Q1 2024 McCormick & Co Inc Earnings Call
Good morning, Mr. Sebastian Bray VP of Investor Relations. Thank you for joining today's first quarter earnings call to accompany this call. We've posted a satisfied on our IR website IR, Don Mccormack Dot Com with me. This morning are Brendan Foley, President and CEO and Mike Smith.
Executive Vice President and CFO. During this call, we will refer to certain non-GAAP financial measures.
Nature of those non-GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and slides in.
In our comments certain percentages around it 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 on slide two for more information I will now turn the discussion over to Brendan.
Brendan: Good morning, everyone and thank you for joining us as many of you have probably seen on the news. This morning, the Francis Scott Key bridge collapsed in Baltimore.
Brendan: Thoughts go out to everyone impacted by this terrible tragedy.
Brendan: Reactivated to team and are monitoring the situation.
Brendan: We are pleased to start the year with a strong first quarter. Our performance reflects the early success of our prioritized investments to improve volume trends and drive profitable growth.
Brendan: I will begin my remarks. This morning, with an overview of our first quarter results focusing on top line drivers next I will provide perspective on industry trends highlight some early signs of success as well as areas. We continue to work on and review our growth plans.
Brendan: Nick will then go into more depth on our first quarter financial results and review our 2020 for outlook and finally before your questions I will have some closing comments.
Brendan: Turning now to our results on slide four.
Brendan: In the first quarter sales grew 2% in constant currency, reflecting a 3% contribution from pricing, partially offset by 1% decline in volume and product mix, primarily driven by the pruning of low margin business in our accounting business divestiture.
Brendan: Underlying volume was flat compared to the prior year.
Brendan: Sequentially from the fourth quarter volume trends improved in both consumer and flavor solutions we.
Brendan: We believe this improvement is an indication of continued progress as we remain focused on driving quality topline growth throughout our portfolio.
Brendan: In consumer volumes improved substantially from the fourth quarter in the Americas and EMEA, we drove positive volume growth, while continuing to benefit from pricing actions.
Brendan: Pacific volume performance was impacted by the macro environment in China as we expected.
Brendan: We continue to expect full year 2020 for China consumer sales to be comparable to 2023.
Brendan: Outside of China, we delivered strong sales growth driven by both price and volume.
Brendan: In flavor solutions, our results were solid and growth was driven by pricing.
Brendan: <unk> volume growth, partially offset by the impact of our divestiture.
Brendan: We are pleased with our performance recognizing many of our customers, including consumer products companies or Cpg's and quick serve restaurant <unk> continued to experience volume softness in their businesses. We are continuing to collaborate with our customers to navigate this challenging environment and we remain optimistic about our growth.
Brendan: For the year.
Brendan: Worth, noting volume trends water solutions, typically fluctuate from quarter to quarter, largely attributable to customer activity, including new product launches limited time offers and there are other promotional activity.
Brendan: As we said at the Cagny Conference Mccormick is a growth company and 2024 is an important investment year to return to our long term objectives are.
Brendan: Our results demonstrate the early impact of investments, we have made to fuel our top line and further capitalize on the underlying growth of our categories.
Brendan: We have a robust set of initiatives and continue to expect share gains in units to lead our trends and our results will build throughout 2024.
Brendan: Let me share some of our perspectives on the industry trends, we are in a unique position with our portfolio breadth and reach in both consumer and flavor solutions, our shared insights give us a very strong understanding of consumers flavor needs preferences behaviors and trends.
Brendan: Consumers remain challenged two years of steep inflation has had an impact and many are exhibiting value seeking behavior, while food inflation is slowing it's compounded impact is still being felt by consumers.
Brendan: It's a stretched resulting in choice full spending decisions a trend that is continuing from the fourth quarter.
Brendan: In the first quarter with higher inflation in the foodservice channel as slowing retail food prices, we broadly saw a shift from <unk>.
Brendan: Food away from home to food at home consumption in our major markets. We are also seeing improvement in center store categories, and some softness in restaurant traffic across our regions as we set the current state of the consumer is not defined by any one trend it remains dynamic.
And we are responding with speed and agility I'm encouraged by the early success of our key initiatives. We have the right plans in place that are continually influenced by what matters, most to our consumers and customers and fit within our strategic priorities.
Moving to slide five let me highlight for the quarter some of the key signpost of our success that demonstrate we have the right plans in place.
Brendan: Starting with spices and seasonings in Americas, EMEA and Asia Pacific, Excluding China, we grew volumes in the U S. Our unit share performance continues to improve and we drove dollar share gains in eastern Europe.
Brendan: In recipe mixes we strengthened our performance with volume growth in the Americas reversing the trends from the fourth quarter.
<unk> mixes were significant driver of U K volume growth and homemade desserts. We're also a substantial driver of France is volume growth.
Brendan: And both we realized both unit dollar market share gains.
Brendan: Volume growth in our papers business is strong across key categories, including outpacing the category and alcoholic beverages and performance nutrition.
Brendan: Finally, we grew volume in branded foodservice and realize market share gains in spices, and seasonings and on tabletop.
Brendan: And hot sauces.
Speaker Change: Before I get into our growth plan, let me touch on some areas where there is some pressure.
Speaker Change: We continue to experience volume declines in the prepared food categories that we participate in like frozen and Asia.
Speaker Change: In Americas consumer importantly, these items represent a small part of our portfolio and the improved volume trends in our core categories is beginning to offset these declines.
For mustard in Americas consumer as we discussed in our last earnings call. We continue to experience extremely low basis points for private label, which is impacting our consumption and driving down category dollars.
Speaker Change: While performance in mustard improved relative to the fourth quarter. We still have work ahead of US we plan to drive further volume improvements by narrowing price gaps and increasing promotions new products, including <unk> and importantly through recent distribution wins.
Speaker Change: Moving to hot sauce, and Americas consumer consumption volume trends improved in the fourth quarter, particularly coinciding with our successful Super Bowl Activations campaign.
Speaker Change: Looking at our first quarter performance and highlights two dynamics first we have underlying strength in our base business and strong consumer loyalty.
Speaker Change: Our growth plans remain consistent.
Speaker Change: Fueling growth through increasing virtual Lula and <unk> Red Hot brand marketing.
Speaker Change: With Frank's activated year round for the first time as well as exciting innovation aligned with consumer trends.
Speaker Change: And expanding distribution.
Speaker Change: Yeah.
Speaker Change: Recently, we have seen a surge in $1 price point trial sites for.
Speaker Change: From new and existing small players, which are incremental to the category and is pressuring our share performance. We remain the leader in this attractive fragmented and growing category.
Speaker Change: New buyers presents a great opportunity to gain new households, using our growth levers as well as our scale and capabilities.
Speaker Change: Flavors are growth with quick serve restaurants, and <unk> solutions was impacted by slower kyocera traffic in EMEA and Asia Pacific.
Speaker Change: Finally, some of the consumer packaged food customers continue to experience softness in volumes within their own business.
Speaker Change: In both Americas and EMEA.
Speaker Change: Focused on working with our customers to support their innovation plans.
Speaker Change: To diversify our customer base over time.
Speaker Change: Before I talk to our growth plans in detail, let me touch on spices and seasonings.
Speaker Change: At a global level, we are pleased with the growth in consumption, we delivered in the quarter.
Specifically looking at U S spices and seasonings, we are driving significant improvements.
Speaker Change: Our new packaging continues to increase velocity on shelf and we are recapturing distribution points and a sequential improvement led to positive unit share gains at the end of the quarter.
Speaker Change: In addition, our growth is supported by our increased brand marketing and new products. Lastly, we expect the largest arent seeing the impact of our actions in our results during the second half of the year. Following most of our customers shelf resets at the end of the second quarter.
