Q3 2024 McCormick & Co Inc Earnings Call
Good morning. This is fucking grateful VP of Investor Relations. Thank you for joining today's third quarter earnings call to accompany this call. We posted a set of slides on our IR website IR, Don Mccormack Dot Com with me. This morning are Brendan Foley, President and CEO, Mike Smith.
Executive Vice President and CFO, and Marcos Gabriel Senior Vice President Global Finance and capital markets and incoming CFO.
Speaker Change: 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 and slides.
Speaker Change: In our comments certain percentages are rounded please refer to our presentation for complete information.
Speaker Change: This 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 before we begin reviewing our financial results I would like to address Hurricane Helene.
Brendan: <unk> go out to all those impacted by this devastating storm, we continue to monitor the situation closely.
Brendan: Now moving to our results.
Brendan: Our third quarter performance is aligned with our expectations.
Brendan: Especially as we continue to navigate an evolving and complex consumer landscape.
Brendan: Our results demonstrate the success of our prioritized investments in the areas that we believe will drive the most value and improve unit share trends drive volume growth and capitalize on our advantage categories. As we have said Mccormick remains a growth company and our investments in 2024 are yielding results.
Brendan: Support our confidence in delivering on our top tier long term objectives. We are excited to share our strategic roadmap and building blocks that support these long term objectives at our upcoming Investor day.
Brendan: This morning, I will begin my remarks, with an overview of our third quarter results focusing on the top line drivers next I will provide perspective on consumer trends highlight some areas of success and the areas that we continue to work on mitral.
Brendan: Mike will then go into more depth on the third quarter financial results and Marcos will review, our 2020 for outlook and finally before your questions I'll have some closing comments.
Mike: Turning now to our results on slide four.
Mike: In the third quarter sales were flat in constant currency, reflecting flat pricing, 1% volume and product mix as well as the impact of our <unk> divestiture.
Mike: This quarter, we reached a meaningful milestone by delivering total positive volume growth despite the challenging environment.
Mike: Our volume trends improved sequentially across both consumer and flavor solutions our results to date, coupled with our proven growth plans fuel our continued confidence in our ability to deliver on the mid to high end of our constant currency sales growth guidance.
Mike: In our consumer segment in the Americas, we delivered solid sequential volume improvement for the third consecutive quarter, leading to a 1% volume growth.
<unk> growth reflects our continued focus on accelerating innovation and alignment with consumer trends and expanding distribution.
Mike: Our pricing reflects the continuation of our price gap management plans to support improved volumes as planned.
Anda: Anda, we continue to drive positive volume growth across our major markets and core categories for the third consecutive quarter, we realized benefits from new product innovation and expanded distribution in.
Anda: In Asia Pacific outside of China, We delivered strong volume led sales growth as we continue to benefit from the rollout of our new consumer preferred packaging for our core spices and seasonings portfolio.
Anda: As well as distribution gains.
Anda: This performance was tempered by China.
Anda: Slightly more than we had originally expected as.
Anda: As we look ahead to the fourth quarter, we expect the environment in China to remain challenged and this is reflected within our guidance.
Anda: Mark will provide more color on this when he covers our outlook for the remainder of the year.
Mark: Moving to flavor solutions, we delivered strong sequential volume improvement, primarily driven by growth in the Americas.
Mark: EMEA, our volume trends were impacted by softness in our <unk> customers volumes and in Asia Pacific Our results were impacted by the timing of customer promotions.
Mark: From a profitability perspective, we delivered strong results relative to the prior year.
Mark: As the third quarter benefited primarily from the timing of investments, which are shifting to the fourth quarter.
Mark: As we look at the second half of the year operating income results remained largely in line with our expectations and earnings per share results are slightly ahead due to a discrete tax item benefit.
Mark: Let me now share our view on the state of the consumer which has remained similar since we reported our second quarter results.
Mark: Overall consumers are resilient, but remained challenged they're exhibiting value seeking behavior, making more frequent trips to the grocery store with smaller baskets and shopping just for what they need.
Mark: We are also focused on reducing waste and stretching their budgets.
Mark: Foodservice traffic remained soft across most restaurant types.
Mark: Particularly in <unk>.
Mark: These trends are starting to benefit growth in food at home and this shift is driven by older generations as well as lower income households.
Speaker Change: Tumors overall continue to cook at home and they are increasingly shopping the perimeter for protein and produce.
Speaker Change: This further reinforces their demand for flavor and mccormick's categories included spices, and seasonings as well as condiments and sauces.
Flavor is not something consumers are willing to sacrifice.
Speaker Change: Spices and extracts remained the number one center store growth category.
Speaker Change: From a value perspective, we are seeing several trends demand for larger sizes remains elevated at the same time, there is increased demand for small or trial sizes.
Speaker Change: As well as one time use recipe mixes highlighting that flavor exploration remains important to consumers and our plans need to match that demand with the right product offering.
Speaker Change: Gen Z are new and future customers are also cooking at home.
Speaker Change: Students seasoning blends that make cooking easier and convenient interestingly they are leaning into higher quality and premium flavor items, we're seeing velocity pick up on our gourmet line and it's coming from Gen Z as they seek to recreate restaurant quality meals.
Speaker Change: As you step back and reflect on all of these trends it reinforces the importance of our consumer centric mindset, which is present across our entire business.
At the heart of everything that we do at Mccormick, we're strengthening our broad portfolio to meet evolving consumer demands and delighting them with innovation.
Speaker Change: And we believe we have the right plans in place that are continually informed by what matters most to our consumers and customers.
Speaker Change: Moving to slide five let me highlight for the quarter some of the key areas of our success.
Speaker Change: In our global consumer segment, we drove solid unit consumption growth in spices and seasoning across our key markets in the Americas, EMEA and Asia Pacific.
Speaker Change: In the U S. We continue to improve on our competitiveness relative to private label as our volume consumption outpaced private label for spices and seasonings this quarter.
Speaker Change: This quarter, our grilling portfolio outpaced category growth on unit sales displays velocity and distribution and in the fourth quarter. We are excited to begin the rollout of our new consumer preferred packaging for grill mates ahead of next year's grilling season.
Speaker Change: In recipe mixes we continued to strengthen consumption trends in the Americas, driving both unit and volume share.
Speaker Change: And outpacing private label in the U S.
Speaker Change: Our Tallulah line continues to be a significant driver of growth. We are innovating with tallulah recipe mixes, bringing new consumers to the category, particularly with millennials and younger families.
Speaker Change: In EMEA recipe mixes were a significant driver of UK volume growth and realized dollar market share gains for two consecutive quarters.
And mustard, we had a strong quarter as we drove both unit and volume share in the Americas. In addition, our unit and volume growth outpaced private label in the U S.
Speaker Change: In Poland mustard consumption continues to grow and we are realizing unit and dollar market share gains we made great progress over the last two quarters and are pleased to see that our plans are driving the expected improvement.
Speaker Change: In Americas consumer the declines we previously experienced in the prepared food categories that we participate in like frozen and Asian, which represent a small part of our portfolio.
Speaker Change: Now stabilized and we are seeing improved growth.
Speaker Change: We continue to make progress on total distribution points, we expanded tdp's and gained TV TDP share in spices, and seasonings recipe mixes and mustard and the Americas.
Speaker Change: Finally in the Americas, and EMEA, we drove double digit consumption growth in ecommerce outpacing the market.
