Faten Freiha, VP of Investor Relations, welcomes listeners to the First Quarter Earnings Call and introduces Brendan Foley, President and CEO, and Mike Smith, Executive Vice President and CFO. They will be discussing non-GAAP financial measures, projections, and forward-looking statements. Foley begins by expressing condolences for the Francis Scott Key Bridge collapse and then discusses the company's strong first quarter results and investments to drive growth. He also addresses industry trends and the company's plans for continued growth.

The paragraph discusses the first quarter financial results for the company, highlighting a 2% growth in sales and a 3% contribution from pricing. It also mentions a decline in volume and product mix due to divestitures and pruning of low-margin business. The company saw improvements in volume trends in both Consumer and Flavor Solutions, with strong sales growth outside of China. The company remains optimistic about growth for the year, despite challenges in the market.

At the CAGNY conference, McCormick emphasized their growth as a company and their investments in 2024. They have seen early success from these investments in fueling their top-line and capitalizing on category growth. The company has a strong understanding of consumer flavor needs and preferences, and is responding to budget-conscious consumers with speed and agility. In the first quarter, there was a shift from food away-from-home to food-at-home consumption, and McCormick saw growth in their spices and seasonings volumes in various regions.

The company's unit share performance in the U.S. is improving and they have seen dollar share gains in Eastern Europe. They have also seen volume growth in recipe mixes and homemade desserts, leading to market share gains in the U.K. and France. The Flavors business has also shown strong volume growth in key categories. However, there is pressure in prepared food categories like Frozen and Asian, but the company's core categories are offsetting these declines. In the mustard category, the company is facing competition from private label brands and is working to improve volume through narrowing price gaps and increasing promotions. In the hot sauce category, volume trends improved in the first quarter, especially after a successful Super Bowl campaign. Overall, the company's performance highlights their underlying strength in their base business and strong consumer loyalty.

The company's growth plans include increasing marketing for both Cholula and Frank's RedHot brands, as well as introducing new innovation and expanding distribution. However, they have faced pressure from smaller players offering $1 price point trial sizes. The company remains the leader in the category and sees potential for growth with new buyers and diversifying their customer base. In the spices and seasonings category, the company has seen improvements in the US market through new packaging and increased marketing. They expect to see the impact of their actions in the second half of the year. The company's growth plans are outlined on slide six and have contributed to their strong performance in the first quarter and will continue to drive success in the future.

The company's growth is driven by various initiatives such as brand marketing, new products, packaging innovation, category management, proprietary technologies, and customer engagement. They prioritize investments in connecting with consumers through differentiated brand marketing and high-quality content. In the first quarter, there was a significant increase in brand marketing spend, leading to improved volumes and share. The company's holiday campaigns were successful, and their Super Bowl activation campaign gained positive sentiment and engagement. The company also benefits from new products and packaging, and their launches continue to drive growth.

McCormick is seeing success with their Cholula sauces and recipe mixes, as well as their Nadiya Hussain range of Schwartz seasonings and recipe mixes. They are also launching new global cuisine seasonings and shifting their portfolio to meet consumer preferences for non-red meat proteins. In Flavor Solutions, they are leveraging proprietary technologies to win new customers and drive share gains. They are collaborating with customers to incorporate heat into their products, with strong win rates across regions.

McCormick's Branded Food Service division is focused on innovation, with plans to launch new flavors and expand their product lines. The company also prioritizes category management, utilizing revenue management to optimize pricing and expanding distribution to reach more consumers. The heat-infused product line is driving growth for the company and is expected to continue to do so in the future, particularly among younger generations.

In summary, McCormick is well-positioned to succeed in the heat with its iconic brands and expertise. They expect to maintain their outlook for 2024 with a focus on attractive, high-growth categories. Consumer interest in healthy, flavorful cooking and enjoyment of cooking is driving their long-term growth. They are dedicated to improving volumes and prioritizing investments for sustainable growth. In the first quarter, their sales grew 2%, with a 3% pricing benefit and a 1% decline in volume and mix.

The company's decision to exit the DSD business and divest a private label product line and a small canning business affected volumes in the quarter. Underlying volume and mix performance was flat compared to a 3% decline in the previous quarter. In the consumer segment, sales growth was driven by a 1% increase in pricing and offset by a 2% decline in volume, mainly due to the DSD exit and lower volume and product mix in the Americas and the impact of the macro environment in China. In the Americas, sales were comparable to last year, while in EMEA, sales increased by 8% due to pricing and volume growth in all major markets. Sales in the APAC region were down 5% due to a decrease in volume in China, but outside of China, the company saw high single-digit sales growth across categories and markets.