Speaker Change: Let's now move to our growth plans on slide six which are leading our strong first quarter performance and will continue to drive our success in 2024 and beyond.
Speaker Change: Great marketing, new products, and packaging innovation and category management proprietary technologies and customer engagement continued to be the initiatives behind our growth levers.
Speaker Change: Starting with brand marketing.
Speaker Change: Our plans across all categories are supported by our global brand marketing initiatives, we are prioritizing investments to connect with consumers fueled growth.
Speaker Change: Our differentiated brand marketing is driven by a combination of factors.
Speaker Change: In addition to maintaining a high share of voice, we are committed to having the best content in our categories content that inspires and educates concerns and reaches them at the right points on their path to purchase and their flavor journey.
Speaker Change: From flavor exploration and menu planning to shopping and cooking and eating and sharing the experience online.
Speaker Change: In Q1 brand marketing spend was up significantly compared to the prior year as expected. This increase was broad based across all regions that was an important driver in improving volume.
Speaker Change: Through our efforts across multiple channels, particularly in retail media.
Speaker Change: We are driving further household penetration and increasing by rates across places and seasonings recipe mixes condiments.
Speaker Change: Our holiday campaigns across our regions proved successful.
Speaker Change: Marketing campaigns in the Americas highlight our everyday value and point of difference to consumers and are supporting our improved volume trends and share improvement.
Speaker Change: Our Frank Super Bowl activation campaign with Jason Kelsey now it was hired and then El player was very successful, we gained new buyers and media and consumer sentiment as well as engagement from other big brands was incredibly positive.
Speaker Change: We continued to benefit from new products and packaging. It is one of the primary drivers of our growth and as we said at Cagny.
Speaker Change: <unk> continues to improve we are continuing to realize growth from a 2023 launches for example, our cholewa salsas and recipe mixes are driving new buyers to the category and are exceeding our expectations since launch.
Speaker Change: And we continue to build the U S distribution and they're also launching both formats and Canada. This year.
The rollout of our U S everyday urban Spice portfolio is on plan and expect it to be fully shipped by the end of the second quarter.
Speaker Change: Not a hussein range of Schwartz seasonings recipe mixes continues to drive our innovation performance and expand household penetration with younger consumers.
As we look ahead to the rest of the year.
Speaker Change: With our renovated recipe mixes we have opportunities to win more dinner occasions, with new global cuisine seasoning in both Americas and EMEA and.
Speaker Change: In reshaping the portfolio by shifting offerings to meet consumers' growing preference for non red meat proteins.
Speaker Change: And seasoning blends.
Speaker Change: An exciting growth opportunity, we mentioned at Cagny, we are launching new lotteries seating bled in large sizes, which offer a value price point to consumers.
Speaker Change: And we're really excited about the Frank's red hot gifts and popular flavors and as we bought a format. We just launched and are looking forward to another campaign featuring based and Kelsey.
Speaker Change: Okay.
Speaker Change: In flavor solutions, we are leveraging our proprietary technologies to support our innovation and flavors to.
Speaker Change: To win new customers, diversifying our customer base and drive share gains across our portfolio.
Speaker Change: Our momentum with our flavors customers continues to be strong.
Speaker Change: Our new product pipeline we.
Speaker Change: We are collaborating with many of our customers heat up their products from snacking to beverages.
Speaker Change: Our heat brief win rates are strong across our regions. We continue to dedicate resources, where we have the right to win.
Speaker Change: In branded foodservice, we have a strong innovation agenda, including launching a cattlemen's Hawaiian Bbq flavor.
Speaker Change: Expanding our seasonings portfolio with two CRO line extensions and extending Mccormick <unk>, which has had great performance in our consumer segment into this channel.
Speaker Change: Let's turn to category management, where I would like to review our revenue management efforts and expanding distribution.
Speaker Change: First revenue management remains a capability and we have a history of optimizing pricing on shelf to benefit both Mccormick and the retailer we continue to take a surgical approach to managing our price gaps to private label and branded competitors are price.
Speaker Change: <unk> are primarily focused in Americas, consumer where they impact about 15% of our portfolio in that segment.
Speaker Change: Revenue management will continue to be an important tool for driving growth and.
Speaker Change: And we will consistently leverage real time analytics and insights to refine our plans.
Speaker Change: In terms of expanding distribution, we continue to make progress on restoring a majority of the distribution that was lost due to supply issues, we have secured wins and new distribution.
Speaker Change: To further strengthen our value proposition in EMEA, we have grown distribution into fast growing discount channel and in the U S are lower with opening price point is expanding across stores of a leading discounter.
Speaker Change: And in China, we are expanding in small format stores, which grown rapidly in recent years.
Speaker Change: As well as into third and fourth tier cities.
Speaker Change: We're meeting the consumer where they live and shop.
Speaker Change: Let me briefly mentioned our heat platform as you heard in my remarks, he infused products span of our portfolio and are driving growth.
We expect <unk> to continue to be a long term growth accelerator globally for Mccormick.
Speaker Change: Consumers, particularly younger generations.
Speaker Change: To drive demand as flavor profile.
Speaker Change: We're uniquely positioned to win in heat with our global iconic brands and are meaningful scale and expertise that we have been doing for decades.
Speaker Change: To wrap up we believe the execution of our growth plans will be a win for consumers customers or categories, and Mccormick, which will differentiate and strengthen our leadership.
Speaker Change: As we look ahead 2024, we are maintaining our outlook.
Mike will share more of the details at a high level, we expect our topline to be at the mid to high end of our guidance range given the momentum we saw in the first quarter.
Speaker Change: We are confident in our initiatives and we have provided proof points of where they are working.
Speaker Change: That said, we also continue to reflect on the uncertainty in the consumer environment and our outlook for 2024.
Before I pass the call to Mike, Let me reiterate a few points.
Mike: We are deliberately focused on attractive high growth categories across those segments.
Resulting in a significant long term tailwind to drive profitable growth.
Mike: That said it is crucial that continue to capitalize on this position of strength.
Mike: The long term trends that fuel our categories consumer interest in healthy flavorful cooking flavor exploration and trusted brands continue to be very strong and importantly, consumer enjoyment and cooking is growing.
Mike: We remain dedicated to improving volumes, we continue to refine our plans and are prioritizing our investments to drive impactful results and return to differentiated and sustainable volume led growth.
Mike: And you should continue to expect improvement over the coming year and into 2025 and beyond now over to Mike.
Mike: Thanks, Brendan and good morning, everyone.
Mike: Starting on slide eight our top line constant currency sales grew 2% compared to the first quarter of last year, reflecting 3% of pricing benefit offset by a 1% volume and mix decline.
Mike: As expected volumes were impacted by our strategic decision to exit DSD direct store delivery of our bagged Hispanic spices in the Americas.
Mike: The exit of a private label product line and the divestiture of a small attaining business in EMEA.
Mike: Underlying volume performance was flat for the quarter, reflecting a sequential improvement from the <unk>.
Mike: For our total underlying volume growth was down approximately 3%.
Mike: In our consumer segment constant currency sales growth of 1% reflects a 3% increase of pricing actions.
Mike: By a 2% volume decline.
Mike: Which is due to a 1% impact from the DSV business like what I just mentioned.
Mike: Lower volume and product mix in the Americas, specifically in prepared food categories, including frozen frozen in Asia, consistent with our expectations.
Mike: And the impact of the macro environment in China.
Mike: On slide nine consumer sales in the Americas were comparable to last year.
Mike: Contribution from price was offset by volume and mix decline of 3%.
Mike: This decline was fully attributable to the DSD exit and lower volume and product mix in the prepared food categories I just mentioned.
