McCormick & Co 4Q16 Earnings Call Notes

Lawrence Kurzius – President and CEO

Saw a slowdown then an uptick

“As has been widely recognized by food analysts and investors, U.S. consumer purchases for center-of-store food were soft in the first quarter, especially in February. This is based on retail consumption reports for the period which showed a measurable year-on-year deceleration across many categories.

While retail sales growth of spices and seasonings exceeded the performance of most center-of-store categories, continuing to display its relative strength, our category was impacted by the industry slowdown as well. We believe that this short-term slowdown can be attributed to a confluence of factors, including unseasonable weather, a late Easter and the timing of income tax refund payments, which are likely temporary.

In fact, a few weeks into our second quarter we have seen an uptick in our sales of U.S. consumer products. Our outlook for U.S. sales of spices and seasonings for the balance of the year remains strong and unchanged from our prior projections.”

Believe that transitory issues affected us

“What we didn’t anticipate was the slower industry sales in the U.S., which as we’ve discussed on the call we think are really due to transitory factors. We don’t see anything in our data going into March. I know we’re getting into second quarter here, but we don’t see anything in our data going into March to suggest the slowness that we saw in January and February as continuing. And for the reasons that we gave on the call, we think that it is transitory and the timing of tax payments. I think Lent had a big impact on us. Our business has a very high index to Hispanic consumers who are more catholic. The later Easter made all of Lent fall outside of the quarter and we’re certainly seeing the reversal of that in March. And then the weather that was out of sync with the season where it was just very warm and that discourages consumption of the cold weather items that normally we sell a lot of during that time of year, chili, gravy and all of the things that go along with that.”

Loss of shelf space at one retailer is big impact

“That is really the story in the UK, Evan, is that one retailer – it’s a very concentrated market, so the customers are larger and they all matter and has a big impact not just on our UK business but it’s big enough that it impacts our EMEA business as a whole. The change in shelf space and items in distribution with that retailer really occurred during the fourth quarter of last year. And so that’s an unfavorable comparison that we’re going to carry for that region for the whole year. I will also say that that’s really baked into our thinking that 5% to 7% constant currency. We’ve got a great story in other markets and other markets in that market. We continue to invest in marketing in the UK even with this change because it’s important to show both that customer and the other customers in the market and frankly the consumer the relevance and importance of our brands”

Change in timing of refunds has a real impact

“I don’t want to underestimate the impact that the change in U.S. income tax refund policy has had pushing those refunds later, especially for consumers at the lower end of the economic spectrum who tend to spend those refunds. Often that’s their earned income coming back to them, those go into regular household consumption and I think it has the same kind of impact as a change in SNAP payments.”

McCormick 2Q16 Earnings Call Notes

Lawrence Kurzius

Lower retail price points helping to drive sales

” retail sales grew 6% for the category and 7% for McCormick brand spices and seasonings. There are three key messages here. First, we gained category share on a unit basis. Second, the McCormick brand is helping drive the unit category increase. And third, this is evidence that certain retailers are implementing our recommendations to lower retail price points on the McCormick brand.”


” Mike brings to this role a deep knowledge of the company and experience as a finance leader in both corporate and operational roles, including those in North America and in our EMEA region and across both Consumer and Industrial segments. In each of these roles, he has been a – he has a proven track record of creating value and growth.”

We do better with millenials than boomers

“I think also, our brands are and our product – really our category is in line with the way consumers want to eat today. And as consumers cook at home more and are more ambitious about the things that they cook, our brand is a big beneficiary of that. I think that we have a bit of a natural tailwind from two sources. One is the new dietary guidelines news that came out this year. That has really encouraged consumers to make greater use of herbs and spices. That’s a positive for our category, but as the leader in the category, we are a very big beneficiary of that. And then the second thing is that we actually do better with Millennials than we do with boomers. And so as Millenials come to be a bigger part of the shopper universe, that is actually a natural tailwind for us, which is different than some of our food company peers.”

