McCormick and Co 3Q15 Earnings Call Notes

Alan Wilson – Chairman and CEO

More conservative profit outlook thanks to acquisition and peso weakness

“We’ve a more conservative outlook for adjusted earnings per share than we had back in early July reflecting the impact of Kohinoor and the recent decline in the Mexican Peso, which affects income from our McCormick to Mexico joint venture. We recognize our profit growth in 2015 is below our long-term target of 9% to 11%. But overall, we feel good about our performance this year and our ability to address these specific headwinds.”

Products are on trend

“Our products are on trend with today’s consumer. Across nearly all of our markets, people are exploring new flavors, seeking fresh simple ingredients, focused on source and quality and working to improve their wellness.”

FX obviously still a large headwind

“FX obviously is a large headwind on a reported basis because that obviously has been a factor on both the reported top line and bottom line. So that obviously is when we continue to wrestle with and as you heard in my comments it’s gotten slightly worse on the operating income line as we’ve upped the negative impact on the total company to 4% versus the prior three.”

Investing behind a purity campaign

“We’re seeing good topline performances as we’ve talked about, but we’re also investing behind a purity campaign, which is fundamentally that fresh tastes better and our pure tastes better and so we believe that’s the message that’s resonating with consumers and we want to make sure that we have enough engine in the tank for what is our most important quarter of the year.”

It costs more money to produce organic ingredients

“this is not going to add to our fixed cost structure in any meaningful way that we’ve already got a great deal of capability around organic. But raw material themselves are undeniably more expensive than regular spices and that’s reflected in the premium price that organic products command in the market place. It’s not just a scarcity issue, it costs more money to produce organic ingredients and products”

We saw extreme commodity price inflation in 09,10,11,12

specifically to pricing what we saw in 2009, ’10 and ’11 and ’12 was extreme commodity inflation”

We’ve taken a pause on pricing

“we’re really focused on is getting our price thresholds right in the marketplace and that’s not unique to the U.S. it’s around the world. And so we’ve taken a pause a bit on pricing. We’ve taken some pricing to offset currency in some of our markets, but our focus has been more on getting the right price thresholds and making sure that we’re not giving consumers or customers a reason to go somewhere else.”

Industrial business skews to different menu items US vs OUS

“We tend to be in the U.S. on the core menu items and outside the U.S. more on the product innovation and limited time offers, which is why we’re seeing a little bit of a disparity in the results.”

Gordon Stetz – EVP and CFO

Lawrence Kurzius – President and COO

1/3 of global advertising will be digital

“In 2015, we’re planning for digital marketing to reach one third of our global advertising, up from 11% in 2010. We put a lot of effort and resources into staying at the forefront of digital and eCommerce and these investments are paying off.”

Amazon’s supplier of the year for grocery

“For the eCommerce channel, we’re equally proud of the recent award from Amazon which named McCormick Supplier of The Year for grocery.”

Mike Smith – SVP, Corporate Finance