Mike: In EMEA constant currency consumer sales increased 8% with a 5% increase from pricing actions and 3% volume growth.
Mike: Sales growth was broad based across product categories in our major markets. We are pleased with the volume growth we delivered in EMEA and expect the momentum to continue through 2024.
Mike: Constant currency consumer sales in the Asia Pac region were down 5% driven by a 6% volume decrease primarily due to the macro environment in China.
Mike: Outside of China, we drove high single digit sales growth with pricing volume contributing equally.
And the growth was broad based across categories and markets.
Mike: Turning to our flavor solutions segment in Slide 12, we grew first quarter constant currency sales by 2% with pricing contributing 2% and volume contributing 1%.
Mike: I would say by a 1% decline due to the divestiture of <unk> business and the exit of a private label product line in EMEA.
Mike: In the Americas flavor solutions constant currency sales rose 3%.
Mike: <unk>, a 2% contribution price and 1% growth in volume and product mix.
Mike: <unk> growth was led by flavor, most notably in performance nutrition and branded foodservice.
Mike: In EMEA constant currency sales decreased by 1%, including a 3% impact.
Mike: The divestiture of the Kenny business.
Mike: Pricing actions of 4% were partially offset by lower volume and product mix up 2% primarily attributable to the exit of a private label product line I mentioned earlier.
Mike: In the APAC region flavor solutions sales grew 5% in constant currency with a 4% contribution from pricing and 1% volume growth out.
Mike: Outside of China sales remained negatively impacted by geopolitical boycott some of our quick service restaurant customers are experiencing in southeast Asia.
Mike: As seen on slide 16, gross profit margins expanded by 130 basis points in the first quarter versus the year ago period.
Mike: Drivers in the quarter included favorable product mix.
Mike: The benefit of our comprehensive continuous improvement program for CVI, and our global operating effectiveness program or <unk> as.
Mike: As well as effective price realization.
As we look to the second quarter, we expect gross margins to modestly expand compared to the year ago period.
Mike: As we realized our highest level of pricing and cost recovery in the second quarter of 2023.
Mike: This trend may differ from our historical cadence for gross margin increased sequentially every quarter throughout the year. However, we continue to expect higher margins in the second half compared to the first half of the year.
Mike: Now moving to slide 17, selling general and administrative expenses or SG&A increased relative to the first quarter of last year, driven by brand marketing and research and development investments, which were partially offset by CCI led cost.
Mike: Cost savings.
Mike: As a percentage of net sales SG&A increased 110 basis points.
Mike: Marketing increased significantly compared with the prior year, our investments are yielding results and we anticipate continuing to invest behind these efforts.
Mike: Sales growth and gross margin expansion, partially offset by higher SG&A costs resulted in an increase in adjusted operating income of 5% compared to the first quarter of 2023 and 4% in constant currency.
Mike: Adjusted operating income in the consumer segment was up 2% with minimal impact from currency.
Mike: In flavor solutions adjusted operating income increased 15% included a 1% currency impact.
Mike: We remain committed to restoring flavor solutions profitability and in the first quarter as expected we drove margin expansion versus the prior year in this segment.
Mike: Our performance this quarter reflects our commitment to increase our profit realization and position us well to make continued investments in 2020 work fueled top line growth.
Mike: Turning to interest expense and income taxes on slide 18, our.
Mike: Our interest expense was comparable to the prior year.
Mike: Our first quarter adjusted effective tax rate was 25, 5% compared to 21, 8% in the year ago period.
Mike: Our tax rate in the prior year Benno.
Mike: Benefited from discrete tax items.
Mike: We expect these benefits to occur later in the year for us in 2024.
Mike: As a result, we continue to expect our tax rate to be approximately 22% for the year.
Mike: Our income from unconsolidated operations in the first quarter reflects strong performance in our largest joint venture.
Mike: Mccormick to Mexico, we are a market leader with our Mccormick branded mayonnaise marmalade to muster 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 21st quarter 2024, adjusted earnings per share was <unk> 63.
Mike: As compared to <unk> 59 for the year ago period.
Mike: The increase was attributable to higher operating income.
Mike: Driven by sales growth and gross margin expansion.
Mike: As well as the results for Mccormick to Mexico joint venture.
Mike: Partially offset by higher adjusted effective tax rate.
Mike: On slide 21, we've summarized highlights for cash flow and balance sheet.
Mike: Our cash flow from operations was strong in the first quarter $138 million.
$103 million in 2023.
The increase was primarily driven by higher operating income and working capital improvements.
We returned $130 million of cash to our shareholders through dividends and used $62 million for capital expenditures.
Mike: As a reminder, capital expenditures include projects to increase capacity and capabilities to meet growing demand advance our digital transformation and optimize our cost structure.
Mike: Our priority remains to have a balanced use of cash funding investments to drive growth.
Mike: Turning a significant portion to our shareholders through dividends and paying down debt.
Mike: Importantly, we remain committed to a strong investment grade rating and continue to expect 2024 to be another year of strong cash flow driven by profit and working capital initiatives.
Now turning to our 2020 for finance financial outlook on Slide 22.
Mike: Our outlook continues to reflect our prioritize investments in key categories to stream volume brands and drive long term sustainable growth.
Mike: While I appreciate the uncertainty of the consumer environment.
Mike: Turning to the details.
Mike: Currency rates are expected to favorably impact sales adjusted operating income and adjusted earnings per share by approximately 1%.
Mike: At the top line, we continue to expect constant currency net sales to range between a decline of 1% to growth of 1%.
Mike: The momentum in the first quarter, we expect to be closer to the midpoint to high end of our guidance range.
Mike: In terms of pricing, we continue to expect a favorable impact related to the wrap of last year's pricing actions.
Mike: Most significantly in the first half.
Mike: We offset by a price gap management investments that will drive volume growth.
Mike: We expect to drive improved volume trends of year progresses.
Mike: Due to the strength of our brands and the intentional and targeted investments we are making.
Mike: As we noted our initiatives will take time to materialize and we continue to expect to return to volume growth during the second half of the year.
Mike: Any new macroeconomic headwinds.
Mike: Starting in the second quarter, we will have lapped the impact of the DSV and private label product line business exits the.
Mike: The divestiture of the <unk> business will impact us through the third quarter.
Mike: We expect to continue to prune lower margin business throughout the year is optimize our portfolio.
Mike: The impact of which will be reflected within the natural fluctuations sales.
Mike: And finally in China, our food away from home business, which is included in APAC consumer.
Mike: <unk> to be impacted by slower demand in the first half of the year and.
Mike: And as such we expect China sales to be comparable to 2023 for the full year.
Mike: While we recognize there has been volatility in demand in China.
We continue to believe in our long term growth trajectory of the China business.
Mike: Our 2020 for gross margin is projected to range between 50 to 100 basis points higher in 2023.
Mike: This gross margin expansion reflected favorable impacts from pricing product mix and cost savings from our CCI and <unk> programs.
Partially offset by the anticipated impact of low single digit increases and cost inflation and our increased investment.
Mike: Additionally, we expect to begin reducing our dual running costs related to our transition to the new flavor solutions facility in the UK in the back half of the year.
Mike: Moving to adjusted operating income, we expect 4% to 6% constant currency growth.
Mike: This growth is projected to be driven by our gross margin expansion as well as SG&A cost savings from our CCI and.
Mike: And Joey programs, partially offset by investments to drive volume growth, including brand marketing.
Mike: We expect our brand marketing spend to increase high single digits in 2024, reflecting a double digit increase in investments.
Mike: Firstly offset by CPI savings.
We continue to expect our increased investments in brand marketing to be concentrated in the first half of the year.
Mike: Our 2024 adjusted effective income tax rate projection of approximately 22% is based upon our estimated mix of earnings by geography.
