During the Fourth Quarter Earnings Call, Faten Freiha, VP of Investor Relations, introduced the participants and mentioned the non-GAAP financial measures that will be discussed. Brendan Foley, President and CEO, then gave an overview of the fourth quarter results, highlighting top-line drivers. He also briefly reflected on the full year 2023 performance and shared plans to improve volume in 2024. Mike Smith, Executive Vice President and CFO, provided more details on the fourth quarter financial results and the 2024 financial outlook. Foley ended with some closing comments and shared his key priorities as the new CEO. The overall top-line results for the fourth quarter did not meet expectations as volume trends slowed down compared to the third quarter.

In the fourth quarter, sales increased by 3%, with a 1% favorable impact from currency. However, there was a 3% decline in volume and product mix, driven by changes in consumer behavior and increased value-seeking behavior. The company remains dedicated to improving volumes and has refined its plans to drive growth. The decline in volume was also impacted by the company's strategic decisions to exit certain product lines. In the Americas, volume declines were greater than expected due to challenging macro trends and low price points in private label.

In 2024, the company plans to improve volume trends by narrowing price gaps, increasing promotions, and gaining more distribution wins. However, some challenges have been faced, such as increased stress from crossing key price points, softness in volumes from certain customers, and slower restaurant traffic. On a positive note, there has been volume growth in America spices and seasonings, branded food service, and Asia Consumer. The company is focusing on initiatives such as brand marketing, price gap management, new products, and packaging renovation to strengthen volume trends.

McCormick is confident that their investments will continue to drive improved results in 2024 and beyond. They are prioritizing their America's spices and seasonings category, which has shown strong growth potential. Their initiatives, such as price gap management, innovation, and brand marketing, have already started to show results. The renovation of their U.S. core everyday herb and spice portfolio is on track and has led to stronger velocity for products that have fully transitioned on shelves. McCormick is also working on restoring distribution that was lost due to past supply issues and expects to see the impact of their actions in mid-2024. Overall, they have a strong set of initiatives in place and anticipate continued growth in share gains and volume.

The company has seen success in Canada, France, and Australia through similar initiatives as in the U.S. They have also renovated their spice and herb portfolio in Southeast Asia and increased marketing spend to support the transition. In branded foodservice, they have achieved strong volume growth and share gains, particularly in the hot sauce category. The company is also launching new products, such as Cholula salsas and Frank's RedHot dips, to drive further growth. These investments have positively impacted both volume and margin performance for the quarter.

The company is pleased with their performance and attributes it to effective price realization, cost optimization, and favorable product mix. They plan to use their profitability to invest in their business and drive sustainable profit growth. The company is confident in their strategies and investments and expects volume trends to improve throughout the year. They are focused on returning to their long-term growth algorithm and strengthening their margins. The company also plans to approach their plans with a more competitive posture and intentionality towards driving growth in key categories.

McCormick is focusing on driving growth through category management, brand marketing, new products, proprietary technologies, and differentiated customer engagement. They have a strong history of optimizing pricing on shelf to benefit themselves and retailers, and are now taking a surgical approach to managing price gaps to private label and branded competitors. They have seen success in recapturing buyers and increasing household penetration in their spices and seasonings category. They are also focusing on revenue management in their recipe mixes category, with a recent focus on gravy during the holiday season. Their diverse portfolio allows for flexibility in optimizing pricing effectiveness, and they use both everyday prices and promotions to drive growth. These investments in price gap management result in increased volumes and improved margins over time.

McCormick's recommendations are helping customers see better category performance and driving growth in their businesses. The company is investing in brand marketing and plans to continue investing in various channels to increase household penetration and buy rates. New products are also a key driver of growth, with recent launches in EMEA showing promising results. Collaboration with customers on innovation is also a key focus for the company.

McCormick is experiencing success in the flavors market with their better-for-you and on-trend products, as well as in the branded foodservice industry with their heat platform and value-oriented offerings. They have seen strong performance from new products in 2023 and have a strong lineup of new products planned for 2024. They are leveraging their proprietary technologies and customer engagement approach to target mid-market customers and drive share gains and profitable growth. Their actions have yielded positive results, such as outpacing the market in performance nutrition and driving sales growth in the beverage category. McCormick is committed to investing in high-growth categories and has confidence in their plans to drive volume growth in the second half of the year.