Speaker Change: E Commerce was a significant driver of our unit consumption growth for the quarter as consumers continue to seek convenience.
Speaker Change: In flavor solutions, we saw strength in both of our technically insulated high margin product categories branded foodservice and flavors.
Speaker Change: America's branded foodservice business, despite softness in the overall foodservice market, we grew volumes and expanded points of distribution across spices, and seasonings and continents.
Speaker Change: In addition, we are winning hot sauce tabletop share behind new distribution packaging and promotion.
Speaker Change: In flavors or consumer packaged foods customers are seeing some improvement in volumes within their own business in both the Americas and EMEA.
Speaker Change: In the Americas, our performance with high growth innovator customers remained strong we delivered solid growth in performance nutrition beverages, as well as alcoholic and non alcoholic beverages outpacing category growth.
Speaker Change: Let me now touch on some areas, where we are seeing some pressure.
Speaker Change: In Hot sauce, we continue to have underlying strength in our base business and strong consumer loyalty our share trends remain impacted by a peer that is lapping their own supply chain disruptions.
Speaker Change: In the Americas, our unit share trends improved sequentially. However volumes are impacted by many trial sizes. We are pleased so far with the performance of Franks Denny's.
Speaker Change: <unk> are incremental to the category and are driving trial of our new flavors.
Speaker Change: We expect our innovation expanded distribution and brand marketing to help improve our trends as we exit 2024.
Speaker Change: In flavor solutions, our volumes were impacted by slower <unk> traffic, particularly in EMEA. We are seeing this pressure impact our results for several quarters, it's difficult to predict kyocera traffic.
Speaker Change: We are collaborating with our customers as they focus on improving their volumes through innovation and value aligned with consumer trends and.
Speaker Change: In Asia Pacific volume was soft as it was impacted by slower kyocera traffic outside of China, most notably in Australia, and Southeast Asia, where some of our customers remain impacted by geopolitical boycotts.
Speaker Change: Looking ahead to the fourth quarter, we are excited about the holiday season, with our promotion and innovation plans, we are well positioned entering this season.
Speaker Change: We are increasing our merchandising levels supporting our portfolio with holiday brand marketing campaigns and are expecting a strong holiday season.
Speaker Change: Before I wrap up let me reiterate our growth plans on slide six which support our performance year to date and will continue to drive our success in 2024 and into 2025.
Speaker Change: Our base business is strengthening across major markets in core categories. We have several initiatives in flight that will continue to drive this performance and differentiation and I look forward to sharing more details on these plans at our upcoming Investor day.
Speaker Change: To wrap up let me share three key points.
Speaker Change: The long term trends that fuel our categories consumer interest in healthy flavorful cooking flavor exploration and trusted brands continued to be strong and importantly, consumer interest in cooking remains strong we.
Speaker Change: Our dedicated to accelerating our volume trends, we refine and adapt our plans as needed and are prioritizing our investments to drive impactful results and return to sustainable volume led growth.
Speaker Change: Should continue to expect improvement as we closed the year and into 2025 and beyond.
Speaker Change: We believe the execution of our growth plans will be a win for our consumers customers or categories, and Mccormick, which will continue to differentiate and strengthen our leadership.
Mike: Now over to Mike.
Mike: Thank you Brendan and good morning, everyone. Today's earnings call is bittersweet for me as it marks my last one as CFO of this incredible company before I retire reflecting on my tenure of more than three decades, I am filled with immense pride in gratitude for our entire team and appreciate all of their contributions and efforts over the years last.
Mike: Lastly, I would like to thank all of you our sell side analysts and investors for your time and engagement over the years with thoughtful questions and insights have been invaluable to me and they reflect your commitment to understanding our business and long term strategy.
Speaker Change: Now, let's move to our results for the third quarter.
Speaker Change: Starting on slide eight our top line sales were comparable to the third quarter of last year.
Speaker Change: <unk> the impact of accounting divestiture and reflect 1% volume growth, partially offset by pricing.
Speaker Change: In our consumer segment sales were comparable with the prior year as the 1% impact of pricing investments was offset by 1% volume growth, reflecting solid sequential improvement from the second quarter.
Speaker Change: On slide nine consumer sales in the Americas were comparable with the prior year. This reflects 1% volume growth offset by pricing investments and this volume growth was driven by our core categories. We continue to take a surgical and data driven approach to managing price gaps and our investments are still expected to impact about 15th.
Speaker Change: Percentage of our Americas consumer segment.
Speaker Change: In EMEA.
Speaker Change: Scent currency consumer sales increased 3% driven by volumes up 4%, partially offset by pricing of 1%.
Speaker Change: Growth was broad based across product categories in our major markets.
Speaker Change: We are pleased with the volume growth, we delivered in EMEA and expect the momentum to continue through 2024.
Speaker Change: Constant currency consumer sales in the APAC region were flat, primarily due to the macro environment in China.
Speaker Change: Outside of China, we delivered volume growth that was broad based across categories and markets.
Speaker Change: Turning to our flavor solutions segment on slide 12.
Speaker Change: Third quarter constant currency sales were comparable to the prior year, reflecting a contribution from price, which was fully offset by a 1% impact of the divestiture of the <unk> business.
Speaker Change: In the Americas favorite solutions constant currency sales increased 3%.
Speaker Change: <unk>, a 1% contribution from price and a 2% increase in volume driven by the timing of customer activities as well as strength in branded foodservice.
Speaker Change: In EMEA constant currency sales decreased by 9%, including a 3% impact from the divestiture of the Canning business lower volume and product mix of 5%, reflecting the impact of <unk> customers volumes and lower price of 1%.
Speaker Change: In the APAC region.
Speaker Change: Flavor solutions sales were comparable in constant currency with minimal contributions from both price and volume.
Speaker Change: As Brendan mentioned, our volumes in APAC were impacted by slower <unk> traffic outside of China, most notably in Australia, and Southeast Asia, where some of our customers remain impacted by geopolitical boycotts.
Brendan: This was offset by growth in China due to <unk> customer promotions.
Speaker Change: As seen on slide 16, gross profit margin expanded by 170 basis points in the third quarter versus the year ago period, driven primarily by favorable mix within our flavor solutions segment and the impact of our comprehensive continuous improvement program or CCI.
Speaker Change: Now moving to slide 17, selling general and administrative expenses or SG&A decreased relative to the third quarter of last year, driven by lower distribution costs generated by our CCI program and lower employee related benefit expenses as a percentage of net sales SG&A decreased 60 basis points.
Speaker Change: Adjusted operating income increased 15% as compared to the third quarter of 2023 or 16% in constant currency with gross margin expansion and lower SG&A expenses both contributing.
Speaker Change: Operating profit benefited from a shift in the timing of our investments, which now will be reflected in our fourth quarter results.
Speaker Change: <unk> will address this shortly when he reviews our outlook for the remainder of the year.
Speaker Change: Adjusted operating income in the consumer segment increased 8% with minimal impact from currency and.
Speaker Change: In flavor solutions, adjusted operating income increased 31% or 32% in constant currency, reflecting our continued focus on restoring flavor solutions profitability.
Speaker Change: Our performance this quarter reflects our commitment to increase our profit realization and positions us well to make continued investments to fuel top line growth.
Speaker Change: And touching on tax our third quarter adjusted effective tax rate was 16, 8% compared to 21, 4% in the year ago period, the tax rate benefited from the resolution of an outstanding tax matter dating back several years as well as our state sales mix.
