Q4 2023 McCormick & Co Inc Earnings Call

Good morning. This is bought them break huh VP of Investor Relations. Thank you for joining today's fourth quarter earnings call to accompany this call. We've posted a set of slides on our IR website IR Don Mccormack dotcom.

Speaker Change: With 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 measures and the related reconciliations to the GAAP results are included in this morning's press release.

Brendan Foley: And five <unk>.

Kasey Jenkins: In our comments certain percentages around it.

Kasey Jenkins: Please refer to our presentation for complete information.

Kasey Jenkins: 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 on slide two for more information.

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

Brendan: Good morning, everyone and thank you for joining US let me start by sharing what we will cover in this morning's call.

Brendan: I will begin with an overview of our fourth quarter year over year results focusing on top line drivers.

Brendan: Next I will briefly reflect on our full year 2023 performance and share our plans and building blocks to improve volume in 2024.

Mike will then go into more depth on the fourth quarter financial results and the details of our 2024 financial outlook.

And finally before your questions I will share some closing comments, including our key priorities as I begin my first full year as CEO.

Brendan: Turning now to our results on slide four.

Brendan: I want to start by acknowledging that our top line results for the fourth quarter did not meet our expectations as volume trends decelerated relative to the third quarter.

Brendan: There was greater than expected pressure on the consumer that drove changes in their behavior, which impacted our growth.

Brendan: We did however, see sequential improvement in several key areas within our portfolio.

Brendan: Underscoring that our strategies and initiatives are working as I will highlight in a moment.

Brendan: That said, we do recognize that consumers are exhibiting even more value seeking behavior.

Brendan: They are increasing shopping trips, reducing basket size and making just in time purchases, creating further uncertainty in the consumer environment.

Brendan: I want to be clear that we are dedicated to improving volumes. We have refined our plans and are prioritizing our investments to drive impactful results and returned to differentiated and sustainable volume led growth.

Brendan: And you should expect improvement over the coming year and into 2025 and beyond.

Now, let's review, our fourth quarter performance in more detail.

Brendan: Turning to slide five.

Brendan: In our fourth quarter sales increased 3%, including a 1% favorable impact from currency and constant currency sales grew 2% reflecting.

Brendan: A 5% contribution from pricing, which was partially offset by a 3% decline in volume and product mix.

Brendan: As expected the benefit from the China recovery was fully offset by the impact of our strategic decisions to exit DSD direct store delivery of our bag. Hispanic spices in the Americas.

Brendan: And the exit of a private label product line and the divestiture of a small canning business, which was part of our Geos flavor solutions operations.

Brendan: EBITDA.

Brendan: Starting with where results differed from expectations.

Brendan: In Americas consumer we expected volume declines in the prepared food categories that we participate in like frozen and Asia.

Brendan: The decline was greater than we anticipated due to the more challenging macro trends and was broadly consistent with the performance of these categories.

Brendan: For mustard in the Americas extremely low price points for private label impacted our consumption and is driving down category dollars. We plan to improve our volume trends in 2024 by narrowing price gaps increasing promotions and importantly through distribution wins.

Brendan: Recipe mixes in the Americas showed increased stress from crossing key price points due to previous pricing actions. We have a plan to address these to return to volume growth.

Brendan: In our flavors product category some of our consumer packaged food group customers experienced greater softness in volumes within their own business.

Brendan: More than we expected in both the Americas and EMEA.

Brendan: Yeah.

Brendan: Finally, our growth quick service restaurants, and flavor solutions was impacted by slower than expected restaurant traffic in EMEA and Asia Pacific.

Brendan: Within Asia Pacific some of our customers are experiencing boycott in southeast Asia related to geopolitical events.

Kasey Jenkins: We are monitoring this situation and anticipate continued softness in these customers volume to continue into 2024.

Kasey Jenkins: Turning to what met our expectations in the quarter.

Kasey Jenkins: We drove volume growth for a second quarter in a row at Americas spices and seasonings.

Kasey Jenkins: In branded foodservice, our growth was strong across the portfolio driven by volume.

Kasey Jenkins: In Asia Pacific Consumer a recovery from Covid related disruptions in China was in line with the expectations, we had at the beginning of the quarter.

Kasey Jenkins: Outside of China for the quarter, our volume growth was strong across all categories.

Kasey Jenkins: In EMEA consumer consistent with the third quarter pricing actions contributed to double digit growth, which pressured volumes.

Kasey Jenkins: Now I'd like to further build.

Kasey Jenkins: And some of the initiatives within our growth levers, notably increased brand marketing targeted price gap management, new products and packaging renovation, which.

Kasey Jenkins: Which have already proven to strengthen our volume trends in key areas. We have intentionally chosen our investments in these areas as we believe they will generate the most significant returns we are confident our investments will continue to drive improved results in 2024.

And we expect to invest more positioning us further for success in 2025 and going forward.

Kasey Jenkins: First American spices, and seasonings as a priority investment area for us given our category leadership and its profitable growth potential for both Mccormick and our customers.

Our initiatives are driving U S branded sales volume growth with strengthened during the fourth quarter and holiday performance.

Kasey Jenkins: And looking at consumption, we continued to sequentially improve share trends again in the fourth quarter, both in terms of dollars and units.

Kasey Jenkins: We continue to activate initiatives the price gap management innovation packaging and a meaningful step up in brand marketing support for Americas, spices, and seasonings and the results have begun to materialize demonstrating that we have the right plans and are taking the right actions to grow in this attractive category.

Kasey Jenkins: The renovation of our U S core everyday urban Spice portfolio, which began in the second quarter of 2023 continues to rollout according to plan.

Kasey Jenkins: At the end of the fourth quarter, we had shipped about 75% of our renovated SK shoes, and notably products that have fully transitioned on shelf experienced stronger velocity.

Kasey Jenkins: We are pleased with our results to date, which increase our confidence that this renovation will be a strong contribution to our growth in 2024, as our customer shelves continued to transition.

Kasey Jenkins: We are making progress on restoring distribution that was lost due to the past supply issues we.

Kasey Jenkins: We have secured wins and new distribution.

We expect to largely start seeing the impact of our actions in our results mid 2024, coinciding with most of our customers shelf resets.

Kasey Jenkins: Overall, we have a robust set of initiatives in flight and anticipate making progress throughout the year.

I would expect growth and share gains in units and volume to lead our trends.

Kasey Jenkins: Spending a moment on spices and seasonings in other key markets similar initiatives as in the U S are driving volume growth and share gains in Canada, France and Australia.

Kasey Jenkins: We also renovated our spice and herb portfolio with southeast Asia with the same innovative packaging as the U S and EMEA and began shipping the new products in the fourth quarter.

Kasey Jenkins: We are supporting this transition with increased marketing spend in the first quarter.

Kasey Jenkins: Next in branded foodservice, we achieved strong volume growth across all customer segments.

Kasey Jenkins: Our foodservice operators continue to expand our value menu options and they are turning to our products to deliver great taste for a fraction of their costs.

Kasey Jenkins: We drove share gains in spices, and seasonings as well as our hot sauce share of tabletop with expanded distribution new products customer wins and increased menu penetration as well as our expertise in heat.

Kasey Jenkins: <unk> continues to be a growth accelerator globally for total Mccormick outpacing the rest of the portfolio as customers and consumers alike continue to drive demand in this flavor profile.

Brendan Foley: New products contributed to fourth quarter growth.

Brendan Foley: For instance, in the U S. Our cholewa salsas and the Mexican aisle are building distribution and bringing new consumers to the category and our branded foodservice items, Frank Smiled wing source and Frank's Nashville Hot continued to perform well.

Brendan Foley: In the UK and Australia, we are driving hot sauce category growth with Cholewa gaining momentum on shelf.

In the U S. We secured new hot sauce distribution during the quarter and in the first quarter, we are launching new Frank's red Hot dips and popular flavors and a squeeze bottle format as well as our national launch of brakes Dill pickle.

Brendan Foley: We are well positioned going into our Super Bowl merchandising period.

Kasey Jenkins: In summary, our investments in the key areas I, just highlighted favorably impacted both our volume and margin performance for the quarter.

Kasey Jenkins: Moving to gross margin, we are pleased with our performance, which continued to improve as the year progressed, our results reflect the effective price realization the optimization of our cost structure.