Mike: As well as factoring in discreet impact.
Mike: We expect a mid teens increase in our income from unconsolidated operations.
Mike: Collecting the strong performance, we anticipate Mccormick de Mexico.
Mike: To summarize our 2024 adjusted earnings per share projection of $2 80.
Mike: To $2 85.
Mike: <unk>, a 4% to 6% increase compared to 2023.
Mike: As we head into the second quarter, let me summarize some of the puts and takes.
Mike: We expect to drive volume improvement with pressure expected in flavor solutions due to the transition did mentioned earlier.
Mike: We lapped the impact of pricing actions, we took in the prior year and activate a significant portion of our price management efforts and continue our investments in brand marketing as our programs are working and driving growth.
Mike: As a result, our operating profit will likely be less robust for the second quarter. However, we continue to anticipate strong profit growth in the second half of the year.
Mike: As Brendan noted we are dedicated to improving volumes, we are prioritizing our investments to drive impactful results and returned a differentiated and sustainable volume led growth.
Mike: We remain confident in the underlying fundamentals of our business and delivering on the profitable growth reflected in our 2020 financial outlook.
Brendan: Thank you, Mike before moving to Q&A I would like to close with our key takeaway on slide 23.
Brendan: First quarter results and our volume trajectory demonstrate that we are making the right investments to drive long term sustainable organic growth and reinforces our confidence.
Brendan: We are executing on our proven strategies and investing behind our business with speed and agility and an alignment to consumer behavior and capitalizing on our advantage categories across segments.
Brendan: We are able to do this and continued great progress on managing costs led by our CCI programs to spread and increased investments in the business and drive margin expansion.
Brendan: Our performance for the quarter, coupled with our growth plans give us confidence in achieving the mid to high end of projected constant currency sales growth for 2024.
Brendan: Finally, I want to recognize Mccormick employees around the world for their contributions and reiterate my confidence that together, we will drive the profitable growth reflected in our 2020 for outlook.
Speaker Change: Now for your questions.
Speaker Change: Thank you 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 queue. 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 to pick up your handset before question Mr. Keyes our fares.
Speaker Change: Question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.
Andrew Lazar: Great. Thanks, Good morning, Brian and Mike.
Andrew Lazar: Good morning, Andrew.
Andrew Lazar: Maybe start off your first quarter organic sales, obviously came in better than I think the street had work test and it sounds like maybe better than you might have initially expected.
Andrew Lazar: But it's of course, it's a seasonally smaller quarter from a format as well.
Andrew Lazar: You did confirm the full year sales growth range. Obviously was notable your comment in your comment about.
Andrew Lazar: Having increased confidence in achieving the mid to high end of your constant currency sales growth range for the full year. So I was hoping maybe you could give us a sense of some of the specifics of what gives you that greater confidence now than when you first gave guidance last quarter.
Speaker Change: Well thanks, Andrew for the question maybe.
Speaker Change: Maybe just to open up with.
Speaker Change: A couple of remarks, I think right at the heart of your question, we did have a strong quarter.
Speaker Change: We drove a little bit more on sales, which does give us confidence to be in that mid to upper half of our range.
Speaker Change: And I think importantly, we accomplish the things that we said that we do and we've made a lot of progress we drove sequential improvement volume improvement in our core categories, especially <unk>.
Speaker Change: Devices and seasonings.
Speaker Change: And we said this would be a year of investment and we were able to quickly execute the programs that we intended to go out in the market and establish it as an example increased brand marketing new product launches are performing well from 2023 and that targeted price gap management and execution and at the same time, we did extend margins.
Speaker Change: So we are pleased with the results yes. It has started the year and it's our smallest quarter as you called out and so we're keeping it.
Speaker Change: But this is strong progress and.
Speaker Change: And so I think that gives us some of that confidence going into the rest of the year as we noted on the call.
Speaker Change: Or probably as you'd expect.
Speaker Change: Our pricing assumptions haven't changed so this doesn't imply that volumes are improving as we as we go through the year, we have chartered to invest we continue.
Continue to expect to improve those volume trends as the year progresses and to drive volume growth during the second half year.
Speaker Change: We're focused on what we can control and we're confident in those initiatives that we've called out hopefully we heard that the proof points that would be decided.
Speaker Change: We don't necessarily got by quarter of segment or regions, where we can provide some additional color on that.
Speaker Change: From a segment level, we would expect those volumes to be relatively similar we see that same volume growth in both segments in the second half.
Speaker Change: And those.
Speaker Change: You did call out.
Speaker Change: The flavor solutions volume does fluctuate quarter to quarter. So that's something that we still expect to see across our business.
Speaker Change: Which is attributable to customer activity.
Speaker Change: But we do feel like there is a lot of good momentum I think.
Speaker Change: We've established the drivers of whats <unk>.
Delivering this we've made substantial investments in the first half of the year on brand marketing. So it already happened in Q1, we expect it to.
Speaker Change: Some more of that in Q2.
Speaker Change: We also have new product launches coming out in 2024.
Speaker Change: For instance would you called out that flavor maker lines going into bricks and mortar or we have a lot of function innovation coming out in the marketplace as we lead into the grilling season.
Speaker Change: We're really quite pleased with our category management and renovation.
Cross our portfolio so.
Speaker Change: Think that would speak to.
Speaker Change: Our confidence in the year.
Speaker Change: As we continue to move forward.
Speaker Change: I mean, I know volumes and specifically in consumer Americas, I think we're down about 6% in the fourth quarter last year and as you noted down a much more modest sort of less than 3% in the first quarter would you expect consumer Americas volume to sort of continue to improve sequentially from here.
Speaker Change: And again in that segment.
Speaker Change: But it could inflect to positive during the second half of the year or are some of the headwinds you pointed out.
Speaker Change: Existing consumer still still more of a challenge to that.
Yes, let me give more context around Q1, and then that might also help provide.
Speaker Change: Sort of the foundation for how to think about.
Speaker Change: The year to go.
Speaker Change: The volume decline of $2 six in the Americas for Q1.
Speaker Change: It was really coming through two key factors one is the DSD exit.
Speaker Change: That we've spoken about quite a bit.
Speaker Change: Over last four quarters. So that's definitely was one of the drivers so that two 6% and then that decline into the prepared food categories. As we noted on the call.
Speaker Change: So if you exclude those two factors volume growth in consumer Americas would've been flat to slightly positive.
Speaker Change: So I think thats kind of helps to sort of set a foundation for how we think about the year to go.
Speaker Change: So in our key categories in Q1 growth in spices, and seasonings and recipe mixes.
Speaker Change: Pretty pretty healthy was offset by declines in mustard and hot sauce.
Speaker Change: That's our context I think we would provide a Q1 as.
Speaker Change: As we look forward to the year, we expect volumes to.
Speaker Change: To continue to sequentially improve.
Speaker Change: And drew.
Speaker Change: Drive volume growth as we get into the second half.
Speaker Change: That would probably be the best perspective, I could provide on that I think to think about too is this is not just about Americas consumer we're building volume globally, and the consumer side and a lot of the same brand building activities such as increased A&P, we talked about this in the call.
Speaker Change: Is it all regions. So we continue to support those brands globally in each of our regions North America.
Thank you so much.
Speaker Change: Thank you. Our next question comes from the line of Peter Galbo with Bank of America. Please proceed with your question.
Peter Thomas Galbo: Hey, guys. Good morning, Thanks for taking the question.
Peter Thomas Galbo: Sure.
Peter Thomas Galbo: Mike maybe just to follow up on Andrew's question, I think if you strip out DSD.
Peter Thomas Galbo: The exited in the first quarter, you still kind of had a shatter consumption ahead of what the scanner data would have would have said.