Speaker Change: As a result, we now expect our tax rate to be approximately 21% for the year, which is slightly better than the 22% rate. We had previously provided and reflects the discrete items I just discussed.
Speaker Change: Our income from unconsolidated operations in the third quarter reflects strong performance in our largest joint venture Mccormick de Mexico.
Speaker Change: We are the market leader with our Mccormick branded mayonnaise malaise and mustard product lines in Mexico, and the business continues to contribute meaningfully to our net income and operating cash flow results.
Speaker Change: It is important to note that in the fourth quarter, we will be lapping strong results in the prior year period for Mccormick to Mexico.
Speaker Change: At the bottom line as shown on slide 23rd quarter of 2024 adjusted earnings per share was <unk> 83.
Speaker Change: As compared to 65 for the year ago period.
Speaker Change: This increase was primarily due to our increased operating profit as well as discrete tax benefits that I mentioned earlier.
Speaker Change: With that let me turn the call over to Marcos, who will cover our balance sheet and outlook for 2024.
Thanks, Mike.
Marcos: Slide 22, with summarized highlights for cash flow and the quarter end balance sheet.
Marcos: The first nine months of 2024, our cash flow from operations was $463 million.
Speaker Change: But the $660 million in 2023, the benefit from the increasing earnings year over year was more than offset by the impact of cash used for working capital increased incentive compensation payments and timing of cash tax payments.
Speaker Change: We returned $338 million of cash to shareholders through dividends and used $189 million for capital expenditures.
Speaker Change: As a reminder, capital expenditures include projects to increase capacity and capabilities to meet growing demand.
Speaker Change: Vance abuse, this information and optimize our cost structure.
Speaker Change: Our priority remains to have a balanced use of cash and investments to drive growth returning a significant portion for our shareholders through dividend and paying down debt and importantly, we remain committed to strong investment grade rating and expect our leverage ratio to be below three times for 2024 with another year of strong cash flow driven by profit and working capital initiatives.
Speaker Change: Now turning to our 2024 financial outlook on slide 23.
Speaker Change: Our outlook continues to reflect a prioritize investments in key categories to strengthen volume trends and drive long term sustainable growth, while appreciating the uncertainty of the consumer environment.
Speaker Change: Turning to the details.
Currency rates are not expected to have a minimal impact on sales adjusted operating income and adjusted earnings per share of <unk>.
Speaker Change: <unk> from the previously anticipated unfavorable impact of approximately 1%.
Speaker Change: At the top line, we continue to expect constant currency net sales to range between a decline of 1% to growth of 1% and anticipate our results will be at the mid to high end of our guidance range.
Speaker Change: In terms of pricing, we anticipate about a 1% increase for the year similar to what we said last quarter.
Speaker Change: In China, our photo away from home business, which is included in it that consumer continues to be impacted by lower demand and we now expect China consumer space could be down slightly compared to 2023 for the full year, although we presume they expect it to be flat and this is reflected within our guidance.
Speaker Change: While we recognize there has been continued weak demand in China. We continue to believe in the long term trajectory of the China business.
Speaker Change: Moving to adjusted operating income.
Speaker Change: We continue to expect 4% to 6% constant currency growth.
Speaker Change: Our 2020 for gross margin is projected to range between 50 to 100 basis points higher than 2028.
This gross margin expansion reflects favorable impacts from pricing.
And cost savings from the CCI Ngls programs, partially offset by the anticipated impact of a low single digit increase in cost inflation and our increased investments.
Speaker Change: In addition to our gross margin expansion SG&A benefits from cost savings will be partially offset by investments to drive volume growth, including brand marketing for.
Speaker Change: For the year, we continue to expect from our brand marketing expense to increase high single digits.
Speaker Change: Lighting, a double digit increase investments, partially offset by CCI savings.
Speaker Change: In terms of FX, we now expect our tax rate to be approximately 21% for the year, which is slightly better than the 22% rate. We had previously provided and reflects the benefit of discrete items, Mike mentioned earlier.
Mike: We continue to expect mid teens increase in our income from unconsolidated operations, reflecting the strong performance, we anticipate the performance of <unk> for the year.
Speaker Change: To summarize our 2024 adjusted earnings per share projection of $2 85.
Mike: $2 and 90% reflects a 5% to 7% increase compared to 2023, and we anticipate our results will be close to the high end of the range as we benefit from the improved tax rate.
Mike: As we head into the fourth quarter, let me summarize some of the puts and takes to consider.
Mike: We expect to drive volume growth in both consumer and flavor solutions and sequential improvement from the third quarter.
Mike: Pricing is expected to have a slight negative impact with the price investments in our consumer segment, only partially offset by flavor solutions we.
Mike: We expect gross margins to sequentially improve from the third quarter and to be flat relative to the prior year driven by price.
Comparable year over year flavor solutions product mix and planned supply chain investments to support growth.
Mike: We expect our investments in brand marketing to ramp sequentially from the third quarter and anticipate an increase in SG&A year over year related to IP and digital transformation investments shifting into the fourth quarter and I will talk more about these investments.
Mike: Upcoming Investor day.
Mike: As a result, our operating profit will likely be comparable with the prior year due mostly to the timing of our investment. However does remain largely in line with how we had expected operating profit performance for the second half of the year.
Mike: As Ben noted, we continue to prioritize investments to drive impactful results I'll return to volume growth underscores that we are moving in the right direction.
Ben: And we remain confident in the underlying fundamentals of our business and delivering on our 2024 financial outlook and our long term objectives over time.
Speaker Change: Thank you Marcos before moving to Q&A I would like to close with our key takeaways on slide 24.
Speaker Change: We are pleased with our results for the quarter, especially as it marks an inflection point for total company volumes turning positive.
Speaker Change: This demonstrates that we are investing in the areas that drive the most value and reinforces our confidence in our plans and long term objectives.
Speaker Change: We continue to execute on our strategic roadmap with speed and agility and in alignment with consumer trends further capitalizing on our attractive categories across segments.
Speaker Change: In addition, our plans are yielding the expected results.
Speaker Change: We also continue to expand margins and manage our costs as we are investing in the business.
Speaker Change: These improvements are led by our favorable product mix and cost savings programs.
Speaker Change: Our results in the third quarter benefited from the timing of these investments and we continue to expect our second half operating profit results to be in line with our expectations our.
Speaker Change: Our year to date performance, coupled with our growth plans give us confidence in achieving the mid to high end of our projected constant currency sales growth for 2024.
Speaker Change: Finally, I want to recognize all Mccormick employees for their dedication and contributions, particularly as we navigate this complex environment.
Speaker Change: Reiterate my confidence that together, we will continue to drive differentiated results and shareholder value.
Speaker Change: Now for your questions.
Speaker Change: Thank you well now be conducting a question and answer session.
Speaker Change: 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.
Speaker Change: You May press star two if he like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment please poll for questions.
Speaker Change: Our first question today comes from the line of Andrew Lazar with Barclays. Please proceed with your questions.
Andrew Lazar: Great Good morning, everybody.
Andrew Lazar: Andrew Thanks.
Andrew Lazar: Brendan it's certainly nice to see the continued sequential volume improvement in consumer, especially in the Americas, I think pricing and consumer was down a little less than a point and it was pretty close to where expectations were but im curious if youre seeing the expected magnitude of volume lift from some of these.
Speaker Change: Price pricing actions and investments that you've made and I guess if you are.
