McCormick 1Q15 Earnings Call Notes

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Currency and special charges had adverse effect

“Special charges along with currency had an adverse impact on our operating income results. In fact, we now anticipate a more significant impact from both special charges and currency this year as Gordon will discuss as part of our 2015 outlook. Excluding both of these factors, adjusted operating income rose 1%. We expect this growth rate to improve once our 2015 pricing actions are fully in place and the benefits of our aggressive cost reduction activity begin to build.”

Social media engagement up 25%

“We leveraged over 25 million impressions on Facebook over the holidays and our engagement rates are up 25% from a year ago. We attribute this to the strength of our community as well as the quality of our content which includes user generated photos and comments and step-by-step visuals.”

Hopefully a return to QSR growth in China

“We’re pleased with the return to sales growth in China where the demand from quick service restaurants has been volatile. In 2015, these customers are expecting a gradual improvement in sales. However our first quarter sales rose at a double-digit rate due to a new limited time menu items and increased sales of products that we manufacture in China for export to other Asian markets.”

Constant currency basis very strong growth

“On a constant currency basis, the underlying growth in sales was very strong at 6%. ”

Used >75% of OCF to repurchase shares

“Our cash flow from operations this period was $96 million compared to $77 million in the first quarter of 2014. During the first quarter of 2015 we used $65 million of cash to repurchase nearly a million shares of McCormick stock.”

Slowing share repurchase in order to return to target debt to ebitda level

“As we’ve done in the past, we expect to slow the pace of our share repurchase activity in order to return to our target debt to adjusted EBITDA level of 1.5 to 1.8. Even at a slower pace, we still expect to lower our shares outstanding by 1% in 2015.”

Local competitors are buying spices priced in USD too

“Yes, the local competitors are going to have the same issue because spices and seasonings are mostly priced in US dollars. So part of what you’ll see is the pricing change to reflect the impact of raw materials on currency. We feel pretty good about our ability to execute in the UK and – I am sorry in EMEA.”

Some large QSR in the US is struggling

“Our quick service business in the Americas is pretty broad to a number customers but there are couple of customers that are large enough to have an impact. And those larger customers as they’ve reported have been struggling somewhat with foot traffic and sales and that impacts us as well. We are gaining with some of the smaller quick service restaurants and we feel pretty good about that .But it’s not enough to offset the very large chains that are well-publicized and their challenges.”

It’s an opportune time to be a seller

“There is the benefit right now of the low interest rate environment so that is — and I am assuming that some sellers are anticipating that’s going to change in the not-too-distant future. So it’s an optimum time, if you’ve got a business that’s got good traction that maybe needs and as we’ve seen with the businesses we have been able to buy that need a little investment for growth because there is growth opportunities, now is pretty good time. They are probably also looking and seeing as we have that multiples are attractive for a seller”