The North American consumer so maybe I know you probably don't again like basis point level detail, but if you could kind of rank between on track some.
Peter Thomas Galbo: Some of that co manufacturing you do.
Peter Thomas Galbo: The upside drivers relative I guess.
Peter Thomas Galbo: The scanner data.
Peter Thomas Galbo: The positive variance in the quarter.
Peter Thomas Galbo: Peter Thanks for your for your your question on that.
Speaker Change: On an apples to apples basis, our consumption is roughly in line with our sales and we are shipping to consumption.
What's probably driving the U S consumption lagging on.
Speaker Change: Americas consumer sales as we had good growth in Latin America, Canada, and that contributed to our total growth.
Speaker Change: But we also delivered growth in unmeasured.
Speaker Change: Excluding that that DSD.
Speaker Change: Business segment that we talked about and.
Speaker Change: So we do expect.
Speaker Change: And continued alignment between consumption and shipments moving forward. We don't really believe that there is any sort of inventory movement that we can call out.
Speaker Change: This point in time.
Speaker Change: But it's also important to call out that in that in unmeasured growth was primarily driven by e-commerce.
Speaker Change: It represents globally for us about 10% of our total sales so.
That's pretty healthy and positive, but we've seen double digit growth in August 2023, and ecommerce and did again in Q1.
Speaker Change: So we continue to believe that E. Commerce is a growth channel and we do continue to put resources against it but coming back to the sort of the top of your question on.
Speaker Change: Influences unmeasured channels I would probably think about that as one thing to consider think about but largely we really believe that our shipments and consumption are broadly in line with.
Speaker Change: Got it that's helpful. And then maybe you guys just I wanted to clarify on on China.
Speaker Change: The slide seem to say, maybe two things I think in the in the China consumer business, which I know is kind of more branded foodservice. There was some weakness, but then on China flavor solutions can you talk about strength in <unk> in China. So just.
Speaker Change: Wanted to maybe unpack a bit more on those seem to be saying two different things and get a better read.
Speaker Change: Kind of between those two sub segments, thanks very much.
Speaker Change: Sure I'll make a couple of comments here and Mike might have some things to add we're not thinking about any differently.
Speaker Change: Then what we said last quarter.
Thank you.
Speaker Change: Largely met our expectations for the first quarter, both from a consumer perspective in our flavor solutions segment perspective, and we continue to expect that.
Speaker Change: Four totaled 222020 for China consumer sales to be comparable to 2023.
Mike: Broadly our outlook for the Chinese consumer does remain cautious I mean, there are several reasons to continue.
Mike: Continue to think that way persisting persisting unemployment with young adults reduced consumer confidence.
Mike: Consumers are still somewhat reluctant to send in and our business will fall to our consumer segment.
Mike: His sales to smaller independent restaurants, and they are losing some traffic to the larger <unk> change that might be where youre hearing say different tanks.
Mike: And so off of that is some perspective around that like we do with other regions. We have plans in flight to address how we're looking at China, and the changing trends with Chinese consumers.
Mike: And we do expect our flavor solutions business to be stronger in 2024, just based on the trends that we're seeing.
Mike: So that's I think some of the person that Mike do you want to add.
Mike: In China about two months ago, and so all of these trends where the <unk>.
Big established <unk> are starting to gain share and drive some traffic into their stores versus that kind of smaller mom and pop type stores.
Mike: I'll just give you a context to this kind of tough as we thought about our whole flavor solutions businesses.
Mike: <unk> business in some parts of the world like China is really doing well other parts, it's a bit challenged so.
Mike: As we think about our guidance those are things that you can talk about the flavor solutions business is lumpy and part due to the fact that.
Mike: Our CPG customers that gives our customers controlled new product launches and there is foot traffic and things like that.
Mike: To start off strong and on the <unk> side, which is great.
Speaker Change: Great. Thanks, guys.
Speaker Change: Thank you. Our next question comes from the line of Max <unk> with BNP Powerbar. Please proceed with your question.
Max: Hey, Thanks for the question.
Max: Last quarter, you talked about making and can make.
Max: Last quarter, you talked about making good progress.
Max: We're starting distribution that was lost the past supply issues in Canada, and I think youre right.
Max: Alright.
Max: And that you still have line of sight too.
Max: Making some good progress on getting that distribution back following customer resets. The middle of this year I was just curious if you could give us a bit more color on.
Max: So on the updated insights you've gotten over the past couple of months.
Max: On what Youre seeing what youre hearing with regard to customer with.
Max: U S.
Max: Thanks.
Speaker Change: Thanks for the question Max.
Speaker Change: Yes.
The proactive discontinuation.
Speaker Change: Over the course of the list.
Speaker Change: Those last two years make up roughly 50% of the TDP losses that we experience. So just reminder, as background on that and then.
Speaker Change: The other GDP that we lost really due to supply for covered earlier quite a quite a bit of it not entirely all of it but a lot of it I think the context I would add on top of that in terms of what we're seeing right now across our core categories were really making.
Speaker Change: Pretty good progress. So for example, just on recipe mix.
Speaker Change: Our total distribution points were up again in Q1 and.
Speaker Change: At this point, we probably have the highest TD piece that we've seen in that category profit compared to last three or four years. So.
Speaker Change: And our share is really quite healthy and strong on hot sauce again, our tdp's were up in Q1.
Speaker Change: We have the highest total GDP points on that business too.
Speaker Change: In the last three years muster similar situations TPS were up again in Q1.
And we have the highest totaled PS and on that one the <unk> piece for the last three years. So.
Speaker Change: A number of those categories, we feel like we're doing quite well and progressing quite nicely.
Speaker Change: Against this in spices and seasonings, we're also making pretty good progress in about five of our top six segments, we're seeing TD.
Speaker Change: GDP growth.
Speaker Change: Right now TDP shares is flat for us, but we expect that to improve as we go through the year a lot of these present when you think about any category or most of them tend to happen in the middle of the year, we think towards the end of Q2. This.
Speaker Change: This will start to reflect on shelf.
Speaker Change: And so I wouldn't say for all of Q2, but definitely as we go into the back half of the year, we think there'll be more full reflection.
Speaker Change: Of the gains that we think we have one.
Speaker Change: Yeah.
Speaker Change: Great and then one more on flavor solution. So it's nice to see that positive volume growth.
Speaker Change: To start the year it was a bit earlier than we all expected.
Speaker Change: Thanks, Remoxy and.
Speaker Change: I know you called out that this segment can have fluctuations one area.
Speaker Change: And limited time offering promotional timing.
Speaker Change: New product launches are happier with that comment are there any things you know about right now that would make you think we could see.
Speaker Change: Some step back in <unk> or is it more just kind of annualize. This is a segment that is more volatile.
Speaker Change: And there's potentially refinancing that.
Speaker Change: Good.
Get back to flattish performance in ticket and I'll leave it there.
Mike: Yes. This is Mike.
Mike: You're right, we're really happy with the first quarter performance there the sequential improvement, but some of our regions. The <unk> business is pretty materials such as in EMEA.
Mike: So it's very public some of the customers coming out and talk about the foot traffic. So.
Mike: I think as Brenda said in the call. The second quarter is a bit of a bit of Uh huh.
Mike: In there on the flavor solutions side, so I wouldn't be surprised by that but.
Benefit to second half both for consumer and flavor solutions volume, we're expecting expecting spring.
Mike: I think about I think about our performance to enhance.
Mike: Versus quarters, because quarters to get there.
Mike: You can get very.
Mike: A week next makes a difference sometimes so within the first half we're still calling for kind of flattish volumes second half volume growth across the business. So think about it in those terms too.
Speaker Change: Great. Thanks very much.