Speaker Change: There'll be reason maybe to leaning in even a little bit further right to keep the momentum going given you've got some flexibility this year from things like tax rate and some below the line items.
Speaker Change: Yeah. Thanks, Andrew Let me just maybe lead in with a couple of thoughts here I mean, we do continue to make the right progress.
Speaker Change: We're on track with where we expect it to be.
Speaker Change: We turned the corner and are growing volume, which was our offices as we started the year our goal in the second half of the year I think importantly, we're outperforming private label in volume across all of our core categories and I do like the progress that we're making in flavor solutions, especially in this last quarter.
Speaker Change: In the Americas region.
Speaker Change: Having said that.
Speaker Change: We're never going to satisfy.
Speaker Change: I think that we still see an opportunity to continue strengthening our plans and execution in the back the rest of 'twenty forward going into 'twenty five but.
Speaker Change: But our programs are working.
Speaker Change: And we believe they are delivering the.
Speaker Change: The growth that we thought that they would just to add context on all of those levers that.
Speaker Change: On top of that price gap management that you referred to that we think are really driving our business. It is increased investment in brand marketing and A&P just across all of our core categories.
Speaker Change: We've launched innovation, that's really contributed meaningfully to our performance and.
Speaker Change: Yeah, that's been an exciting part because that's a lot more innovation that we launched in 2022 and 2023, which was an important goal that we had here in 'twenty four.
Speaker Change: We're expanding distribution of our core categories. I think we had a really good quarter. There in terms of performance as we expected it would start to build in terms of pricing, we maintain that price gap management program that we've talked about in the third quarter. It will continue to play out as expected in the fourth quarter two.
Speaker Change: But it's only a portion of our strategy, but it is yielding results.
Speaker Change: The results that we expected from that and I just would add we're also operating in great categories. So, let's not forget that that's also part of it I think the strength behind our businesses that we do operate in really strong categories. Yes, I do want to say broadly at a global level. We also saw really good performance across the consumer segment at a global level.
Speaker Change: In EMEA, Australia Southeast Asia, we just saw broadly to performance, including first our spices and seasonings category growing volume across the entire consumer segment for Mccormick.
Adding said all of that.
Speaker Change: Our guidance is appropriate.
Speaker Change: Given the dynamic consumer environment. So we're confident in our plans.
Speaker Change: We will be at that mid to high end of our topline range.
Speaker Change: But you also have to really make sure that we reflect what's going on in the environment right now.
Speaker Change: China is slightly worse than we expected and it does remain challenging so we're factoring that into our thinking on <unk> trends.
Speaker Change: Continue to be a bit uncertain and so that's kind of factored into our thinking too and as you go into the fourth quarter as all of you know this is the biggest part of the year for us. So we want to make sure that we're balanced and we deliver on our expectations, but it is a big quarter for us.
Speaker Change: That's helpful. Thank you and then quick one as you know.
Speaker Change: I think you mentioned that youre sort of prepared foods business in the Americas, which had been had been weaker was stabilizing in that.
Trends in the sales that you make to other sort of packaged food manufacturers were starting to look a bit better I think you mentioned, so I guess as it relates to the sort of the industry as a whole right where the big debate is you know when when do we start to see some some sort of better volume trends recover and whatnot across the space.
Your view into that based on some of the businesses that you've got Steve.
Steve: It seemed to suggest maybe that sort of starting to happen, albeit gradually I'm curious to get your sense on your view into that aspect.
Steve: Yes, I think.
Speaker Change: And that's certainly bridges off of our second quarter call.
Speaker Change: More or less our customer plans for performing as expected, which was we were expecting some improvement compared to the second quarter.
Speaker Change: And so we believe that largely that start to play out our flavors business.
Speaker Change: In the Americas region.
Speaker Change: Saw good results across those areas that we consider like high innovator growth customers. So that plays out in categories like performance nutrition or alcohol beverages or for nonalcoholic beverages, but we believe we outperformed the category broadly there and then we did see strength in our branded foodservice business and that also played.
Speaker Change: And two I think some of the improvement that we're seeing.
Speaker Change: You know broadly across flavor solutions segment, having said that traffic was weak and slower.
Speaker Change: And probably we would have expected, but that's speaking back again to that level of uncertainty. However, having said that we do see our customers.
Speaker Change: Being responsive to what's going on in the market and trying to drive volume growth et cetera. So we do think as we go into Q4.
Speaker Change: That trend should continue a broadly that we see sequential improvement from the third quarter.
Speaker Change: Thanks, so much and seen a couple of weeks.
Speaker Change: Okay.
Speaker Change: Our next questions are from the line of Ken Goldman with Jpmorgan.
Ken Goldman: Hi, Mike Thanks, again for everything and we appreciate all your help over the years.
Ken Goldman: Two questions. If I can number one I don't think you quantified forgive me if you did that.
Speaker Change: The timing of the activities with your customers how much that benefited <unk>.
Speaker Change: It was largely an Americas flavor solutions, but just wanted to clarify that and you did say that shift will be reflected in <unk> results, just making sure we should kind of model all of that reversing in <unk> and then I have a follow up.
Mike: Yes. This is Mike.
Speaker Change: Yes, as we said in the last call. There is a bit of a positive that was going to come into the third quarter from Q2 and that happened it wasn't the biggest.
Brendan: Brendan talked about they're really good flavor solutions underlying performance in branded foodservice and other areas, but that did have a positive impact in Q3, which will kind of normalize in Q4, as we think about year on year comparisons.
Speaker Change: Okay, and then for my follow up.
Speaker Change: I know you are it's too early to talk about 2025, but I'll take a quick stab anyway.
Speaker Change: Question.
Speaker Change: I will give it a shot is there any reason to think at this time you won't be an algo and the reason I'm asking is you have talked about.
Speaker Change: Volume growth into next year, you kind of reiterated that a little bit today.
Speaker Change: Previously said you have the right level of investments in place. So I don't expect that to rise you'll always have great. CCI. So just trying to get a sense is there anything youre seeing obviously theres hot sauce dish <unk>.
Speaker Change: China in general that can hold you back, but there's other positives happening as well. So just wanted to get that sense and then while you're answering and I'm. Just curious what is the underlying EPS algo ex M&A I mean, many years ago, you said that the combination of M&A and repo, we contribute around 2% and the average year to EPS, but I wasn't sure how you broke that down.
Speaker Change: So hopefully that makes sense, thank you well.
Speaker Change: That last follow up question and felt like it had maybe a few buried in there.
Speaker Change: Do my best to remember everything, but I'm going to ask Mike and Mark is to help me out with this.
Speaker Change: Yeah, we're not prepared to talk about 25 guidance at this point so.
Speaker Change: Although at Investor Day, we feel like we'll share more context about how we're looking at the future and how we think about.
Speaker Change: Overall, our performance and what will drive.
Speaker Change: Our long term volume growth, which is something that we've historically done.
Speaker Change: So, we'll we'll spend some time talking about our our view into what will be those drivers as we look at from a long term perspective.
Speaker Change: And.
Speaker Change: When I think about what's going well in 'twenty four and why shouldn't continue in 'twenty five as just we believe that these are the right programs and the right things to do on our business and.
Speaker Change: These are things that we believe is part of just doing a good job in delivering growth within our categories. Mike do you want to add yes, I think I would just say to.
Mike: You could go back to guidance early in January late January in Cagny, the things, we talked about making the investments this year to really drive kind of second half volume growth, which we are obtaining we're happy with the performance not totally satisfied as Brendan said, we'd love to do more of that build that momentum into 2025.
