDP member and gain to accept. Yes, we continue to see continued improvements, sequential improvement, as we look at this over time. And as we mentioned in previous calls, it will take a little bit of time to get it back, but we are still making forward progress on this. Okay, that's helpful.

Well. Thanks, Steve This is Mike I'll take that one and I'm surprised it took five questions to get to gross margin. So thanks for asking that question.

First of all we're really pleased with the gross margin performance. This year, yes, we've had improvement we had a strong third quarter. If you think about the things we're doing with the cost recovery through our pricing, which we've really been successful this year, the Joey and CCI commitments, we put out at the beginning of the year, we're really happy with our performance there across both segments. That's the other thing is <unk>.

Adam Samuelson: I think you just asked a separate question on the flavor solution segment. And as you think about some of the different customer types that you have in geographies, how would you frame kind of recent and bound kind of bit activity in RFP? And contract win rates? Are you seeing your customers accelerate their innovation agenda to drive growth in their business? Or is activity levels slowing down? I just think about that pipeline of new business wins.

Improvements are happening both in our consumer and flavor solutions side, which is really which is which is great.

As far as raising for the year as you know.

We've had good performance year to date and.

Even with with some of the challenges in China, and our strong underlying performance hasn't really held through so as to as to why we wouldn't raise really the A&P spend I mean, we feel really comfortable where we are from A&P with our current guide.

The third quarter was up eight.

Adam Samuelson: And kind of how would you frame it? You know, I'd point to our performance in the Americas as an example as to how to think about our current momentum on our flavor of business. You know, we had really good sales growth, but we also had some volume growth. And that's an example of what we're seeing, not only through our flavors business, but also branded food service. And we are starting to, we are growing share in a number of the, you know, strong categories that we've participated.

And it was the highest dollar amount we've ever spent in the third quarter. So we feel we're very effective there.

CPI is a topic, we get savings across all cost of goods sold but it again it on SG&A and A&P is an area, where the teams have gotten real cost savings or efficiencies on our advertising program. So it's even higher than you see.

From a dollar perspective, so I think we're confident where we are in gross margin. We were building back. If you go back to pre 19 pre COVID-19 in 2019, our gross margins were around 40% in our implied.

Adam Samuelson: We talked about performance nutrition, or, you know, the health end market. You know, we see it happening there, or even in alcoholic beverages. We have been seeing some some nice growth in games in that part of our business. Those are anything particularly unique at this point in the year versus what it was like, you know, early in the year. No, I don't think I can point to anything that's terribly unique that we haven't already talked about before, but this has been an element of sort of continued sequential improvement of performance.

Guidance this year gets you.

Around 37%.

Alright. Thank thing if you look if you look at the map on the pricing dilution that has happened it's been admits over over 500 basis point headwind to us, which you can see we're down 300 basis points. So during that time, three CCI and other things. We've built we capture some of that back which we continue to see in the future as we get back to those pre COVID-19 gross margin and operating.

Adam Samuelson: We've been able to grow a little bit of volume here probably because of strength of our products and technology to go into the categories we plan. And so that's I think some of the context there. We're happy to be growing share where believe that we have the right plans. Now, if you look at elsewhere within flavor solutions, you know, in our EMEA business, tends to be more heavily weighted towards the QSR part of our customer base.

Profit levels.

Let's see if I could there was a question in there about A&P too and just to really kind of build on that.

And that.

We were up significantly in the third quarter I understand the 8% that was probably our highest historical spend rates. So we're really putting a lot more A&P as we sort of called out and we will have a strong level again in the fourth quarter and these are going into a lot of important campaigns right. Now so I just wanted to reinforce I think we.

Adam Samuelson: They're not seeing the type of traffic and promotions that they haven't, let's say, the prior year. So we still see a little bit of pressure on overall volume to there. Conversely, in Asia-Pacific, our QSR business there is actually doing quite well. Customers are turning back on promotions. They're trying to drive more traffic in their stores. And so we, as a result of also seeing some nice volume growth in that part of our portfolio or flavor solutions, but dialing back to, you know, sort of that flavor part of our category, we're pleased with the performance that we've made so far this year. And it's continued momentum, but nothing that there's sort of a new inflections point to share with you. Okay, I appreciate all that color. I'll pass it on.

Steve Powers: Thanks.

We are seeing still.

Kris and spend in that part of our.

And that line in the P&L.

Okay, that's great.

Yes.

That's helpful. Thank you, Mike So just playing back.

There's puts and takes on gross margin is it fair to say that the biggest sort of upside surprise for you over the course of the year has just been successful price realization or.

Are there elements of business mix or other other other drivers there because it feels like the productivity has come in solidly but roughly in line with I think original expectations cost inflation hasn't changed materially. So it seems like the buckets has to be pricing or the way to say it seems everything is kind of move in the right direction.

Steve Powers: Our next question comes from the line of Steve Powers. What do I do at your bank? Please do your third question.

Steve Powers: Hey, great and good morning. Thank you. So I wanted to ask on the incremental gross margin improvement that you see in your outlook, this quarter, building on, you know, a raise that happened last quarter as well. And just that if you could put a little bit of context and detail around exactly what's driving that incremental gross margin upside question number one. And question number two is, as we've seen that gross margin kick up over the balance of the year, we haven't seen you change your reinvestment strategy in terms of brand marketing.

We're successful getting our cost recovery, we got some pricing earlier as you can probably infer from some of our pricing numbers. So we got our pricing faster than last year, which was helpful.

Steve Powers: Just want a little bit of color and context as to why that isn't a source of reinvestment as you do realize that gross margin upside. Well, thanks, Steve. This is Mike. I'll take that one. I'm surprised it took five questions to get the gross margin. So thanks for asking that question. Now, first of all, really, please are the gross margin performance this year. We've had improvement. We have strong third quarter. You think about the things we're doing with the cost recovery through our pricing, which we've really been successful at this year, the GUE and CTAC commitment to put out the beginning of the year.

Joey CCI programs like I said I've met targets and frankly, we are a bit prudent this year I think as we said as we gave guidance in January of after last year. We wanted to make sure. We hit our numbers. There was a lot of big assumptions going into 2023 pricing Doa program things like that and we knew that China, we were counting on in China.

Recovery, which impacts not only gross margin or operating profit.

So we thought at this time after Q3.

Where we see us ending for the year, we felt like we had good line of sight to the commodity commodity costs things like that to which gave us the comfort to get there. The other thing too is as you think about when Brandon was talk a little bit about the strong perform our underlying performance in things like spices and seasonings. When you look at our performance in other markets. We've had really good port.

<unk> really good portfolio mix and some of the things we're doing around portfolio optimization with the pruning low margin business does help gross margins also and will help us as we go into the future.

Steve Powers: We're really happy with our performance there across both side. And that's the other thing. These margin improvements are happening both in the consumer and flavor solution side, which is really, which is great. As far as raising, you know, for the year, as you know, we've had good performance here today. And even with some of the challenges in China, our strong underlying performance has really helped through. So why we wouldn't raise really the AMP spent?

Okay very good thank you so much.

Yes.

Our next question comes from the line of Matt Smith with Stifel. Please proceed with your questions.

Hi, Good morning, Thank you for taking my question.

Thanks, Mike and good morning wondering.

If I could follow up on the margin commentary and the headwind from pricing dilution as we look at the flavor solutions business, you've been making merger recovery progress there, but can you talk about the factors that are keeping the current margin 400 basis points are still below historical levels and how much of that is the mechanical pricing impact versus other factors.

Steve Powers: I mean, we feel really comfortable where we are from AMP with our current guide. The third quarter was up eight percent. And it was the highest dollar amount we've ever spent in the third quarter. So we feel we're very effective there. Actually, CCI is a topic, you know, we get savings across all costs to get sold, but we're together. It won't actually need to. And AMP is an area where the teams have gotten real cost savings or efficiencies in our advertising program.

And then what supports the margin recovery from here.

Yes, it's a great question Matt.

If you think about it pre COVID-19, we were at 14, 5% operating profit, which at the time, we were really happy with because we came from a low of around 6% several years before but we also did acknowledge that as we migrate our portfolio we had higher aspirations.

Steve Powers: So it's even higher than you see from a dollar perspective. So, you know, I think we're confident where we are in gross margin. You know, we've we've built them back. You know, if you go back to pre-19 or pre-COVID in 2019, gross margins were around 40 percent. Even our employee guidance this year gets you, you know, around 37 percent. The interesting thing is if you look at the map on the pricing delusion that has happened, it's been, it means over 500 basis points headwind to us, which you can see we're down 300 basis points.

A higher than that as we migrate into more flavor type products.

Yes.

And the costs related to that it really has been a big big.

Challenged us a headwind and also the huge cost increases benefit flavor solutions. So last year, we were at 8% as you know this year with.

We're looking to build back year to date were around 10%, so probably around that for the end of the year. So 200 basis point improvement this year.

Back to you.

Steve Powers: So during that time through CCI and other things, we've built, we capture some of that back, which we continue to see in the future as we get back to those pre-COVID gross margin and operating profit levels. Charles. Steve, there was a question in there about A&P, too, and just to really kind of build on that, you know, in that, you know, we are up significantly in the third quarter, I don't understand, I'm 80% but we, it was probably our highest historical time, right?

And back to your question on dilution at the operating profit level, we've had about a 300 basis point math dilution impact on flavor solutions. So theoretically if that didn't happen I don't know what did happen, but that 10% will become 13%. So we're about 150 basis points short of that pre 19 or pre COVID-19 <unk>.

Improvement in things like we've done with Joey which we see continuing are wrapping into next year.

Dual running costs, we're having it primarily in our flavor solutions business.

Steve Powers: So, we're really putting a lot more in the A&P as we sort of called out and we'll have a strong level again in the fourth quarter and these are going into a lot of important campaigns right now, so I just want to bring forth, I think we are seeing still an increase in spend in that part of our, in that line of the P&O. Okay, that's great, and so I guess that's helpful, thank you, Mike, to just playing back the various puts and takes on growth margin, is it fair to say that the biggest sort of upside surprise for you, over the course of the year has just, has been successful price realization, or our elements of business mix or other, other, other drivers there, because it feels like the productivity has come in solidly, but roughly in line with, I think, original expectations cost inflation hasn't changed materially, so it seems like the bucket has to be pricing or, or do I say it seems, everything is going to move in the right direction, we were successful getting our, our cost recovery, we got some pricing earlier as you probably infer from some of our pricing numbers, so we're, we're, we're, we're, got our pricing faster than last year, which was helpful. You know, GOE and CCI. [inaudible] Okay, thank you for that.

K manufacturer.

Factoring facility that goes away, partially next year and the year after is totally gone which is great.

Continued CCI today's type of things will get us back to Anna.

Portfolio migration pruning of low margin business, we talked about some of the private label foodservice business in EMEA. This call those type of things, we're focused really really well on getting our margins up and some of the things when Brandon talks about performance nutrition and beverage those are the flavor type of items that are growing faster, we really like those.

They can help margin up our whole flavor solutions portfolio, but we do like the progress, we're making independent of <unk>.

Question dilution just an overall improvement in the margin there. So we do believe we're moving in the right direction.

Okay. Thank you for that I can pass it on.

Thanks, Mike.

Our next questions come from the line of Robert Moskow with TD Cowen. Please proceed with your question.

Hi, Thanks for the question, Rob and Rob Good morning.

I wanted to know.

The guide the implied guide for organic sales growth in fourth quarter. It looks like it's about 3% and that marks.

Substantial deceleration from the first three quarters and then even when we try to.

Look at that on a four year basis, just using like 2019 as the base.

Again, a big decline.

We're all looking at the U S retail data and Nielsen and IRI its all decelerating.

Are you taking that into account in your guide.

If so it sounds a little like.

Like a disconnect from expectations for a very strong holiday season.

Okay.

Hey, Rob just to clarify you mentioned the number of 3%.

Implied guide is in the midpoint is three 7% to 11 two.

Which implies a seven and a half.

I'm just trying to I'm, just trying to get to your I'm just trying to plug in a fourth quarter organic sales number to get to your midpoint of a five to seven 6% for the year, Yes, I think Rob Brendan.

Things that keep in mind, I think for the fourth quarter, our largest quarter. So.

We're not able to provide a precise estimate but I think some broad concepts to consider is we do expect some growth in China.

In consumer in the fourth quarter, if you recall.

We're lapping over a pretty severe lockdown.

At that time this time a year ago overall, we still expect it to have a reasonable impact from the DSD discontinuation in the Americas heavier because it's during the holiday season.

We still expect some softness in flavor solutions demand that will persist that will certainly be there, but we will also lapped.

Impact of the kitchen basics divestiture as well as the consumer business exit in Russia. So those are just some.

Considerations I think when we take a look at fourth quarter sales yes.

Yes, I think Roger just a follow up on my point before.

On a reported basis.

Our implied fourth quarter guidance and three seven at the low end to 11, 2% that includes about 2% FX favorable because FX is backloaded favorable this year so constant currency is.

In five to five and a half range.

So im not sure where the three is coming from for the fourth quarter you mentioned.

And maybe as a follow up the bottleneck Casey we can we can make sure your models okay.

So maybe that answers the question, Mike So youre not expecting any kind of diesel in U S retail conditions in the fourth quarter no in fact, yet.

We do believe we're having again underlying improvement. We've we've mentioned this the last few quarters and we continue to progress there. Okay got it got it okay. Thank you.

Thanks.

Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Great. Thanks, so much.

I just wanted to ask a question about the renovated skus.

I think I heard you say in the prepared remarks about.

I think it's 40% of the.

Brent weighted skus.

Maybe your own shelf.

So maybe just as a reminder, this.

Curious kind of.

When you think about total SKU selection it sounds like maybe it's more spice and seasoning kind of what percent is being renovated in them.

Kind of whats the.

What's the feedback so far as to why that's driving velocity.

Consumers are more attracted to different packaging or it doesn't sound like these are different skus.

Thanks for the question it just to make sure.

I clarify what we said in the prepared remarks.

Steve Powers: I can pass it on. Thank you.

About 40% of those Skus are shifting in the Skus, we're talking about as part of our core herbs and spices lines. These tend to be those with straight sale items, meaning it's.

Robert Moskow: Next question comes from the line of Robert Moskow with TV Count. Please just use your question. Hi, thanks for the question.

Robert Moskow: Good evening. I wanted to know about the guide, the implied guide for organic sales growth in fourth quarter. It looks like it's about three percent. Matt, and that marks a substantial deceleration from the first three quarters. And then even when we try to look at that on a four-year basis, just using like 2019, ask the base, it's again a big decline. We're all looking at the U.S, retail data in Nielsen and IRI.

Unlike human or with sentiment et cetera. So that's what we're calling the straightforward spices than.

Robert Moskow: It's all decelerating. Are you taking that into account in your guide? If so, it sounds a little like a disconnect from the expectations for a very strong holiday season. Hey, Rob, just to clarify, you mentioned the number of three percent. Our implied guide is in the midpoint, is 3.7 to 11.2. I'm not, which implies 7.5. I'm just trying to get to your, I'm just trying to plug in a fourth quarter organic sales number to get to your midpoint of 5 to 7.

And we have visibility to the skus that are being shipped.