Speaker Change: Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Adam L. Samuelson: Yes. Thank you good morning, everyone.
Adam L. Samuelson: Good morning.
Adam L. Samuelson: Good morning.
Adam L. Samuelson: So I guess I wanted to dig a little more on the Americas.
Adam L. Samuelson: Consumer business and just maybe you can provide a little more context, and then Mike one.
Adam L. Samuelson: Hold on spices and seasonings in the unit share.
Adam L. Samuelson: The improvement.
Adam L. Samuelson: <unk>.
Is that.
Mike: Coming through faster than you expected is that.
Mike: Backing as you've thought in just retail sales probably in January in particular.
Mike: <unk> accelerated for the whole industry, given the weather and some of that channel shift that you alluded to.
Speaker Change: It seems like it.
Speaker Change: Gone back to the safer similar trends through February the units was that do you think you've held that unit sell through.
Speaker Change: Exiting the quarter since the February or was there some are bigger.
Speaker Change: Bigger uplift.
Speaker Change: Towards the end the quarter there.
Speaker Change: Yes, happy to provide more context on pricing.
Speaker Change: And seasonings.
Maybe speaking first to broadly what we saw in the industry I think through the first quarter.
Speaker Change: Our prepared remarks noted we.
Speaker Change: If we think about what was what appeared to be a very challenging difficult Q4, we started to see more center of store.
Speaker Change: <unk> compared to Q4 broadly and maybe that hemant expensive food away from home to some degree.
Speaker Change: Certainly a cold winter always benefits Mccormack, we'd like to see people makes a lot of Chile and.
Speaker Change: And so.
Speaker Change: It always is great for part of our recipe mix business overseas.
Speaker Change: But we're speaking specifically to spices and seasonings here, so we tend to do.
Speaker Change: Think about this from a different perspective, what's really driving I think our performance right. Now is I would point out maybe a couple of things that are benefiting our businesses. Our new packaging continues to increase velocity on shelf and we're rolling out more.
Speaker Change: That.
Speaker Change: It's just pulling through more of it will be complete by the end of the second.
Speaker Change: So we're at 75% at the end of Q4, we believe that we're obviously you get somewhere between 75 and $100 at this point in time and so that's driving improvement we are recapturing distribution points too and we think that sequential improvement led to positive.
Speaker Change: That plus our increase in advertising and the velocity of our new coming from our new packaging led to unit share gains at the end of the quarter.
Speaker Change: And that increase in advertising I think certainly was one of the things that we think will add a lot of our positive trends.
Speaker Change: And our business in spices and seasonings.
Speaker Change: So these are some of the things that we've spoken to I think from not only the fourth quarter call, but also at Cagny and I would just reiterate them here the collection of the integration of all of that together.
We believe it's driving the right level performance on the business.
Speaker Change: Overall.
Speaker Change: Okay. That's helpful. And then maybe just a follow up from Mike just the comments on the on the second quarter and the gross margin.
That will be up modestly year over year, I guess I'm just trying to make.
Speaker Change: <unk>.
Mike: From a should we be thinking about SG&A percent of sales similar to the.
Mike: Similar to the to the first quarter.
Mike: Doesn't seem like your top line, maybe a little bit of a setback in flavor solutions sequentially on the terms of the topline, but it doesn't seem like you're talking about a big step back broadly in terms of the overall company.
Mike: Sales.
Mike: Last year was a tougher comp on price cost.
Speaker Change: I guess.
Trying to just make sure I understand why it would seem like the <unk>.
Speaker Change: Profit growth if not the profit dollars themselves are.
Speaker Change: Decelerating.
Speaker Change: I think Adam maybe you can think about it this way I mean second quarter kind of inflection point for us.
Pricing, which for the first quarter was about two 7% and take about five years is going to be a water stat. So second third and fourth quarter is coming down.
While volume is turning positive and we're getting sequentially improvements in that same quarter. Yet you don't have as much cover for pricing and your volume loss improving to the level. It is in the second half. So that is in the second quarter as I said in the remarks, we're activating some of our price gap management activities more than in the first quarter, so that puts a little pressure.
Speaker Change:
On.
Speaker Change: On the sales side and the profit line, but.
Speaker Change: Confident that investments, including increased A&P, which we had in the first quarter, but also in the second quarter or two.
Speaker Change: Contribute to driving sequential volume improvement in Q2, but in the second half. So I think what youre getting a little bit is a bit of it like I said, it's an inflection point before the volume growth, which would talk about the second half. So it puts a little pressure on margin we're still haven't.
Speaker Change: Positive margin improved versus last year, but if you think about last year that was like the sweet spot of when our pricings are really going in.
Speaker Change: Overcoming the cost impacts we've talked about that last last second quarter. So that was at that point, our margins were up 300 basis points from the prior year I think it was so.
Speaker Change: But we still see again back to the first half second half.
Speaker Change: Really good margin improvement in the second half.
Speaker Change: For the first half.
Speaker Change: The first half is about investments.
Speaker Change: The benefit in the first quarter also rapid Doa programs things like that to which which did help the first quarter, but.
Speaker Change: Yeah, a lot of moving parts in the second that's why we tried to move it to give you a little bit of.
Speaker Change: In summary in the script.
Speaker Change: The colors appreciate it I'll pass it on thank you.
Speaker Change: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.
Speaker Change: Hi.
A couple of follow ups. Thanks.
Robert Moskow: Can you remind us again.
Robert Moskow: What percent of the portfolio in the U S are you executing this price cap strategy I think you said, it's 50%.
Robert Moskow: And maybe a little more color on what segments.
Robert Moskow: Youre working on right now and what you're learning from that.
Secondarily.
Robert Moskow: I think you mentioned some dollar trial sizes in hotspot because I haven't seen that can you explain a little bit why you think that's incremental to the category issue or is your competition doing it and if so are they gaining any share as a result or is it really just helping everybody. Thanks.
Robert Moskow: Yeah.
Speaker Change: Thanks, Rob So let me address.
Speaker Change: I just want to make sure I don't forget your second question as I address your tires.
Speaker Change: With regard to price gap management, I mean, I think I would.
Speaker Change: I would go back to confirming what we said.
Speaker Change: Also cagny is that.
Speaker Change: That program and that if those efforts, which is quite targeted on a SKU by SKU basis represents less than 15% of our Americas, 15% Okay.
Speaker Change: Yes, and that's clearly one five not five though you may be touch 50, and it's one 5%.
Speaker Change: Right.
Speaker Change: And it's really being applied to targeted parts of spices, and seasonings category and recipe mixes.
Speaker Change: So we're also taking price gap management effort selectively across other regions I would say EMEA is an example of that.
Speaker Change: This is just part of I think the good tactical blocking and tackling on.
Speaker Change: The parts of our portfolio, what we think maybe a price point, just simply isn't that a place where it can be successful so.
Speaker Change: That's the color I would add to that now specifically on your question on hot sauce.
Speaker Change: The background I'll first provide hey, this is an attractive category, there's always particularly more so than most categories a lot of new competition always entering into the category. So this is something that we do.
Speaker Change: We live and operate with all the time, we do have underlying strength in our base business on hot sauce, and really healthy consumer loyalty and our plans remain pretty consistent we're fueling a lot of growth through increasing she'll goulette in Franks.
Speaker Change: Brand marketing. The fact, frankly is going to be activated all 12 months of the year in terms of being on air.
Speaker Change: It is the first time, we're doing that really to really tap into the growth that we've seen a segment.
Speaker Change: And in.
Speaker Change: And we're also expanding distribution, but our underlying trends are pretty pretty good now more recently, particularly in like.
Speaker Change: At the end of the fourth quarter or the beginning of the first quarter.
