McCormick & Company, Incorporated (NYSE:MKC) Q1 2023 Earnings Call Transcript

Page 9 of 10

Operator: Our final question is from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Rob Dickerson: I guess just the first question on the top line. Simplistically, you said, obviously, there’s some expected tailwinds coming from China as we get through Q2 and lap some Omicron pressure, et cetera. Just in terms of that kind of expected acceleration, is that fairly similar in Consumer relative to Flavor Solutions just obviously because you have a little bit of a clearly an easier compare on the volume side in Consumer? And then secondly, just kind of any perspective as to — it seems like you’ve been able to take a little bit more incremental pricing in Flavor Solutions versus Consumer? And maybe just why that is? And then I have a quick follow-up.

Lawrence Kurzius: Brendan, why don’t you take?

Brendan Foley: Yes, I would take. It’s Rob, as we take a look at kind of the profile that you see in the first quarter, I think that’s probably a profile largely that you’ll see carried out through the rest of the year. As Mike and Lawrence have said a couple of times, we expect volume to be kind of in that plus or minus to 4% range. So, there’s effectively more pricing in Flavor Solutions as a result of kind of the inflation profile that we’ve talked about. So that should provide, I think, a little bit of indication as to how we think about sort of the balance between Flavor Solutions and Consumer on the sales line. Having said that, we expect continued underlying strength as we go throughout the year in our Consumer business too, but the profile that you see in Q1, I think it tends to move forward that way throughout the rest of the quarters.

Lawrence Kurzius: And I’m going to say that on the Consumer side, we have tremendous growth plans, including a lot of innovation and the renovation of our everyday spice line, hitting the market in the second quarter and a number of major customer wins that are going to go on shelf in the third quarter. And we’re expecting a strong recovery in China in the second quarter. So while it’s a dynamic and that we are actually really encouraged about the sales outlook for the rest of the year.

Rob Dickerson: Okay. Super. And then I guess maybe more for you, Lawrence, kind of some questions asked already just around kind of the mix of the business. How you’re thinking about price gaps and private label in the U.S.? We’ve heard from a number of companies over the past couple of years that we’ve seen actions taken to potentially divest certain pieces of the business to kind of reduce overall private label exposure. Clearly, you would not be divesting your U.S. spices and herbs business, right?

Lawrence Kurzius: That’s not our…

Rob Dickerson: Yes. Well, probability. But I am curious, just kind of given your commentary on product pruning and lower-margin businesses and then this innovation slate you have, I mean there still is some innovation kind of coming in the core space easing business. But when I look at like Cholula and look at Red Frank’s, it would seem like there’s a little bit higher share in those brands, better market penetration potential, maybe less private label exposure. So as you think of those innovation plans on a go forward as it also relates back to the overall mix of the business, would you say it’s kind of part of the internal plan to be pushing on that part of the business, maybe more on the innovation side relative to, let’s say, like special organic pepper?

Page 9 of 10