Increased use of spices as CPG companies try to create cleaner labels

” All of the CPG companies are trying to improve their portfolios with cleaner labels, healthier sounding ingredients, statements. No one wants to have a flavor in there that they have to call a flavor. And many of the – of our consumer products go to customers, we are trying to reduce sodium, reduce MSG, take out sugar. And so, that’s about 40% of our briefs globally.”

Gordon Stetz

Impact of Brexit will be on currency

“Regarding last week’s referendum outcome on Brexit, the immediate impact to our business will be currency rates. Early this week, we reevaluated our guidance and determined that a 3% impact from currency is our best estimate at this point in time. Any longer term impact on our business will depend in part on the outcome of tariff, trade and regulatory negotiations. As a point of reference, our sales in the UK were 8% of total company sales in fiscal 2015. As a final remark on our outlook, we are on track for another year of strong cash flow for fiscal year 2016 with higher adjusted net income and actions underway to improve our working capital.”

Miscellaneous Notes 4.14.16

Source: Amazon 2015 Annual Report

Amazon (AMZN) CEO Jeff Bezos says their success due in part to both luck and their differentiated culture

“This year, Amazon became the fastest company ever to reach $100 billion in annual sales. Luck plays an outsized role in every endeavor, and I can assure you we’ve had a bountiful supply. But beyond that, there is a connection between these two businesses. Under the surface, the two are not so different after all. They share a distinctive organizational culture that cares deeply about and acts with conviction on a small number of principles. I’m talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long-term, and the taking of professional pride in operational excellence.”

Amazon (AMZN) CEO Jeff Bezos says cultures take years to reinforce

“A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it – not creating it. It is created slowly over time by the people and by events – by the stories of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinctive corporate cultures. We never claim that our approach is the right one – just that it’s ours – and over the last two decades, we’ve collected a large group of like-minded people. Folks who find our approach energizing and meaningful.”

Amazon culture embraces failure

“One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”

Amazon getting into the finance business

“We also created the Amazon Lending program to help sellers grow. Since the program launched, we’ve provided aggregate funding of over $1.5 billion to micro, small and medium businesses across the U.S., U.K. and Japan through short-term loans, with a total outstanding loan balance of about $400 million. Click-to-cash access to capital helps these small enterprises grow, benefits customers with greater selection, and benefits Amazon since our marketplace revenue grows along with the sellers’ sales. We hope to expand Amazon Lending and are now working on ways to partner with banks so they can use their expertise to take and manage the bulk of the credit risk.”

Source: New York Times Interview

Dupont (DD) Former CEO Ellen Kulman

“The world is a more competitive place, it is getting more competitive not less competitive. So what that means is that you have to be really clear about what you’re doing,where you’re going, and how you’re going to get there.”

Source: CSX 2015 Annual Report

CSX CEO Michael Ward emphasized cost reduction in his annual report, much like many of the other Fortune 500 CEO’s

“Over the past decade, CSX has consistently delivered significant gains in productivity, even during the tough years of the most recent recession. 2015 was no different, with efficiency initiatives and cost reductions driving more than $180 million in productivity despite declines in some of the most profitable markets. The initiatives behind those savings are designed to create sustainable changes such as improving fuel efficiency and increasing the use of technology automation. What’s more, CSX delivered a total cost reduction of nearly $375 million, which includes savings from right- sizing resources to match demand. We have demonstrated repeatedly that we can aggressively manage costs in what is often considered a high fixed-cost business.”

Doesn’t expect coal markets to recover anytime soon

“The baseline coal market, which generated $3.7 billion in revenue in 2011, declined to $2.3 billion in 2015, and will continue to decline in 2016 and beyond. While this market remains important, it has given way to more consumer-oriented markets that demand premium, and ever more cost-effective, service. In an era in which the $1.4 billion in coal revenue declines over the past five years will continue to accelerate, the status quo is no longer an option.”

Source: Schwab 2015 Annual Report

Schwab (SCHW) CEO Walt Bettinger tries to be as candid as possible in his annual letter to shareholders about the state of the business

“Each year it is an honor to sit down and craft a letter to share my thoughts on Schwab with you, our valued stockholders. I strive to write this letter with a minimum of jargon, corporate speak and trendy business buzzwords. It isn’t written to compete with the latest bestseller on business strategy or how to be a better leader in changing times; it is written with the goal of simply discussing the current state of our company and the future we face together. The litmus test for this letter is: “Does it read as if I were corresponding with a business partner who has been out of touch for the past year?” As always, my hope is that you will share with me your feedback on whether this goal has been achieved.”