In the final paragraph, the speaker discusses the company's growth plans and their belief that it will benefit consumers, categories, and McCormick. They also mention changes in the Board of Directors, with one member retiring and a new member joining. The following speaker then provides details on the fourth quarter financial performance, highlighting a 2% growth in constant currency sales, driven by pricing actions but offset by a decline in volume. They also mention specific areas of the portfolio that saw growth and decline.

In the EMEA region, consumer sales increased by 9% in constant currency, driven by a 13% increase in pricing and partially offset by a 4% decline in volume. Sales growth was widespread across markets and categories. In the APAC region, consumer sales increased by 31%, primarily due to a recovery in China. In the Flavor Solutions segment, constant currency sales grew by 5%, driven by a 7% increase in pricing and offset by a 2% decrease in volume and product mix. In the Americas, sales increased by 6% with broad-based growth across the portfolio. In EMEA, sales increased by 2% with a 14% contribution from pricing, partially offset by divestitures and declines in volume. In the APAC region, sales grew by 5% with a 6% contribution from pricing, offset by a 1% decline in volume. Overall, gross profit margin expanded by 320 basis points in the fourth quarter compared to the previous year.

The fourth quarter of 2023 saw favorable product mix, effective price realization, and cost savings through the CCI and GOE programs, resulting in gross margin expansion for the quarter and the year. SG&A expenses increased due to higher employee incentive compensation and brand marketing, but adjusted operating income still increased by 11% in constant currency. Flavor Solutions' profitability was restored, and the company's overall adjusted operating margin increased by 130 basis points in the fourth quarter and 100 basis points for the year. Interest expense increased due to higher interest rates, and the adjusted effective tax rate for the fourth quarter was 22.3%.

The fourth quarter of 2023 was positively impacted by discrete tax items and strong performance from the McCormick de Mexico joint venture. Adjusted earnings per share increased due to higher operating income and cash flow from operations nearly doubled compared to the previous year. The company returned cash to shareholders through dividends and invested in projects to drive growth and improve efficiency. The company remains committed to a strong investment-grade rating and expects 2024 to be another year of strong cash flow. They are on track to meet their leverage ratio target and are pleased with their progress. The 2024 financial outlook is discussed on Slide 24.

The company's 2024 outlook includes investments in key categories to drive sustainable growth, with a focus on balancing margin expansion and investments. Currency rates are expected to have a negative impact, but constant currency net sales are expected to range from a decline of 1% to growth of 1%. The company expects to see improved volume trends as the year progresses, driven by brand strength and targeted investments. However, strategic decisions to optimize the portfolio for profitable growth, such as exiting certain product lines and divesting a business, will impact volumes in the first quarter.

In 2024, the company plans to continue optimizing their portfolio and expect sales to fluctuate as a result. They also anticipate slower demand in China, but remain confident in the long-term growth of their business there. Gross margin is expected to increase due to pricing, product mix, and cost savings, but will be partially offset by inflation and increased investments. Adjusted operating income is projected to grow due to gross margin expansion and SG&A cost savings, but will also be impacted by increased brand marketing spend. Profit is expected to be less robust in the first half of the year, but strong growth is anticipated in the second half.

The company's adjusted effective income tax rate projection for 2023 is 22%, with a higher rate expected in the first half of the year. They anticipate a mid-teens increase in income from unconsolidated operations, reflecting strong performance in McCormick De Mexico. The projected adjusted earnings per share for 2024 is $2.80 to $2.85, representing a 4% to 6% increase from 2023. The company is focused on improving volumes and investing in initiatives for sustainable growth. Despite a disappointing fourth quarter, the company is confident in their business and committed to recovering margins and driving top line growth.