And favorable product mix, driven by our portfolio optimization and focus in key areas.

Kasey Jenkins: We are confident in our ability to return to our historical margin profile.

Kasey Jenkins: In the near term, we will use improvements in our profitability to fuel continued investments in our business to drive our topline.

Kasey Jenkins: We are in a strong position to benefit from the virtuous flywheel of margin expansion given the work that's been done throughout the business.

Kasey Jenkins: And we are able to intentionally focus our investments on areas that we expect will have the greatest impact on improving volume performance and driving sustainable profit growth.

Kasey Jenkins: Reflecting on our full year 2023 performance I am proud of the progress we've made in advancing our business in the right direction and our team is focused on returning to our long term growth algorithm strengthening our margins significantly improving our cash flow paying down our debt and reducing our leverage ratio.

Kasey Jenkins: All have put mccormick in a position of strength to further invest with a focus on growth.

Kasey Jenkins: Our foundation is strong we have proven and powerful brands and the results, we're seeing from our refined and strengthened plans provide confidence in the effectiveness of our strategies and investments.

Kasey Jenkins: Our initiatives will take time to materialize.

Kasey Jenkins: And we expect volume trends to improve throughout the year and volume growth during the second half.

Kasey Jenkins: Notwithstanding any new macroeconomic headwinds.

Kasey Jenkins: The pace of margin recovery to historical levels will take time as our focus is on investing to drive sustainable sales growth to generate quality earnings for years to come.

Kasey Jenkins: I also want to highlight on share performance that we are approaching our plans differently with an even greater competitive posture and more intentionality towards driving growth in our key categories.

Kasey Jenkins: Now, let me highlight the ways in which we will drive growth through category management brand marketing new products, our proprietary technologies and our differentiated customer engagement.

Starting in our consumer segment with category management, where a key capability as revenue management, we have been building our disciplined revenue management for several years and have a history of optimizing pricing on shelf to benefit both mccormick and the retailer.

Kasey Jenkins: As you would expect this has become even more important in recent years.

Kasey Jenkins: In the current environment, we're taking a surgical approach to managing our price gaps to private label and branded competitors.

Kasey Jenkins: Accelerating our efforts across various products and are seeing results.

Kasey Jenkins: In our spices and seasonings category, we selected individual items, we believe would be the most responsive based on the elasticities we were experiencing.

For instance, in our iconic black pepper and vanilla product lines. Our actions proved to be effective we are recapturing buyers increasing household penetration and are driving profitable volume growth that is outpacing the category volume growth in these product lines.

As I mentioned earlier, we crossed key price points in Americas recipe mixes and are also leaning into our revenue management execution. In this category for example in the fourth quarter, we focused on greatly as a key holiday items, which drove results contributing to a successful holiday season, we expect to see further.

Kasey Jenkins: Results from our actions as we work through the portfolio.

Kasey Jenkins: Across all markets, 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 use innovation, including price pack architecture to drive growth. These.

Kasey Jenkins: These investments were making price gap management result in greater volumes and improved margins over time.

<unk> customers that are adopting our recommendations are seeing better category performance and Mccormick is driving volume and share growth in their respective businesses.

We are prioritizing brand marketing connecting with consumers and fueling growth with our increased investments we have a history of investing behind our brands and did so again in 2023.

Kasey Jenkins: We planned for a strong start to 2024 with aggressive first quarter brand marketing investments, which are well underway.

We expect a significant increase for the year concentrated to the first half we will continue to invest across various channels. We plan to further drive household penetration and increased by rates with additional focus of retail media.

Our first quarter plans included increased Christmas holiday campaigns in all regions, increasing our value focused messaging for our everyday spices and seasonings and recipe mix in the U S. Also supporting our packaging renovations that I mentioned earlier in both the U S and southeast Asia.

Kasey Jenkins: And promoting our new products in EMEA.

Kasey Jenkins: Turning to new products, which are a key growth driver in both our consumer and flavor solutions segments.

Kasey Jenkins: In the consumer segment, our 2023 launches are expected to substantially contribute to growth in 2024.

For instance in EMEA, we are thrilled with the early results from a range of Schwartz seasonings and recipe mixes that we launched with not yet Hussein.

Kasey Jenkins: British celebrity chef as we entered the fourth quarter we.

Kasey Jenkins: We are expanding our household penetration and bringing in new and yogurt households into the brand. The recipe mixes in this range contributed along with other new products and expanded distribution through our fourth quarter growth in UK recipe mixes, which was double the category rate.

Kasey Jenkins: In flavor solutions collaborating with our customers on innovation continues to be a key driver of success.

Brendan Foley: Across the portfolio our customers continues to focus on innovation to meet consumers' needs. We are winning in flavors with better for you products and on trend flavors and in branded foodservice with our heat platform and value oriented products for foodservice operators.

Brendan Foley: We are pleased with our 2023 performance from new products, which contributed to our sales growth and accelerated compared to the prior year as we expected.

Brendan Foley: Importantly, we have a strong lineup of new products spanning heat freshness value convenience and flavor exploration in our consumer segment for 2020 for which we will share more about at Cagny in February.

Brendan Foley: And in flavor solutions. We are also carrying a robust pipeline of new products into 2024 positioning Mccormick and our customers for success.

Brendan Foley: We are leveraging our proprietary technologies in flavor solutions to support our innovation to.

Brendan Foley: To win share in attractive high growth categories and to attract new customers.

In addition, with our differentiated customer engagement approach, we are intentionally targeting a mid market customer base, who are category leaders in high growth innovators as well as diversifying our customer base to drive share gains across our portfolio and profitable growth.

Brendan Foley: Our actions are yielding results.

Brendan Foley: For instance, in the fourth quarter, our volume growth in performance nutrition significantly outpaced the market.

Brendan Foley: And in the beverage category, we drove sales growth, even though the category decelerated.

Brendan Foley: Partially by targeting high value and high growth segments within beverage.

Brendan Foley: With our flavor leadership and continued investments we are fully committed to vigorously fuel category growth.

Brendan Foley: With our differentiated portfolio.

We have confidence in our plans, which will build throughout the year and yield volume growth during the back half of the year, we are dedicating more resources to categories, where we have the right to continue to win.

Brendan Foley: We're seeing our actions drive momentum and solid results in areas, where we have focused.

Brendan Foley: We believe that the execution of our growth plans will be a win for consumers, our categories, and Mccormick, which will differentiate and strengthen our leadership.

Brendan Foley: Now before I turn it over to Mike to provide more details on our fourth quarter financial performance and 2024 outlook I would like to comment on recent changes in our board of directors.

Michael R. Smith: <unk>, who has served as a director for 27 years will be retiring from the board as of the end of March I am grateful for his service and contributions which is significantly benefited mccormick.

Michael R. Smith: And we will miss him.

Michael R. Smith: I also want to welcome Terry Thomas who has joined our board Terry brings extensive global consumer product industry expertise through his current role as chief growth officer for flowers foods and his experience at Unilever prior to that.

I look forward to working with Harry and the contributions he will make to Mccormick.

Thanks, Brendan and good morning, everyone.

Starting on slide 10, our top line constant currency sales grew 2% compared to the fourth quarter of last year, reflecting 5% of pricing benefit offset by a 3% volume mix declined.

As Brendan mentioned, our volume performance was impacted by changes in consumers behavior and.

In our consumer segment constant currency sales were flat, reflecting a 4% increase from pricing actions offset by a 4% volume decline the.

Brendan Foley: The benefit from a recovery in China and Hispanic product DSD exit to optimize margins netted to no overall impact of the pain of total consumer segment.

Brendan Foley: On slide 11 consumer sales in the Americas decreased 4% in constant currency.

Kasey Jenkins: With the DSD exit I, just mentioned driving 2% of that decline.

The remaining sales decline was due to lower volume and product mix in several areas of the portfolio, including as Brendan mentioned prepared foods mustard and recipe mixes, which was partially offset by volume growth in spices, and seasonings, which was driven by our investments.

In EMEA constant currency consumer sales increased 9% with a 13% increase from pricing actions, partially offset by a 4% volume decline.

Kasey Jenkins: Sales growth was broad based across markets and categories. We remain in an elevated pricing environment in EMEA, and we expect volumes to improve as pricing wanes in 2024.

Kasey Jenkins: Constant currency consumer sales in the APAC region increased 31% driven by a 26% volume increase primarily due to the expected recovery in China.