The company's Flavor Solutions segment saw a 2% growth in constant currency sales in the first quarter, with pricing and volume contributing to this increase. The Americas saw a 3% growth, while EMEA experienced a 1% decline due to divestitures and product line exits. Gross profit margins expanded by 140 basis points, driven by favorable product mix, improvement programs, and effective price realization. The company expects gross margins to continue to increase in the second quarter, but at a slower pace compared to previous quarters. Higher margins are expected in the second half of the year.

In the first quarter of 2024, McCormick's selling, general and administrative expenses increased due to investments in brand marketing and research and development, partially offset by cost savings. This led to a 5% increase in adjusted operating income. Interest expense and income taxes remained comparable to the previous year, but the adjusted effective tax rate increased due to discrete tax items. McCormick expects these benefits to occur later in the year and maintains an estimated tax rate of 22% for the year. The company's income from unconsolidated operations was strong, driven by performance in their largest joint venture, McCormick de Mexico.

In the first quarter of 2024, McCormick's branded mayonnaise, marmalades, and mustard products in Mexico continue to contribute significantly to their net income and operating cash flow. Adjusted earnings per share increased to $0.63 from $0.59 in the previous year, driven by higher operating income and working capital improvements. The company returned $113 million to shareholders through dividends and invested $62 million in capital expenditures. Their financial outlook for 2024 includes prioritized investments in key categories and an expected unfavorable impact from currency rates.

The company expects constant currency net sales to either decline by 1% or grow by 1%, but due to strong momentum in the first quarter, they expect to be closer to the high end of their guidance range. They anticipate a favorable impact from last year's pricing actions, but also expect some offset from price cap management investments. The company aims to improve volume trends through brand strength and targeted investments, but this may take time to materialize. They also expect to continue pruning lower margin business and anticipate some impact from divestitures. In China, demand is expected to be slower in the first half of the year, but the company believes in long-term growth for the market. Gross margin is projected to increase by 50-100 basis points due to various factors, including pricing, product mix, and cost savings, but may be partially offset by cost inflation and increased investments.

The company expects to reduce dual running costs and see 4-6% growth in adjusted operating income, driven by gross margin expansion and cost savings from CCI and GOE programs. They also plan to increase brand marketing spending and anticipate a mid-teens increase in income from unconsolidated operations. Overall, their adjusted earnings per share projection for 2024 reflects a 4-6% increase compared to 2023. In the second quarter, they expect improvements in volume and pricing, but also anticipate some pressure in Flavor Solutions. Despite a potentially less robust second quarter, they remain dedicated to improving volumes.

The speaker, Brendan Foley, is pleased with the first quarter results of McCormick, a company focused on driving sustainable growth through strategic investments. He believes that their performance demonstrates that they are on the right track and have confidence in achieving their projected sales growth for 2024. He also acknowledges the hard work of McCormick employees and expresses confidence in their ability to drive profitable growth. The first quarter organic sales exceeded expectations and were better than the Street forecast, but this is also a smaller quarter for the company.

Brendan Foley, CEO of a company, confirmed their full year sales growth range and expressed increased confidence in achieving the mid-to-high end of the range. He attributed this confidence to a strong quarter, progress in their intended programs, and expansion of margins. However, he also noted that it is still early in the year and their pricing assumptions have not changed. They expect to see improvements in volume trends and drive volume growth in the second half of the year.

The company is confident in their initiatives and expects similar volume growth in both segments in the second half of the year. They attribute this growth to increased marketing, new product launches, and category management. They also expect Consumer Americas volume to continue to improve and potentially inflect positively in the second half of the year, despite some remaining challenges.

Brendan Foley and Mike Smith provide context for the 2.6% volume decline in the Americas in Q1, citing the DSD exit and decline in prepared food categories as key factors. Excluding these factors, volume growth in Consumer Americas would have been flat to slightly positive. They also mention that growth in spices and seasonings and recipe mixes was offset by declines in mustard and hot sauce. Looking ahead, they expect volumes to improve in the second half of the year. Additionally, they note that their brand building activities and increased A&P spending are not limited to just the Americas, but are global. Peter Galbo follows up by mentioning that even without the DSD exit, consumption in North American Consumers was still ahead of scanner data in the first quarter.

The speaker addresses a question about the factors that influenced the positive variant in the quarter's sales. They mention that consumption and sales are in line with each other, with growth in Latin America and Canada contributing to the total growth. They also mention that e-commerce has been a strong growth channel and that resources are being dedicated to it. The speaker clarifies that there may have been some weakness in the China Consumer business, but that there was strength in QSRs in China for the Flavor Solutions business.

The speaker is discussing the performance of their company in China and how it has met their expectations for the first quarter. They remain cautious about the Chinese consumer market due to factors such as unemployment and reduced consumer confidence. However, they have plans in place to address changing trends and expect their Flavor Solutions business to be stronger in 2024. They also mention that the QSR business in China is doing well in some areas but is facing challenges in others.