Brendan: There is uncertainty in the economic market as there always is but we feel like we're well positioned.
Speaker Change: I think you'll hear more from Investor day, which would be a three week, yes, that's right.
Speaker Change: Thanks, so much.
Speaker Change: Our next question is from the line of Peter Galbo with Bank of America. Please proceed with your question.
Peter Galbo: Hey, guys. Good morning, Thanks for taking the questions.
Mike: And Mike Thanks again.
Speaker Change: Maybe to follow up on Ken's question just around this year.
Speaker Change: The gross margin guidance I think we're getting questions. This morning, just your you are up 125 basis points year to date, obviously, you didn't move the gross margin guidance higher.
Speaker Change: And maybe there is some timing factors there, but just trying to understand if there's maybe a bit of conservatism in there as well.
Speaker Change: And why that rate of change just kind of continue through the fourth quarter.
Speaker Change: Yes.
Speaker Change: Think about it.
Speaker Change: Some perspective, there would tell it we talked about this year and have a lot in the first.
Speaker Change: First half second half.
Speaker Change: Because as you know.
Speaker Change: <unk>.
Speaker Change: It's such a small unit of measure sometimes you get some moves but so we tried to keep it pretty high level of half of this year and we've seen really good sequential improvement first half into second half and actually by quarter.
Speaker Change: Going that way too, we see the fourth quarter actually higher gross margin than the third quarter, which is our normal trend. So we're really happy with that year on year, you always get a little mixed sometimes that happens we talk about normalized the mix versus last year in the flavor solutions side, not necessarily from third to fourth quarter, but from fourth quarter of this year.
Speaker Change: Of last year.
Speaker Change: <unk> highlighted some of the supply chain investments and I'll, let him talk about that in a second.
Speaker Change: Pricing quarter year on year comparison, there that puts a little bit of pressure, but not a whole lot.
Speaker Change: Yes.
Speaker Change: If you think about our gross margin and the puts and takes between Q4.
Speaker Change: We're thinking about Q4 is more of a normalized flavor solutions product mix sensitive.
Speaker Change: Turning to face when we think about it that way. We're also thinking about some of the supply chain investments that we had planned for the year around building capacity, particularly around the Heath platform that we have continued to invest in that platform.
Speaker Change: Be impacting Q4 more so than the rest of the year. So that is a that is.
Speaker Change: Any impact there and also I would say that in a little bit of pricing I mean, you're going to have a slightly negative pricing.
Speaker Change: Silver going into Q4, offset by partially offset by flavor solutions, but theres going to be a little bit of that negative.
Speaker Change: That's through pricing as we continue to invest back into the business to drive top line growth. So there's some elements between Q3 and Q4 as Mike said, some puts and takes between the two quarters I think if you look at the second half profitability is very much in line with what we expected before and you'll hear us talk about at Investor Day about 10 times, but.
Speaker Change: This heat investments that we're making in supply chain I think youll be excited to see the potential as we've talked about in the past on heap. It is really driving a lot of our growth which is great.
Speaker Change: Okay.
Speaker Change: Okay, great. Thanks for that and then maybe just pivoting.
Speaker Change: And I wanted to ask you on on China, specifically I think maybe you spent some time there earlier this year in the market at least seems to be rewarding China exposed stocks in the past week or so.
On the back of some of the macro there just curious kind of get your perspective on if there is some kind of stimulus policy in China, how youre thinking about improved consumer demand or in groups consumer psyche there.
Speaker Change: Perspectives would be helpful. Thanks very much.
Peter Galbo: Sure Peter on China.
Speaker Change: We do expect the environment there is going to remain broadly challenged.
Speaker Change: We do expect our business probably would be down slightly in 'twenty. Four so just for the sake of clarity I mean, that's the outlook that we're looking at for the balance of our year.
Speaker Change: But when you when you reference I think these this latest news on stimulus.
Just not in a position to sort of predict the impact of that.
Speaker Change: Say, though and previous actions have been taken in terms of.
Speaker Change: And the country regarding stimulus I don't know that necessarily had a material impact.
Speaker Change: On our sort of the consumption of our business and so at this moment right now we believe that they will just continue to make sequentially. Good progress. It's just not at the speed, we thought it might happen and by the way we didn't plan on a lot I think this year in China to begin with.
Speaker Change: So it's just a little bit it's more muted than we expected and I think given the latest economic news out of the country, we're still waiting to see what kind of impact that might have.
Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Our next question is from the line of Alexia Howard with Bernstein.
Alexia Howard: With your question.
Alexia Howard: Good morning, everyone.
Alexia Howard: Good morning, Mark good morning.
Alexia Howard: Hi, So can I ask about the margin recovery and play the solutions I think you mentioned that it may have been driven partially by product mix I'm just wondering how much more runway that range for continued improvement on that side.
Speaker Change: Specific to the mixed try to laws.
Alexia Howard: Yes Alexia.
Alexia Howard: You think about our long term journey on flavor solutions, and we've talked about portfolio migration in the past and more recently as you think about the things that are higher margin within that portfolio branded foodservice.
Alexia Howard: But.
Alexia Howard: Brendan mentioned had a really good quarter, gaining share driving growth if some of the categories within flavors, which we're gaining share in performance nutrition and things like that again lean to the higher margin side of things so.
Speaker Change: It's a little indication of a proof point of our vision to move these margins higher as we as we migrate the portfolio and considering the CCI and somebody mentioned CCI before again, another bedrock and we've taken the approved flavor solutions margins the last two years.
Speaker Change: At our global operating operating effectiveness program continue that CCI journey, there and we'll talk about that more at Investor day too so.
Speaker Change: I think we're very positive on flavor solutions longer term quarter to quarter is going to.
Speaker Change: Talking about this business, sometimes being lumpy I think we got to come up with another words since there'll be leaving.
Speaker Change: But.
Speaker Change: Volatile but.
Speaker Change: Again, there is that there is room for margin improvement here and also just selected a nice I mean as we continue to grow the business, we'll see leverage coming through the P&L, but also any type of margins going forward.
Speaker Change: Great. Thank you and then just a follow up.
Speaker Change: You mentioned Brexit stage, seven being a big driver at the margin improvement on the installation side is that because traffic is improving in the quick service restaurants is that value member.
Speaker Change: Unused.
Speaker Change: Picking up or is it something different that's happening I think you mentioned share gains just trying to get a flavor for what's happening on the branded foodservice side and what's driving that thanks.
Speaker Change: Alexia.
Speaker Change: Give you a flavor of that just to repeat the pond.
Speaker Change: The drivers on the branded foodservice has less to do with traffic.
Speaker Change: Traffic trends that we see them quite subdued still at this point in time.
Speaker Change: It had been for the last even in the second quarter when we reported we.
Speaker Change: We saw it just depressed trends from a traffic perspective, and most sort of segments within foodservice the driver of our growth seems to be worked is.
Speaker Change: Gaining share gaining more tabletop placements on things like Frank's Red Hot and.
And just broadly I think winning in the marketplace with our full platform of both spices and seasonings and also condiments and sauces and so we like the programs that we drive and that we run and often what youll see I think in that business as well.
We're doing a lot of limited time offers with our brands so brands like <unk> or <unk> Red Hot.
Speaker Change: Tend to be brands that we've seen operators like to use leverage as ways of driving interest and excitement on their menu.