Side of China, We also drove double digit sales growth with strong volume and broad based growth across all categories and markets.

Kasey Jenkins: Turning to our flavor solutions segment on slide 14.

Brendan Foley: We grew fourth quarter constant currency sales, 5%, reflecting a 7% increase from pricing offset by a 2% decrease from volume and product mix our growth momentum in this segment was exceptional through the third quarter and even with the deceleration in the fourth quarter, our sales growth for the year was strong.

Brendan Foley: In the Americas flavor solutions constant currency sales rose, 6% driven by pricing as volume and product mix was comparable to the prior year.

Brendan Foley: Sales growth was broad based across the portfolio and led by branded foodservice.

Brendan Foley: In EMEA constant currency sales increased 2% with pricing actions contributing 14%, partially offset by a 3% impact from the divestiture of the <unk> business, a 9% decline in all other volume due to softness in some of our customers' volumes with their within their own businesses.

Brendan Foley: And a 1% impact from exiting a private label product line.

Brendan Foley: In the APAC region flavor solutions sales grew 5% in constant currency with a 6% contribution from pricing offset by a 1% volume decline.

Brendan Foley: Our business in China delivered strong growth.

Brendan Foley: Outside of China sales were negatively impacted by geopolitical boycotts and some of our quick service restaurant customers as Brendan mentioned.

Brendan Foley: As seen on slide 18, gross profit margin expanded 320 basis points in the fourth quarter versus the year ago period.

Brendan Foley: Drivers in the quarter included favorable product mix in both segments, and our CCI and <unk> programs as well as effective price realizations. Additionally.

Brendan Foley: Additionally, we lapped elevated costs related to some discrete issues in flavor solutions operations.

Kasey Jenkins: Overall, we ended 2023 meeting the cost recovery plans, we set as we entered the year.

We are pleased with our gross margin expansion for the quarter and the year.

Now moving to slide 19, selling general and administrative expenses or SG&A increase relative to the fourth quarter of last year as higher employee incentive compensation expenses were partially offset by CCI and <unk> cost savings.

Kasey Jenkins: And marketing also increased compared to the fourth quarter of last year, and we expect to invest further in 2024 to support our brands.

As a percentage of net sales SG&A increased 190 basis points.

Brendan Foley: Sales growth and gross margin expansion, partially offset by higher SG&A cost resulted in a constant currency increase in adjusted operating income of 11% compared to the fourth quarter of 2022.

In constant currency adjusted operating income in the consumer segment was flat and in flavor solutions adjusted operating income increased 73% in constant currency.

Brendan Foley: We remain committed to restoring flavor solutions profitability and in the fourth quarter as expected we drove significant margin expansion versus prior year in this segment.

For the total company, we expanded our adjusted operating margin by 130 basis points in the fourth quarter and 100 basis points for the year, which reflects our commitment to increase our profit realization and positions us well to make investments early in 2024 to fuel top line growth.

Brendan Foley: Turning to interest expense and income taxes on slide 20.

Brendan Foley: Our interest expense increased significantly over the fourth quarter of 2022, driven by the higher interest rate environment.

Brendan Foley: And quickly touching on tax our fourth quarter adjusted effective tax rate was 22, 3%.

Brendan Foley: Paired to 23, 1% in the year ago period.

Both periods were favorably impacted by discrete tax items.

Brendan Foley: With a more significant impact this year.

Brendan Foley: Our income from unconsolidated operations in the fourth quarter reflects strong performance in our largest joint venture Mccormick de Mexico.

Brendan Foley: We are the market leader with our Mccormick branded mayonnaise malaise and mustard product lines in Mexico, and the business contributes meaningfully to our net income and operating cash flow results.

Brendan Foley: At the bottom line as shown on slide 22 fourth quarter of 2023 adjusted earnings per share was <unk> 85.

Brendan Foley: As compared to 73 for the year ago period the.

Brendan Foley: The increase was attributable to higher operating income driven by gross margin expansion and the results from our Mccormick to Mexico joint venture I just mentioned.

On slide 23, we've summarized highlights for cash flow and the year end balance sheet.

Brendan Foley: Our cash flow from operations was strong in 2020 312 billion near.

Brendan Foley: Nearly double our cash flow of $652 million in 2022.

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

Brendan Foley: We returned $419 million of cash to our shareholders through dividends and used $264 million for capital expenditures in 2023.

Brendan Foley: Our capital expenditures include projects to increase capacity and capabilities to meet growing demand advance our digital transformation and optimize our cost structure.

Our priority remains 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.

Brendan Foley: We remain committed to a strong investment grade rating.

Brendan Foley: We expect 2024 to be another year of strong cash flow driven by profit and working capital initiatives.

Brendan Foley: We are well positioned to continue paying down debt and coupled with ending 2023 with a leverage ratio slightly above our 2024 year end target of three times, we are pleased to be deleveraging faster than expected.

Now turning to our 2024 financial outlook on slide 24.

Our 2024 outlook reflects our prioritize investments in key categories to strengthen volume trends and drive long term sustainable growth.

While appreciating the uncertainty of the consumer environment.

Brendan Foley: We are well positioned with our cost savings programs to fuel investments for volume growth.

Brendan Foley: As well as generate operating margin expansion.

Brendan Foley: The balancing of margin expansion and investments to drive growth is critical to our success not only in 2024, but also into 2025 and beyond.

Brendan Foley: As we remain committed and confident in our long term algorithm.

Brendan Foley: Turning to the details first currency rates are expected to unfavorable impacts sales adjusted operating income and adjusted earnings per share by approximately 1%.

Brendan Foley: On the topline, we expect constant currency net sales to range between a decline of 1% to growth of 1%.

Brendan Foley: We expect a favorable impact related to the wrap of last year's pricing actions most significantly in the first half partially offset by a price cap management investments that will drive volume growth.

Brendan Foley: We expect several factors to impact our volume and product mix over the course of the year.

First we expect to drive improved volume trends as the year progresses through the strength of our brands any intentional and targeted investments we are making our initiatives will take time to materialize and we are expecting to return to volume growth during the second half of the year, notwithstanding any new macroeconomic headwinds.

Brendan Foley: We have made strategic decisions to optimize our portfolio for profitable growth that will also impact volumes during the year.

Brendan Foley: We decided to exit DSD of our bags. Hispanic spices in Americas consumer and to exit of private label product line in EMEA flavor solutions, both will impact the first quarter.

Brendan Foley: And we divested the <unk> business, which will impact us through the third quarter.

Brendan Foley: We expect to continue to prune lower margin business through the year as we optimize our portfolio.

The impact of which will be reflected within the natural fluctuation sales.

And finally in China, our food away from home business, which is included in APAC consumer is expected to be impacted by slower demand in the first half of the year and as such we expect China consumer sales to be comparable to 2023 for the full year.

Brendan Foley: While we recognize there has been volatility in demand in China. We continue to believe in our long term growth trajectory of our China business.

Brendan Foley: Moving to gross margin our 2020 for gross margin is projected to range between 50 to 100 basis points higher than 2023.

Brendan Foley: This gross margin expansion reflects favorable impacts from pricing product mix and the cost savings from our CCI and <unk> programs, partially offset by the anticipated impact of a low single digit increase in cost inflation and our increased investments. Additionally, we expect to begin reducing our dual running costs related to our transition to the new <unk>.

Brendan Foley: Labor solutions facility in the UK in the back half of the year.

Brendan Foley: Moving to adjusted operating income, we expect 4% to 6% constant currency growth.

Brendan Foley: This growth is projected to be driven by our gross margin expansion as well as SG&A cost savings from CCI and <unk> programs, partially offset by our investments to drive volume growth, including brand marketing.

Brendan Foley: We expect our brand marketing spend to increase high single digits in 2024, reflecting a double digit increase in investments, partially offset by CCI savings and we expect our increased investments in brand marketing to be concentrated in the first half of the year and weighted more to the first quarter.

Overall based on the flow through of our volume expectations and the timing of our investments we expect our profit to be less robust than the first half and anticipate strong profit growth in the second half of the year.

Our 2023 adjusted effective income tax rate projection of approximately 22% is based upon our estimated mix of earnings by geography, as well as factoring in discrete items.

We expect our rate to be higher in the first half of the year compared to the second half of the year.