Schwab (SCHW) CEO Walt Bettinger said humans will continue to seek a human relationship in some form when seeking investment or financial advice

“One of the most over-hyped aspects of investing in the past year is the concept of “robo-advice.” A “robo-advisor” offers a user-friendly website and mobile experience where an investor can answer a few questions, have a complete investment portfolio built, and receive ongoing management with rebalancing and, in some cases, tax-loss harvesting. Now, I say over-hyped because the press has speculated that growth in “robo-advice” could jeopardize the desire for investors to want an in-person relationship–a suggestion that we see as folly. That said, there are real benefits to the concept of automated investment advice if it is combined with the availability of live professionals by phone, chat or in person.”

Schwab (SCHW) CEO Walt Bettinger says they are disrupting themselves in order to create a better client experience

“Today, despite what you might hear in the press about “Silicon Valley disruptors” and “fintech,” Schwab remains the consummate challenger in the investment industry. Each day we ask ourselves a question consistent with our “Through Clients’ Eyes” strategy: “How can we use our deep knowledge of investing to help our clients be better investors, to deliver services to clients at a lower cost, and to ultimately help them achieve better outcomes and take ownership of their financial futures?”

Federal Reserve’s low interest rate policy is hurting their business results

“Punishing. There is no other way to describe the financial impact on our company from the unprecedented experiments taken by the Federal Reserve since 2008. While the Fed experimented with zero interest rates and printing money under the guise of a fancy term–quantitative easing–savers suffered, responsible people who had avoided large debt suffered, and our company suffered as well. In 2008, when client assets at Schwab were slightly in excess of $1 trillion, we generated revenue of just over $5 billion. In 2015, when client assets were in excess of $2.5 trillion, we generated revenue of just over $6 billion. Put more succinctly, during that period total client assets grew by about 120% while revenues grew just 24%. Punishing. And you can attribute virtually this entire scenario to the interest rate policies of the Fed.”

Schwab (SCHW) CFO Joe Martinetto said they are assuming one Federal Reserve rate hike this year for their internal budgeting

“With that crucial first Fed rate move behind us, the path forward could be a bit brighter. As we finalized our annual planning at the beginning of 2016, the forward rate curve implied that, despite some global market jitters, the U.S. economy was strong enough to support expectations for at least one more Fed move in 2016, and we developed our baseline scenario with that in mind. Our baseline scenario also includes relatively flat long-term rates and a 6.5% improvement in the S&P 500 Index relative to year-end 2015, as well as a potential decline in revenue trades as average portfolio turnover continues to slow.”

Source: October 2015 Stanford Interview–&index=8

Alphabet (GOOGL) Chairman Eric Schmidt

“The ideal business is the Microsoft business. A monopoly software business with hardware competitors who are competing for good treatment by you in a global and growing industry. Let’s use Uber as an example. Uber spends an awful lot of time saying that the drivers don’t work for them and they don’t own the cars. There’s a reason and it’s not legal or liability reasons. It’s because if you think of them as a software infrastructure company that helps assemble this thing, they have very different economics. In that sense, it’s the modern version of a franchisee. Why do people own McDonald’s franchises rather than McDonald’s owning them? Well, it’s because McDonald’s couldn’t get the capital to own them all themselves.”

Source: November 2015 Stanford Interview–

Netflix (NFLX) CEO Reed Hastings says you can never know anything for sure

“Maintaining a reservoir of doubt is extremely important.
“We often do an exercise, every year or so, what would be different at Netflix if you were CEO? It’s a way for me to gather all the different strategies. Would you change the pricing? Would we be in the ad business? And I really try to think through all the different methods, We call it farming for dissent. You can never be confident of anything, you always have to be curious. Yet you have to be executing really firmly. Simultaneously, knowing there is no certainty yet working really hard to know what you think.”