Speaker Change: Because those are obviously flavors that are quite appealing to consumers and so we're seeing that that part of our branded foodservice business pick up even a little bit more because we've been running a lot more of those types of programs and promotions with with our customer base. So it's.
Speaker Change: It is it's really doing well in a tough marketplace. I think is for property at the answer I would give.
Speaker Change: Perfect. Thank you very much I'll pass it on.
Speaker Change: Okay.
Mexico her: Our next question is from the line of Mexico her with BNP Paribas. Please proceed with your question.
Mexico her: Hi, Thanks for the question just to follow up on flavor solutions margins. So you had a very strong quarter up 300 basis points year over year I think it's the highest margin we've seen for that segment since the pandemic started.
Speaker Change: And by our math and a few assumptions, we're making it would seem like the guidance for the full year implies a pretty big.
Speaker Change: Step back in <unk> and flavor solutions margins.
Speaker Change: Sounds like product mixes.
Speaker Change: <unk> headwind, you're seeing on the horizon, although it wasn't clear to me if youre, saying product mix was abnormal items for Q2, 'twenty three and it's a tough compare or abnormal in <unk> 24, and you take a step back towards a more normal mix in <unk> to 'twenty four but I'm curious if there's any other factors youre seeing on the horizon.
Speaker Change: It's really just some conservatism for the volatility and Lumpiness of the segment. Thanks.
Speaker Change: Thanks, Yes, I would say, it's more balanced honestly, I mean again quarter to quarter Youre going to get some some variability here. If you look back at the fourth quarter of last year as I mentioned before.
Speaker Change: Kind of compare and mix.
Speaker Change: It's normalizing.
Mark: Supply chain investments I think honestly, if you think about our supply chain investments that things were getting on heat that mark has talked about impact flavor solutions, such a smaller sales base too. So you probably get more of a gross margin impact for the year came back to your comment.
Speaker Change #100: Plan with happy with the margin improvement there.
Speaker Change #101: But overall I mean, our operating profit should the margin should improve.
Speaker Change #101: Improved for the full year.
Speaker Change #102: Versus last year's as well clinically do to make that same question in terms of operating margins. So we've increased margins by 200 basis points 2023 of us too in that.
Speaker Change #102: We tend to drive operating margin up for the full year as we had planned before.
Speaker Change #103: Great. Thanks, and then turning to hot sauce in the U S. So it sounds like it remains a challenge youre still seeing pressure from.
Speaker Change #102: Peers.
Speaker Change #104: Trial size package offerings. It sounds like also that you're pleased.
Pleased with the initial reaction to your own trial size packages, but can you just give us an update on.
Speaker Change #105: And what Youre seeing there what you expect from your action plans over the coming quarters. Thanks, very much I'll leave it there.
Speaker Change #106: Yes, Max yes. Thank you for the question on Hot sausage Hot sauce isn't attractive category.
Speaker Change #107: There is new competition always entering the category. So that's something that we sort of deal with all the time and but we as I said it.
Speaker Change #108: Prepared remarks, we really do like the underlying health.
Speaker Change #108: <unk> of our base business and just continued strong consumer loyalty.
Speaker Change #108: This is also part of our portfolio Thats also receiving a fair amount of increased investment.
Speaker Change #108: But there is one thing that's really I think impacting from a share perspective, just two particular things going on in the marketplace. A peer of ours is lapping a big supply chain constraints in the prior year.
Speaker Change #108: Which hasnt affected our business as much but definitely affected theirs and so we're seeing that volume return back.
Speaker Change #108: Under their label, but also we're seeing a lot of surgeon unit volume from these many trial sizes, which we were able to participate in or begin to participate in.
Speaker Change #108: In the third quarter, our units are holding up well in this category too. So there is a fair amount of noise going on are in hot sauce category.
Speaker Change #108: And so when we look at those many is just to give you some more perspective around that.
Speaker Change #108: We're seeing a lot of pick up the velocity. What is doing is it's helping us drive trial on new flavors I think we have the sriracha in there and we also have a premium thoughtfulness source brokers.
Speaker Change #108: Both are super good at.
Speaker Change #108: At a dollar these are really low price points for consumers to just really it lowers the barrier to trial and so we've seen a nice pickup in velocity on those many trial sizes and expect that obviously to be a positive part of our portfolio or that brand assortment that will have moving forward.
Speaker Change #108: Also don't want to draw attention to we have strong early acceptance on our overall innovation like our frantic Frank's Red Hot squeeze products that are coming out Franks Dill pickle Hot sauce.
Speaker Change #108: These are items from an innovation perspective, and it kind of rolling out in the market in the back half of this year and we like the performance that we've seen there so.
Speaker Change #108: We'll continue to work through that we believe we will have better performance as we move towards the end of 2020 for a sequentially improved versus the third quarter.
Speaker Change #108: But this is an area that we get a lot of attention to and it's an exciting area in the store.
Speaker Change #109: Thanks, very much very helpful.
Speaker Change #110: The next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your question.
Steve Powers: Hi, good morning.
Morning.
Steve Powers: Yes.
Speaker Change #112: Hey, good.
Speaker Change #113: The first question on the.
Speaker Change #113: The planned ramp in marketing and advertising support.
Speaker Change #114: But then you called out in some part of the fourth quarter guidance I'm curious as to how much of that is just.
Speaker Change #115: More intense programming around holidays.
Speaker Change #116: Specific to stimulating <unk> demand versus maybe more everyday programming that has maybe a more durable ROI in 'twenty five.
Speaker Change #115: Well.
Speaker Change #117: When you think about the fourth quarter and in our our posture walking into the fourth quarter.
Speaker Change #118: Maybe a good way to think about it is we still have the same level of programs and activity.
Speaker Change #118: That's been driving our business results.
Speaker Change #118: We expect that will continue and its and its strength going into the fourth quarter. So we're not pulling back or anything like that but we like the progress and the results that we're getting across the portfolio with those investments and those plans and programs and it's also our big holiday season quarter.
Speaker Change #118: And we really do believe we have very strong holiday plan set up with our customers and so this is an area that we expect to have really good performance.
Speaker Change #119: So that obviously is it.
Speaker Change #119: Tick up when you think about it sequentially from the third quarter and that's something to be expected.
Speaker Change #120: But some of this as you mentioned every day, we talked about Frank's hot sauce with early near term add on everyday so that does that does it change we've made earlier this year.
Speaker Change #121: Okay. Okay. Thank.
Speaker Change #122: Thank you for that.
Speaker Change #123: And then I know this is very new but.
Speaker Change #124: The dockworkers strike that's news this morning.
Speaker Change #125: I guess from your perspective.
Speaker Change #126: I'm, assuming that that's relatively short lived the impact is relatively manageable.
Speaker Change #127: From the outside how how long.
Speaker Change #128: Is this does this extend how long before this becomes a more a more material issue for you based on your current visibility of inventory levels.
Speaker Change #127: Yes.
Speaker Change #127: Thanks for the question on this Steve.
Speaker Change #127: On the East Coast Port strike from an inbound supply planning perspective for US we've been contingency planning on this on the potential for this since like.
Speaker Change #127: April of this year, we really have been thinking about this as maybe something that could happen and so we've been planning our our actions around that possibility. We've also coordinated mitigation plans with our domestic suppliers because they might be counting on.
Speaker Change #127: Inbound supply coming from outside the United States. So we believe we've mitigated most of those risks.