Not as easy to track exactly what has hit shelf yet.

And thats really dependent on the retailers' plans, but where we know it has.

There's really been an improvement in velocity.

Overall and what are the drivers is that just theres a lot of different benefits from this new package, we've talked about it before but.

It is nitrogen flush so theres even.

We're providing there is greater long term freshness until you open up that package, we're really securing the freshness of that product for sort of a nice click and snap with the cap that really kind of tells the consumer not only just youre seeing but also listening there is a real sort of snap to disclosure that kind of again creates to retained freshness.

And the packages, 50% post consumer recycled plastics, so it all signs of big sustainability benefit and just as a great appearance on the shelf overall and so.

We knew that this was a.

Strong packaging innovation, because we've launched it in other markets around the world like in EMEA.

Robert Moskow: 5 to 6 percent for the year. Yeah, I think the thing is to keep in mind, I think for the fourth quarter, it's our largest quarter. We're not able to provide a precise estimate, but I think some broad concepts to consider is we do expect some growth in China and consumer in the fourth quarter, if you recall. We're laughing over a pretty severe lockdown at that time, you know, this time of year, though, out of overall.

And also it's also growing also in Asia Pacific too. So we have some experience with this package and how it performs and we are seeing similar if not better velocity performance as we get started here on U S. Shelves, so that's a little bit of context around.

What we're seeing from that renovation in our product line.

And just to reemphasize that.

Robert Moskow: We still expect to have a reasonable impact on the DSD discontinuation in the Americas, heavier because it's during the holiday season. We still expect some softness in flavor solutions demand that will persist, that that will certainly be there, but we will also laugh at the impact of the kitchen basics to vestiture, as well as the consumer business exit in Russia. So those are just some, you know, considerations, I think we take a look at fourth quarter sales.

So that 40% is really shifting.

If you can walk into a store today it might be 10% of the items are 5% or 20% depending on the stores, but it depends sometimes on their supply chain too. So we see it.

And into next year from those two.

Got it okay Super Thanks, and then maybe just quickly.

Simplistically on SG&A.

Q3, you ran for total SG&A is about 22% of revenues.

Robert Moskow: Yeah, I think, Rob, just a follow up on my point before from a reported basis are implied fourth quarter guidance is 3.7 at the low end. So 11.2%. That includes about 2% effects favorable, because that affects the back of the rule is here, so constant currency is in five to five and a half range. So I'm not sure where the three, three is coming from for the fourth quarter you mentioned. And make us a follow up the bottom KC, we can make sure your model's okay.

Clearly that's up kind of in line ish right relative to maybe the prior four five years as we think about Q4.

And then I guess kind of going forward is like 22% of sales is that kind of fair.

Or could there be certain quarter to quarter movement.

Yes, I mean third quarter I think.

The high watermark for SG&A.

Robert Moskow: That's fine. So maybe that answers the question, Mike. So you're not expecting any kind of D cell in US retail conditions in fourth quarter. No, in fact, yeah, we believe we're having again underlying improvement, we've mentioned this the last few quarters and we continue to progress better. Yeah, got it. Got it. Okay. Thank you.

You had a big incentive comp as we talked about on the call center of Comcast build back for a couple of reasons I remember last year's third quarter was way down so the incentive comp was.

We're getting adjust events so to build back this year was a big part of SG&A on a smaller quarter than the fourth quarter. So you got to think about it in mathematical terms, two and really that incentive comp was driven not only by the EPS improvement with everyone in the company, which is great within our regions the mix of our regional underlying strength of our <unk>.

Rob Dickerson: Our next question comes in line of Rob Dickerson with Jeffries. Please excuse your question. Great. Thanks so much. I asked you a question about I heard you say in the prepared remarks about, I think it's 40% of the renovated skews, maybe our own shelf, maybe just as a reminder, this curious kind of, you know, we think about total skews selection, it sounds like maybe it's more spice and seasoning kind of what percent is being renovated and then, you know, kind of what's the feedback so far as to, you know, why that's driving velocities.

Because in the EMEA region did drive that a bit more niv or excuse me incentive comp, but also the great working capital performance and people forget that sometimes I mean, we're an Eva economic value added company, we have a working capital charge component of our incentive compensation. So last year when working working capital wasn't great.

All got going for us this year are doing great.

And just coming through incentive comp. So it is just another reason.

<unk> cash and really those type of activities that will help us.

We're down and things like that which are really great.

So a bit more of that impact in those in the third quarter, and then brand marketing, we mentioned up 8% so really strong performance there.

Rob Dickerson: It's just consumers are more attracted to different packaging or, you know, it doesn't feel like these are different skews to say. Thanks for the question. It just to, you know, make sure I clarify, you know, what we said in the prepared remarks, about 40% of those skews are shipping and the skews we're talking about as part of our core earth and spices lines. These tend to be those, those straight fill items, meaning it's a bottle of cumin or a bottle of cinnamon, et cetera, so that's what we're calling those straight fill spices.

For the year, we stick to our guidance is low single digit.

And maybe if I could just sneak one last one in.

Asia Pac.

No clearly understand what you're talking about in terms of just kind of a slower China recovery.

And I think you called out maybe.

You kind of one off drivers, but maybe it's more.

<unk> driven.

Kind of net net right. These are packed in consumer.

Rob Dickerson: And we have disability to the skews that are being shipped. It's not as easy to track exactly what has hit shelf yet, and that's really dependent on, you know, the retailist plants, but where we know what it has, there's really been an improvement in velocity overall. And where are the drivers of that? Just there's a lot of different benefits from this new package. We talked about it before, but it is, you know, nitrogen flush, so there's even, you know, we're providing, there's just greater long-term freshness, you know, until you open up that package, you know, we're really securing the freshness of that product.

We're still down in the quarter, but clearly to pack and flavor.

Flavor solutions is doing better and I realize.

Part of your China business as a consumer but like maybe it's still somewhat foodservice. So I'm just trying to understand kind of the.

The comparison.

Between tenant.

Asia Pac consumer versus Asia, Pac flavor solutions, and what's driving the Delta that's all thanks.

Well I appreciate the question there Rob on China, It's probably worth.

Impacting that a little bit.

Rob Dickerson: There's sort of a nice click and snap with the cap that really kind of tells the consumer not only just through seeing, but also listening. There's a real sort of snap to this closure that, you know, kind of, again, creates to retain freshness. And the package is 50% post-consumerable cycle plastic, so it also has a big sustainability benefit, and it just has a great appearance on the shelf overall. And so, you know, we knew that this was a strong packaging innovation, because we've launched another market around the world like an ENEA, and also it's also going else on the Asia Pacific, too.

I would say, though despite the pace of recovery in this business, having been slower than expected. We continue to believe in the long term growth trajectory.

Trajectory of that business and.

It's also when you step back on a constant currency basis, we are growing this business versus a year ago, we've grown sales in the high single digits. So.

Yes, we are disappointed that the pace of recovery wasn't what we expected it to be but nevertheless, we are growing sales year over year and even despite the volatility since 2019.

We have grown our total China business at a 3% CAGR on a constant currency basis, which is kind of in line with the long term algorithm. So.

Rob Dickerson: So we have some experience with this package and how it performs, and we're seeing similar, if not better, velocity performance as we get started here on U.S, shelves. So that's a little bit of context around, you know, what we're seeing from that renovation in our product line. Yeah, and just to reiterate, that's 40% is really shipped. I mean, you know, if you walk into a store today, it might be 10% of the items are 5% or 20% depending on the stores, but it depends sometimes on their supply chain, too.

This is really.

An element of an economy that certainly is.

More slowly than what we would've expected and where we see that now this kind of goes into sort of how we're thinking about flavor solutions versus consumer.

And part of our consumer businesses in the foodservice channel that people are just simply not necessarily going out.

Two allows the catering.

Rob Dickerson: So we see, like, the tailwind in the next year from this, too. Yeah, okay, super thanks. And then maybe just quickly, and kind of simplically, on SGNA, you know, Q3, you ran for total SGNA, about 22% of revenues, you know, clearly that's up, but kind of in line-ish, right, relative to maybe the kind of prior four or five years, you know, as we think about, you know, Q4, and then I guess kind of going forward is like 22% of sales that kind of fair, or could there be, you know, certain core-to-core movement?

Outside dining events that we've seen in the past and Thats just been a slower recovery. Overall, we're also seeing that also happening in retail consumer spending is just soft right now overall in China, and we're seeing that play out where we start to see and this was actually more of a change in this quarter just more.

The typical promotional activity or limited time offers that we tend to see in the <unk> segment.

Please turn to come back a little bit more so that gives us. Some reason to believe that this is just a slower recovery than what we planned but the fundamentals that drive that business are still there and it's just going to take a little bit more time to get back to what we expect.

Rob Dickerson: Thanks. Yeah, I mean, third quarter, I think, you know, it was a bit of a high watermark rest, you know, we had a big incentive comp, as we talked about in the call, you know, set up comp top build back for a couple of reasons. And remember last year's third quarter was way down, because an incentive comp was getting adjusted then. So the build back this year was a big part of question, on a smaller quarter than the fourth quarter, so you got to think about it in mathematical terms, too.

From this part of our business.

Business.

Alright, thanks, so much.

Thank you we've reached the end of the question and answer session I will turn the call over to Terry for closing remarks.

Rob Dickerson: And really, then a center of comp was driven, you know, not only by the, you know, the EPS improvement, which is everyone in the company, which is great within our regions, the mix of our regional underlying strength of our Americans, and you may region did drive it a bit more, and I be receiving a center of comp, but also the great working capital performance and people forget that sometimes, I mean, we're an EVA economic value added company, we have a working capital charge component of our incentive compensation. So last year when working capital wasn't great, we all got things for it this year, while we're doing great, and just coming through incentive comp.

Thank you all for joining today's call. If you have any further questions regarding state information. Please feel free to contact me not conclude this morning's conference call. Thank you.

Okay.

Rob Dickerson: So it's just another reason we're driving cash and really the type of activities that help us, you know, lever down, things like that, which are really great. So we're a quarter, and then brand marketing, we mentioned up 8%, it's a really strong performance there. And for the year, we stick to our guys, this is a low single digit. And maybe if I could just sneak one last one in, Asia Pack, you know, clearly understand what you're talking about, you know, in terms of just getting a slower, trying to recovery.

Rob Dickerson: I think, you know, you called out, maybe, you know, a few kind of war off drivers, but maybe it's more in the driven kind of net net, right, Asia Pack and consumer. You know, it was still down the quarter, but clearly the pack, clay resolutions is doing better, and I realize, like part of your China business is in consumer, but like maybe it's still somewhat food service, I'm just trying to understand kind of the, you know, the comparison.

Rob Dickerson: Between kind of, you know, Asia Pack, consumer versus Asia Pack, flavor solutions and what's driving the Delta, that's all thanks. Well, appreciate that the question there Rob on China, you know, it's probably worth, you know, unpacking that a little bit. I would say though, despite the pace of recovery in this business, you know, having been slower than expected, we can pay to believe in the long term growth trajectory of that business.

Rob Dickerson: And, you know, it's also when you step back on a constant currency basis, we are growing this business versus a year ago, we've grown sales in the high single digits. So this, yeah, we're disappointed that the pace of recovery wasn't what we expected it to be, but nevertheless we are growing sales, you know, year over year. And even despite the volatility since 2019, we've grown our total China business at a 3% keger on a constant currency basis, which is, you know, kind of in line with the long term algorithm.

Rob Dickerson: So, this is, you know, really an element of an economy that certainly is recovering more slowly than what we would have expected in what where we see that now this kind of goes into sort of how we're thinking about flavor solutions versus consumer. And part of that consumer business isn't the crude service channel, but people are just simply not necessarily going out to a lot of the catering and, you know, outside dining events that, you know, we've seen in the past, and that's just been a slower recovery overall.

Rob Dickerson: And we're also seeing that also happening in retail consumer spending is just soft right now overall in China, and we're seeing that play out where we start to see. And this was actually more of a change in this quarter, just more of the typical promotional activity or limited time offers that we tend to see in the QSR segment have begun to come back a little bit more. So, that gives us some reason to believe that this is just a slower recovery than what we plan, but the fundamentals that drive that business are still there, and it's just going to take a little bit more time to get back to what we expect, you know, from this part of our business. Thanks so much. Thank you.

Faten Freiha: We've reached the end of the question, the answer session. I'll turn the call over to Faten Freiha for closing remarks. Thank you all for joining today's call. If you have any further questions regarding today's information, feel free to contact me.

Unknown Executive: That concludes this morning's conference call. Thank you. You You Kenneth Goldman, Robert Moskow, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo Kenneth Goldman, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo Kenneth Goldman, Robert Moskow, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo Kenneth Goldman, Robert Moskow, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo[inaudible] Peter Galbo, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo, Thomas Palmer, Peter Galbo Thomas Palmer,[inaudible] Good morning everyone, and thank you for joining us.

[music].

Good morning, this is fast and free Huh VP of Investor Relations. Thank you for joining today's third quarter earnings call to accompany this call. We have posted a set of slides on our IR website.

Me. This morning are Brendan Foley, President and CEO , Mike Smith, Executive Vice President and CFO , and Stacy Jenkins Chief growth Officer.

Forward looking statements, whether because of new information future events or other factors. Please refer to our forward looking statements slide.

For more information I will now turn the discussion over to Brendan.

Good morning, everyone and thank you for joining US let me start by saying how pleased I am to join you today for my first earnings call as President and CEO .

Just over one month into my new role I am energized by our underlying business trends, which reinforced our competitive advantages and differentiation, let's turn to our results.

We drove another quarter of strong performance, reflecting sustained demand and effective execution of our growth strategies across our consumer and flavor solutions segments.

Let me start with the highlights for the third quarter, we delivered solid constant currency sales growth. We continued to realize effective price realization and importantly volume performance, excluding China has improved each quarter throughout the year. We continued to see top line momentum in our business positioning Mccormick for sustained.

Both.

We drove meaningful year over year margin expansion underscoring our focus on profit realization.

Year to date cash flow from operations more than doubled relative to the prior year due to higher operating income and working capital improvements.

Our performance demonstrates the strength of our business fundamentals and the effective execution of our proven strategies, while leveraging the sustained demand for flavor.

Turning to slide five.

In the third quarter, we drove 6% sales growth in constant currency, demonstrating the strength of our broad global portfolio.

Our constant currency growth reflected strong business performance with.

With an 8% contribution from pricing and a 2% decline in volume and product mix.

This decline in volume was driven by two factors.

A 1% volume decline attributable to the impact of a slower than expected economic recovery in China.

And a 1% decline related to the divestiture of kitchen basics, the exit of our consumer business in Russia.

And the pruning of low margin business to optimize our portfolio.

All other underlying volume and mix performance was flat for the quarter, which is a sequential improvement from the second quarter, where total underlying volume growth was down approximately 1%.

I would like to now share a few highlights on gross margin and operating income for the quarter, which Mike will cover in more details.

We drove strong gross margin improvement year over year, reflecting continued recovery of the cost inflation, our pricing lagged last year and cost savings from our CCI and <unk> programs.

We remain focused on improving our margins over the long term and believe that our recovery will be a continuous build.