We expect a mid teens increase in our income from unconsolidated operations reflect reflecting the strong performance, we anticipate and Mccormick to Mexico.

Brendan Foley: To summarize our 2024 adjusted earnings per share projection of $2 82.

Brendan Foley: To $2 85.

Brendan Foley: It reflects a 4% to 6% increase compared to 2023 or 5% to 7% in constant currency.

Brendan Foley: As Brendan noted we are dedicated to improving volumes, we're prioritizing our investments to drive impactful results and returned to differentiated and sustainable volume led growth.

Brendan Foley: We remain confident in the underlying fundamentals of our business and delivering on the profitable growth reflected in our 2024 financial outlook.

Brendan Foley: Thank you, Mike before moving to Q&A I would like to provide some closing comments on slide 25.

Michael R. Smith: Our business is moving in the right direction, we strengthened our margins significantly improved our cash flow and our deleveraging ahead of expectations.

From a topline perspective volume trends improved sequentially through the third quarter, but fourth quarter performance was disappointing.

Michael R. Smith: Parts of our portfolio grew underscoring that our strategies and initiatives are working.

In areas that were challenged we know the drivers and are addressing those that we control.

Kasey Jenkins: And combined with the initiatives we have in place we fully expect we will drive improved trends and build to volume growth during the second half of 2024.

Kasey Jenkins: We are committed to recovering our margins in both segments to historical levels, while making investments to drive sustainable topline growth.

The fundamentals that have driven our historical performance remain in place and we are as diligent as ever and driving value for our employees consumers customers and shareholders in 2024 and beyond.

Kasey Jenkins: I am excited for the year ahead, which will be my first full year as CEO I plan to drive an ambitious agenda with greater competitive posture and more intentionality that capitalize on our strong business fundamentals as well as the value of our brands and capabilities that have driven our past success.

Kasey Jenkins: Mccormick is a growth company a global leader in flavor with a long term orientation and a strong culture.

Kasey Jenkins: I am committed to advance our leadership and our differentiation.

Kasey Jenkins: Our strategic pillars growth performance and people remain consistent.

Kasey Jenkins: <unk> energized to further incorporate my mark on our growth plans.

Kasey Jenkins: In a fast changing global environment, we need to build on our competitive strengths and opportunities to remain a differentiated market leader.

Kasey Jenkins: As such I would like to share the five priorities that the entire Mccormick organization has rallied behind as we enter 2024.

Kasey Jenkins: <unk>.

Kasey Jenkins: Strengthen our global leadership in core categories.

Kasey Jenkins: That means growing volume and market share and herbs, spices, and seasonings and condiments strengthening our leadership in heat and increasing the global scale of our flavors business and expanding our branded foodservice business.

Kasey Jenkins: Second drive profitable growth and higher returns on investments, we want to restore the operating margins. We have lost the last several years, but importantly, do so in a measured way using our cost savings and operating leverage to fuel top line growth in the near term that will drive sustainable profit for years to come.

Kasey Jenkins: Third accelerate our digital transformation to enhance how we serve consumers and customers to work faster and more efficiently and to strengthen decision, making by further leveraging data and insights.

Kasey Jenkins: <unk> continued.

Kasey Jenkins: Continue to elevate our power of people culture.

Kasey Jenkins: And build the next generation of leaders in capabilities that will drive Mccormick success, well into future years and finally all of these contributed to our fifth priority, which is to strengthen and expand our system of competitive advantages to make mccormick, even more effective in the marketplace.

Kasey Jenkins: Our advantages are critical to ensuring we deliver on our growth potential.

Kasey Jenkins: Simply put I am committed to harnessing the collective expertise of our talented Mccormick team with a renewed sense of urgency and speed to deliver on these priorities, resulting in long term sustainable profitable growth that will be industry leading.

While 2024 is an important year of investments we are confident in our capabilities and enthusiastic about some early signposts of success.

Kasey Jenkins: And we are committed to returning to the type of growth that investors expect for Mccormick.

Kasey Jenkins: Foundation has been laid and building blocks are in place and I look forward to sharing more about them at Cagny in February.

Kasey Jenkins: As I said I am excited for the year ahead, and delivering on our long term objectives.

Mccormick: Finally, before turning to your questions I want to recognize Mccormick employees around the world for their contributions in 2023 and the momentum they are carrying into 2024 and reiterate my confidence that together, we will drive the profitable growth reflected in our 2020 for outlook.

Mccormick: Now for your questions.

Mccormick: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue for participants using speaker equipment it may be necessary.

Mccormick: To pick up your handset before question Mr. Keyes.

Mccormick: In the interest of time, we ask that you each keep to one question and one follow up thank you.

Mccormick: Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Mccormick: Great. Thanks, so much good morning, everybody.

Andrew Lazar: Good morning, Andrew.

Andrew Lazar: Maybe to start off given where you ended 2023 and coupled with your commentary on investing in the business I guess can you tell us a bit about how youre thinking about the volume about volume as you progressed through 24, and I guess, how you would be positioned going into 'twenty five.

Andrew Lazar: Well Andrew Thanks for the question. So let me start by commenting on how we ended 22 from a volume perspective <unk>. The fourth quarter was below our expectations there were bright spots.

Andrew Lazar: Because of our actions are working in a number of categories that are critical for us and for the challenging areas. We know what the issues are and I am pleased with the speed and urgency with which the team is addressing them.

Andrew Lazar: I guess just to step back pre pandemic, we consistently drove volume growth across our business in those segments.

Andrew Lazar: And the macro dynamics over the last several years Disruptiveness and so we see 2024 is an important moment to get back there as soon as we can.

Kasey Jenkins: We do have a bias towards even greater investment on the business and as I've said, we are approaching our plans differently.

Kasey Jenkins: With even greater.

Kasey Jenkins: Competitive posture, greater intentionality towards driving volume growth share in those key in really attractive categories.

Kasey Jenkins: I think where we stand at this point in 2024, and as we appear to be moving beyond those macro dynamics yet at the same time, we recognize the uncertainty of the environment.

Kasey Jenkins: And therefore, I'm, taking a cautious view on that outlook.

Kasey Jenkins: From a consumption standpoint, and do you expect to exit 2024 in a stronger position and how we exited in 2023.

Andrew Lazar: And importantly, we're also entering 2024 inhibition of strength in terms of our ability to invest in the business and expand margins.

So we're able to essentially focus those investments on areas that we expect we will have the greatest impact on improving volume performance in driving system.

Andrew Lazar: Sustainable profit growth.

Andrew Lazar: We expect our volumes to improve as we progress through the year and to drive the volume growth during the second half.

Andrew Lazar: This momentum is expected to continue into 2025, notwithstanding any new surprises on sort of the macroeconomic headwinds that might be out there.

Andrew Lazar: And I believe our investments will drive quality earnings growth and we will put us on a trajectory on.

On that long term algorithm.

Andrew Lazar: So those are those the way that's the way we're thinking about exiting 'twenty three I was thinking about 'twenty four and as we go into 'twenty five.

Andrew Lazar: Thanks, and then I guess a good a good segue to that is how is it you are able to make investments to drive the top line and yet still improve margins I was hoping you could help us a bit with that perspective. Thank you well you know as I said, we're entering 24 in a position of strength effort. After navigating these dynamics over the last several years and then turn it over to Mike just to give some context.

Andrew Lazar: <unk>.

Michael R. Smith: Let me wrap up with a few other thoughts yeah. Good morning, Andrew as.

Andrew Lazar: As you saw from our results we ended the year with <unk>.

Michael R. Smith: <unk> operating margin performance and for the full year up 100 basis points.

Andrew Lazar: A big a big key to our recovery was recovering the cost increases through pricing obviously 'twenty.

Andrew Lazar: 20% cost increase is two years ago over 10% last year, there was a big job to do that so we're able to do that in 2023, which helped our margins our CCI and Joey programs, we've talked about a lot really.

Andrew Lazar: Really performed and give us strong momentum frankly into 2024.

Andrew Lazar: 2024, as you think about this year, we're showing some margin improvement about 80 basis points.

Andrew Lazar: And with low single digit inflation, and you think about four or five years ago. When we had low single digit inflation.

Andrew Lazar: CCI really works for US you take a little bit of pricing and we're having some pricing wrap in 2024, and then you can decide what to do with CCI and CCI. Some of it drops to the bottom line through margin improvement, we're making those increased revenue price.