The company has made significant progress in restoring distribution lost due to past supply issues and is continuing to see positive results in this area. They have regained a significant portion of the lost TDPs and are seeing strong distribution and market share in their core categories, particularly in recipe mix.

In the first quarter, TDPs for hot sauce and mustard were up, resulting in the highest total TDP points and shares in the last three years. Progress is also being made in spices and seasonings, with TDP growth in five of the top six segments. However, TDP shares are currently flat, but are expected to improve as the year progresses due to upcoming resets. The Flavor Solutions segment saw positive volume growth in the first quarter, but it is a volatile segment and there may be fluctuations in the second quarter due to factors such as limited time offerings and promotional timing. The QSR business in certain regions, such as EMEA, may also affect performance.

Brendan and Mike discussed the second quarter and expected headwinds on the Flavor Solutions side. They anticipate strength in the second half for both Consumer and Flavor Solutions volume. They also mentioned that quarterly performance can vary and they are expecting flattish volume in the first half and growth in the second half. Adam asked for more context on the improvement in unit share for spices and seasonings in the Americas Consumer business. Brendan explained that the industry saw an acceleration in retail sales in January, possibly due to weather and channel shift, but it is unclear if they were able to maintain their unit share through the end of the quarter.

The speaker discusses the company's performance in Q4 and the factors that contributed to their success, including increased velocity on shelves due to new packaging, recaptured distribution points, and an increase in advertising. They believe that these factors, combined with the integration of all their efforts, have led to positive trends in their spices and seasonings business. The speaker also mentions that gross margin is expected to improve in the second quarter compared to the previous year.

The speaker is trying to understand the company's sales and profit growth for the second quarter. They note that the company's pricing is decreasing and volume is improving, but this is not yet reflected in the second quarter. The company is making investments to drive volume growth in the second half, which is why there is pressure on margins in the second quarter. However, the company is still seeing positive margin improvement compared to last year.

The speaker clarifies that the company's price gap management strategy is being applied to less than 15% of their portfolio in the US, specifically in the spices and seasonings and recipe mixes categories. They also mention implementing dollar trial sizes in hot sauces and discuss the potential impact on the category and competition.

The company is implementing price gap management efforts in certain regions and is focused on increasing marketing and distribution for its hot sauce brands. However, the introduction of trial sizes at a low price point by retailers has resulted in significant unit growth and is pressuring the company's share performance in the category. This spike in sales was driven by holiday gifting, but has since decelerated.

The company believes that their promotions are bringing in new customers to the hot sauce category and are also driving trial and awareness. They are also increasing advertising and focusing on innovation. They are confident in their pricing strategy and constantly evaluating its effectiveness.

The speaker discusses the company's focus on improving market share and the positive trends they are seeing in their business. They mention various strategies, such as increasing unit growth and implementing price gap management, that are contributing to this improvement. They also highlight the importance of other initiatives, such as brand marketing and innovation, in this effort. The speaker clarifies that the 15% target for price gap management is for the entire year and not just the first quarter.

The speaker addresses a question about the company's performance in the first quarter and explains that they are not yet at their target level, but expect to reach it as the year progresses. They mention investments and advertising efforts that have had positive results. They also discuss challenges in the mustard and frozen prepared foods categories and their plans to improve in the coming year, including increasing promotional programs for grilling season.

The company is focusing on improving their mustard business by adjusting their price points and strengthening distribution. They are also monitoring trends in the prepared foods category and making changes to their portfolio to improve business. The shelf resets planned for the second quarter may result in favorable shipment timing, but this is not factored into their outlook.

The speaker is asking about the impact of gaining TDPs or distribution on the company's expanded shelf set. The company believes this will have a positive impact on their presence in the market and is reflected in their outlook for the rest of the year. They do not provide specific details on when this will occur. Another speaker mentions a shelf renovation with new bottles, which is not a big shipment but will improve velocity and benefit the company in the second half of the year. The call ends with a welcome to a new participant and the operator announces the final question from a different caller.

The speaker addresses the difference between the track channel data and their reported performance, stating that their view of the business is based on a broader and more refined data source. They do not reconcile the differences with Nielsen's reporting, but note that there have been discrepancies in the past due to how categories are captured.

The speaker addresses part of the question about unmeasured channels and mentions strong growth in e-commerce and performance in Canada and Latin America. They also discuss the McMex joint venture's 50% growth in Q1 and state that it is too early to predict the rest of the year's growth. The speaker also mentions that the joint venture is a profitable but often overlooked part of their portfolio.

The speaker discusses the strong brand positions and export business in certain categories in the U.S. and other countries. They also mention that interest expense guidance was not provided, but it is not expected to change significantly. The conference call has ended and any further questions can be directed to the speaker.

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