The strike now officially occurring but we believe we are broadly covered we are monitoring it daily though.
Speaker Change #127: Just to make sure that we don't have any interruption of supply, but we feel like the plan for this.
Speaker Change #127: Although we are encouraged both sides to work through this is protectively as they can and with pace.
Speaker Change #127: Because this is something obviously that we don't want to see have a long extended event.
Speaker Change #127: Those are our thoughts right now on that.
Speaker Change #127: And we're going to watch it closely like everyone else.
Speaker Change #129: Okay. Thank you very much appreciate it.
Speaker Change #129: Yes.
Speaker Change #130: Our next question is from the line of Rob Dickerson with Jefferies. Please proceed with your questions.
Rob Dickerson: Great. Thanks, so much.
Rob Dickerson: Just two quick ones.
Rob Dickerson: I guess first one is just kind of wanted to get maybe a little bit more color on Q4.
Speaker Change #132: Because I think kind of around midpoint of the EPS implied guide.
Speaker Change #133: It looks like it's down about 15% year over year.
Speaker Change #134: At the same time, it sounds like maybe sales could be a little bit better sequentially like relative ever seen in Q3, and then the comments around gross margin. It seems like gross margin a little bit more normalized.
Speaker Change #135: Still still better than Q3 may be flat year over year, so kind of what's implied everything we're talking about right. It's like SG&A should be up a decent amount.
Speaker Change #136: And then I guess, there is a little bit of implied tax rate headwind.
Speaker Change #137: But then also like income from unconsolidated clearly as spin.
Speaker Change #138: It's been up like 50% year over year year to date versus the mid teens guide. So I'm just trying to kind of gauge like what what's the core driver of that year over year absolute EPS implied decline in Q4.
Speaker Change #139: Sounds like its SG&A.
Speaker Change #140: Thanks, Yes, I think you kind of walk walk the P&L very well highlighting kind of squeezed there.
Speaker Change #141: We've talked about the SG&A investments, we're making.
Speaker Change #142: It was a timing shift in some of the supply chain investments just to touch on taxes on consolidated really briefly and I'll, let <unk> cover a little bit.
Speaker Change #142: But.
Speaker Change #143: The tax a little bit of a headwind after some pretty large favorable that we talked about in the call which were more timing related but we did call the tax rate down for the full year by 1%.
Speaker Change #144: On consolidated really great performance might make Mex continues we're lapping really great performance in the fourth quarter last year, but also the peso has devalued pretty significantly so I think thats part of the reason.
Speaker Change #144: Wonky to you on that.
Speaker Change #146: But maybe alternative markets.
Speaker Change #147: Yes, P&L, yes, yes, so we talked about it on the top line I mean sequentially improving from Q3 into Q4, we gave the mid to high.
Speaker Change #148: Some of the range in terms of the full year, but if you think about Q4 is going to improve both in consumer and flavor solutions from the Q3. The same applies for the gross margin and gross margin.
Speaker Change #148: So sequentially from Q3 into Q4, if you compare with <unk> he is going to be flat.
Speaker Change #148: Given the reasons that I mentioned before in terms of the investments that we're making in supply chain.
Speaker Change #148: The normalization of the mix a bit on flavor solutions side, some of the pricing that bring consumer that's going to be partially offset by flavor solutions. So that's how we see the gross margin.
Speaker Change #148: And so into Q4 on SG&A, we had some investments that shifted from Q3 into Q4 as well, particularly around it and digital transformation as you know we have our additional transformation journey across the company and we're going to be.
Speaker Change #149: Commenting more about that.
Speaker Change #149: Industrial day, but we see something thats in Q4 around digital marketing.
Speaker Change #149: Data analytics.
Speaker Change #149: Putting a hub around data analytics to serve the business as.
As well as some efficiencies across manufacturing some of the investments that we're making in terms of digital transformation that is really kind of a lending in Q4. So that's a little bit of a put that impacted EC, but operating profits are going to be comparable to last year or two.
Speaker Change #149: Sure.
Speaker Change #149: Those are kind of the puts and takes that we see some good things in Q4. Thank you.
Speaker Change #149: Other thing Rob I mean, do you get to the fourth quarter again, it's one quarter out afford is the biggest quarter you get into a little bit of a squeeze play. So we've already in essence narrowed the sales by going mid to high earlier in the year, we've kind of said zero to one at Hudson.
Speaker Change #149: We've never gone below 1% of a spread in the fourth quarter. So it just you get a little bit into that to get a math exercise. So the range is maybe a little bit more than you'd like.
You have understood that in the past yeah yeah.
Speaker Change #150: Very helpful very clear and then.
Speaker Change #150: Maybe just one easy follow up.
Speaker Change #151: I just I heard you mentioned, a couple of times shelf to call kind of that.
Speaker Change #152: Let's call it more digital.
Speaker Change #153: Digital transformation spend.
Speaker Change #154: <unk> sound like Thats, the lion share of like what's coming in Q4, and maybe Theres some timing shifts and I also respect the fact of the year.
Speaker Change #155: Talking 'twenty, five and probably don't even want to.
Speaker Change #156: Talk long term for the Investor day, but is there is it looks something more to that.
Speaker Change #155: Like.
Speaker Change #157: Yes, I mean, there could be a little bit more of kind of an investment program around kind of a bigger piece of kind of where were viewing the digital.
Speaker Change #158: Side that could be ongoing for a little bit or is that like no. That's just a Q4 thing.
Speaker Change #159: That's all thanks.
Well, then I'll be talking more about our digital transformation journey at the Investor Day Robyn.
Speaker Change #159: In Q4, particularly around continuing to drive the investments that can sustain our top line performance digital marketing is one of them that we're going to be continuing to do that in Q4, particularly.
Speaker Change #159: And others as I mentioned in the call. So.
Speaker Change #159: It's too early to get into the specifics for 2025.
Speaker Change #159: We are going to impact the long term plans as part of Investor day, and we're going to be covering all of our digital transformation program at that point.
Speaker Change #160: Alright, great.
Speaker Change #160: See you there. Thank you so much.
Speaker Change #160: Yeah.
Speaker Change #161: Thank you. Our next question is from the line of Robert Moskow with TD Cowen. Please proceed with your question.
Robert Moskow: Hi, Thanks, maybe I'll, just clean up a couple of things.
Robert Moskow: The FX no longer being a headwind and also this discrete tax benefit when you add all that together is that like an <unk> <unk> benefit versus your prior expectations you raise guidance by 5% I'm just wondering if if im doing the math right or if it's if it is not material.
Speaker Change #163: Well, there's a lot of secularity or anything when you look at these things with.
Speaker Change #164: For other programs to incentive comp and things like that so we've kind of we've kind of moved it and medicines due to the tax reason due to FX kind of that five ish really reflects that.
Speaker Change #164: Okay.
Speaker Change #165: And another question on third quarter did brand investment increased high single digits in third quarter similar to your guidance for the year.
Speaker Change #166: I don't remember hearing about it.
Speaker Change #166: And the comment.
Speaker Change #166: Yes, we've talked about this again have Rob I mean, the first half heavy investments second half.
Rob Dickerson: We've talked about moving the dollars up third and the fourth which we're doing but we haven't really talked about if it's up quarter on quarter.
Okay. So just to the guidance is for the haves not for the quarters.
Rob Dickerson: Yes.
Yes.
Rob Dickerson: For the year I can give you insight into that.
Yeah.
Rob Dickerson: Okay.