The CEO of McCormick is committed to driving value for employees, consumers, customers, and shareholders in the coming years. They plan to focus on growth, performance, and people, and have five priorities for 2024: strengthening global leadership in core categories, driving profitable growth, accelerating digital transformation, leveraging data and insights, and expanding branded foodservice business.

The company has set five priorities for the future, including elevating their power of people culture and strengthening their competitive advantages. The CEO is committed to harnessing the expertise of the team to deliver long-term growth and is confident in their capabilities. He also recognizes the contributions of employees and is excited for the year ahead. The company is focused on investing in the business and positioning themselves for growth in 2024 and beyond. The CEO will share more about their progress at CAGNY in February. The first question from a conference call asks about the company's volume and positioning for 2025.

In this paragraph, Brendan Foley discusses the company's performance in 2023 and their plans for 2024. Despite some challenges, the company is seeing positive results in key categories and is focused on driving volume growth and market share. They are cautiously optimistic about the future and expect to see improvements in consumption and profitability. They also plan to invest in areas that will have the most impact on their performance. Overall, they expect to see continued growth in 2025, barring any unforeseen macroeconomic challenges.

The speaker believes that their investments will lead to quality earnings growth and put them on a long-term trajectory. They also discuss how they are able to make investments to drive the top line and improve margins, citing their strong operating margin performance and successful recovery of cost increases through pricing. They also mention their CCI and GOE programs, which have helped with margin improvement and will continue to do so in 2024. Additionally, they mention using CCI to make increased revenue price cap investments and increase their brand A&P. Overall, they believe they are in a strong position for the future.

In the paragraph, the speaker talks about the portfolio optimization and how it is helping to drive margins up. They are being careful in recovering their pre-pandemic gross profit margins. They have intentionally made moves to invest in the strongest parts of their portfolio and have seen successful results. They believe this intentional investment will lead to profitable growth and margin accretion. The speaker also mentions managing price gaps more tightly in Consumer Americas and the difficulty of navigating consumer behavior during challenging times. They are investing more to narrow price gaps and expect to see consumer behavior tighten as wallets are tightened.

The speaker addresses questions about promotional lifts and price gap management, stating that their business is not heavily reliant on promotions and that they are approaching price gap management at a SKU level. They have seen improvements in volume and unit share gains in certain categories and plan to continue investing in this approach in the future.

The company regularly evaluates the performance of its products and makes decisions based on revenue and category needs. They are also increasing their advertising spending and have seen positive results. In regards to the China Consumer business, there may be slower demand in the first half of the year, but overall sales in 2024 are expected to be comparable to 2023. The company remains cautious about the Chinese consumer market due to high unemployment and low consumer confidence. The company's executives recently visited China to assess the situation.

The company is seeing a reluctance to spend among consumers, particularly in Central China where smaller independent restaurants are losing traffic to larger chains and QSRs. The retail category is also affected, with less active spending observed in department stores. However, the company has plans to address this trend and expects a gradual recovery in China starting in the second half of 2024. The pace of growth will depend on macroeconomic factors and consumer confidence. The company remains confident in the long-term growth trajectory of the Chinese market and is working to strengthen their plans for the future.

In response to a question about their sales algorithm for 2024, the company states that their decision to exit certain businesses will have a 1% impact in the first quarter, but will have minimal impact for the rest of the year. When asked about market share trends, the company declines to make projections but mentions that their volume outlook for the first and second half of the year will likely influence share performance.

The speaker discusses the expected cadence of sales and volume growth for the company, with a focus on the impact of last year's pricing actions and the current state of the consumer. They mention that pricing is heavily weighted towards the first half of the year and that there is a cautious outlook for 2024, with a focus on volume and consumption trends. The speaker also mentions a potential impact on gross margin.

The company saw a shift in consumer behavior in Q4, with people waiting until right before the holidays to make purchases. This trend continued into Christmas and affected the company's sales. As a result, the company is taking a cautious approach in their outlook for the first half of the year. They will be investing more in marketing to drive volume growth. When asked about gross margins, the company expressed confidence in their cost-cutting and efficiency programs.