Andrew Lazar: Price cap investments, which we've always done some degree of that but also our brand.

A&P up double digits as it is another way we are using that CCI. This year. So it's kind of a sweet spot for us at low single digit inflation environment.

Andrew Lazar: As we think about and the portfolio optimization, we've talked about last year, which can be a bit of that contingent continues into this year. So again, helping drive our margins up we want to recover over time. The gross profit margins, we have pre pandemic, but we're doing it judiciously.

Michael R. Smith: Hey, Thanks, so much Mike said on.

Michael R. Smith: <unk> services.

Brendan Foley: This portfolio optimization, we really do see that work. So we did make a couple of attention to lose as you know naturally I think allowing us to invest even more in the part of the portfolio, which we know will be the strongest in.

Michael R. Smith: And we didn't make a lot of targeted investments of 23, so that's yielding results, we'd like where that's going.

Kasey Jenkins: And it's achieving.

Andrew Lazar: High ROI from that is carrying us into 'twenty four.

Andrew Lazar: I do believe this intentional investments those categories that are core to us will really be the biggest drivers of profitable growth.

Andrew Lazar: And we should see that margin accretion from that mix of sales. So we really do believe we're operating from position of strength there.

Andrew Lazar: Thanks, so much.

Andrew Lazar: Yes.

Andrew Lazar: Thank you. Our next question comes from the line of Ken Goldman with Jpmorgan. Please proceed with your question.

Hi, good morning, everybody.

Andrew Lazar: Good morning.

Andrew Lazar: I wanted to ask about consumer Americas.

Andrew Lazar: In particular, you spoke today about managing price gaps, maybe a bit more tightly ahead.

Andrew Lazar: We started to hear from some other food producers that in the U S. Maybe some promotional lifts aren't working quite as well as expected I guess I was just curious if this is a dynamic you've experienced as well and I really am trying to get a sense just how much more investment is needed to narrow the price gaps you mentioned and if in general really.

Andrew Lazar: Consumer behavior in the U S is in some way more difficult to navigate that than what it's been in past challenging times or kind of pretty much what you expect to see as consumers.

Andrew Lazar: While it's a little bit.

Andrew Lazar: Okay.

Andrew Lazar: Kickoff.

Andrew Lazar: A couple of questions in there the first I think I had to do with just promotional lifts and what we're seeing.

Andrew Lazar: And I'm not necessarily trying to compare to the comments of other companies, but what we're seeing right now in our business. Today is we're not seeing huge declines or sort of reduced.

Andrew Lazar: Significant listened promotion, but there is an important consideration there which is.

Andrew Lazar: We're really a heavy base business, we don't have a current.

Andrew Lazar: On a percentage of consumption.

Andrew Lazar: We're in the 90% range in terms of your base consumption and the rest is really coming through.

Andrew Lazar: Promotions, so we're not overly reliant there and I would just say that it's probably an area that I don't know that its fair to drive ton a correlation between our performance and others now.

<unk> price gap management in terms of how we're approaching that we're looking across our portfolio and just in the case of like spices and seasonings is a really broad portfolio with many subcategories underneath there in each and every item.

Andrew Lazar: Can you take <unk> efforts.

Brendan Foley: Montreal steak, they all have different price elasticity.

Brendan Foley: Where the consumer is willing to go so we have been surgically looking at this at a SKU level.

Brendan Foley: To make sure that we are.

Brendan Foley: Doing the right thing to really drive overall growth in volume and unit consumption.

Brendan Foley: So that's allowed us to really I think.

To be very very sharp about how we drive this investment in a targeted way to make sure that we are starting to drive volume growth.

Brendan Foley: <unk> 2023, we saw a lot of improvement in parts of our business, where we started to apply this.

Speaker Change: I think as Michael said on the call are good example was black pepper and vanilla.

Michael R. Smith: And they start to really see the not only the volume, but the unit share gain and so that gave us really I think allows us to kind of stair step into those investments and that's the way we're going to do it in 2004, two we're expanding that investment we're going to continue to look at the wine we assess it.

Michael R. Smith: Honestly every month and taking a look at where we see.

Michael R. Smith: The individual products perform across the shelf and then we decide what we need to do from a from a revenue a category management standpoint.

Brendan Foley: I wanted to put on top of that we're applying more A&P to the business too at the same time and I think that's really important we are seeing really good performance for the E&P.

Kasey Jenkins: And encourage us to continue to spend more on the business and so you'll see more of that from us I think going forward.

Kasey Jenkins: I'm not sure if I captured all of your questions there, but let me know if I did I think to maybe one point as we get the price differentials rights advertising is even more effective.

Brendan Foley: That's important and we're happy with Rois on our A&P, but it gets even better when you have the right price differential as we've seen with black pepper vanilla in other categories.

Brendan Foley: No. That's helpful. Thank you and just a very quick follow up I wasn't quite sure I picked up on.

Brendan Foley: What you think the most important tactics may need to be.

Brendan Foley: To get momentum rolling in your China consumer business to the extent you want and maybe how quickly some of those actions can start to take effect.

Brendan Foley: On China.

Brendan Foley: Just a little bit of context here.

Brendan Foley: Our food away from home business, which is included in Asia Pacific Consumer.

Brendan Foley: We expect to see slower demand, especially sort of into the first half of the year.

Brendan Foley: But we do expect overall, China sales in 2024 to be comparable to 2023.

Brendan Foley: Maybe for some more additional context, Mike and I spent a week in China in early January just actually a few weeks ago.

Brendan Foley: Our teams, there and assessing business conditions, and I would say broadly.

Brendan Foley: Our outlook for the Chinese consumer does remain cautious theres, a number of indicators that kind of point to this.

High unemployment with young adults low consumer confidence.

Brendan Foley: We see consumers with a reluctance to spend.

Brendan Foley: Uniquely in our business we.

Brendan Foley: We tend to serve the smaller independent restaurants, particularly in central China.

Brendan Foley: We see them, losing traffic to larger change in <unk>.

Brendan Foley: Because they are really driving either really strong value order winning on just even more store growth.

Brendan Foley: Overall, and so we see this playing out in the retail category, there, especially with the modern trade.

Brendan Foley: But just to share a quick anecdote.

Brendan Foley: We were there I took one afternoon, just to walk around and actually I forgot to <unk> go to a department store.

Brendan Foley: What struck me was really a lot of movement in people outside.

Brendan Foley: On the streets.

Kasey Jenkins: And I want to go get a cup of coffee.

Kasey Jenkins: <unk>.

Kasey Jenkins: Turning to the department store not full with anybody almost and so there's just not really a lot of active spending we see a lot of people out and about the mobilities there and its return.

Kasey Jenkins: But we're not seeing the spending and I think as broadly as sort of an example of what we're observing as we were in the market out there having said that though like we do with other regions. We do have plans to really address the changing trends with the Chinese consumer.

Kasey Jenkins: And we do expect our flavor solutions business to be a bit stronger. This year, just due to the <unk> trends, but we do expect a gradual recovery in China, starting probably more in the second half of 'twenty four.

Kasey Jenkins: And the exact pace of growth will really be determined by how that macro economic parameters kind of plays out in consumer confidence plans over the next few quarters, but we really do continue to believe in the long term.

Brendan Foley: Growth trajectory of this market and are working to strengthen those plans as we go through 'twenty four.

Brendan Foley: Thanks, so much.

Brendan Foley: Yeah.

Brendan Foley: Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Brendan Foley: Good morning, everyone.

Brendan Foley: Yes.

Brendan Foley: Good morning.

Brendan Foley: Okay. So youre sales algorithm that 2024 is obviously below.

Brendan Foley: It would normally be at minus one to plus 1%.

Brendan Foley: And can you quantify how much of a headwind all of these deliberate decisions to exit DSD business to diverse scanning to exit low margin business in Europe. We just wanted to get a sense. How much is you choosing to exit versus what the underlying number.

Brendan Foley: Hey, Mike.

Michael R. Smith: It's around 1% for Q1, but then it really peters out the rest of the year. So very small the rest of the year of 1% for Q1 as we lap the decisions we made last year.

Okay and then the the.

Tad: The market share trends in U S measured channels are obviously, what everybody seems to have their eye on right. Now do you have a view as tad given your price gap management and the marketing spending investments the innovation pick up.