Speaker Change: <unk> seen retailers push the concept of the trial size was like at a dollar price point and its created obviously a lot of consumer value. When you have just a really low opening price point of a dollar for something thats like an apps or less a product.
Speaker Change: But it has resulted in significant unit growth.
Speaker Change: And it's been driving down sort of the category volume and dollar growth that maybe we had been seeing going into this time period. So that is pressuring our share performance, particularly on units you might imagine a lot of this is driven by gifting during the holidays and so you could see sort of the big Spike and then it's kind of December.
Speaker Change: Ratings since then but we still believe it said something that's contributing positively to the category because it's adding new users.
Speaker Change: So the category we've evaluated how.
Speaker Change: How much of it is coming from new households versus existing households.
Speaker Change: The majority of that's coming from new households into the category. So that's also positive.
Speaker Change: We're taking some of these learnings and looking at.
Speaker Change: Our own efforts are having a trial size and competing in this kind of promotional area.
Speaker Change: Because we think it's actually anything drive trial and awareness in the category. We think is healthy and importantly, it's also building upon actions that we already have in place behind Hot sauce, which is a lot of the nation coming out this year I would say, particularly a lot of France, but also cholewa, we're increasing the A&P support on all the <unk>.
Speaker Change: And where we have traditional promotional periods for this these categories. We're just making sure that at the right times during the year and.
Speaker Change: Key certifications and obviously the summer certainly lends itself to that.
Speaker Change: Like 5 de Mayo too so.
Speaker Change: So that's the context in a hot sauce.
Speaker Change: Got it and just to follow up on the 15%.
Speaker Change: As you make it through the year just optically we see market share data that that still doesn't look like it's where you want it to be from a dollar basis and spices <unk> seasonings.
Speaker Change: Is it possible that the other 85% of the portfolio might also need to be addressed in terms of price gaps or are you comfortable that.
Speaker Change: That you don't need to take any action there.
Speaker Change: I think we're comfortable.
Speaker Change: That we don't need to take any action and we are.
Speaker Change: Pretty precise.
Speaker Change: I might say that in terms of how we apply this where the best needs to be applied.
Speaker Change: So we are but I also have to say we're constantly evaluating so every month, we're looking at data and results and deciding whether or not something is in the right place.
Speaker Change: But I think we have a lot of confidence that we're focusing on the right percentage of of the business, but to speak more specifically to just share perspective around that.
Speaker Change: While we don't guide to market share with specificity I think the <unk>.
Speaker Change: Trends in our business right now are going in the right direction.
Speaker Change: And in many ways delivery.
Speaker Change: Delivering against what we would expect to see which is that focus on share improvement for us as we're looking at our business plans first begins with improving unit growth.
Speaker Change: And then we expect dollar.
Just sort of follow on top of that but like in U S spices and seasonings.
Speaker Change: Seeing that type of performance right now and so just.
Speaker Change: So I. Appreciate this is a big integrated effort with a lot of other activities to including increased brand marketing innovation.
Speaker Change: <unk> architecture, no other category management efforts that we're putting forth. So I wouldn't single out any one of those levers, but actually they all work together.
Speaker Change: And that's sort of a perspective I would add on your question.
Speaker Change: Got it okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Matt Smith with Stifel. Please proceed with your questions.
Matt Smith: Hi, Good morning, I wanted to ask a follow up question on that targeted price gap management in the U S consumer spices and seasonings business.
Matt Smith: Particularly in terms of phasing as you've built up or are you targeting 15% of the portfolio, meaning was it more targeted in the fourth quarter you made some progress against the 15% that you're targeting in the first quarter and there's still some more to go in these categories, where you see the opportunity to use your price gap management tools to improve share.
Should should we expect that to continue to build into the second quarter.
Speaker Change: Hey, Matt.
Matt Smith: Let me kick off with you Mike.
Mike: I think as you think about that 15% again I would stress one five.
Matt Smith: Zero.
Mike: Is that is a total look at the year. So indeed, I would say our Q1 isn't necessarily at that level, yet and we would expect to start to hit that type of percentage of our business as we go through the year. So just quickly off the top I wanted to.
Speaker Change: I will provide some of that context around your question, Mike and Matt. Good question and just as I said in the script the second quarter is a bit better because it does.
Speaker Change: Our activation in the second quarter, so youre right, a little bit before more than the first and second quarters when it really almost fully activated it yourself.
Speaker Change: But again as these are investments to drive that volume growth building throughout the year, which we were the early results of the first fourth and first quarter investment very positive combined with A&P and things I just mentioned that holistic program.
Speaker Change: Thank you for that and you talked about some particular portions of the portfolio in the U S that are challenged.
Lilly mustard or your frozen prepared foods can you talk about some of the <unk>.
Speaker Change: Your outlook for the improvement in those categories do you have plans in place to address some of the lower price points and mustard and then is it really just the consumer recovery, that's going to drive the improvement in your frozen prepared foods.
So I'll speak first to mustard.
Speaker Change: We just again.
Speaker Change: Readdress sort of the context of the background on this we definitely are seeing sort of a lot of low price points with private label.
Speaker Change: Fairly low.
Speaker Change: And which impacted our consumption is just driving down the category dollars, but importantly, it's impacting our trajectory on consumption. So we do plan to improve those trends in 2024.
Speaker Change: Largely I think we're going to look at increasingly promotional programs. So we have a big grilling season, and quite excited actually about the grilling season coming up.
Speaker Change: <unk> is a big part of that is our number a number of items within our portfolio.
Speaker Change: That plus.
Speaker Change: Just making sure we are at the right price points I think across that business were also strengthening distribution too which will strengthen trends on top of that.
Speaker Change: So that's our perspective on masters it will it will continue to get better but.
Speaker Change: As we were talking about in the fourth quarter I don't know that we are.
Speaker Change: We saw what we saw in the first quarter was.
Speaker Change: Contrary to what we were expecting as we start to implement those plans, particularly as we get to the grilling season on.
On the prepared foods category that we spoke to we're riding the trends right now in the marketplace.
Speaker Change: And I think Thats, what you would expect to see us.
Speaker Change: How we would see us perform.
Speaker Change: It's a smaller part of our portfolio, we would not kind of call it as part of that core.
And so we are really I think just watching the trends, making sure we follow what's going on in the category.
Speaker Change: And we're treating it much like in that manner.
Speaker Change: Yes think about it too is when you think about we've talked about our portfolio management.
Speaker Change: <unk>.
Speaker Change: This is part of that we're making sure the items, we have in our portfolio whether.
Speaker Change: Whether on the consumer or labor solutions slightly prudent business that doesn't meet our targets. So youll see some of that probably in this area too, but we won't be calling out as a separate item.
Speaker Change: Thank you for that I can pass it on.
Speaker Change: Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question.
Tom Palmer: Good morning, and thanks for the question.
Tom Palmer: I wanted to ask on <unk>.
Tom Palmer: The shelf resets coming later in the second quarter.
Tom Palmer: Is is this incremental from a shelf space standpoint, I mean is there going to be depending on how the timing goes the potential for some favorable shipment timing as we think about the second quarter I would assume that's not factored into your outlook I just want to understand kind of the moving parts there and also kind of.
Tom Palmer: Is that the key driver of this expanded shelf set.
Tom Palmer: Yeah.
Tom Palmer:
Tom Palmer: Well.
Tom Palmer: We do believe it when we gain in Tep's distribution, we view that as incremental too.
Tom Palmer: Our presence in the market at that time I think.
Tom Palmer: Speaking to that and its impact on the second quarter, we feel like we've got that called in.
Our outlook for the rest of the year. So I don't know if theres anything specific.
Tom Palmer: Want to identify for the second quarter.