They don’t do company acquisitions

“In 17 years, we’ve never done an acquisition. People have tried to acquire us, but it never worked.”

Source: McCormick 2015 Annual Report

McCormick (MKC) CEO Alan Wilson said they are accelerating their shift to digital advertising

“Across all of our markets, we increased brand marketing support by 6% in 2015. Increasingly, we are shifting toward digital marketing, which comprised 38% of our advertising, up from 11% in 2011. Digital marketing creates a direct connection to consumers, including Millennials, who view the McCormick brand positively. As an example, our site has become a top 50 most visited food/lifestyle site.”

Source: Morningstar 2015 Annual Report

Morningstar (MORN) CEO Joe Mansueto says the company benefits from key tailwinds

“We benefit from some important industrywide trends, such as outsourced investment management, the convergence of the advisor and workplace/retirement spaces, the shift to passive investing and strategic- beta strategies, and growing market acceptance of new credit-ratings entrants.

Morningstar (MORN) CEO Joe Mansueto says asset management clients remain cautious about spending

“Low interest rates and the industrywide shift to passive investment manage- ment continued to put pressure on spending for many of our asset management clients.”

McCormick FY 1Q16 Earnings Call Notes

Lawrence Kurzius

Made offer to buy premier foods

“I’d like to comment next on the recent news about our proposal to acquire Premier Foods. Premier Foods is just one idea in McCormick’s robust acquisition pipeline, one that would be a great addition to our business. This acquisition would be consistent with our growth strategy, adding iconic brands that complement our product portfolio, increasing our current sale and presence in the UK market and creating potential to driver growth through innovation, marketing and expanded international distribution.”

Even changing when we eat

“We’re even changing when we eat. Snacking occasions have suppressed breakfast and lunch and now rival dinner. Here is where our industrial segment steps in as a major supplier to packaged food companies, the largest being PepsiCo that are focused on building this part of their product portfolio.”

We like that premier foods is predominantly a flavor business

“as we look at the Premier business, there is – we were pretty limited on what we can say. But I can tell you that what’s attractive to us about this business is that it is predominantly a flavor business with some terrific iconic flavor brands that are much loved in the UK. ”

Going to be non-GMO

“Your second question was about GMO labeling and we announced that we were going to label our product for non-GMO. We are taking credit for what we have to a great extent. The vast majority of our products are herbs and spice products in particular, are not genetically modified in anyway and consumers are interested in transparency and that’s what led to that initiative and we are certainly well aware of the Vermont law. We don’t have any kind of particular public stance that we want to take on that other than that we are going to comply with the law. So where there are genetically modified materials in some of our products, we will need to find a way to remove them or label them as is appropriate in order to put us into compliance with that law.”

This acquisition isn’t significantly different in size to historical ones relative to our mkt cap

“While it is significantly large, if you go back in our history and you look at Ducros back in 2000, and you look at Lawry’s as recently as 2008, on a percentage of our market cap and the size of the company, it’s really not quite different from those sized transactions. So our intention, as we did in those two previous transactions, would be to lever up. Obviously, it will take our debt-to-EBITDA about where it is now, but it wouldn’t be at a level that would be unlike where we were with Lawry’s and Ducros at the time. ”

Gordon Stetz

Using targeted techniques to take price where appropriate

“In the retail side, all I would say is we lean on these tools and the techniques that we’ve developed. We will look at the elasticities and the thresholds. Back to Lawrence‘s earlier comments, I’ve been with this company a long time and I would say that the level of sophistication around the price increase just executed was the highest I’ve seen. So I have confidence in our team to go back, use their analytics to make whatever decision is necessary to deal with whatever cost issues may pop up.”

McCormicks 4Q15 Earnings Call Notes

McCormick’s (MKC) CEO Alan Wilson on Q4 2015 Results

New CEO taking over

“I am pleased to be transitioning from my role as CEO at this time. One of my conditions in stepping down was to have the company in great shape with strong financial performance and forward momentum”

We’re still robust on China going forward

“on a go-forward basis, we’re still robust on China. We know there’s a lot of discussion around China. We’re obviously very aware of the economic discussion going on there but our own business we’re anticipating that continues to do well.”