And we expect to return to historical levels and believe there is a runway beyond that recognizing it will take some time.

<unk> impact was a 5% increase in adjusted operating income versus the prior year.

Overall, we are pleased with our execution and results year to date. These results combined with the strong demand we continue to expect across our portfolio.

And our focused approach to optimizing our cost structure reinforces our confidence in our growth trajectory during the fourth quarter and beyond.

Moving into the fourth quarter, we can continue to expect.

Top line momentum across our portfolio, including growth in China, as we lap the COVID-19 related disruptions.

China's growth however is expected to be less than originally anticipated, which way combined with this year to date performance has led to a lower full year 2023 benefit than we originally expected.

Brendan Foley: Let me start by saying how pleased I am to join you today for my first earnings call as President and CEO. Just over one month into my new role, I am energized by our underlying business trends, which reinforce our competitive advantages and differentiation.

Despite this impact however, we are reaffirming our sales outlook and now anticipate our results will be closer to the middle of our guidance range. We are reaffirming our operating income outlook, which highlight stronger than originally expected profit realization on our business, excluding China demand.

Brendan Foley: Let's turn to our results. And flavor solution segments, our results were in line with our expectations across our business, notwithstanding challenges for our consumer segment in Asia Pacific or APEC, where the pace of China's economic recovery has been slower than previously anticipated.

Demand is strong we are driving improvement in our margin profile and are optimizing our cost structure effectively now.

Now for our performance by segment.

Starting with our consumer segment on slide seven we saw solid results across the Americas, and EMEA, which were tempered by our APAC region due to China as I mentioned earlier.

Brendan Foley: Let me start with the highlights for the third quarter. We delivered solid constant currency sales growth. We continued to realize effective price realization and importantly volume performance, excluding China, has improved each quarter throughout the year. We continue to see top wide momentum in our business positioning McCormick for sustained growth. We drove meaningful year over year margin expansion, underscoring our focus on profit realization. Year-to-day cash flow from operations more than doubled relative to the prior year due to higher operating income and working capital improvements.

Notwithstanding China, we are pleased with our underlying performance.

Now for some highlights by regions.

First in the Americas.

Our total U S branded portfolio consumption as indicated by our IRI consumption data and combined with unmeasured channels through Approx approximately 4%.

Excluding the year over year impact of the kitchen basics divestiture and the exit of DSD direct store delivery of our bags. Hispanic spices.

There is a minor difference between our sales and consumption, which is attributable to listing fees for a significant increase in new distribution and new products. For example, our neutral Lula and Scotts items and tablets, a brown line extensions.

Brendan Foley: Our performance demonstrates the strength of our business, fundamentals, and the effective execution of our proven strategies while leveraging the sustained demand for flavor. Turning to slide five, in the third quarter, we drove 6% sales growth in constant currency, demonstrating the strength of our broad global portfolio. Our constant currency growth reflected strong business performance, with an 8% contribution from pricing and a 2% decline in volume in product mix.

Importantly, our categories remain advantaged in terms of growth relative to overall macro trends and we are well positioned to drive future growth.

The fundamental strength of the spices and seasonings category is evident as cooking at home has remained elevated since pre COVID-19 and consumers have an increase in demand for flavor.

U S spices and seasonings growth is continuing to outpace the total edible category in units and dollars.

Brendan Foley: This decline in volume was driven by two factors. A 1% volume decline attributable to the impact of a slower than expected economic recovery in China. And a 1% decline related to the divestiture of kitchen basics, the exit of our consumer business in Russia, and the perning of low margin business to optimize our portfolio. All other underlying volume in mixed performance was flat for the quarter, which is the sequential improvement from the second quarter, where total underlying volume growth was down approximately 1%.

We have the right plans in place and are taking the right actions to grow market share in this very attractive and competitive category we.

We have made progress and shown improvement relative to the beginning of the year.

We continue to restore distribution, which was lost because of supply issues.

As we look at our performance and our trends were happy to see total distribution point growth in the third quarter. We also continue to be pleased that our assortment on shelf is more productive than pre COVID-19.

Brendan Foley: I would like to now share a few highlights on growth margin and operating income for the quarter, which might recover in more details. We drove strong growth margin improvement year over year, reflecting continued recovery of the cost inflation, our pricing lag last year, and cost savings from our CCI and GOE programs. We remain focused on improving our margins over the long term, and believe that our recovery will be a continuous build.

In addition, we have significant new distribution and innovation that is starting to come online as customers reset their shelves.

As we've said before restoration will take some time and we expect to drive growth as we continued to progress.

In addition to driving distribution gains we have a continued focus on supporting our brands and optimizing pricing as you would expect this has become a more important part of our category management efforts in recent years, our diverse portfolio allows us flexibility to optimize our pricing effectiveness.

Brendan Foley: And we expect to return to historical levels, and believe there is a runway beyond that. Recognizing it will take some time. Higher growth profit for the quarter was partially offset by lower than expected performance in China, as well as higher SGNA. As planned, we continued to build back incentive compensation and increased brand marketing investments. The net impact was a 5% increase in adjusted operating income versus the prior year.

We look at both our everyday price and our promotional returns as well as using innovation, including price pack architecture to drive growth our efforts are yielding results.

The renovation of our U S core everyday spice and Herb portfolio is rolling out according to plan.

At the end of the third quarter, we have shipped about 40% of our renovated skus and notably products that have transitioned on shelf have seen high teens improvement in velocity.

Brendan Foley: Overall, we are pleased with our execution and results year to date. These results, combined with a strong demand, we continue to expect across our portfolio and our focused approach to optimizing our cost structure, reinforce our confidence in our growth trajectory during the fourth quarter and beyond. Moving into the fourth quarter, we can continue to expect top line momentum across our portfolio, including growth in China as we left the covered related disruptions.

And our significant brand marketing campaign, featuring the benefits of the new packaging ramped up at the end of the third quarter, leading into the holiday season.

Our larger size Super deal herbs, and spices continues to gain share we saw strong performance in the third quarter, driven by pricing and higher unit volume <unk>.

Expanded distribution has been a major driver for our performance as well as consumers that are seeking value and trading up to larger sizes.

Brendan Foley: China's growth, however, is expected to be less than originally anticipated, which way, combined with this year-to-date performance, has led to a lower full year 20-23 benefit than we originally expected. Despite this impact, however, we are reaffirming our sales outlook and now anticipate our results will be closer to the middle of our guidance range. We are reaffirming our operating income outlook, which highlights stronger than originally expected profit realization on our business, excluding China. The demand is strong, we are driving improvement in our margin profile and are optimizing our cost structure effectively.

We have the right assortment in this environment, our household penetration on larger sizes is greater than pre COVID-19.

We are confident this product line will continue to drive growth as we expand distribution further and launched new line extensions.

Our drilling performance was strong this quarter supported by our fire up campaign as well as contribution for new product launches that we discussed on our earnings call in June .

<unk> Red Hot sauces, French's mustard, and Stubbs barbecue sauce, grubs as well as lotteries Marinates all delivered significant growth in the third quarter relative to the prior year.

We drove double digit sales growth with contributions from pricing and volume across our total grilling portfolio.

And we drove market share gains and mustard barbecue sauce and <unk> in the third quarter.

Brendan Foley: Now for some highlights by regions. First, in the Americas, our total U.S.-branded portfolio consumption has indicated by our IRI consumption data and combined with unmeasured channels who epox approximately 4%. Excluding the year-over-year impact of the kitchen-basics divestiture and the exit of DSD direct-sort delivery of our back Hispanic spices. There is a minor difference between our sales and consumption, which is attributable to listing fees for a significant increase in new distribution and new products.

Our expansion into the fast growing Mexican aisle with neutral Lula Taco recipe mixes and <unk> is continuing to build distribution and performance to date is outperforming our expectations.

Turning to EMEA, where.

Where we delivered a great quarter, our strongest quarterly sales performance in more than two years with double digit sales growth.

Brendan Foley: For example, our new Chalula and Scubs items and Tabitha Brown line extensions. Importantly, our categories remain advantaged in terms of growth relative to overall macro trends, and we are well positioned to drive future growth. The fundamental strength of the spices and seasoning category is evident as cooking at home has remained elevated since pre-COVID and consumers have an increase in demand for flavor. U.S, spices and seasonings growth is continuing to outpace the total edible category in units and dollars.

Notably in the UK and France, we drove volume growth as pricing remained elevated.

In both countries, we delivered significant growth in the discount channel driven by expanded distribution with new and existing customers.

In other parts of the region. We are also making meaningful progress in this fast growing channel.

We grew our business in the discount channel by over 30% across EMEA in the third quarter.

Our drilling activations with key retailers in France, and our promotional activities in the UK, along with brand marketing support drove strong third quarter growth across the grilling portfolio.

Brendan Foley: We have the right plans in place and are taking the right actions to grow market share in this very attractive and competitive category. We have made progress and shown improvement relative to the beginning of the year. We continue to restore distribution, which was lost because of supply issues. As we look at our performance and our trends, we are happy to see total distribution of point growth in a third quarter. We also continue to be pleased that our assortment on Shell is more productive than pre-COVID.

E Commerce also contributed meaningfully to our growth in both countries.

Brendan Foley: In addition, we have significant new distribution and innovation that is starting to come online as customers respect their shells. As we said before, restoration will take some time and we expect to drive growth as we continue to progress. In addition to driving distribution gains we have a continued focus on supporting our brand and optimizing pricing. As you would expect this has become a more important part of our category management efforts in recent years.

In two years.

And we are also building distribution of Cholewa in France.

In our APAC region, while the pace of recovery in this business has been slower than expected. We continue to believe in the long term growth trajectory of our business in China.

Brendan Foley: Our diverse portfolio allows us flexibility to optimize our pricing effectiveness. We look at both our everyday price and our promotional returns as well as using innovation including price pack architecture to drive growth. Our efforts are yielding results. The renovation of our US core everyday spice and herb portfolio is rolling out according to plan. At the end of the third quarter we have shift about 40% of our renovated SKUs. And notably products that have transitioned on shelf have seen high teams improvement in velocity.

We are making sequential improvement on volume advancing our heat platform and are pleased with our performance.

We continue to fuel our growth with the power of our brands and increased innovation and brand marketing.

Brendan Foley: And our significant brand marketing campaign featuring the benefits of the new packaging ramped up at the end of the third quarter leading into the holiday season. Our larger size superdeal herbs and spices continues to gain share. We saw strong performance in the third quarter driven by pricing and higher unit volume. Expanded distribution has been a major driver for our performance as well as consumers that are seeking value and trading up to larger sizes.

We are also forming strategic partnerships to reach and enhance brand awareness with loyal bilton audiences.

Building on the success, we have with our tap of the Brown partnership in light of new products in the U S where growth continues to accelerate we are partnering with 90 <unk> Hussain.

Celebrity British US who won the six series of Bdcs the great British bake off in EMEA, we are launching a delicious range of Schwartz seasonings recipe mixes and meal kits with not yet.

Brendan Foley: We have the right assortment in this environment. Our household penetration on larger sizes is greater than pre-COVID. We are confident this product line will continue to drive growth as we expand distribution further and launch new line extensions. Our grilling performance was strong this quarter supported by our fire up campaign as well as contribution for new product launches that we discussed on our earnings call in June. Frank's red hot sauces, French's mustard and stumps barbecue sauce grotesque as well as long resmed marinades all delivered significant growth in the third quarter relative to the prior year.

And are helping build the confidence of UK consumers in the kitchen with Cook along videos and recipe ideas.

We are thrilled to partner with Nordea and preliminary results are very positive.

We are looking forward to working with her on various future initiatives across the region to expand our brand awareness and accelerate new product growth.

Brendan Foley: We drove double double digit sales growth with contributions from pricing and volume across our total grilling portfolio. And we drove market share gains in mustard barbecue sauce and marinades in the third quarter. Our expansion into the fast growing Mexican aisle with new Chalula taco recipe mixes and falsas is continuing to build distribution and performance to date is outperforming our expectations. Finally in the Americas, we continue to drive double digit consumption growth in e-commerce led by spices and seasonings. We are realizing high returns on our investments, gaining new customers and growing with new products.

You could always have fun with mustard.

We are thrilled with this was our most successful earned campaign to date with a record 5 billion impressions.

It is also a perfect example of how we leverage our strengths across both segments underscoring their complementary nature, our flavor solutions team created the mustard flavor for this limited edition product, which built awareness for both our consumer and foodservice businesses or segments are working together to further bolster.

French's success.

I am passionate about how our two segments consumer and flavor solutions complement each other reinforcing reinforcing what differentiate mccormick and enabling us to drive sustainable growth.

Brendan Foley: Turning to AMEA, where we delivered a great quarter are strongest quarterly sales performance in more than two years with double digit sales growth. Notably, in the UK and France, we drove volume growth as pricing remained elevated. In both countries, we delivered significant growth in the discount channel driven by expanded distribution with new and existing customers. In other parts of the region, we are also making meaningful progress in the fast growing channel.

Looking ahead to the fourth quarter, we are excited about the holiday season, and our related brand marketing plans across all regions.

<unk> with our supply issues resolved, we are better positioned than we were last year entering this season.

Brendan Foley: We grew our business in the discount channel by over 30% across AMEA in the third quarter. Our grilling activations with key retailers in France and our promotional activities in the UK along with brand marketing support to a strong third quarter growth across the grilling portfolio. The commerce also contributed meaningfully to our growth in both countries. Consumption data continues to indicate that the consumer is holding up well in our categories. With consumption trends continues to accelerate across the region.

We believe the execution of our growth plans will be a win for consumers customers or categories and Mccormick.

Brendan Foley: We grew share in herbs, spices and seasonings for our total EMEA business. With the UK, Eastern Europe, Italy and France all contributing. France grew share for the first time in two years. And UK recipe mixes, we extended our leading share position during a third quarter. New products and effective in-store promotions drove share gains. We also continue to drive hot sauce category growth in the UK with Chalula leading to growth in the third quarter.

Which differentiates us even more and strengthening our leadership in our core categories.

Now turning to flavor solutions on slide 10.

Our growth momentum in this segment continues to be exceptional.

The third quarter marks our 10th consecutive quarter with double digit constant currency sales growth.

Our growth was led by pricing actions in all three regions. We are price to cover current year inflation and are continuing to recover the cost inflation, our pricing lagged the last two years.

Brendan Foley: And we are also building distribution of Chalula in France. In our APAC region, while the pace of recovery in this business has been slower than expected, we continue to believe in the long-term growth trajectory of our business in China. Notwithstanding the slow recovery in China, in all regions in our consumer segment, our investments in brand marketing, category management initiatives and new products are proving to be effective and driving strong growth across our categories.

We remain committed to restoring our flavor solutions profitability.

And in the third quarter, we again drove significant margin expansion versus prior year and expect continued progress toward our objective to build back our margin in this segment.

Let me turn to our highlights by region.

Our Americas third quarter strong sales growth was led by pricing with an increase in volume contributing as well.

Both the flavors and branded foodservice product categories grew by double digits.

Brendan Foley: We are making sequential improvement on volume, advancing our heat platform and our police with our performance. We continue to fuel our growth with the power of our brands and increase innovation in brand marketing. We are also forming strategic partnerships to reach and enhance brand awareness with loyal built-in audiences. Building on the success we have with our tap at the Brown Partnership and light of new products in the US, we're growth continues to accelerate.