Tad: When we might start to see that improve sequentially and when we might even start to see that turn positive again I'm just wondering how long it's going to take to start to see those benefits in the shower line.

So Alex thanks for the questions.

Tad: We never really <unk>.

Alex: Project exactly what to expect we will share because theres just a lot of dynamics that that might happen at the shelf, but I would point to.

Alex: However, talking about volume and our outlook on volume as we think about the first half the second half.

Alex: As we expected kind of grew volume in the back half of the year.

Alex: That certainly will have an influence on what we see play out and share performance, but we tend not to sort of specifically tell you I don't think that there is.

Alex: A specific quarter I can tell you when that's going to happen.

Alex: Okay. Thank you I'll pass it on.

Thank you. Our next question comes from the line of Max standpoint, with E&P Powerbar. Please proceed with your question.

Max Standpoint: Okay. Thanks for the question with regard to cadence on the top line. It sounds like you've got volume trends that could improve as you go through the year, but even growth in the second half, but then you've got <unk>.

Max Standpoint: Last year's pricing actions, which will wane as we go through the year would you expect those two factors to roughly offset each other such that organic net sales growth.

Max Standpoint: Relatively consistent through the year or is there any net sales cadence, we should be keeping in mind. Thanks.

Max Standpoint: I mean, the pricing Max is really.

Max Standpoint: Focus on the first half and a bit more in the first quarter based on the timing of our pricing and.

Max Standpoint: The volume growth is sequential across both segments and as you know based on our fourth quarter performance in flavor solutions is exiting the year, a little better trajectory than or at least based on consumer. So as you as you model. Those things you think about sequential improvement to get to that.

Max Standpoint: Zero to negative to volume growth kind of a first half second half story and then pricing is really heavily weighted to the first half primarily the first <unk>.

Max Standpoint: First quarter.

Max Standpoint: Thanks, and then as a follow up you've characterized your outlook.

Max Standpoint: Embedding a more cautious view regarding 2024, a few times now it sounds like much of that conservatism is.

Max Standpoint: Around your underlying assumptions on volume you've talked about the value seeking behavior in the U S and <unk>.

Flat sales growth in China.

Max Standpoint: I was hoping you could dive a bit deeper into.

Max Standpoint: Some of those more cautious views you are taking and also they are impacting your <unk>.

Max Standpoint: Gross margin commentary as well thank you will.

Max Standpoint: Well good morning, Max maybe kick it off with some context around your question on <unk>.

Max Standpoint: Sales and consumption in sort of the state of the consumer and will pass over to Mike.

Max Standpoint: Commentary on I think you had.

Max Standpoint: Good question, there with regard to margin.

Michael R. Smith: But I think we are taking a cautious view with regard to where the consumer is right now and that's really informed by what we saw in Q4, we just saw a little bit more shifting particularly as you think about how the quarter played out.

Michael R. Smith: If you think about consumption trends, we saw consumers really pulled back in September and October.

Michael R. Smith: And then really wait until right before the holidays.

Michael R. Smith: We're really making a lot of their purchases.

Michael R. Smith: Can see saw similar indications leading up to Christmas so.

Michael R. Smith: With what's underneath that I think as people were certainly holding off they are making a lot more trips to the store buying a lot fewer items in units.

Maybe even smaller units actually started to come through I think from a consumer trend standpoint.

David Taylor: David I think we just have to acknowledge that this is a little bit different than what we saw in the summer.

A little bit more pronounced.

David: Certainly it affected our trends as we kind of been really clear about it.

David: So it's prudent for us just to take a cautious view on where the consumer is going to be going here in early 'twenty four and so we thought it was best to recognize that in our outlook, particularly.

David: Particularly as we think about the first half of the year.

David: But we're also going to be putting in more investment in the business more A&P. So we expect also to be able to meet the consumer where they are right now.

David: And really tried to focus on our game plan, which is to drive volume growth.

David: Mike do you want to.

David: Would you mind repeating the margin question that didn't quite get that.

Michael R. Smith: I was wondering if the conservatism that you discussed at that really is just focused on the commentary you just discussed on volumes applies to gross margins as well if there is some more cautious outlook embedded in the gross margin guidance as well.

Michael R. Smith: Yes, I mean, we're confident in our <unk> programs.

Michael R. Smith: Low single digit inflation environment like I said before which we have good line of sight.

Andrew Lazar: Generally for the rest of your it gives us more confidence there.

David Taylor: First quarter is going to be our highest cost increase and we see a petering down after that and our pricing is going to be the highest in the first quarter to generally I think what I would say if you think about last year with our <unk> program. So we met our targets actually we exceeded a bit our external targets, we were a bit prudent because but we met our <unk>.

David Taylor: Internal targets, so I would say being prudent as the.

David Taylor: The word of the day.

David Taylor: Love to over deliver if we could but we also realize in this environment, making investments on price gap management and A&P is really important so we'll assess that as the year goes on.

David Taylor: Great. Thank you very much.

Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Stephen Robert Powers: Hey, Thanks, very much good morning, Steve.

Stephen Robert Powers: Good morning, so it sounds like at the enterprise level.

Stephen Robert Powers: Pretty minimal pricing in the back half.

Stephen Robert Powers: I think that implies as I listened to the commentary and kind of do the math.

Stephen Robert Powers: Think about the price gap management I think that implies.

Stephen Robert Powers: Negative pricing.

Stephen Robert Powers: In the consumer business at least in the U S in the back half.

I Wonder if you could talk about that.

Stephen Robert Powers: Deep those those.

Stephen Robert Powers: Above the line investments may need to be or how you are constantly thinking about that and whether the risk at the enterprise level pricing actually this negative as we flow through the year.

Stephen Robert Powers: In pursuit of this volume recovery.

Michael R. Smith: Yes, Steve it's Mike I'll take that on if Brexit has any comments so wherein we talk about pricing for the full year being around 1% and that includes.

Michael R. Smith: Our price gap management too so don't Miss that point.

Steve Mike: And if you think about the first quarter as I said before that's the majority of the lapping of last year's pricing first quarter first half Thats, where a lot of the price gap activities come through.

Steve Mike: Less so in the second six.

Steve Mike: Okay.

Steve Mike: I'd say that for the full year.

Steve Mike: We're comfortable with pricing at one.

Speaker Change: I don't know, what Matt Youre looking at to make it negative but.

Speaker Change: But I don't see that honestly for the full year end.

Speaker Change: And really by segment to you've got to think about it to me flavor solution is going to be a bit higher than 1% consumers can be a bit lower from a pricing perspective, so I, we're managing very closely and.

Speaker Change: Comfortable with our full year guidance.

Speaker Change: Okay, Okay fair enough I guess and flavor solutions could you help us just maybe a little bit more perspective on what you're assuming.

Speaker Change: Both in terms of flavors.

Speaker Change: Flavors customer volume trends.

Speaker Change: And restaurant traffic.

Speaker Change: Both in the U S and overseas, where you've seen some softness of late I just wanted to get a little perspective, there on that segment.

Steve Mike: Sure Steve.

Steve Mike: And our growth momentum in flavor solutions was pretty exceptional I think throughout the year in 'twenty three with double digit growth for us in the first three quarters and slight volume growth there, but even with the deceleration in the fourth quarter, we had pretty strong organic growth throughout 'twenty three.

Steve Mike: And we do expect to continue to.

Steve Mike: You'll make really good progress there.

Steve Mike: We're not going to be a double digits I think 24, but still.

Andrew Lazar: Really good progress will give you maybe more of a regional consideration.

Andrew Lazar: Through the portfolio.

Andrew Lazar: In the Americas, we continue to drive strong branded foodservice volume.

Andrew Lazar: And in flavors.

Andrew Lazar: Typically in a number of the categories that we tend to have some strong performance in like performance nutrition beverage we see continued.

Andrew Lazar: Strong performance in volume and I think that we would expect that to continue to 'twenty four.

Andrew Lazar: Across the rest of the flavor or product category and a lot of our growth was impacted by the softness of our our customers performance in the market with regard to units and volume.

Andrew Lazar: We saw a little bit more drop that we would've expected not inconsistent with our own consumer business and so while we are disappointed in that softness.

Andrew Lazar: We still believe our results were pretty good in this area I think that.