Rob Dickerson: And then finally.
Rob Dickerson: As you head into 2025.
Rob Dickerson: It would appear that there's not a lot of room for additional pricing, but I believe that the long term algo include some pricing assumptions and given we've been in this hyperinflation environment for.
Rob Dickerson: A couple of years and now it's kind of come to a screeching halt.
Speaker Change #168: Any is there any reason to think that the.
Speaker Change #169: The pricing lever is kind of off.
Speaker Change #170: For <unk>.
Until further notice.
Speaker Change #170: And how do you think about that in terms of your long term algo.
Speaker Change #170: Rob ill open up with maybe a couple of thoughts here and then ask Mike to wrap it up.
Rob Dickerson: In our long term algorithm I think we've always talked about there very well might be a little bit of price.
Speaker Change #171: And those long term objectives I don't think.
Physicians take again like whether or not anything has sort of materially changed in our outlook there.
Speaker Change #172: But as we deal with sort of the near term.
Speaker Change #171:
Speaker Change #171: 2024 perspective, clearly we've made some decisions there in order to make sure that we get back to healthy top line, sorry, with healthy volume growth pretty quickly.
Speaker Change #171: Predicting the future from an inflation standpoint, or how it will play out pricing I think it's a bit challenging.
Speaker Change #173: Unless were speak.
Speaker Change #173: Speaking just in broad terms regarding our long term algorithm, Mike do you want to add anything there, yes, I think there's been a lot of focus certainly some of the things like price gap management this year for us and others.
Mike: I think of these things as long term revenue management category management initiatives. We have early invested it and continue to drive and some of the things Mark has talked about in the fourth quarter investment continuing to get closer to understanding cannibalization of product lines innovation, how it impacts.
Speaker Change #173: What price does so I think.
Speaker Change #173: We think we're really close to best in class in this area and really going to continue that into next year. So I think you always have to have that pricing tool in your toolbox, because commodities may go up or down.
Cost may go up because of the dock to dock strike, we don't know that right. Now. So you have to have that lever and we have been.
Speaker Change #173: We've been really good with our customers about making sure we pass along cost increases versus margin keeping margins have been very.
Speaker Change #173: We've won a lot of trust from both our flavor solutions and consumer customers, there and we will look at that into the future I'm sure markers.
Speaker Change #173: And that banner going forward, what I would add is that in addition to that the pricing is a lever that we'll continue to be part of our long term outlook.
We have we look at P&L Holistically right and we think about our CCI program working for US and he has been working for us over the last so many years, we tend to work for us in the future. So that is kind of the first lever that we go about is like using the CCI as a way of funding.
Speaker Change #173: The investments that we need to drive top line growth. So it's always a mix about all these levers about a little bit of pricing the CCI coming through the top line. The top line volume coming through so all of those levers we kind of manage.
Speaker Change #173: From a more holistic standpoint that would take.
Speaker Change #174: That's great. Thank you very much.
Thank you.
Speaker Change #175: Next question is from the line of Adam Samuelson with Goldman Sachs, especially with your questions.
Adam Samuelson: Yes, Thank you and good morning, everyone.
Speaker Change #176: Alrighty cramping.
Speaker Change #178: It's been covered I wanted to maybe come back to spices and seasonings in the U S. If I if I may the thank you kind of you alluded to your consumption growth outpacing private label in the quarter.
Speaker Change #179: But a notably didn't necessarily say the category isn't really what we would see in Nielsen either and I'm wondering if you could talk about kind of the share environment.
Speaker Change #179: That category and.
Speaker Change #181: Maybe outperforming private label, but theres, some smaller brands that continue to grow pretty rapidly and just how you think about the competitive positioning and how maybe the.
The assortment or price points in the in that category, maybe still have some adjustment to do or if theres just been needed to.
Speaker Change #181: Respond to some of the smaller some of the smaller brands, which are which are growing.
Speaker Change #181: Yes, Adam from a perspective of that category.
Speaker Change #182: What we're seeing right now is we're doing.
<unk> quite nicely, especially from a volume perspective.
Speaker Change #183: Across that part of our business and.
Speaker Change #183: Check on whether or not we're growing share in that particular metric but.
Speaker Change #183: What we're seeing broadening the category as we have a very broad offering across the category. We think we compete quite well with all different forms of competitors and what is an attractive category for people to enter and so that is something that.
Speaker Change #184: I would just give you we always have.
Speaker Change #185: <unk> dealt with smaller competitors and at the same time private label. So this doesn't feel like we have any sort of really new dynamic going on.
Speaker Change #185: As we kind of take a look at the performance of the third quarter, what Youre seeing is Mccormick really focused on capturing what is healthy category growth with consumer and making sure that we're growing both unit and volume.
Speaker Change #185: Measures across our business now we're also growing tdp's total distribution points across.
Speaker Change #185: As part of our well frankly across all of our core categories, where we're also seeing nice job distribution point gain across the whole portfolio. So really thats also helping us.
But these are these the perspectives I think I would share right now in terms of our third quarter performance and as we go into the fourth quarter.
Speaker Change #186: Okay, that's helpful and if I could ask.
Speaker Change #187: Quick follow up just on cash flow.
Speaker Change #188: Last year, there was working capital was a big source are a big source of cash for the full year.
Speaker Change #188: Year to date.
Speaker Change #189: It's been a decent size use of cash I know fourth quarter is generally a big working capital reversal is there an expectation that working capital as a source or use of cash for the full year once the books close.
Speaker Change #190: Yes, yes fourth quarter is our strongest cash flow quarter. As you know it's interesting we talked about some of the drivers of why we're a little short year to date versus prior year. One of those drivers is working capital and Brendan alluded to the.
Brendan: Port strike and part of that is due to us some of our contingency planning that he mentioned to make sure we're ready so.
Brendan: That should naturally hopefully unwind, but we're still expecting a strong cash flow year.
Speaker Change #191: Alright, that's helpful I'll pass it on thank you.
Speaker Change #192: Thank you. Our final question is from line of Tom Palmer with Citi. Please proceed with your question.
Speaker Change #191: Hey.
Tom Palmer: Thanks for the question I wanted to ask on the.
Tom Palmer: SG&A step up here coming in <unk>.
Tom Palmer: Is there a particular segment, where we're going to see this most apparently I'm really just trying to get the kind of operating profit on a segment basis, you've got flattish overall, but is there one area, where maybe we will see more growth in the other.
Tom Palmer: Not as specific but it's going to be across both segments.
Tom Palmer: Flavor solutions yet.
Tom Palmer: Yeah.
Okay, Thanks and on the.
Tom Palmer: Unconsolidated operation.
What's maybe the answer is just a little conservatism, but the level of growth. This year close to 50% I know the comparison is a lot tougher in <unk>, but when we look at the run rate of the past couple of quarters is there anything notable to call out that could trigger incremental earnings pressure or again is the reiteration just.
Tom Palmer: More with respect to thinking about last year's <unk> being so strong.
Speaker Change #194: Is that I mentioned before the FX pesos dancing around 20 now versus 17, five ish last year. So that's a pretty material impact as we translate their earnings back to our P&L.
Great. Thank you.
Speaker Change #195: Thank you at this time I will turn the floor back to management for closing remarks.
Speaker Change #196: Thank you.
Speaker Change #197: And thanks to all for joining today's call. If you have any further questions regarding today's information. Please feel free to contact me that concludes our conference call for this morning.
Speaker Change #197: Okay.