With flavors or seasonings growth was strong including volume growth related to new products, we are helping our customers grow with the strength of our brands.

Our continued success with providing the seasonings for co branded items included new ones with Frank's Red Hot and stubs this quarter contributed to our growth.

Strengthen our customers iconic products also contributed to our seasonings growth, particularly related to our heat platform.

Brendan Foley: We are partnering with Nadia Hussein, a celebrity British chef who won the sixth series of BDCs, the Great British Bake-Off in the AMEA. We are launching a delicious range of shorts, seasonings, recipe mixes and meal kits with Nadia and are helping build the confidence of UK consumers in the kitchen with cook along videos and recipe ideas. We are thrilled to partner with Nadia and preliminary results are very positive. We are looking forward to working with her on various future initiatives across the region to expand our brand awareness and accelerate new product growth. Our brand marketing efforts continues to drive awareness and strengthen our brands.

We also have strong momentum in flavors for performance nutrition beverages, and health and market applications are growth is outpacing the market fueled by the advantages of our proprietary technologies.

We continue to have a robust pipeline of new products and our conversion rate is strong we are creating preferred flavors, enabling our customers to continue to win in the marketplace.

In branded foodservice, we gained share in spices and seasonings this quarter.

Brendan Foley: As you may have seen in July, we partnered with Mars and launched a limited edition French's Mustard Flavor Skittles. The objective of the campaign was to create top of mind awareness for French's through a buzz wordy moment to further strengthen the power of our brand. And of course, you can always have fun with Mustard. We are thrilled that this was our most successful earned campaign to date with a record of 5 billion impressions.

Additionally, our recent new products, Frank Smiled source, and Frank's Nashville Hot seasoning are performing very well and are exceeding our expectations.

They have both been well received by our customers reinforcing that the demand for heat is growing at both the mild and hot end of the spectrum.

We are excited for continued growth in these items as well as the overall breadth of opportunity and heat.

Brendan Foley: It is also a perfect example of how we leverage our strengths across both segments, underscoring their complementary nature. Our flavor solutions team created the Mustard Flavor for this limited edition product which built awareness for both our consumer and food service businesses. Our segments are working together to further bolster French's success. I am passionate about how our two segments, consumer and flavor solutions complement each other, reinforcing, reinforcing what differentiates McCormick and enabling us to drive sustainable growth.

This divestiture allows us to focus our resources on our core flavors product category and drive further growth.

Mike will have more in the future impact of this divestiture on the EMEA region in a few minutes.

Brendan Foley: We are increasing our merchandising levels to one similar to pre-COVID and are supporting our portfolio with holiday brand marketing campaigns across all regions. We are expecting a strong holiday season. Driving up the consumer update, our year-to-date results bolster our confidence that we will continue to drive sales growth as we have in the past. The supply issues we experienced last year are resolved and we are using our strength and category management to increase distribution and drive McCormick and category growth. We believe the execution of our growth plans will be a win for consumers, customers, our categories, and McCormick. Which differentiates us even more and strengthening our leadership in our core categories.

And in APAC, while the economic recovery in China was not as strong as anticipated China contributed to the regional pricing and volume growth.

Across the region, we benefited from our <unk> customers increase in promotional activity.

Brendan Foley: Now turning to flavor solutions on slide 10. Our growth momentum in this segment continues to be exceptional. The third quarter marks our tenth consecutive quarter with double-digit constant currency sales growth. Our growth was led by pricing actions in all three regions. We are priced to cover current year inflation and are continuing to recover the cost inflation our pricing lagged the last two years. We remain committed to restoring our flavor solutions profitability. And in the third quarter we again drove significant margin expansion versus prior year and expect continued progress toward our objective to build back our margin in this segment.

Driving growth and advancing our flavor leadership.

And in branded Foodservice, we expect new products increased menu penetration culinary partnerships and our expertise in heat to drive continued growth.

Now I'd like to turn it over to Mike to provide details on our financial performance.

Thanks, Brendan and good morning, everyone.

Starting on slide 13, our topline constant currency sales growth grew 6% compared to the third quarter of last year, reflecting 8% from pricing, partially offset with a 2% volume and mix decline at.

Brendan Foley: Let me turn to our highlights by region. Our America's third quarter strong sales growth was led by pricing with an increase in volume contributing as well. Both the flavors and branded food service product categories grew by double digits. With flavors, our seasonings growth was strong, including volume growth related to new products. We are helping our customers grow with the strength of our brands. Our continued success with providing the seasonings for co-graded items included new ones with Frank's red high and stubs this quarter contributed to our growth.

As a result at the total company level. Excluding these items underlying volume performance was flat for the quarter and improved sequentially from the second quarter.

Brendan Foley: Strengthen our customers iconic products also contributed to our seasonings growth, particularly related to our heat platform. We also have strong momentum in flavors for performance nutrition beverages and health and market applications. Our growth is outpacing the market fueled by the advantages of our proprietary technologies. Importantly, we are winning with new products for existing and new customers largely across our mid market customer base, who are category leaders in specific markets or a high growth innovators and whose growth is outpacing larger customers.

In our consumer segment constant currency sales increased by 1%, reflecting a 5% increase in pricing actions, partially offset by a 4% volume decline.

Brendan Foley: We continue to have a robust pipeline of new products in our conversion rate is strong. We are creating preferred flavors enabling our customers to continue to win in the market. In branded food service, we gained share in spices and seasonings this quarter. Additionally, our recent new products, Frank's mild sauce and Frank's Nashville hot seasoning are performing very well and are exceeding our expectations. They have both been well received by our customers, reinforcing that the demand for heat is growing at both the mild and hot end of the spectrum. We are excited for continued growth in these items as well as the overall breadth of opportunity in heat.

In EMEA constant currency consumer sales increased 10% with a 13% increase from pricing actions, partially offset by a 3% volume decline primarily from exiting Russia.

Excluding Russia sales growth was broad based across all markets and categories.

Constant currency consumer sales in the APAC region decreased 11% driven by a 15% volume decrease primarily due to a slower than expected recovery in China.

Also contributing to the decline was the impact of lapping strong China demand in the prior year following significant extended lockdowns during the second quarter of last year.

Brendan Foley: Moving to EMBA, we continue to drive broad-based growth across the portfolio, with strong growth in both our quick service restaurant and package food and beverage customers. Crising drove the growth as some of our customers in both channels continue to experience softness and the volume within their own businesses. As we continue to prune low-margin business in our flavor solution segment, while it did not impact the third quarter, I want to mention that we divested a small canning business, which was part of our GIDI operations in Italy.

In the Americas flavor solutions constant currency sales rose, 10%, reflecting a 9% increase in pricing and a 1% volume and product mix growth.

Growth was broad based across the portfolio with strength in flavors, including seasoning their specialty flavors as well as branded foodservice.

Brendan Foley: This divestiture allows us to focus our resources on our core flavor's product category and drive further growth. Michael will have more on a future impact of this divestiture on the EMBA region in a few minutes. And in APEC, while the economic recovery in China was not as strong as anticipated, China contributed to the regional pricing and volume growth. Across the region we benefited from our QSR customers increased in promotional activity. The strength of our flavor solution portfolio and capabilities, including our differentiated customer engagement and culinary inspired innovation, are driving outstanding flavor solutions momentum.

Outside of this product discontinuation volumes declined due to softness in some of our customers' volume within their own businesses.

Regarding the divestiture of the <unk> business Brendan mentioned earlier.

We expect this divestiture to impact EMEA flavor solutions by approximately 3% starting in the fourth quarter of 2023 through the third quarter of 2024.

For the total flavor solutions segment, we expect an approximately 1% impact and for the total company less than 1%.

Brendan Foley: Our flavor's product category are 100% focused on flavor, our breadth and reach, our arrived with consumer insights, and our proprietary technology platform gives us an advantage and positions us well to continue to win in the technically insulated and value-rated part of our portfolio. Driving growth and advancing our flavor leadership, and in branded food service, we expect new products, increased manufacturing, culinary partnerships, and our expertise in heat to drive continued growth. Our robust growth plans and flavor solutions and effective execution of our proven strategies bolster our confidence in continuing our growth trajectory and driving our flavor solutions' leadership as well as margin restoration.

I've seen on slide 21, gross profit margin expanded 150 basis points in the third quarter versus the year ago period, reflecting our steadfast focus on increasing profit realization phase.

Favorable drivers in the quarter, where our CCI.

Programs and the continued recovery of the cost inflation, our pricing lagged over the past two years.

Michael Smith: Now, I'd like to turn it over to Mike to provide details on our financial performance. Thanks, friend, and a good morning, everyone. Starting on slide 13, our top line constant currency sales grew 6% compared to the third quarter of last year, reflecting 8% from pricing, partially all set with a 2% volume and mixed decline.

We expect to finish 2023 meeting the cost recovery plans, we set as we entered the year.

We are very pleased with our gross margin expansion for the quarter historically, our third quarter gross margin has been higher than the second quarter.

This year. However, they were comparable at approximately 37% because we realized our highest level of both pricing and cost recovery from prior years and the second quarter.

Michael Smith: As Brendan already mentioned, there were impacts of volume related to the slower than expected recovery in the China consumer business, the investiture of kitchen basics, the exit of our consumer business in Russia, and strategic decisions we made related to optimizing the profitability of our portfolio. As a result, at the total company level, excluding these items, underlying volume performance was flat for the quarter and improved sequentially from the second quarter. In our consumer segment, constant currency sales increased by 1%, reflecting a 5% increase in pricing actions, partially offset by a 4% volume decline.

Now moving to slide 'twenty, two selling general and administrative expenses or SG&A increased relative to the third quarter of last year as higher employee incentive compensation expenses and distribution costs were partially offset by CCI led cost savings.

Michael Smith: Included in this volume decline are a 2% decline due to a lower than expected recovery in China, and a 2% decline attributable to the kitchen basics to vegetable, or business exit in Russia, and Hispanic product DST exit to optimize margins. On slide 14, consumer sales in the Americas increased 2% in constant currency, and included a 4% increase in pricing actions, partially offset by a 2% volume decline due to the kitchen basics to vegetable, and DST items I just mentioned.

Brand marketing also increased compared to the third quarter of last year, and we continue to expect a low single digit increase in brand marketing for the full year.

As a percentage of net sales SG&A increased 160 basis points.

In constant currency adjusted operating income in the consumer segment, which was impacted by the slower China recovery and brand marketing investments declined 5% and in the flavor solutions segment adjusted operating income increased 42%.

Michael Smith: In the EMEA, constant currency consumer sales increased 10% with a 13% increase in pricing actions, partially offset by a 3% volume decline primarily from exiting Russia. Excluding Russia, sales growth was broad-based across all markets and categories.

Turning to interest expense and income taxes on slide 2023, our interest expense increased significantly over the third quarter of 2022, driven by the higher interest rate environment.

Michael Smith: Concentrously consumer sales in the APEC region decreased 11%, driven by a 15% volume decrease, primarily due to a lower than expected recovery in China. Also contributing to the decline put the impact of laughing strong China demand in the prior year following significant extended lockdowns during the second quarter of last year. Turning to our flavor solution segment, and slide 17, we grew 3rd quarter constant currency sales 11%, reflecting a 10% increase in pricing, and a 1% increase in volume and product mix.

And quickly touching on tax our third quarter adjusted effective tax rate was 21, 4% compared to 21, 2% in the year ago period.

Our income from unconsolidated operations in the third quarter reflects strong performance in our largest joint venture Mccormick de Mexico.

We are a market leader with the Mccormick branded mayonnaise formulates and muster product lines in Mexico, and the business continues to contribute meaningfully to our net income and operating cash flow results.

Michael Smith: Our volume growth was partially offset by the pruning of low margin business. In the Americas, flavor solutions constant currency sales rose 10%, reflecting a 9% increase in pricing, and a 1% volume and product mix growth. Growth was broad-based across the portfolio, with strength and flavors, including seasonings and specialty flavors, as well as branded food service. In EMEA, constant currency sales increased 15%, with pricing actions partially offset by lower volume and product mix, including a 1% impact from exiting the private label product line mentioned earlier.

At the bottom line as shown on slide 25 third quarter 2023 adjusted earnings per share was <unk> 65.

As compared to 69 for the year ago period the.

The decrease was driven by lapping a favorable impact primarily related but related to an optimization of our debt portfolio included in other income in the third quarter of last year.

This impact is also a headwind to our full year results.

On slide 26, we've summarized highlights for cash flow in the quarter end balance sheet.

Michael Smith: Outside of this product discontinuation, volumes decline due to softness in some of our customers' volume within their own businesses. Regarding the divestiture of the geodicanting business brand and mentioned earlier, we expect this divestiture to impact EMEA flavor solutions by approximately 3% starting in the 4th quarter of 2023 to the 3rd quarter of 2024. For the total flavor solution segment, we expect an approximately 1% impact, and for the total company less than 1%.

Our cash flow from operations year to date was very strong $660 million in 2023 compared to $250 million for the same period last year, a 164% increase the.

The increase was primarily driven by higher operating income and working capital improvements, including lower inventory.

We returned $314 million of cash to our shareholders through dividends and used $187 million of cash for capital expenditures through the third quarter.

Michael Smith: In the APEC region, flavor solution sales grew 13% in constant currency, with a 7% contribution from pricing and 6% volume growth driven by our customers' promotional activities and limited time offers across the region. As seen on slide 21, gross profit margin expanded 150 basis points in the 3rd quarter versus the year ago period, reflecting our steadfast focus on increasing profit realization. Favorable drivers in the quarter were our CCI and GOE programs, and the continued recovery of the cost inflation are pricing lagged over the past 2 years.

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.

Michael Smith: We expect to finish 2023 meeting the cost recovery plans we set as we entered the year. We are very pleased with our gross margin expansion for the quarter. Historically, our third quarter gross margin has been higher than the second quarter. This year, however, they were comparable at approximately 37%, because we realized our highest level of both pricing and cost recovery from prior years in the second quarter. We expect to continue to drive margin improvement in the balance of the year, and as evident by our full year outlook and year-to-date results, we expect a higher gross margin in the fourth quarter compared to the third quarter of this year, as well as an expansion from the fourth quarter of 2022.

Now turning to our updated 2023 financial outlook on slide 27.

Our 2023 outlook reflects our continued positive topline growth momentum and with the optimization of our cost structure increased profit realization.

We expect to drive margin expansion with strong sales and adjusted operating income growth.

Adjusted operating income growth is expected to be partially offset by higher interest expense and a higher projected effective tax rate.

Michael Smith: Now moving to slide 22, selling general and administrative expenses, or SGNA, increased relative to the third quarter of last year, as higher employee incentive compensation expenses and distribution costs, were partially offset by CCI-led and GOE cost savings. Brand marketing also increased compared to the third quarter of last year, and we continue to expect a low single-digit increase in brand marketing for the full year. As a percentage of net sales, SGNA increased 160 basis points.

We are reaffirming our sales and operating profit outlook for 2023, despite a slower recovery in China.

We no longer expect a 1% contribution to our sales from lapping last year's Covid disruptions in China.