Hi, Miss and when exactly all that stuff ships et cetera, I think that's a level of detail.
Speaker Change: We wouldn't be getting into at this point I think Thomas maybe as you think.
Thomas: You're kind of focusing on the shelf renovation with the new models, that's been rolling out.
Thomas: From the end of last year, this year, and that's really not a big shipment.
Thomas: We're replacing it is kind of doing it is not a big reset is the same size bottle basically.
Rolled in so we're just kind of filling the pipeline with us they're not going to see a big Spike now you will see better velocity and things like that which is why we did it and that will build throughout the year. Some of the resets we've talked about with winning new business in other categories. Their shelf sets happened sometime in the second quarter and will benefit us in the second half so there's kind of two different thoughts.
As you think about it.
Thomas: Yeah.
Thomas: And they got it.
Speaker Change: And welcome to the call is your first call as Thomas.
Thank you.
Speaker Change: I'll leave it at that.
Thomas: Thank you. Our final question. This morning comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.
Robert Frederick Dickerson: Great. Thanks.
Robert Frederick Dickerson: One upfront question too mechanical ones.
Robert Frederick Dickerson: I just wanted to go back I guess for the last time last question.
Robert Frederick Dickerson: You know kind of the Delta we're seeing.
Robert Frederick Dickerson: And the tracked channel data, which clearly you know all of us look at.
Robert Frederick Dickerson: And then what you did.
Robert Frederick Dickerson: Overall consumer and Americas was better.
Robert Frederick Dickerson: And I think I heard you say like Latin America was due.
Robert Frederick Dickerson: Doing well I know E com it sounds like it's growing double digit.
Robert Frederick Dickerson: But.
Robert Frederick Dickerson: So still trying to get a little more color because I feel like if E com.
Robert Frederick Dickerson: Had been growing double digit or like now kind.
Robert Frederick Dickerson: <unk> already been doing well.
Robert Frederick Dickerson: Like there's got to be some delta in there that's driving.
Robert Frederick Dickerson: Hum.
Robert Frederick Dickerson: The difference between what we're seeing in that tracked channel data relative to what you report because it clearly was much better in Q1 versus let's say the prior three years.
Robert Frederick Dickerson: So then as we're all looking at that data going forward.
Robert Frederick Dickerson: Should we I guess.
Robert Frederick Dickerson: I think that you will be tracking slightly ahead of that given the same drivers or where maybe not because you're also saying you ship to consumption, but it's.
Robert Frederick Dickerson: What we see and so what we've seen for the past 11 quarters. So I'm just.
Speaker Change: There was something in there that's what we're all asking but I just I just didn't really get.
Speaker Change: Well.
Speaker Change: Rob I think there's possibly two different questions there.
Robert Frederick Dickerson: I'd make an attempt at what.
Robert Frederick Dickerson: What I think you're getting at which is.
Robert Frederick Dickerson: What we're seeing in our business and we read our businesses for certain kind of and that's a.
Robert Frederick Dickerson: So much broader more refined view of our categories.
Robert Frederick Dickerson: And so we are.
Robert Frederick Dickerson: Reflecting back that kind of data in our performance as we talk about it.
Robert Frederick Dickerson: Compared to what Nielsen might be reporting I think traditionally time, we've seen differences in reporting.
Robert Frederick Dickerson: We don't release.
Robert Frederick Dickerson: Reconcile that on the call or do anything of that nature, but but there have been times you know the difference and what Nielsen might be reporting in terms of how.
Robert Frederick Dickerson: They are capturing the category versus the more refined.
Robert Frederick Dickerson: Higher level broader view as we look at spices and seasonings.
Robert Frederick Dickerson: In our categories. So.
Robert Frederick Dickerson: That might address.
Robert Frederick Dickerson: Part of your question now.
Robert Frederick Dickerson: The other half of that could it be it's about channels et cetera, and I will go back to the comments that I made earlier that we largely see everything pretty much being in line.
Robert Frederick Dickerson: Via between shipments and consumption.
Robert Frederick Dickerson: We are getting a lot of strong growth in e-commerce as I called out earlier on the call. So that certainly is something that could create a difference in the numbers and metrics.
Robert Frederick Dickerson: Obviously, good performance in Canada, and Latin America.
Speaker Change: I'm going to pause to see if maybe if we thoughtfully address I think yeah I know.
Speaker Change: That's fair that's fair that's fair totally totally get it I just saw it.
Speaker Change: I'd ask one last time and then just quickly.
On the Mexico business with JV.
Speaker Change: I know guidance is for mid teens, I think it's mid teens growth for the year, you put up like 50% in Q1.
Speaker Change: So maybe just kind of if you could just discuss kind of what actually did occur to drive that growth in Q1 and then.
Speaker Change: Given what we saw in Q1 should.
Speaker Change: Like why do you think you'd still grow mid teens.
Speaker Change: <unk> already so ahead.
Speaker Change: No.
Excellent venture.
Speaker Change: Great Great first quarter.
Speaker Change: Against a weaker first quarter to sell some of that in there.
Speaker Change: Is there a little bit too early to call the year that just like to hear their economy, Mexico Theres a lot of price volume things that are going through also the manager a year or so.
Speaker Change: Again, a strong underlying business.
Speaker Change: Really happy with it but yeah.
Speaker Change: We're holding the rest of the year is just a stronger first quarter, but a little bit too early to call on that one okay. All right fair enough and then just quickly Mike I'm glad you asked the question because we don't get a lot I mean, it's such a large part of our portfolio does it gets ignored because it's below operating profit, but very profitable business.
Speaker Change: We have dominant dominant but we have real strong brand positions down there across a couple of categories and we export into the U S. Two mandates that other things too. So it's really really good business for us.
Mike: Yeah, and it was actually a driver of net income.
Anyway.
Speaker Change: And then I guess just quickly I don't think I've heard you speak to interest expense guidance, but frequently provide that so I don't know if you have that and that's all I have.
Speaker Change: The fact that we didn't provide any does not really that material. We only I think last year was the first year, we provided it but.
Speaker Change: It was roughly equal for the first quarter, but I wouldn't expect.
Speaker Change: Full of change for the year.
Speaker Change: Thank you so much perfect.
Thank you that concludes our question and answer session I'll turn the floor back to Mr. Frank <unk> for any final comments.
Frank: Thank you and thanks, Tom joining today's call. If you have any further questions regarding today's information. Please feel free to contact me. This concludes our conference call.
Speaker Change: Yeah.
Speaker Change: [music].
Good morning. This is fostering freight VP of Investor relations. Thank you for joining today's first quarter earnings call.
To accompany this call we've posted satisfies in our IR website IR, Don Mccormack Dot Com with me. This morning are Brendan Foley, President and CEO and Mike Smith Executive Vice President and CFO. During this call we will refer to certain non-GAAP financial measures.
Speaker Change: The nature of those non-GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and slides.
Speaker Change: In our comments certain percentages around it please refer to our presentation for complete information.
Speaker Change: Today's presentation contains projections and other forward looking statements.
Speaker Change: 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.
Speaker Change: Please refer to our forward looking statement on slide two for more information I will now turn the discussion over to Brendan.
Brendan: Good morning, everyone and thank you for joining us.
As many of you have.
Brendan: Probably seen on the news this morning with Francis Scott Key bridge collapsed in Baltimore.
Brendan: Our thoughts go out to everyone impacted by this terrible tragedy.
Brendan: Activated to team and are monitoring the situation.
Brendan: We are pleased to start the year with a strong first quarter. Our performance reflects the early success of our prioritized investments to improve volume trends and drive profitable growth.
Brendan: I will begin my remarks. This morning, with an overview of our first quarter results focusing on top line drivers next I will provide a perspective on industry trends.