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

McCormick & Company, Incorporated (NYSE:MKC) Q1 2023 Earnings Call Transcript March 28, 2023

Kasey Jenkins: Good morning. This is Kasey Jenkins, Chief Strategy Officer and Senior Vice President, Investor Relations. Thank you for joining today’s first quarter earnings call. To accompany this call, we’ve posted a set of slides at ir.mccormick.com. With me this morning are Lawrence Kurzius, Chairman and CEO; Brendan Foley, President and COO; and Mike Smith, Executive Vice President and CFO. During this call, we will refer to certain non-GAAP financial measures. The nature of these non-GAAP financial measures and the related reconciliations to GAAP results are included in this morning’s press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. Today’s presentation contains projections and other forward-looking statements.

Actual results could differ materially from those projected. The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or other factors. Please refer to our forward-looking statements on Slide 2 for more information. I will now turn the discussion over to Lawrence.

Lawrence Kurzius: Good morning, everyone. Thanks for joining us. We are pleased with the start of the year. We delivered solid first quarter results that reflect strong demand and early results from our actions to increase our profit realization in 2023. Our sales performance reflects the strength of our broad global portfolio and the effective execution of our strategies. Our global operating effectiveness, or GOE program, is yielding results with first quarter cost savings in line with our expectations. The progress we are making on gross margin improvement reflects the level of urgency with which we are addressing the pressure points from last year. These results, combined with the strong demand we continue to expect across our portfolio and our diligent approach to optimizing our cost structure, bolster our confidence in our plan and our 2023 full year outlook.

Turning to Slide 5. In the first quarter, we drove 3% sales growth or 5% in constant currency. Our constant currency sales growth reflected strong underlying business performance with an 11% contribution from pricing, partially offset by a 3% decline in underlying volume and product mix, a planned 1% decline from in basics divestiture and the exit of our consumer business in Russia, and an expected 1% year-over-year volume decline from lower consumption due to COVID-related disruption in China, which we expect to see a return towards normal consumption trends in the coming quarters. Our underlying first quarter sales performance positions us well for continued top line growth for the balance of the year. Our growth in the first quarter was led by outstanding performance in our Flavor Solutions segment with positive momentum continuing in all three regions.

In our Consumer segment, our underlying sales growth was led by the Americas region. Moving to profit. Our adjusted operating income was comparable to the first quarter of last year and in constant currency increased 2%. Higher interest expense and a higher effective tax rate more than offset our adjusted operating income growth in the quarter, resulting in a 6% decline in adjusted earnings per share. I’d like to say a few words about our gross margin performance, which Mike will cover in more detail in his discussion of our adjusted operating income growth drivers in a few moments. We drove considerable improvement in our gross margin performance in the first quarter. Our gross margin reflects the continued recovery of the cost inflation or pricing lagged over the last two years as well as cost savings from our CCI and GOE programs.

As we’ve said previously, in 2023, we plan to fully recover the inflation our pricing previously lagged as well as offset current year inflation through our pricing actions and other levers. Our gross margin also reflects the result of our diligence in optimizing our cost through our GOE program. This is progressing as planned and remains a key focus. We expect the impact of our GOE program to scale up as the year progresses, and we remain on track to realize $75 million of cost savings in 2023, which we will take to the bottom line because of our actions to normalize our supply chain costs and to streamline our organization. We remain confident that we have the right plans in place and are taking the right actions. It’s still early, but our first quarter results speak for themselves, and we expect to continue driving profitable growth at an accelerated rate for the balance of the year.

Demand is strong. We’re driving improvement in our margin profile and optimizing our cost structure effectively. Now let’s move to first quarter business updates for each of our segments as well as discussion of our growth plans. Turning to our Consumer segment on Slide 6. Our underlying performance was strong, reflecting the effective execution of our pricing actions and continuing positive momentum in our consumption trend, even with lapping the elevated at-home consumption in the first quarter of 2022 due to Omicron in the Americas and the EMEA regions. That performance was partially offset by the impacts related to the sale of Kitchen Basics, our exit of Russia and the COVID-related disruption in China. Beginning in the second quarter, the activation of exciting growth initiatives, as well as lapping the impact of last year’s COVID-related shutdowns in China and the exit of our consumer business in Russia, which we began to exit in the second quarter of last year, is expected to drive an acceleration of our consumer segment growth.

Now for some highlights by region, starting with the Americas. Our total U.S. branded portfolio consumption, as indicated by our IRI consumption data and combined with unmeasured channels, grew 5% in line with our shipments. As we anticipated, the dynamics between consumption and retail inventory levels have begun to normalize as we move beyond the holiday season impact, and we anticipate greater alignment between consumption and shipments going forward. Importantly, our volume performance in the first quarter was better than the fourth quarter on higher price realization. In spices and seasonings, both consumption dollars and units accelerated sequentially from the last several quarters, with strength in our seasoning blends, which provide consumers both convenience and flavor exploration.

Early results of our Lawry’s everyday spice range, our largest innovation launch sense pre-pandemic, continue to be positive. We are seeing incremental sales and profit to the category. Over half of the purchases are from new virus to McCormick and overall incremental to the category. Hot sauce remains on fire with double-digit growth of both Cholula and Frank’s RedHot in the U.S. and Canada. We continue to build excitement with our hot sauce brand marketing initiatives and reached the younger generation, most recently through gaming. And our big game campaign during the quarter, our flavor pack version of Fortnite, the Floor is Flavor, had players navigating an immersive chicken wing shaped island and a volcano that’s put Frank’s RedHot and included in partnership with TGI Fridays and DoorDash, a free chicken wings offer.