Lawrence Kurzius

Reduce sodium w/spices

“In mid-2015, the USDA first recommended spices and herbs as a way to reduce sodium in the diet in recommendations to school nutritionists and to adults over 65. And in early January, this recommendation made its way into the new 2015-2020 Dietary Guidelines for Americans.”

Much of our business is direct toward smaller cities in China, which have experienced more robust growth

“We’re aware of the macroeconomic pressure around the China market, which does make us cautious, but we’re also quite optimistic about our business in China. A great deal of the carnage that’s happened around us has been more in the modern trade portion of the business. That part of our business is slow as well but it only accounts for about 20% of our consumer business in China. Much more of our business in particular, thanks to the acquisition that we did a couple of years ago is more directed to the interior, to the smaller cities and through a more traditional trade outlet. So, we have continued to experience quite robust growth of our consumer business in China.”

The consumer side of the business in China has really been quite strong to start the year

“I don’t want to comment too much on 2016 but the opening of our year in China on the consumer side of our business has been really quite strong. And I focus my remarks on the consumer side because for us China has really become predominantly a consumer business. Years ago, China was more of an industrial business for us, and that’s how we got our foothold there. But with the continued growth of our consumer business and with the addition of the acquisition we did a couple of years ago, that business is now more [indiscernible] about two-thirds consumer.”

I was just over there and the China team is optimistic

“I was just there with the China team last week and met with the management over there. Actually, Alan and I went over as part of our internal transition communication. And so, it gave us an opportunity to meet firsthand with the China team and they continue to be quite optimistic.”

Trend towards more natural is an important driver for us

“improving the product mix and moving towards flavors and more value-added technically differentiated product is part of the margin equation, and the overall trend in our industry towards more natural, less artificial is an important driver of volume for us because this is an area where we think that we got particular expertise. I think in our remarks, we indicated that about 40% of the briefs that we get from our customers include some wellness aspect “

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

McCormick and Co FY 2Q15 Earnings Call Notes

Adjust operating income in constant currency…

“Special charges along with currency lowered our operating income results. However we grew adjusted operating income in constant currency by 7%. This is an improvement from the first quarter when adjusted operating income in constant currency rose 1%.”

Economic conditions challenging in EMEA but had strong volume in France, Poland and Russia

“In Europe, Middle East and Africa, EMEA, economic and retail conditions remained challenging in parts of the region. However in constant currency we had strong volume driven sales growth this period particularly in France, Poland and Russia.”

Americans are cooking

“Let’s turn to the Americas. In this region we’re making further progress improving performance of our US consumer business. Consumer interest in flavor, supple and healthy ingredients and cooking with fresh products continues to drive strong category growth for spice and seasonings as seen in the latest consumption data with category sales up 5% in the quarter.”

More snacking in the US

“In the Americas region we are benefiting from an increase in consumer snacking, developing seasonings for snack bars, crackers and chips and similar products. At the same time our customers are moving toward more simple ingredients and our foundation in spices and herbs has us well-positioned.”

Further recovery in China

“In our Asia-Pacific region we are pleased to be seeing further recovery in base sales to quick service restaurants. As in the first quarter we had an added benefit of innovation and limited time offers and with export sales of product supplied by our facilities in China, our outlook is for continued improvement through the second half of 2015 for our industrial business in China”

Analyst comment: Seeing a shift towards e-commerce in China

“The shift to e-commerce in China, it’s hurt a lot of consumer companies lately. McCormick seems to be bucking the trend. Just curious the spice and seasoning category, is it not being hit by the channel shift as much as others or is McCormick benefiting from that channel shift? I’m just curious for your thoughts here because it does seem to be a little bit of an anomaly versus what we’re seeing elsewhere.”

We do participate in e-commerce in China but we’re less dependent than many peers

“We do participate in the e-commerce sector in China but I’ll tell you for us it’s still developing segment of the market, or developing channel just like it is for everyone else. The big difference I think in our business in China for our consumer segment is that we’re a lot less dependent on the modern trade than many of our peer companies.”