And we are also revising the benefit from a China recovery to our operating income from 300 basis points to 100 basis points.

At the topline we continue to expect 5% to 7% growth and anticipate our results will be closer to the middle of our guidance range, given the lower than expected China recovery.

Michael Smith: Strong sales growth and gross margin expansion, partially offset by higher SGNA costs, resulted in a constant currency increase in adjusted operating income of 5% compared to the third quarter of 2022. In constant currency, adjusted operating income into consumer segment, which was impacted by the slower China recovery and brand marketing investment declines 5%, and in the flavor solution segment, adjusted operating income increased 42%. Turning to interest expense in the income taxes on slide 2023, our interest expense increased significantly over the third quarter of 2022, driven by the higher interest rate environment, and quickly touching on tax, our third quarter adjusted affected tax rate was 21.4%, compared to 21.2% in the year-go period.

The wrap of last year's pricing actions as well as the impact of new ones in 'twenty three are the primary drivers of growth.

Several factors are expected to impact our volume and product mix for the year.

Including price Elasticities, which are consistent with 2022 at lower levels than we have historically experienced but in line with the current environment.

The divestiture of our kitchen basics business in August of last year, and the exit of our consumer business in Russia during last year's second quarter.

Michael Smith: Our income from unconsolidated operations in the third quarter reflects strong performance in our largest joint venture, McCormick and Mexico. We have a market leader with the McCormick Bay branded mayonnaise, marmalade, and mustard product lines in Mexico, and the business continues to contribute meaningfully to our net income and operating cash flow results. At the bottom line, as shown on slide 25, third quarter 2023 adjusted earnings per share with 65 cents, as compared to 69 cents for the year-go period.

Finally, the divestiture of the <unk> scanning business, which closed on the first day of the fourth quarter, we will have a minimal impact on total company sales for the year.

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

Our 2023 gross margin is projected to range between 110 to 140 basis points higher than 2022 compared to our prior guidance of 50 to 100 basis points.

Michael Smith: The decrease was driven by laughing a favorable impact primarily related to an optimization of our debt portfolio, included in other income in the third quarter of last year. This impact is also a headwind to our four-year results.

Michael Smith: On slide 26, we've summarized highlights for cash flow and the quarter end balance sheet. Our cash flow from operations year-to-date was very strong. $660 million in 2023, compared to $250 million for the same period last year, a 164% increase. The increase was primarily driven by higher operating income and working capital improvements, including lower inventory. We returned $314 million of cash to our shareholders through dividends and used $187 million of cash for capital expenditures through the third quarter.

It also reflects more than offsetting cost pressures with pricing actions as we recover the cost inflation, our pricing lagged the last two years.

Moving to adjusted operating income, we continue to expect 10% to 12% constant currency growth. There are some discrete items expected to impact our 2023 adjusted operating profit growth.

Michael Smith: We expect 2023 to be a very strong year of cash flow, as evidenced by our 2023 year-to-day cash flow from operations of $660 million, which is already slightly higher than our four-year cash flow in 2022. Our priority is to continue to have a balanced use of cash, funding investments to drive growth, returning a significant portion to our shareholders' dividends, and paying down debt. We remain committed to a strong investment-grade rating. With our improving growth margin and lower inventory, we are well positioned to continue paying down debt, and we now expect to do ever to approximately three times earlier in 2024 than we originally expected.

Next I already mentioned the expected 100 basis point benefit related to China, which is lower than the originally anticipated 300 basis points.

The net impact of these discrete items is an unfavorable 100 basis points as compared to a 200 basis point favorable impact than our previous outlook.

The reaffirmation of our adjusted operating income outlook. Despite the unfavorable change in the impact from discrete items highlight stronger than originally expected profit realization on our underlying business, which is now expected to be 11% to 13% growth compared to 8% to 10% growth previously.

Michael Smith: Now turning to our updated 2023 financial outlook on slide 27. Our 2023 outlook reflects our continued positive top-line growth momentum, and with the optimization of our cost structure, increased profit realization. We expect to drive margin expansion with strong sales and adjusted operating income growth. Adjusted operating income growth is expected to be partially offset by higher interest expense and a higher projected effective tax rate. We also anticipate minimal impact from currency rates, although there will be a timing aspect as we realize an unfavorable impact year-to-date through the third quarter, and project a favorable impact in the fourth quarter.

<unk>.

Michael Smith: We are reaffirming our sales and operating profit outlook for 2023, despite a slower recovery in China. We no longer expect a 1% contribution to our sales from laughing last year's COVID disruptions in China, and we are also revising the benefit from a China recovery to our operating income from 300 basis points to 100 basis points. At the top line, we continue to expect 5% to 7% growth, and anticipators, our results, will be closer to the middle of our guidance range given the lower than expected China recovery.

To summarize our 2023 of adjusted earnings per share expectations reflect strong underlying business growth of 14% to 16% above our prior projection of 10% to 12% combined.

Combining this 14% to 16% underlying growth with a 1% unfavorable impact from the discrete items on adjusted operating profit and the combined interest and tax headwind of 9% results in an expected increase of 4% to 6% or projected guidance range of adjusted earnings per share in 2023 of $2 <unk>.

Michael Smith: The rap of last year's pricing actions, as well as the impact of new ones in 23, are the primary drivers of growth. Several factors are expected to impact our volume and product mix for the year, including price elasticity, which are consistent with 2022 at lower levels than we have historically experienced, but in line with the current environment. The divestiture of our kitchen basics business in August of last year and the exit of our consumer business in Russia during last year's second quarter.

<unk> two <unk> to $2 67.

We remain confident in the underlying strength of our business and delivering on our profitable growth reflected in our 2023 financial outlook.

Michael Smith: The continual pruning of lower margin business from our portfolio. We continue to estimate the America's consumer segment, the SD exit, and the EMEA's flavor solutions' private label discontinuation, to be approximately a 1% impact on the year, which began to impact us in the second quarter of 2023. And finally, the divestiture of the Giottes County business, which closed on the first day of the fourth quarter, will have a minimal impact on total company sales per year.

Thank you Mike before we turn it over to Q&A I would like to provide some closing comments global.

Global demand for flavor remains the foundation of our sales growth and we are intentionally focused on great fast growing categories.

Our alignment with long term consumer trends healthy and flavorful cooking trusted brands increased digital engagement and purpose minded practices continued to create a tailwind for growth.

Michael Smith: We continue to plan to drive growth through the strength of our brands, as well as our category management, brand marketing, new products, and customer engagement plans. Our 2023 Gross Margin is projected to range between 110 to 140 basis points higher than 2022 compared to our prior guidance of 50 to 100 basis points. This gross margin expansion reflects its favorable impact from pricing, cost saving some of our CCI-led and GOE programs, and portfolio optimization, partially offset by the anticipated impact of a low-to-mid-teens increase in cost and flight.

<unk> is uniquely positioned to capitalize on this demand for great flavor with the breadth and reach of our strong global flavor portfolio. We are end to end flavor for our consumers and customers.

We remain a different kind of CPG company, one differentiated by our growth platform. The results that we have achieved over the last years and our culture.

We play in great in fast growing categories are two segments consumer and flavor solutions complement each other reinforcing our differentiation the.

The scale insights and technology that we leverage from both segments are meaningful and driving sustainable growth.

Michael Smith: It also reflects more than offsetting cost pressures with pricing actions as we recover the cost inflation or pricing lagged the last two years Moving to adjusted operating income we continue to expect 10-12% constant currency growth. There are some discrete items expected to impact our 2023 adjusted operating profit growth. In addition to the sustainable impact and the kitchen basics, the venture to have an unfavorable 100 basis point impact. Next, I already mentioned the expected 100 basis point benefit related to China, which is lower than the originally anticipated 300 basis points.

We continue to leverage the strength of our culture and the power of people to drive success.

I want to thank Mccormick employees worldwide as their energy and excitement for the business is coming through in our results.

Michael Smith: Finally, we expect a 900 basis point unfavorable impact from building back incentive compensation slightly ahead of our prior projection of 800 basis points given the increase in earnings expectations since the beginning of the year. The net impact of these discrete items is an unfavorable 100 basis points as compared to a 200 basis point favorable impact in our previous outlook. The reaffirmation of our adjusted operating income outlook despite the unfavorable change in the impact from discrete items highlights stronger than originally expected profit realization on our underlying business, which is now expected to be 11-13% growth compared to 8-10% growth previously.

Now to recap the key takeaways as seen on slide 30.

Our third quarter performance was strong reflecting sustained demand and the effective execution of our growth strategies.

And our volume performance, excluding China continued to improve.

We drove meaningful year over year margin expansion underscoring our focus on profit realization.

Our year to date cash flow from operation results was strong already equal to our full year 2022 results.

Our reaffirmed sales and operating profit guidance, despite lower than expected China recovery highlights the growing strength of the rest of the business.

The strength of our business model the value of our products and capabilities and execution of our proven strategies bolsters, our confidence in our growth trajectory over the long term.

Now for your questions.

Thank you.

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Michael Smith: We are reaffirming our low single-digit increases in brand marketing investments, our CCI-led cost savings target of approximately 85 million dollars, our interest expense outlook of an estimated range from 200 million to 210 million dollars in 2023, and our 2023 adjusted effective income tax rate projection of approximately 22%. We are increasing our income from unsolidated operation projection to a 30% expected increase from 2022, reflecting the strong performance we expect in our largest joint venture, McCormick de Mexico.

One moment please poll for questions. Thank you.

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

Great. Thanks, very much good morning, everybody good.

Good morning, Andrew Good morning, I guess, maybe just start off with Mccormick, obviously as you mentioned and saw some sequential volume improvement in consumer Americas in the fiscal third quarter.

We're lapping an easier and even easier I guess down 11.

<unk> decline in the year ago period in the fourth quarter. So I guess my question is would you expect volume in the consumer Americas segment, two to flip positively in the fourth quarter.

Michael Smith: To summarize, our 2023 adjusted earnings per share expectations reflect strong underlying business growth of 14-16% above our prior projection of 10-12%. Combining this 14-16% underlying growth with a 1% unfavorable impact from the discrete items on adjusted operating profit and the combined interest and tax headwind of 9%, result in an expected increase of 4-6%, or projected guidance range of adjusted earnings per share in 2023 of $2.62 to $2.67. We are projecting strong operating performance in 2023 with continued top line momentum, significant optimization of our cost structure and strong adjusted operating profit growth, as well as margin expansion and strong cash flow. We remain confident in the underlying strength of our business and delivering on the profitable growth respected in our 2023 financial outlook.

And if not I guess, what would be the key factors that would that would keep you from doing so obviously all in the context of an industry volume backdrop that remains kind of subdued.

Well Thanks, Andrew for your question, just maybe speak first to last year's fourth quarter.

I think our sales goes back back in 2022 was down about one.

One 7% pick on sales.

That was up without kitchen basics that we were lapping the 2021 retail inventory build and a high level.

I think we as we talked about on that call entered the 2022 holiday with just what's stronger inventory that we have.

We're counting on are predicting or forecasting.

So the.

The way, we're looking at it as the net sales impact really was up about four a little over 4% in the fourth quarter last year. So we're not seeing that necessarily as an easy comparison.

Michael Smith: Thank you, Mike. Before we turn it over to Q&A, I would like to provide some closing comments. Global demand for flavor remains the foundation of our sales growth, and we have intentionally focused on great fast growing categories. Our alignment with long-term consumer trends, healthy and flavorful cooking, trusted brands, increased digital engagement, and purpose-minded practices continue to create a tailwind for growth. McCormick is uniquely positioned to capitalize on this demand for great flavor.

Overall, but just talking to dollars first.

Our view is just we're still looking at a pretty robust fourth quarter from a year ago, just knowing that we had that comparison.

The fourth quarter now let me look at this year's fourth quarter.

As we said on the call here earlier, you will see the impact of that DSD continuation in our Hispanic bag spices are part of our business. It just tends to be that business has to be heavier in the fourth quarter because of the holidays, so that'll be a little bit stronger than led to our spices and seasonings business, we continue to see improving trends in.

Michael Smith: With the breadth and reach of our strong global flavor portfolio, we are end-to-end flavor for our consumers and customers. We remain a different kind of CPG company, one differentiated by our growth platform, the results that we have achieved over the last years and our culture. We play in great and fast-growing categories. Our two segments, consumer and flavor solutions complement each other reinforcing our differentiation. The scale, insights and technology that we leverage from both segments are meaningful and driving sustainable growth.

That part of our portfolio and you should expect to see that.

In the fourth quarter that sequential improvement in performance overall.

And we feel like we're going to have a strong holiday I.

I think the reasons why we feel good about the direction of that part of our portfolio is when you heard it on the call.

We're gaining share and we're gaining distribution on super deal herbs and spices on.

Michael Smith: We continue to leverage the strength of our culture and the power of people to drive success. I want to take McCormick employees worldwide as their energy and excitement for the business is coming through in our results.

On the <unk> opening price point platform, we're still getting really good performance for that but still also building out distribution and where.

We have one value retailer that we've only begun just starting shipments on and they'll start to build out and fill out more store locations.

Brendan Foley: Now to recap the key takeaways as seen on flight 30. Our third quarter performance was strong reflecting sustained demand and the effective execution of our growth strategies. And our following performance, excluding China, continued to improve. We drove meaningful year-over-year margin expansion, underscoring our focus on profit realization. Our year-to-date cash flow from operation and results was strong, already equal to our full year 2022 results. Our reaffirmed sales and operating profit guidance, despite lower than expected China recovery, highlights the growing strength of the rest of the business. The strength of our business model, the value of our products and capabilities and execution of our proven strategies bolsters our confidence in our growth trajectory of the long term.

Because we have like just in that one particular count 85% of locations still yet to come so we still see distribution build happening behind <unk> overall and that renovation that we launched here. This year, we talked about in the second quarter.

Is doing really well, where we see it getting on shelf that we shipped about 40%, but what's appearing on shelf is probably just a little bit different because we don't really have that data, but what we're seeing with when we see that new package come on shelf is that the washing improves quite a bit. So we're really encouraged by our performance there and we're definitely seeing strong consumer reaction to.

To the new package and so that will obviously continue to build in the fourth quarter and we're also turning on our media right now.

Unknown Executive: Now for your questions. Thank you. Well now we conduct a question and answer session. If you like to ask a question today, please press star one from your telephone keypad and a confirmation tone indicate your line in the question queue. You may press star two if you like to remove your question from the queue. For participants who are using speaker equipment, maybe necessary to pick up your handset before pressing the star keys. One moment please so we pull for questions. Thank you.

Advertising.

The benefits of the package, but then we're also having holiday campaigns starting to run too. So we feel like there's a lot of good momentum in the pipeline. Obviously a lot of that will carry into 2024, but we still feel really good about the strength of that part of our business going into the fourth quarter.

It's also helping US though is that our core categories are performing a little bit stronger than overall total eligible in the grocery stores. So we see continued.

Strength, there just from a category standpoint.

Andrew Lazar: Now our first question is coming from the line of Andrew Lazar with Barclays. Please receive your questions. Great. Thanks very much. Good morning everybody. Good morning. I guess we'll just start off with McCormack. Obviously, as you mentioned, it saw some sequential volume improvement in consumer America's in the fiscal third quarter. In your lap in easier and even easier, I guess down 11 volume decline in the year ago period in the fourth quarter.