Andrew Lazar: The chance of that continuing to 'twenty four probably likely.

Andrew Lazar: In EMEA.

Andrew Lazar: As we mentioned in our third quarter call that our customers there are both for.

Andrew Lazar: Packaged goods and also quick serve restaurants are experiencing softness in their volumes within their business too.

We anticipated that in the fourth quarter, However, theres, even maybe a little bit more than what we expected. So almost like a similar theme to what I said about the U S.

Andrew Lazar: So.

Andrew Lazar: Some softness related there as we enter in Q1.

Andrew Lazar: But we're optimistic again it will continue to sort of improve every quarter as we go through 'twenty four and then in Asia Pacific.

Andrew Lazar: Our growth there was impacted by.

Andrew Lazar: Slower than expected restaurant traffic some of that really had to do with just unrelated.

Andrew Lazar: Matters, but at some point kind of issues that we're seeing in southeast Asia, but we saw some nice performance in China.

Andrew Lazar: So I would expect that to continue in 'twenty four and some to some.

Andrew Lazar: Trends. So that's just some context around rate solutions.

Andrew Lazar: Okay. Thank you very much I appreciate it.

Andrew Lazar: Thank you okay.

Andrew Lazar: Good morning.

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

Adam Samuelson: Yes. Thank you good morning, everyone. Good morning, Adam Good morning, I guess I wanted to come back to the consumer segment and maybe at a higher level as we think about.

Adam Samuelson: Where the business in the specific categories.

<unk> today versus where they were pre COVID-19. Obviously, there is enough a number of consumption and occasion changes in terms of distribution changes from inflation.

Adam Samuelson: Through the pandemic, but where are we today in your business in your key categories. As you think about price elasticity as you think about.

Adam Samuelson: As you thing about price gaps and where theyre actually has been a lasting consumption change.

Adam Samuelson: Versus consumer behavior pre pandemic.

Adam Samuelson: Well.

Adam Samuelson: With so much has changed since 2019.

Adam Samuelson: I think that I.

Adam Samuelson: I think about the entirety of all the different levers and variables that you were talking about whether it's price elasticity or volume.

Adam Samuelson: The consumer is.

There's been a reasonably enough significant change that as we take a look at our categories. We're taking a look at in terms of how they're performing today and where we need to go.

Adam Samuelson: In order to drive volume growth.

Adam Samuelson: As we said earlier, that's a component of increased A&P.

Adam Samuelson: A lot of that advertising focused on talking about value.

Adam Samuelson: Parts of our portfolio, we know that price gap management can never really effective impact on on <unk>.

Adam Samuelson: Turning around unit volume trends and so I think that's an indication of where the consumer is right. Now if you look at unit volume performance either in our business and probably the category now.

Adam Samuelson: Pricing has had an impact and we have to acknowledge that.

Adam Samuelson: Having said that though if I compare our business organically and product mix compared to 2019.

Adam Samuelson: Total organic volume is about the same as 2019, we haven't really lost significant volume.

Adam Samuelson: We're on product mix since pre pandemic.

Adam Samuelson: And so I think that's one sort of consideration to have us.

Adam Samuelson: While theres been a lot of change in.

Adam Samuelson: Many ups and downs I think if you think about all these macro dynamic impacts we've been going through we find ourselves in a similar volume position as we were in 2019.

Adam Samuelson: I think I'd like to provide the context that you're looking for.

Adam Samuelson: Okay.

Adam Samuelson: That's helpful and then as we think about.

Adam Samuelson: Flavor solutions moving.

Moving forward.

Adam Samuelson: Just how do you think about.

The competitive position of the portfolio today.

Adam Samuelson: What you're seeing from <unk>.

Adam Samuelson: Your customers just the categories, you're in and the competitive set.

Adam Samuelson: Do you feel like you have the breadth breadth of portfolio do you think that the.

Adam Samuelson: Categories.

Adam Samuelson: Our growing with your customers or you are properly positioned to.

Adam Samuelson: Participate there or do you think that as you look at the kind of the peer European orders that.

Adam Samuelson: That.

Adam Samuelson: Is there room to narrow that gap.

Adam Samuelson: Well as I think about our competitive posture in flavor solutions I feel really good about it starts with having great capabilities and technology.

It is a great team.

Adam Samuelson: And I think we do have a differentiated approach towards driving growth, particularly at flavors and seasonings in that part of our business.

Adam Samuelson: Yes.

Adam Samuelson: From a technology standpoint, we continue to win and sort of there's a lot of categories that we operate in there that we're targeting because they're positive in high growth and we also tend to get a good mix of large customers and moderately and small sized customers who tend to be characterized by much even higher growth.

Adam Samuelson: As we think about that as a as a portfolio mix of customers here, we're seeing a lot of a lot of strength coming from that and I would just point to our volume trends throughout 2003, and as we think about 'twenty four to be an indication of.

How do we think we're performing relative to the market there.

Adam Samuelson: Overall.

David Taylor: So those are some indications now number one on top of that would be heat.

David Taylor: And we continue to see growth through heat, we continue to see that as a.

David Taylor: The part of that portfolio. If you will it tends to grow at an even higher rate just due to where consumers are.

David Taylor: We talked a lot about heat extensively in terms of how popular it is.

David Taylor: It's another reason to believe that we feel like we're competitively poised in this part of our business, which is an exciting part of our business. It's worth it's receiving a lot of increased investment too as we think about building capacity technology and.

David Taylor: It really growing to global scale.

David Taylor: Okay I appreciate the color I'll pass it on thanks.

David Taylor: Thank you. Our next question comes from the line of Matt Smith with Stifel. Please proceed with your question.

David Taylor: Hi, Good morning, Thank you for taking my question.

David Taylor: I wanted to dive in a little bit on the guidance. If we look at it from a high level includes roughly 80 basis points or so of operating margin expansion can you talk about the margin expansion for each business as we look at fiscal 'twenty. Four is flavor solutions expected to have an outsized contribution again as margin.

David Taylor: Continues to recover there.

Michael R. Smith: The margin expanded a consumer business, even as you step up investments to manage price gaps in absolute price points.

Michael R. Smith: Hey, Matt, it's Mike I mean, they're not materially different between the segment to be honest, though.

Michael R. Smith: The 50 to 100 basis points of the gross margin line and the approximately <unk> <unk> margin line.

Michael R. Smith: To your point there are some price gap management items within the consumer business, but there's also portfolio optimization.

Michael R. Smith: CCI numbers, which hit both segments, so I would say not materially different.

Michael R. Smith: Okay.

David Taylor: Thank you for that and a follow up on the price gaps in absolute price points that you're talking about managing.

David Taylor: One thing we're seeing in the U S measured channel data is that the share losses Mccormick is seeing in spices and seasonings only about a quarter that is going to private label can you talk about the branded environment are you seeing a pickup in competitive pressure there or is this really a product of price gaps that you believe you can manage to.

David Taylor: Yeah.

David Taylor: Largely I think it's a product of price gaps that we can manage to.

David Taylor: I think your observations would.

David Taylor: We are aligned with ours and that it isn't strictly.

David Taylor: An issue regarding private label or other branded competition I think it's really.

David Taylor: With attractive category that has always received new competitors or new entrants.

David Taylor: And so we look broadly when we think about competition in that part of our portfolio has been.

David Taylor: At the shelf.

David Taylor: As both watching those gaps versus private label, who also branded competitors.

David Taylor: Thank you ill pass it on.

David Taylor: Okay.

David Taylor: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.

Robert Moskow: Hi, just a couple of follow up questions, Hi, there Brendan and Mike Good morning, Rob.

Robert Moskow: In the past you used to give a global flavor category growth rate and I remember it being around 4% to 6%.

Robert Moskow: Do you still keep track of that globally and do you know.

Robert Moskow: Where it is right now and just and I have a follow up.

Robert Moskow: We do I mean.

Robert Moskow: We look at that annually as part of our.

Robert Moskow: Our strategic related causes.

Robert Moskow: So yes, we do spend time, making sure we understand how that is performing but I think your five to seven I think is we're actually at four to six but I would tell you. It's generally around those same numbers, we tend to think about it as five to seven.

Max Standpoint: At a global level.

Max Standpoint: Okay. So so the global demand for flavor really hasnt changed its just that but your top line guide is around zero. So is the message here today that nothing has really changed in the consumer demand for flavor.