The company expects low single-digit inflation for the rest of the year and plans to be prudent in their investments and pricing. They met their targets last year and will continue to assess their investments as the year goes on. In the back half of the year, there may be negative pricing in the Consumer business in the U.S. due to above-the-line investments, but the full year pricing is expected to be around 1% including price gap management.

The company is confident in their pricing and expects it to be around 1% for the full year. They also expect growth in their Flavor Solutions segment, especially in the Americas, with strong performance in branded foodservice and certain categories like performance nutrition and beverage. They anticipate continued progress in 2024, although not at the same level as 2023.

The company's growth in the flavor product category was impacted by softness in customer performance and drop in units and volume. This was seen in both the US and EMEA regions, with some unexpected softness in the fourth quarter. However, the company remains optimistic about improvement in the coming quarters. In Asia Pacific, slower restaurant traffic and boycotts in Southeast Asia affected growth, but there was strong performance in China. The consumer segment has not fully recovered to pre-COVID levels, but the company remains optimistic about future growth.

The speaker discusses the changes in consumption and distribution during the pandemic and how they have affected price elasticity and consumer behavior. They mention that their business has been impacted by these changes, but their volume is similar to 2019. They also mention the importance of advertising and managing price gaps to drive volume growth.

Brendan Foley, CEO of Flavor Solutions, discusses the competitive position of the company's portfolio and its growth potential. He believes that the company has a strong team and differentiated approach to driving growth in flavors and seasonings. They are seeing strength in their customer mix and have positive trends in their Boeing and heat portfolios. Overall, Foley is confident in their competitive posture and sees exciting potential in this part of the business.

The speaker discusses the exciting growth and increased investment in their business, with a focus on building capacity and technology to achieve global scale. They then address a question about the guidance for fiscal 2024, stating that the margin expansion is not significantly different between segments. They also mention managing price gaps and absolute price points in the Consumer business, which may contribute to share losses in spices and seasonings, but they believe they can manage this through price gap management.

The company's observations align with the fact that the flavor category has always had new competitors and entrants. They still track global flavor category growth, which is around 5% to 7%, but their top line guide is around zero. This does not indicate that the category is weaker, as it is still an attractive one.

The company acknowledges that pricing in the global category has increased, but they still see it as an attractive category. They have shipped 75% of their new packaging to retailers and expect to catch up to that number by the first half of the year. They have seen a nice increase in velocity in specific accounts where the new packaging has been implemented, as it provides freshness and a better overall offering to consumers.

The company plans to move other parts of the product line into a package starting in the second half of 2024. They have been working on this since last year and expect it to continue. They are also planning to increase brand building investments in 2024, with a 3-4% increase in 2023 and a double-digit increase in 2024. The final question of the call was about Q1, and the company mentioned slightly higher costs and front-loaded A&C expenses. They also expect some pressure on volumes due to divestments.

The company expects to see sequential improvement in volume from the fourth quarter, with Consumer starting at a lower point in flavor solutions. Pricing actions will primarily take place in the first half of the year, with high single-digit inflation in the first quarter. There will be some offset from price gap management activities and favorable product mix, as well as double-digit growth in brand marketing. The tax rate will be 22% for the year, with a higher rate in the first quarter. Unfavorable FX will also impact the whole year. In terms of Flavor Solutions, the company expects margin recovery after facing post-pandemic cost inflation. However, there is still some pressure on this segment.

The speaker, Mike Smith, discusses the journey of McCormick's Flavor Solutions segment in terms of increasing its operating margin. He mentions that they were able to increase it from 6% to over 14% pre-pandemic, but COVID-19 caused a 300 basis point impact on their margins. However, they have initiatives in place, such as CCI, to improve their margins and have already seen positive movement in 2023. He also mentions that the transition of their U.K. manufacturing facility in 2024 and 2025 will provide favorable tailwinds for Flavor Solutions' margin.

The company's focus on higher-margin and stickier flavor categories is expected to drive margins going forward. Shifting customers to these product lines will also contribute to margin growth. The company remains positive about its outlook, but acknowledges that it may take longer to achieve its goals.

This summary was generated with AI and may contain some inaccuracies.