We had good performance across our other core categories like recipe mix.

Condiments and sauces, so we expect pretty good performance there.

But there are some categories grew from the participating along with our food peers.

We had a much smaller scale, but these are categories like frozen or the Asian category.

We've seen more volume decline like we've seen in the rest of the center of store and that part of our business.

Andrew Lazar: So I guess my question is, would you expect volume in the consumer America's segment to flip positively in the fourth quarter? And if not, I guess what would be the key factors that would keep you from doing so? Obviously all in the context of an industry volume backdrop that remains kind of subdued?

As just one part of the portfolio.

Leo I just give you some color on it we're seeing definitely the type of softness that youre seeing in other categories.

Andrew Lazar: Well, thanks Andrew for the question. Just to maybe speak first to last year's fourth quarter. I think our sales growth back in 2022 was down about 1.7% thick on sales. And that was up without kitchen basics. And we were lapping the 2021 retail inventory build in a high level. I think we, you know, as we talked about on that call, entered the 2022 holiday with just a watch stronger inventory than we have, you know, we're counting on or predicting or forecasting.

Great. Thanks, I'll pass it on and leave it there. Thanks so much.

Our next questions come from the line of Alexia Howard with Bernstein. Please proceed with your question.

Good morning, everyone. Good morning.

And can I ask about the market share trends that we're seeing in Americas Kenai.

<unk> been under pressure for some time because of the distribution losses, and so on but I'm wondering if there's light at the end of the tunnel in terms of when either the comparable got easier.

Andrew Lazar: So, the, you know, the way we're looking at it is the net sales impact really was up about 4.0, over 4% in the fourth quarter last year. So, we're not seeing that necessarily as an easy comparison, you know, overall. But just talking to dollars first, you know, that's kind of our view is just we're still looking at a pretty robust 4th quarter from a year ago, just knowing that we had that comparison in the 4th quarter.

Innovation helps to turn it around and just wondering what.

The outlook is there and then I have a follow up.

Thanks, Alexia, Yes, I think no.

As we take a look at our performance overall in terms of shares et cetera, just talking maybe even specifically the spices and seasonings.

Or a bit tricky, because we're seeing private label and our competitors take more price right now in the last couple of months to catch up with the pricing that we've taken in the marketplace. So this is helpful. Obviously, because it starts to closed price gaps.

Andrew Lazar: Now, we look at this year's 4th quarter. As we said on the call here earlier, you know, you will see the impact of that DSD continuation in our Hispanic act spices part of our business. It just tends to be that business tends to be heavier in the 4th quarter because of the holiday. So, that'll be a little bit stronger than but to our spices and seasonings business, we continue seeing improving trends in that part of our portfolio and you should expect to see that in the 4th quarter that sequential improvement in performance overall.

And.

So I think youre seeing some stronger dollar performance there, but from a unit standpoint, we believe we're performing even better.

That lag is even less and so as we then look to the pipeline of activities that we have going on much like I just mentioned on on.

On the previous question, whether it's parts of our product line that are really starting to build momentum or distribution that builds momentum.

Andrew Lazar: And we feel like we're going to have a strong holiday. I mean, I think the reasons why we feel good about the direction of that part of our portfolio is, you know, when you heard it on the call, we're gaining share and we're gaining distribution on super deal or spices on the Lowry's opening price point platform was still getting really good performance for that. But still also building out distribution. And we have one value retailer that we've only begun just starting shipments on and they'll start to build out, you know, fill out more store locations because we have like just in that particular account, you know, 85% of locations still yet to come.

We see a strong pipeline across that part of our portfolio as well as just stronger overall.

Marketing initiatives now that we have really assured supply across all of our portfolio. So when we talk about light at the end of the tunnel, we did see sequential improvement over the course of time as we claw back on distribution points, which we've grown this quarter.

Andrew Lazar: So, we still see distribution build happening behind Lowry's overall. And that renovation that we launched here this year, we talked about in the 2nd quarter, is doing really well when we see it getting on shelf. Now we shift about 40%. But, you know, what's appearing on shelf is probably just a little bit different because we don't really have that data. But what we're seeing with when we see that new package come on shelf is that the loss he improves quite a bit.

We think that some of the same things we've done in Europe for example, where they had as we mentioned today on the call really good share performance and volume performance in markets like UK, and France, which are similar to the U S. So those type of activities.

Activities, we're doing whether it's innovation.

Upgrading renovating the line and have had success over there too.

Andrew Lazar: So, we're really encouraged by our performance there and we're definitely in strong consumer reaction to the new package. And so, that will obviously continue to build in the 4th quarter. And we're also turning on our media right now, you know, advertising, you know, the benefits of the package. But then we're also having holiday campaigns start to run too. So, we feel like there's a lot of good momentum in the pipeline. Obviously, a lot of that will carry into 2024.

Great. Thank you and just as a quick follow up you talked about the free cash flow, allowing you to delever more quickly than expected what's.

What's your level of appetite for acquisitions next year, where are the priorities at consumer and flavor solutions domestic international.

Wondering how youre thinking about the pipeline on the M&A side and I'll pass it on thank you.

Yeah Alexia.

As you said to me.

Andrew Lazar: But we still feel really good about the strength of that part of our business. This is going either the 4th quarter. You know, what's also helping us though is that, you know, our core categories are performing a little bit stronger than overall total edible in the grocery store. So, we see it can continue strength there just from a category standpoint. We have good performance across other core categories like recipe mix, you know, condiments and sauces.

We're having really good success on our operating cash flow, we're really excited about that as we said in our call today, we're going to delever faster than we thought.

To get back to our three times target, we're always looking at acquisitions I mean, we have a corporate development team that is always working with internally to look at those.

Those assets.

We have an appetite as part of our long term growth algorithm, a third of our 4% to 6% long term growth algorithm is M&A. However, we're still in the process of paying down debt I think the fourth quarter is our biggest cash flow quarter generally.

Andrew Lazar: So, we think pretty good performance there. But, you know, there are some categories where we're participating along with our food peers. Probably had a much smaller scale. But these are, you know, categories like frozen or the ancient category where we've seen more volume to time like we've seen in the rest of the center of store and that part of our business. That's just one part of the 4th portfolio. I just gave you some color on it.

As we get into next year, though as we get closer to our targets I think.

As assets come up that are attractive and whether they're consumer flavor solutions domestic U S. International we really look for things that.

Andrew Lazar: You know, we're seeing definitely the type of softness that you're seeing in other categories. But the fundamental trends have not shifted, you know, despite this recovery in China being a lot slower US and Europe are performing as expected. And if you heard in the call, we kind of reaffirmed our guidance on sales, despite China, which is meant to indicate that we still see a strength in the performance of our business overall. Great. Thanks. I'll pass it on and leave it there. Thanks so much.

Don't dilute our sales growth our top line is really important to us and you look at the past with Cholewa in phone and <unk>. Those are the type of assets really like will be likely to be a bit more international yes.

Flavor solutions now also is an area, where we really really like that and look at the photo and she Audi is past acquisitions, we're really happy with.

Sorry for the long winded answer, but I think we're getting back to where we wanted me to enter back in the M&A market and as long as it meets their strategies.

Alexia Howard: Our new questions come from the line of Alexia Howard with Bernstein. Please continue with your questions.

In both consumer flavor solutions for attractive assets will be will be buyers hopefully at the right price, but right now paying down our debt as a priority okay.

Alexia Howard: Good morning, everyone. Good morning. Can I ask about the market share trends that we're seeing in America's consumer? It's obviously been under pressure for some time because of the distribution losses and so on. But I'm wondering if there's light at the end of the tunnel in terms of when either the comparables get easier or innovation helps to turn it around and just wondering what the outlook is there. And then I have a follow up.

Thank you very much I'll pass it on.

Our next question is from the line of Max comfort with BNP Parma. Please proceed with your question.

Hey, Thanks for the question a number of your broader U S. Packaged food peers have been talking about value seeking behavior, whether it's moving down and cheap by brands and private label our channel shifting our <unk>.

Alexia Howard: Thanks, Alexia. Yeah. I think, you know, if you take a look at our performance and overall in terms of shares, et cetera, you know, just talking, maybe specifically, despite this and seasonings. The dollars are a bit tricky because we're seeing private label and our competitors take more price right now in the last couple of months to catch up to the pricing that we've taken in the marketplace. But this is helpful, obviously, because it starts to close price gaps.

Simply buying less units.

You mentioned some comments.

Earlier about the movement to larger package sizes that youre seeing but I'm curious if you can talk more broadly about how value seeking behavior is impacting your business.

Particularly given Europe also a large producer of private label spices and seasonings, thanks very much.

Alexia Howard: And so, you know, I think you're seeing some stronger dollar performance there. But from a unit standpoint, we believe the performing even better that lag is even less. And so as we then look to the pipeline activities that we have going on much like I just mentioned on on the previous question, you know, whether it's parts of our product line that are really starting to build momentum or distribution that builds momentum.

Well thanks for the question.

We're seeing value play out.

Through many different types of actions.

From consumer some are going to larger sizes, and we see that quite a bit and as an example of where we're taking an opportunity to continue growing even more quickly.

That part of our portfolio, we're definitely seeing sustainable.

Sustainable continued trends towards larger sizes.

Alexia Howard: You know, we've seen a strong pipeline, you know, across, you know, that part of our portfolio, as well as just stronger overall, you know, marketing initiatives. Now that we have really, you know, a shared supply across all of our portfolio. So when we talk about light again, the tunnel, we just seek sequential improvement over the course of time, as we fall back on distribution points, which we've grown this quarter. As well as just the pipeline of activity and renovation that we have across our portfolio, you're seeing a good view of that right now.

Also interesting about larger sizes at least in the categories.

That we have especially.

Especially spices and seasonings is that the.

The purchase rate is still just as fast as it was with a smaller size. So people are going through when they have it in the house will be growing through a little bit.

Just as faster more quickly.

But the other way value kind of.

Presents itself to us opportunities like this opening price point with the pricing thats happening in the market as we've talked about before.

Alexia Howard: But there's more to come. And so we do feel pretty confident about our ability to continue driving sequential improvement, whether it's in spices and seasonings or across other categories. Then too, we think some of the same things we've done in Europe, for example, we had, as we mentioned today, the call really good share performance and volume performance in markets like you can France, which are similar to US. So there's a type of activities we're doing, whether it's the innovation, upgrading and renovating the line that has confessed that we're there too.

It created price pocket that we feel like we needed to fill with a brand like lotteries and so that'll that's playing a role in our portfolio as offering a brand to consumers and a lot of consumers still preferred brands and it's allowing them to move towards a brand thats.

Lower opening price point and fills the need and were seeing a lot of success with that too, but the other way, we're really talking a lot about value is directly to the consumer.

Especially if you think about a lot of our communication right now over the past year has to be value oriented and we're talking about the role that.

Brendan Foley: Great. Thank you. And just as a quick follow up, you talked about the free cash flow allowing you to de-level more quickly than expected. What's your level of appetite for acquisitions next year? Where are the priorities? Is it consumer? Is it flavor solutions, domestic international? Just wondering how you're thinking about the pipeline on the M&A side, and I'll pass it on. Thank you. No, let's see, as you said, we're having a really good success on our covering cash flow.

Our portfolio plays in terms of providing flavor for pennies of serving.

Brendan Foley: We're really excited about that. As we said in the call today, we're going to deliver faster than we thought to get back to our three times target. We're always looking at acquisitions. I mean, we have a corporate development team that's always working internally to look at those assets. We have an appetite as part of our long-term growth algorithm. A third of our four to six percent long-term growth algorithm is M&A. However, we're still in the process of paying down that.

<unk> dollar even further that's where we see our category really playing a role in the household, especially during this kind of.

Where there is a lot of consumer concern around inflation our categories are playing a helpful role in that so we're looking at it from a number of different angles, but I just illustrated three right. There that we are hitting pretty hard during this period of time.

Brendan Foley: I think the fourth quarter is our biggest cash flow quarter, generally. As we get into next year, though, as we get closer to our targets, I think assets come up that are attractive. Whether they're consumer flavor solutions to US international, we really look for things that don't dilute our sales growth. Our top line is really important to us. You look at the past with Chalula and Phona and RB, those are the types of assets we really like.

Thanks, very helpful I'll pass it along.

Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

Yes, Thank you and good morning, everyone.

Good morning, I guess, maybe trying to take Andrew's question, and maybe a slightly different kind of light.

Then is there any way to help frame the distribution gains that you are seeing and expect to see.

Brendan Foley: Would we like it to be a bit more international? Yes. Flavor solutions now also is an area where we really like that and look at Phona and Geode as past acquisitions we're really happy with. So start with a long-winded answer, but I think we're getting back to where we want to be to get entered back in the M&A market. And as long as it meets those strategies in both consumer flavor solutions for attractive assets, we'll be buyers, hopefully, at the right price. But right now, paying down our debt is our priority.

Brendan Foley: Thank you very much. I'll pass it on.

In coming quarters, any way to quantify kind of what how we should think about total distribution growth and where that will peak from TDP perspective.

Into 2024.

It's harder to fully see that expansion in the scanner data and so I'm wondering if part of it is growth in non measured channels, our value retailers that arent captured.

Nielsen.

Well, Adam just a few things around <unk>.

<unk> going to be talking about what to expect in 2024.

We'll talk about that guidance as we look at.

Max Gumport: Our next question is from the line of Max Gumport with BMP Parama. We should see with your question. Hey, thanks for the question. A number of your broader US package food theories have been talking about value-seeking behavior, whether it's moving down to cheaper brands in private label or channel shifting or simply buying less units of food. If you mentioned some comments earlier about the movement to larger package sizes that you're seeing, but I'm curious if you can talk more broadly about how value-seeking behavior is impacting your business, particularly given you're also a large producer of private label spaces and seasonings.

Early next year.

But just talking a little bit more about GDP performance. It remains an important area of focus for us and we've been taking a lot of actions with the store distribution.

Max Gumport: Thanks very much. Thanks for the question. Receive value play out through many different types of actions from consumer. Some are going to larger sizes and we see that quite a bit and as an example of where we're taking an opportunity to continue growing even more quickly. In that part of our portfolio, we're definitely seeing sustainable continued trends towards larger sizes. And what's also interesting about larger sizes, at least in the categories that we have, especially spices and seasonings, is that the purchase rate is still just as fast as it was with a smaller size.

Which was really lost the supply over the last one or two years I think it's an important reminder, that about half of those TDP losses are a result of just proactive discontinuation that we've made.

And those who are not likely to be restored, but we are starting to see GDP growth something which we said we would start to come this year and the third quarter end and we believe that the performance.

Improved versus like the previous two quarters of the year.

And I would also just share with you that our assortment on shelf now has even more productive and that was versus pre COVID-19. So that philosophy of those turns that begin on shelf from that.

Assortment, there is actually even more productive not only for Mccormick, but also for the retailer and so thats something really important to pass along.

We will start to see more distribution come online as retailers reset their shelves, we're seeing a thinner that happened right now as we speak going into the fourth quarter, but we expect to see even more of that as we go into 'twenty four so thats, one I think context around tvp's in distribution.