We are still seeing a bifurcated consumer in the US

” We are still seeing a bifurcated consumer with some level of growth in premium and our gourmet brand is an example of that and niche categories. So there is some growth. We are seeing some recovery in food service with people eating out. So we are seeing some of those lower gas prices find their way in. On the other hand, there is a vast number of consumers who are still stressed economically and so we are competing in the value segment to try capture that.”

We’ve seen some slowing in China

“In China, as Lawrence said, there has been some slowdown in economic activity. We’re encouraged because we’re still – we’re pretty broad-based, we’re in the traditional trade, we have our presence in the modern trade and we’re participating in the emerging and fast-growing e-commerce. But we’re still long-term believers in China. We continue to make investments there and are bullish on our prospects.”

McCormick 1Q15 Earnings Call Notes

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”

McCormick 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Expecting flat to slightly down 4Q

“implies a flat to slightly down result for the fourth quarter based on several factors. First, we’re supporting our brands and plan to increase our marketing support by at least $11 million from the fourth quarter of 2013. Second, we expect the growth of our international businesses to outpace the increase in the U.S. Although this puts pressure on operating income, it creates a favorable tax rate.

And third, we’re cautious about the near-term demand from quick-service restaurants in China and other parts of the Asia Pacific region. ”

Raising EPS guidance though

“Taking into account the new operating income range and the favorable tax rate, we’ve increased our target rate for adjusted EPS to $3.30 to $3.37. Overall, we believe this guidance will deliver strong 2014 financial performance.”

Planning increased TV spend

“nother action under way to strengthen our U.S. brand equity is increased investment in brand marketing, and we’re planning an increase of approximately 20% in the 4th quarter. These additional funds will boost our holiday campaigns with new television ads for Thanksgiving and Christmas. We’ll build awareness in trial of the new skillet sauces and gluten-free recipe mixes, we’ll drive our quality message, and we’re supporting the Zatarain’s brand.”

Issues at Chinese QSRs again

” as you’ve probably seen from our QSR customers, a report about a supply issue, which has impacted foot traffic again.

We still that business as being pretty resilient over time, and the Chinese consumers tend to come back, but when they have this well-publicized quality issues in the store it erodes confidence and impact short-term traffic. And we’re seeing some of that like our customers have reported”

Private label growth has actually been flattening recently

” So, what we’ve actually seen in the more recent period and actually for the year, private label share in spices has not grown in the U.S. It’s been pretty flat. And in more recent periods, we’ve seen private label share flattening and actually declining a little bit.”

There’s going to be some downward pressure in 4Q but we haven’t quantified it yet

“Well, certainly, there’s going to be downward pressure. We haven’t quantified the exact impact in the quarter, but I’d say we’re definitely going to be experiencing downward pressure, and that’s incorporated in the full year guidance that we’ve given you”

McCormick at Barclays Conference Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Many consumers remain under pressure

“Many consumers remain under pressure and are seeking value priced products and lower-cost meals. And exceptionally competitive retail conditions across channels, traditional, discount, club, natural, e-commerce, and the fierce battle for the consumer within each of these channels. This pressure on retailers carries over to pressure on manufacturers in pricing promotions and fragmentation. And different choices are being made by consumers when they’re eating out, different choices in what they eat and where they eat.”

Four big trends

“the rise of millennials. The influence of ethnic demographics, social media, the move towards healthier eating, and the rise of the middle-class consumer in emerging markets”

Millenials love to cook

“In the U.S., as millennials move into their 20s and 30s, we’re seeing a strong interest in cooking, even greater than the baby boomers. This is great news for McCormick. Today’s millennials love to cook with 64% making this statement versus 52% of the remaining U.S. population. More than one-third indicate they’re also more health conscious when it comes to the food that they eat and they define value as real food, quality food, and unique food”

People eating healthier

“There’s a measurable shift toward healthy eating in many markets around the world with increased sales of fresh produce and waning demand for certain processed foods. The latest U.S. report on food and beverage purchases shows that after taste and price, health ranks as the third largest impact at a 71% response rate. This is up 10 percentage points from just two years ago.”