Kasey Jenkins: Sounds like you're also saying Theres a lot of trading down going on or cautious consumer spending. So I thought that would mean that the category is a little bit weaker too.

David Taylor: No I would urge you not to take away that is an indication that the category is weaker this is still a very attractive category.

David Taylor: I would also appreciate it if the category to global levels also gone through a lot of inflation in pricing and in similar factors, but we still see this as a very attractive category for the total company.

David Taylor: So.

David Taylor: That is not the view that we take particularly with the data that we look at and so right.

David Taylor: I think that we began gets at the heart of your question.

David Taylor: Yes, certainly and then the follow up is you said that you shipped 75% of your new packaging to retailers. So far but do you have any way of quantifying what percent of the ECB has implemented your resets I thought some of it would happen in 2023.

David Taylor: It sounds like a lot will happen in mid 2024, but.

David Taylor: Do you have a way of quantifying it that way.

David Taylor: It's harder to quantify it because it's.

David Taylor: How much were shipping out in terms of our total portfolio Thats getting this new package.

David Taylor: And so as I said that number is 75%.

David Taylor: We feel.

We're pretty accurate about that.

David Taylor: But now the reflection on shelf is all of this inventories flowing in on shelf that's happening on a on a lag to that 75% number we expect it to continue to just continue to increase.

David Taylor: Through the first half of the year I think through the first half of the year, we should largely be caught up to that.

David Taylor: <unk> standpoint too.

David Taylor: If you walk into a store today youre going to see on the shelves some of the old package. Some of the new package and that just may be an indication of how you might think about flow through overall, however, I will tell you that as we as we do look at specific accounts in locations, where we know we're seeing a lot of that flow through already.

Andrew Lazar: Occurred we are seeing now.

David Taylor: Just to pick up the velocity as we would've expected it to be the case, because we've seen this package perform in EMEA in a similar way and it really does deliver on these keys for freshness for consumers. It really kind of takes it up a notch in terms of the overall benefit offering that we're providing.

Kasey Jenkins: Sooner so we feel pretty good about that what you'll also hear US talk about is we're going to start to move other parts of the product line into this package to beginning in the back half of 2024. So we're not done but this part of our line that we've been speaking about since mid last year is still in the process of flowing through on shelf.

Kasey Jenkins: And that gives us belief and the sequential building of volume during.

Kasey Jenkins: During 2024 and into the second half as you alluded to.

Kasey Jenkins: Alright, I'm sorry, one last question I appreciate the plan to increase brand building. This year can you tell us how much it increased in 2023, when it was all said and done.

Kasey Jenkins: I think we were rather if im not mistaken to three 3% to 4% range of forecasted range for 2023 know that underneath that we tend to see working media grow a lot faster than that.

Kasey Jenkins: Because we're also offsetting it with other productivity and <unk>.

David Taylor: Out more non working investments.

David Taylor: But two three years is in that range down 24, though is in the double digit range.

David Taylor: We feel really good about that and we're putting that investment.

David Taylor: Okay. Thank you.

David Taylor: Thank you. Our final question. This morning comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

David Taylor: Great. Thanks, so much.

David Taylor: Maybe if we could just touch quickly.

David Taylor: And kind of Q1.

Robert Dickerson: Because I think kind of throughout the call I've heard you say, maybe slightly higher cost relative to the full year and Q1, and then also it sounds like a and sees a little front half loaded.

And then I think maybe volumes given hopefully that improves through the year would imply maybe a little bit more pressure in Q1, especially given.

Robert Dickerson: The divestments so.

Robert Dickerson: Just curious if there are certain moving pieces to Q1 that you would clearly like us to consider.

Robert Dickerson: The first question.

Robert Dickerson: That's great let me take that one Robin maybe summarize it all for you and as you pointed out the sequential improvement in volume, we see from the fourth quarter and also consider consumer starting at a slightly lower place and flavor solutions. So as you model that build that into your model and builds throughout the year pricing actions.

Robert Dickerson: Our primarily first.

Robin: The lapping of that primarily first half related maybe concentrated I'll say in the first quarter however cost.

Robin: In the first quarter, we're still seeing high single digit inflation. It does go down to averaging of low single digit inflation for the year, but there is a spike or not a spike, but the highest level will be in the first quarter.

Robin: High single digit inflation.

Robin: We get a bit of a favorable product mix in the first quarter due to some of the initiatives. We're talking about but we're also seeing some of the negatives from an investment in price gap initiatives in Q1, primarily.

Brendan Foley: As you think about pricing a bit of that will be offset within the price gap management activities.

Max Standpoint: You have a little bit of favorability to wrap from last year in the first half a bit in the first quarter too.

Max Standpoint: And then as you mentioned brand marketing up double digits in the first quarter is something that we're really driving toward and not to forget tax.

Max Standpoint: Sometimes we do the tax is 22% for the year, but we see a higher tax rate in the first quarter and getting better as the year goes on.

Max Standpoint: Don't forget unfavorable FX throughout the whole year of about 1%.

Max Standpoint: Okay perfect that's very helpful.

Max Standpoint: And then quickly.

Max Standpoint: Quickly just on flavor solutions.

Max Standpoint: Clearly if we look back a few years ago, we speak to the margin recovery now kind of coming out of the post pandemic cost inflation environment.

Max Standpoint: It really kind of the main driver of kind of your somewhat depressed margin now relative to history is still from flavor solutions may be a little less so I mean, clearly youre not optimize or maximize on consumer but there is a little bit more pressure on flavor solutions. So I'm just curious.

Max Standpoint: I remember going back 15 years or so rate then there was a strategy to increase that margin in flavor solutions and it didn't happen, but then it actually really did happen.

Brendan Foley: And now it's just not happening again, so I'm.

Kasey Jenkins: Kind of curious as you think longer term kind of margin profile of Mccormick.

Kasey Jenkins: Given the initiatives you've been discussing even today on improving that side of the business what kind of does get you back there right I mean is it.

Kasey Jenkins: Volume and mix or.

Kasey Jenkins: As it seems like that recovery has maybe been a little bit slower.

Kasey Jenkins: Hey, Rob, it's Mike I'll start and Brendan can add.

Michael R. Smith: You're right we've been on a journey with flavor solutions I can remember and it wasn't 15 years ago, but we were at 6% margin and we really through focused.

Brendan Foley: Cost initiatives portfolio management and were able to get that to over 14%.

Brendan Foley: Pre COVID-19 pandemic, and we have aspirations for higher because our peers in the flavor industry are higher than that and we still do aspire to those higher numbers, obviously COVID-19 the pricing costing relationship that took over 300 basis points.

Brendan Foley: Just two cost we did margin up that took place over 300 basis point impact on our margins there. So.

David Taylor: We said, we're going to build that back over time through initiatives like CCI and things like that.

We've had early success with the pricing initiatives, we had last year in 2023, we took our operating margin from 8% in 'twenty, 2% to 10% and 23 granted still below where we were but we see positive movement. This year as we think about our total margin I said, both segments will see positive operating margin improvement.

David Taylor: And we're in the process for flavor solutions is a pretty large number as we are transitioning our large U K manufacturing facility.

David Taylor: 24, and 25, you will see some favorable.

David Taylor: Tailwind, there, which will help flavor solutions margin.

But to your point and <unk> talked about the focus on <unk>.

David Taylor: Great growing categories in the flavor side of the business.

David Taylor: They are generally higher margin stickier.

David Taylor: That is our strategy that will help us drive our margins going forward.

David Taylor: The only thing I'll add on top of what Mike just said with regard to that.

David Taylor: Constant focus against.

Michael R. Smith: The improving margin.

Michael R. Smith: We're also as we continue to shift customers to higher.

Michael R. Smith: Higher margin product lines were insulated technology et cetera, and allows us to continue to grow margin.

Michael R. Smith: I think Mike pretty much now that they're in.

Michael R. Smith: That's our outlook on it still pretty positive and it's just going to take us a little bit longer.

Michael R. Smith: As we as we've been calling out really ever since I think last year.

Michael R. Smith: Great. Thank you guys.

Michael R. Smith: Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Ms. <unk> for any final comments.

Ms. <unk>: Thank you all for joining today's call. If you have any further questions regarding today's information. Please feel free to contact me. This concludes this morning's conference call. Thank you.

Ms. <unk>: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.