<unk> provides context and color.

Max Gumport: So people are going through when they have it in the household to growing through a little bit just as faster and more quickly. But the other way value presents itself to is opportunities like this opening price point. With the pricing to tap it in the market, as we've talked about before, it created a price pocket that we feel like we needed to fill with brand like louderies. And so now that's pointing a role in our portfolio that's offering a brand to consumers and a lot of consumers still prefer brands.

Max Gumport: It's allowing them to move towards a brand that's a lower opening price point and fills the need and we're seeing a lot of success with that too. But the other way we're really talking a lot about value is directly to the consumer, especially if you think about a lot of our communication right now over the past year, has to value oriented. And we're talking about the role that, you know, our portfolio plays in terms of providing flavor for pennies of serving.

Growth that we see.

Zinc.

And as we mentioned in previous calls it will take a little bit of time to get it back, but we are still making forward progress on this.

Max Gumport: And that is really having a positive impact. Plus, a lot of our content is also focusing on how consumers continue to save money by creating, let's say, for example, just larger batch sizes of foods they can have leftovers for a couple nights in the row. Or tricks and hacks like that that allow consumers to create more value and stretch the food further. That's what we see our category really playing a role in the household, especially during, you know, this kind of, you know, there's a lot of consumer concern around inflation.

Are you seeing your customers accelerate their innovation agenda to.

I'm trying to drive growth in their business.

Or is activity levels slowing down and just any color. How you think about that pipeline of new business wins kind of how would you frame that.

I would point to our performance in the Americas as an example, as to how to think about our current momentum on our flavor business.

We had really good sales growth, while we also had some volume growth and that's an example of what we're seeing.

Not only through our flavors business, but also branded foodservice and we are starting to we are growing share in a number of the.

Max Gumport: Our categories are playing a helpful role in that. So we're looking at it from a number of different angles, but I just illustrated three right there that we are hitting pretty hard during this period of time. Thanks very helpful. I'll pass that along.

Max Gumport: Thank you.

Strong categories that we participate in and we've talked about performance nutrition or.

The health and market, we see it happening there or even an alcoholic beverages.

Adam Samuelson: Our next question is from the line of Adam Samuelson with Goldman Sachs. Pleasure to hear it. Yes, thank you.

Adam Samuelson: Good morning, everyone. Morning. I guess maybe trying to take Andrew's question and maybe a slightly different kind of light. Brendan, is there any way to help frame the distribution kind of gains that you're seeing and expect to see over the incoming quarters? Anyway, to quantify kind of how we should think about total distribution growth and where that will peak from the TDP perspective into 2024. It's harder to fully see that expansion in the scanner data, and so I'm wondering if part of it is growth in certain non-measured channels or value retailers that aren't captured in Wilson. Well, Adam, just a few things around TDPs.

<unk> been able to grow a little bit of volume here, probably because of the strength of our products and technology that goes into the categories. We plan.

And so that's I think some of the context, there we're happy to be growing share ware.

<unk> believes that we have the right plans now if you look at elsewhere within flavor solutions.

Our EMEA business tends to be more heavily weighted towards the <unk> part of our.

Our customer base, they are not seeing that type of traffic and promotions that they have in let's say the prior year. So we still see a little bit of pressure on overall volumes there.

Adam Samuelson: I'm not going to be talking about what to expect in 2024 just because we'll talk about that guidance as we look at early next year. But just talking a little bit more about TDP performance, it remains an important area of focus for us, and we've been taking a lot of action to restore distribution, which we've really lost the supply over the last one or two years. I think it's an important reminder that about half of those TDP losses are a result of just proactive discontinuations that we made, and those are not likely to be restored.

Sort of that flavor part of our category, we're pleased with the performance that we've.

We have made so far this year and it's continued momentum, but nothing that they're a source or a new inflection point to share with you.

Adam Samuelson: But we are starting to see TDP growth, something which we said would start to come this year in the third quarter, and we believe that performance has improved versus like the previous two quarters of the year. And I would also just share with you that our assortment on shelf now is even more productive than it was versus recovered, so that velocity those turns that we get on shelf from that assortment there is actually even more productive, not only for McCormick, but also for the retailer, and so that's something really important to pass along.

Okay I appreciate all that color I'll pass it on thanks.

Our next questions come from the line of Steve powers with Deutsche Bank. Please proceed with your question.

Hey, great and good morning, Thank you Steve.

Hey, so I wanted to ask on.

The incremental gross margin improvement that you do.

You see in your outlook this quarter building on.

Arrange that happened last quarter as well and just if you could put a little bit.

Adam Samuelson: And we'll start to see more distribution come online as retailers reset their shelves. We're seeing a bit of that happened right now as we speak going into the fourth quarter, but we expect to see the more of that as we go into 24. So that's one, I think context around TDPs and distribution that we think provides context in color, we will continue to accelerate innovation. And that's something that we did in 2023, we'll continue to do that in future fiscal years.

Contact some detail around exactly what's driving that incremental gross margin upside question number. One question number two is as we've seen that gross margin tick up over the balance of the year. We haven't seen you change your.

Our reinvestment strategy in terms of brand marketing.

I, just wanted a little bit of color and context as to as to.

Why that isn't a source of reinvestment as you do realize that gross margin upside.

Adam Samuelson: That's what also build on the sort of the TDP momentum and distribution growth that we see. I think those are some of the points that I think that are without calling out a specific TDP member and gain to assess. We continue to see continued improvements, sequential improvement, as we look at this over time. And as we mentioned in previous calls, it will take a little bit of time to get it back, but we are still making forward progress on this. Okay, that's helpful.

Well. Thanks, Steve This is Mike I'll take that one and I'm surprised it took five questions to get to gross margin. So thanks for asking that question.

First of all we're really pleased with our gross margin performance. This year, yes, we've had improvement we had a strong third quarter you think about the things we're doing with the cost recovery through our pricing, which we've really been successful this year, the <unk> and CCI commitments, we put out at the beginning of the year, we're really happy with our performance there across both segments. That's the other thing is <unk>.

Brendan Foley: And if I could just ask a separate question on the flavor solution segment. And as you think about some of the different customer types that you have in geographies, how would you frame kind of recent and bound kind of bit activity in RFP? And contract win rates? Are you seeing your customers accelerate their innovation agenda to drive growth in their business? Or is activity levels slowing down? And I just think about that pipeline of new business wins.

Improvements are happening both in our consumer and flavor solutions side, which is really which is which is great.

As far as raising for the year as you know.

We've had good performance year to date.

Even with with some of the challenges in China are strong underlying performance hasn't really held through so.

As to why we wouldn't raise really the A&P spend I mean, we feel really comfortable where we are from A&P with our current guide.

Yes, the third quarter with <unk>.

8% and it was the highest dollar amount we've ever spent in the third quarter. So we feel we're very effective there.

Brendan Foley: How would you frame it? You know, it's point to our performance in the Americas as an example as to how to think about our current momentum on our flavor of business. You know, we had really good sales growth, but we also had some bonding growth. And that's an example of what we're seeing, not only through our flavors business, but also branded food service. And we are starting to, we are growing share in a number of the, you know, strong categories that we've participated.

They actually CPI is a topic, we get savings across all cost of goods sold but it again it on SG&A and A&P is an area, where the teams have gotten real cost savings or efficiencies on our advertising program. So it's even higher than you see.

From a dollar perspective, so I think we're confident where we are in gross margin we are building back.

Brendan Foley: We talked about performance nutrition or, you know, the health and market. You know, we see it happening there or even an alcoholic beverages. We have been seeing some some nice growth in gains in that part of our business sales. Are anything particularly unique at this point in the year versus what it was like at, you know, early in the year? No, I don't think I can point to anything that's terribly unique that we haven't already talked about before, but this has been an element of sort of continued sequential improvement of performance.

Go back to pre 19 pre COVID-19 in 2019, our gross margins were around 40% given our implied guidance this year.

Around 37%.

The interesting thing is if you look at the map on the pricing dilution that has happened it's been it's over over 500 basis point headwind to us, which you can see we're down 300 basis points. So during that time, three CCI and other things. We've built we capture some of that back which we continue to see in the future as we get back to those pre COVID-19 gross margin and <unk>.

Brendan Foley: We've been able to grow a little bit of volume here probably because the strength of our products and technology to go into the categories we plan. And so that's I think some of the context there. We're happy to be growing share. We're believe that we have the right plans. Now, if you look at elsewhere within flavor solutions, you know, in our EMEA business, tends to be more heavily weighted towards the QSR part of our core, you know, but we're our customer base.

Operating profit levels.

Let's see if I can.

Question in there about A&P to end.

Just to really kind of build on that.

And that.

We were up significantly in the third quarter I understand about 8%, but this is probably our highest historical spend rates. So we're really putting a lot more the A&P as we sort of called out and we will have a strong level again in the fourth quarter and these are going into a lot of important campaigns right now so I just wanted to reinforce a inc.

Brendan Foley: They're not seeing the type of traffic and promotions that they have in let's say the prior year. So we still see a little bit of pressure on overall volumes there. Conversely, in Asia-Pacific, our QSR business there is actually doing quite well. Customers are turning back on promotions. They're trying to drive more traffic in their stores. And so we as a result of also seeing some some nice volume growth in that part of our portfolio and flavor solutions. But dialing back to, you know, sort of that flavor part of our category, we're pleased with the performance that we've made so far this year. And it's continued momentum.

We are seeing still.

The increase in spend in that part of our.

And that line in the P&L.

Okay, that's great.

I guess.

That's helpful. Thank you, Mike So just playing back.

The various puts and takes on gross margin is it fair to say that the biggest sort of upside surprise for you over the course of the year has just been successful price realization.

Or.

Are there elements of business mix or other other other drivers there because it feels like.

Brendan Foley: But nothing that there's sort of new inflections point to share with you.

Productivity has come in solidly, but roughly in line with I think original expectations cost completion hasnt changed materially. So it seems like the buckets has to be pricing or the way I'd say it seems everything is kind of move in the right direction and we were successful getting our cost recovery. We got some pricing earlier as you can probably infer.

Steve Powers: Okay, I appreciate all that color. I'll pass it on. Thanks.

Steve Powers: Our next question comes from the line of Steve Powers with Deutsche Bank. Please do your third question. Hey, great and good morning. Thank you. So I wanted to ask on the incremental gross margin improvement that you see in your outlook this quarter building on, you know, a raise that happened last quarter as well. And just if you could put a little bit of context and detail around exactly what's driving that incremental gross margin upside question number one.

From some of our pricing numbers, so we got our pricing faster than last year, which was helpful.

Steve Powers: And question number two is as we've seen that gross margin take up over the balance of the year, we haven't seen you change your your your reinvestment strategy in terms of brand marketing. Just want a little bit of color and context as to why that isn't a source of reinvestment as as you do realize that gross margin upside. Well, thanks, Steve. This is Mike. I'll take that one. I'm surprised it took five questions to get to gross margin.

China recovery, which impacts not only gross margin or operating profit.

So we thought at this time after Q3.

Where we see us spending for the year, we felt like we had good line of sight to the commodity.

Commodity costs things like that to which gave us the comfort to to get there. The other thing too is as you think of that and when Brandon, let's talk a little bit about the strong performance of our underlying performance in things like spices and seasonings. When you look at our performance in other markets. We've had really good portfolio really good portfolio mix and some of the things we're doing around portfolio optimization.

Steve Powers: So thanks for asking that question. Now, well, first of all, really, please are the gross margin performance this year that we've had improvement. We have strong third quarter. You think about the things we're doing with the with the cost recovery through our pricing, which we really didn't successfulize this year. You know, the GLE and CTA commitment to put out the beginning of the year were really happy with our performance there across both segments.

Steve Powers: That's the other thing. These margin improvements are happening both in the consumer and flavor solution side, which is really which is which is great. As far as raising, for the year, as you know, we've had good performance here today. And even with some of the challenges in China, our strong underlying performance has really held through. So as to why we wouldn't raise really the AMP spend. I mean, we feel really comfortable where we are from AMP with our current guide.

Steve Powers: The third quarter was up eight percent and it was the highest dollar amount we've ever spent in the third quarter. So we feel very effective there. Actually, CCI is a topic, you know, we get savings across all costs of goods all together on actually an AMP is an area where the teams have gotten real cost savings or efficiencies in our advertising program. So it's even higher than you see from a dollar perspective.

The pruning low margin business. It does help gross margins also and will help us as we go into the future.

Yes, okay very good thank you so much.

Yes.

Our next question comes from the line of Matt Smith with Stifel. Please proceed with your question.

Hi, Good morning, Thank you for taking my question.

Thanks, Mike Good morning.

And then what supports the margin recovery from here.

Yes, it's a great question Matt.

A higher than that.

Great two more flavor type products.

Steve Powers: So, you know, I think we're confident where we are in gross margin. You know, we're built and back. You know, if you go back to, you know, pre-COVID in 2019, gross margins were around 40 percent. Even our employee guidance this year gets you, you know, around 37 percent. You know, the interesting thing is you look, if you look at the map on the pricing delusion that has happened, it's been, it means over 500 basis points headwind to us, which you can see were down 300 basis points.

Yes.

And the cost related to that it really been a big big.

Steve Powers: So during that time, through CCI and other things, we've built, we capture some of that back, which we continue to see in the future as we get back to those pre-COVID gross margin and operating profit levels. . Okay, thank you for that. I can pass it on. Thank you.

The challenge to us than a headwind and also the huge cost increases benefit flavor solutions. So last year, we were at 8% as you know this year with.

Robert Moskow: Next questions come from the line of Robert Moskow with TV Count.

We're looking to build back year to date were around 10%, so probably around that for the end of the year. So 200 basis point improvement this year.

Back to back.

Back to your question on dilution at the operating profit level, we've had about a 300 basis point math dilution impact on flavor solutions. So theoretically if that didn't happen I don't know if it did happen, but that 10% will become 13%. So we're about 150 basis points short of that pre 19 or pre COVID-19 margin improvement.

And things like we've done with <unk>, which we see continuing are wrapping into next year.

The dual running costs, we're having it primarily in our flavor solutions business and our U K manufacturing manufacturing facility.

It goes away, partially next year and the year after is totally gone which is great.

Continued CCI today's type of things will get us back to.

And some of the things when Brian talked about performance nutrition and beverage those of the flavor type of items.

Growing faster, we really like those they can help margin off of our whole flavors solutions portfolio, but we do like the progress we're making independent of.

Question dilution.

An overall improvement in the margin there. So we do believe we're moving in the right direction.

Okay. Thank you for that I can pass it on.

Okay. Thanks man.

Our next questions come from the line of Robert Moskow with TD Cowen. Please proceed with your question.

Hi, Thanks for the question Rob.

Good morning.

I wanted to know about the guide the implied guide for organic sales growth in fourth quarter. It looks like it's about 3% and that marks.

A substantial deceleration from the first three quarters and then even when we try to.

Look at that on a four year basis, just using like 2019 as the base.

Again, a big decline.

We're all looking at the U S retail data and Nielsen and IRI its all decelerating.

Are you taking that into account in your guide.

If so it sounds a little like.

Like a disconnect from expectations for a very strong holiday season.

Okay.

Hey, Rob just to clarify you mentioned the work number 3%.

Implied guide is in the midpoint is three 7% to 11 two.

So im not which implies 7% and a half.

Im just trying to I'm, just trying to get to your I'm, just trying to plug in a fourth quarter organic sales number.

Get to your midpoint of.

A 5% to seven six.

6% for the year, Yes, I think Rob Brendan.

Things that keep in mind, I think for the fourth quarter, our largest quarter. So.

We're not able to provide a precise estimate but I think some broad concepts to consider is we do expect some growth in China.

In consumer in the fourth quarter, if you recall, we're lapping over a pretty severe lockdown.

At that time this time a year ago overall, we still expected to have a reasonable impact from the DSD discontinuation in the Americas heavier because it's during the holiday season.

We still expect some softness in flavor solutions demand that will persist, but that will certainly be there, but we will also lapped.

<unk> is the kitchen basics divestiture as well as the consumer business exit in Russia. So those are just some.

Considerations I think when we take a look at fourth quarter sales.

Yes, I think Roger just a follow up on my point before.

On a reported basis, our implied fourth.

Fourth quarter guidance and three 7% the low end to 11, 2% that includes about a 2% FX favorable because FX was backloaded favorable this year so constant currency.

Five to five and a half range.

So im not sure where the three is coming from for the fourth quarter you mentioned there.

Maybe as a follow up with Bottomline Casey we can we can make sure. Your models. Okay. That's fine so maybe that answers. The question, Mike So youre not expecting any kind of diesel in U S retail conditions in the fourth quarter no in fact, yes.

Yes.

I believe we're having again underlying improvement.

We've mentioned this the last few quarters and we continue to progress there. Okay got it got it okay. Thank you.

Thanks.

Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Great. Thanks, so much.

I just wanted to ask a question about the renovated skus.

I think I heard you say in the prepared remarks about.

I think it's 40% of the.

The skus.

Maybe your own shelf.

Maybe just as a reminder, this.

Curious kind of.

When you think about total SKU selection it sounds like maybe it's more spice and seasoning kind of what percent is being renovated in them.

Kind of whats the.

What's the feedback so far as to why that's driving velocities.

Consumers are more attracted to different packaging or it doesn't sound like these are different skus.

Thanks for the question just to make sure.

To clarify what we said in the prepared remarks.

About 40% of those Skus are shifting into the Skus, we're talking about as part of our core herbs and spices lines. These tend to be those with straight sale items, meaning it's.

Robert Moskow: Please just use your questions. Hi, thanks for the question. Good morning. I wanted to know about the guide, the implied guide for organic sales growth in fourth quarter. It looks like it's about three percent. And that marks a substantial deceleration from the first three quarters. And then even when we try to look at that on a four year basis, just using like 2019, ask the base, it's again, you know, a big decline.

Robert Moskow: We're all looking at the US retail data in Nielsen and IRI. It's all decelerating. Are you taking that into account in your guide? If so, it sounds a little like a disconnect from the expectations for a very strong holiday season. Hey, Rob, just to clarify, I used to mention the word number three percent. You know, our implied guide is in the midpoint is three seven to eleven two. So I'm not which implies seven and a half.

Unlike human or with sentiment et cetera. So that's what we're calling the strict fill spices than.

And we have visibility to the skus that are being shipped.

Robert Moskow: I'm just trying to get to your, I'm just trying to plug in a fourth quarter organic sales number to get to your midpoint of five to seven. Yeah, I think the thing is to keep in mind, I think for the fourth quarter, it's our largest quarter. So, you know, we're not able to provide a price assessment. But I think some broad concepts to consider is we do expect some growth in China.

Not as easy to track exactly what has hit shelf yet.

And Thats really dependent on retailers' plans, but where we know it has.

There's really been an improvement in velocity.

Overall and what are the drivers is that just theres a lot of different benefits from this new package, we've talked about it before but.

It is nitrogen flush so theres even.

Again creates to retain freshness.

And the packages, 50% post consumer recycled plastics. So it also has a big sustainability benefit and just as a great appearance on the shelf overall and so.

We knew that this was a.

Strong packaging innovation, because we've launched it in other markets around the world like in EMEA.

And also it's also growing out some of the Asia Pacific too. So we have some some experience with this package and how it performs and we are seeing similar if not better velocity performance as we get started here on U S. Shelves, so that's a little bit of context around.

Robert Moskow: In consumer in the fourth quarter, if you recall, we're laughing over a pretty severe lockdown. At that time, you know, this time of year ago. Overall, we still expected there to have a reasonable impact from the DSD discontinuation in the Americas, heavier because it's during the holiday season. We still expect some softness in the solutions demand that will persist. That will certainly be there. But we will also laugh the impact of the kitchen basics, the best to chair as well as the consumer business exit in Russia.

What we're seeing from that renovation in our product line.

Yes, just to reemphasize that that 40% is really shifts.

If you can walk into a store today it might be 10% of the items are 5% or 20% depending on the stores, but it depends sometimes on their supply chain too. So we see like a good tailwind into next year from those two.

Got it okay Super Thanks, and then maybe just quickly.

Kind of Simplistically on SG&A.

Robert Moskow: So those are just some. You know, considerations, I think we take a look at fourth quarter sales. Yeah, I think, Ralph, just follow up on my point before from a reported basis or are implied fourth quarter guidance is 3.7 of the low end to 11.2%. That includes about 2% effects favorable because that's what they rule is here. So constant currency is in five to five and a half range. So I'm not sure where the 3.3 is coming from for the fourth quarter you mentioned.

Q3, you ran for total SG&A about 22% of revenues.

Clearly that's up but kind of in line ish right relative to maybe the prior four or five years as we think about Q4.

And then I guess kind of going forward is like 22% of sales is that kind of fair.

Or could there be certain quarter to quarter movement.

Yes, I mean third quarter I think.

Robert Moskow: To make it as a follow up with bot 9kc, we can make sure your model is okay. That's fine. So maybe that answers the question, Mike. So you're not expecting any kind of D cell in US retail conditions in fourth quarter. No. In fact, yeah, we believe we're having again underlying improvement. We've mentioned this the last few quarters and we've continued to progress there. Got it. Okay.

The high watermark for SG&A.

Rob Dickerson: Thank you.

We had a big incentive comp as we talked about on the call center of Comcast build back for a couple of reasons I remember last year's third quarter was way down so the incentive comp was getting adjust event. So to build back. This year was a big part of SG&A on a smaller quarter than the fourth quarter. So you got to think about it in mathematical terms, two and really that incentive comp was driven not only.

The EPS improvement with everyone in the company, which is great within our regions the mix of our regional underlying strength of our Americas and EMEA region did drive that a bit more niv or excuse me incentive comp, but also the great working capital performance and people forget that sometimes I mean were Eva economic value added.

Rob Dickerson: Our new question comes in the line of Rob Dickerson with Jeffries. Please excuse your question. Great. Thanks so much. I have to question about I heard you say in the prepared remarks about, I think it's 40% of the renovated skews maybe our own shelf. Maybe just as a reminder, this curious kind of, you know, we think about total skews selection, it sounds like maybe it's more spice and seasoning kind of what percent is being renovated and then, you know, kind of what's the feedback so far as to, you know, why that's driving velocity.

Company, we have a working capital charge component of our incentive compensation. So last year when working working capital wasn't great. We all got going for US This year are doing great.

And just coming through incentive comp. So it's just another reason.

Driving cash and it really is those type of activities to help us lever down and things like that which are really great.

So a bit more of that impact in those in the third quarter, and then brand marketing, we mentioned up 8% so really strong performance there.

Rob Dickerson: It's just consumers are more attracted to different packaging or, you know, it doesn't feel like these are different skews. Thanks. Thanks for the question. It just to, you know, make sure I clarify, you know, what we said in the prepared remarks. About 40% of those skews are shipping and the skews we're talking about as part of our core earth and spices lines. These tend to be those, those straight fill items, meaning it's on the cumin or about the cinnamon, etc.

For the year, we stick to our guidance is low single digit.

A&P.

And maybe if I could just sneak one last one in.

Uh huh.

Asia Pac.

Totally understand what you're talking about in terms of just kind of a slower China recovery.

And I think you called out maybe.

Kind of one off drivers, but maybe its more EMEA driven.

Rob Dickerson: So that's what we're calling those straight fill spices. And we have disability to the skews that are being shipped. It's not as easy to track exactly what has hit shelf yet and that's really dependent on, you know, the retail splines. But where we know what it has, there's really been an improvement in velocity overall. And where are the drivers of that? Just there's a lot of different benefits from this new package.

Kind of net net right each of pack in consumer.

Still down in the quarter, but clearly Asia Pac flavor.

Flavor solutions is doing better and I realize.

Part of your China business and consumer, but like maybe it's still somewhat foodservice. So I'm just trying to understand kind of the.

The comparison.

Between kind of.

Asia Pac consumer versus Asia, Pac flavor solutions, and what's driving the Delta Michelle Thanks.

Rob Dickerson: We talked about it before, but it is, you know, nitrogen flush. So there's even, you know, we're providing there's just greater long term freshness, you know, until you open up that package, you know, we're really securing the freshness of that product. There's sort of a nice click and snap with the cap that really kind of tells the consumer not only just through steam, but also listening. There's a real sort of snap to this closure that, you know, kind of, again, creates to retain freshness.

Well I appreciate the question there Rob on China, It's probably worth.

Impacting that a little bit.

I would say, though despite the pace of recovery in this business, having been slower than expected. We continue to believe in the long term growth trajectory.

Trajectory of that business and.

It's also when you step back on a constant currency basis, we are growing this business versus a year ago, we've grown sales in the high single digits. So.

Rob Dickerson: And the package is 50% post-consumerable cycle plastic. So it also has a big sustainability benefit. It just has a great appearance on the shelf overall. And so, you know, we knew that this was a strong packaging innovation because we've launched another market around the world like an ENEA. And also, it's also going also in Asia Pacific too. So we have some experience with this package and how it performs. And we're seeing similar, if not better, velocity performance as we get started here on U.S, shelves.

Yes, we're disappointed that the pace of recovery wasn't what we expected it to be but nevertheless, we are growing sales year over year and even despite the all the volatility since 2019.

We have grown our total China business at a 3% CAGR on a constant currency basis, which is kind of in line with the long term algorithm. So.

This is really.

An element of an economy that certainly is recovering more slowly than what we would've expected and where we see that now this kind of goes into sort of how we're thinking about flavor solutions versus consumer and part of our consumer businesses in the foodservice channel that people are just simply not necessarily going out.

Rob Dickerson: So just that's a little bit of context around, you know, what we're seeing from that renovation in our product line. Yeah, and just to reiterate that 40% is really shipped. I mean, you know, if you walk into the store today, it might be 10% of the items are 5% or 20% depending on the stores, but depends sometimes on their supply chain too. So we see like a good tailwind in the next year from this too.

Two allows the catering.

Outside dining events that we've seen in the past and Thats just been a slower recovery overall, we're also seeing that.

Rob Dickerson: Got it. Okay, super thanks. And then maybe just quickly, and kind of simplically on SGNA, you know, Q3, you ran for total SGNA, about 22% of revenues, you know, clearly that's up, but kind of in line-ish, right, relative to maybe the kind of prior or five years, you know, as we think about, you know, Q4, and then I guess kind of going forward is like 22% of sales that kind of fair, or could there be, you know, certain Q4, Q4 movement?

Also happening in retail consumer spending is just soft right now overall in China, and we're seeing that play out where we start to see and this was actually more of a change in this quarter just more of a typical promotional activity or limited time offers that we tend to see.

The <unk> segment.

Rob Dickerson: Thanks. Yeah, I mean, third quarter, I think is, you know, it was a bit of a high watermark rest, you know, we had a big incentive comp, as we talked about in the call, you know, it's everyone in the company, which is great. Within our regions, the mix of our regional underlying strength of our Americans near me, a region did drive a bit more M.I.B., or excuse me, a center comp, but also the great working capital performance.

From this part of our business.

Alright, thanks, so much.

Thank you we've reached the end of the question and answer session I will turn the call over to Terry for closing remarks.

Thank you all for joining today's call. If you have any further questions regarding today's information. Please feel free to contact me that concludes this morning's conference call. Thank you.

Rob Dickerson: And people forget that sometimes, I mean, we're an EVA economic value added company. We have a working capital charge component of our incentive compensation. So, last year when working capital wasn't great, we all got ding for it this year, we're doing great, and just coming through incentive comp. So, it's just another reason we're driving cash and really those type of activities that help us, you know, lever down things like that, which are really great.

Rob Dickerson: So, a bit more of that impact in the third quarter, and then brand marketing, we mentioned update percent, it's a really strong performance there. And for the year, we stick to our guide as a low single digit ampute. And maybe if I could just sneak one last one in. Asia pack, you know, clearly understand what you're talking about in terms of just getting a slower China recovery. I think, you know, you called out maybe, you know, a few kind of war off drivers, but maybe it's more in the driven kind of net net, right, Asia pack and consumer.

Rob Dickerson: You know, it was still down the quarter, but clearly it's a pack of flavor solutions is doing better. And I realize like part of your China business is in consumer, but like maybe it's still somewhat food service. I'm just trying to understand kind of the, you know, the comparison between kind of, you know, Asia pack consumer versus Asia pack flavor solutions and what's driving the Delta next all thanks. Well, appreciate that question there Rob on China, you know, it's probably worth, you know, unpacking that a little bit.

Rob Dickerson: I would say though, despite the pace of recovery in this business, you know, having been slower than expected, we continue to believe in the long term growth trajectory about business. And you know, it's also when you step back on a constant currency basis, we are growing this business versus a year ago, we've grown sales in the high single digits. So this, yeah, we're disappointed that the pace of recovery wasn't what we expected it to be, but nevertheless, we are growing sales, you know, year over year.

Rob Dickerson: And even despite the volatility since 2019, we've grown our total China business at a 3% keger on a constant currency basis, which is kind of in line with the long term algorithm. So this is, you know, really an element of an economy that certainly is recovering more slowly than what we would have expected in what where we see that now this kind of goes into sort of how we're thinking about flavor solutions versus consumer.

Rob Dickerson: And part of consumer business is in the crude service channel, but people are just simply not necessarily going out to a lot of the catering and outside dining events that, you know, we've seen in the past, and that's just been a slower recovery overall. We're also seeing that also happening in retail consumer spending is just soft right now overall in China, and we're seeing that play out where we start to see, and this was actually more of a change in this quarter, just more of the typical promotional activity or limited time offers that we tend to see in the QSR segment have begun to come back a little bit more.

Rob Dickerson: So that gives us some reason to believe that this is just a slower recovery than what we plan, but the fundamentals that drive that business are still there, and it's just going to take a little bit more time to get back to what we expect, you know, from this part of our business. All right, super, thanks very much. Thank you. We've reached the end of the question, the answer session.

Faten Freiha: I'll turn the call over to Faten Freiha for closing remarks. Thank you all for joining today's call. If you have any further questions regarding today's information, feel free to contact me.

Unknown Executive: That concludes this morning's conference call.

Unknown Executive: Thank you.

Q3 2023 McCormick & Co Inc Earnings Call

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