This was our best big game campaign, capturing over 1 billion impressions in North America. And with the resolution of the long-running shortage of French’s mustard bottles, we drove over 20% consumption growth for the second consecutive quarter. Our creamy muster launch last year continues to perform very well, with another flavor launch coming this year. Finally, in the Americas, we continue to drive double-digit consumption growth in e-commerce, led by spices and seasonings, but we’re realizing high returns on our investments, gaining new customers and growing with new products. For instance, McCormick Corn seasonings and Frank’s variety packs are both off to a great start following their online introductions earlier this year. In EMEA, we continue to have solid share performance of herbs, spices and seasonings in the U.K., Eastern Europe and Italy, somewhat offset by softer performance in France.

We’re continuing to gain share on Frank’s RedHot in the U.K. are building momentum with Cholula. We’re driving the U.K. hot sauce category growth. We’re taking meaningful progress across the region and expanding our distribution and gaining share in the fast-growing discount channel. Our investments in brand marketing, merchandising and new products are proving to be effective in driving growth. In the Asia Pacific region, growth for the quarter and the year was impacted by the exit of low-margin business in India, which we will have lapped after this quarter as well as the COVID-related disruptions in China. As we have moved past the Chinese New Year, we are seeing a return to normalization. We continue to expect a benefit beginning in the second quarter from lapping the impact of last year’s disruptions.

Outside of the China and India impact, growth in the region was driven by new products and brand marketing initiatives. Frank’s RedHot and Cholula performance was strong in Australia and extending the power of our brands, we have launched Old Bay into the Australian market and Cholula into Southeast Asia. As always, we continue to fuel our Consumer segment growth with the power of our brands as well as our brand marketing, new products and category management initiatives. We’re excited about the growth plans we’re executing and expect they will drive an acceleration of growth for the balance of the year. First, as we mentioned at CAGNY, we are completely renovating our U.S. core everyday spice of portfolio with consumer-preferred packaging as well as through leveraging new flavor seal technology.

The atmosphere in the bottle is nitrogen flushed to remove oxygen, which means visibly fresher flavor, brighter color and stronger aroma. The modern new Snap-type trademark lid seals in the aroma and freshness. We’re also printing the product names and an easy-to-read Best Buy date on the top. The new high-quality bottle and label design highlights the transparency and quality of our spices and herbs, and the bottle is made of 50% post-consumer recycled plastic, approximately a 20% carbon footprint reduction from the current package. We are really excited about these changes and so are consumers. Testing has confirmed 40% higher freshness per session, 2x higher preference and a 25% increase in loyalty among current buyers. The products began rolling out last month.

The transition on store shelves will happen over the course of the year, supported with our highest spend brand marketing campaign of the past five years. Importantly, the new packaging fits right into the existing shelf stock. This is a seamless transition for our retail partners that we expect to drive category performance. This initiative, coupled with other new product introductions, I’ll mention in a minute, along with our stabilized service levels, will build total distribution points and market share improvement as we go through the year as we outlined last month at CAGNY. We’re also expanding into the fast-growing Mexican aisle with authentic Mexican flavor of Cholula in new formats. We are launching Cholula Taco recipe as well as sauces based on authentic Mexican formulas and crafted in Mexico using locally sourced fresh tomatoes and.

Retail acceptance has been strong and consumers will find these new products and the authenticity they are looking for on U.S. shelves soon. Product began shipping yesterday ahead of, and the rollout will continue over the course of the second quarter. We’re launching new products in the first half of 2023 to inspire consumers flavor exploration as well as the opinions consumers are looking for. In the Americas, we are kicking off the grilling season with new flavors including a Griller’s Choice marinate you can use as three different flavors. And we’re really excited about our new Stubs Master series made with technology from our FONA acquisition, these dry seasoning rubs capture real authentic hardwood smoke flavor. Leveraging the product successes of 2022, we are extending our Tabitha brown line into new flavors, formats and channels, and we’re also launching a French’s creamy roasted garlic mustard.

In direct-to-consumer, we continue to grow our platform with new innovative flavors as a testing ground and in the club channel, we’re launching a world flavors line. In EMEA, we’re enabling consumers to discover the authentic taste of America by introducing old Bay to the U.K. market as well as introducing a new line of products leveraging the French’s brand, including American favorites recipe. In the U.K., we also just launched Schwartz brand gravy, which are beating the top competitor on taste. In APZ, we’ve recently launched meal basis, a favorite Keane’s recipes and will be launching a Gourmet Garden SD lemon paste, both making consumers flavor exploration easier. In China, we’ve introduced new packaging for our Chicken Bullion product, a pouch with a resealable port cap that makes it convenient for consumers and extends the open product shelf life by locking up moisture.

We’re continuing to build our heat platform across all regions with the launch of new products, including in the U.S., Gourmet Nashville hot chicken season, Frank’s RedHot Dill Pickle hot sauce and a Cholula reserve crafted with 100% tequila and our flavor forecast of the year, Vietnam’s agent sale season. In China, we’re introducing iconic Chinese city spicy blend and then the U.K. Frank’s RedHot spicy recipe mixes. Across all regions, we’re increasing our brand marketing investments in 2023 and expect the most significant year-over-year increase in the second quarter. We will continue to support our brands with messaging on everyday use, value and the superiority of our ingredients and flavors and more specifically, with mustard supply issues resolved, we’ve launched a flavor on campaign for mustard or elevating our mother of sauce, Cholula campaign to support the launch of the new format and capitalize on.

And of course, with grilling season starting during the quarter, we plan to reach grillers with our just flame and flavor campaign. A robust growth plan gives us confidence in continuing to drive positive momentum. We believe they will all be a win for consumers, customers, our categories and McCormick, differentiating us even more and strengthening our flavor leadership in core categories. Turning to Flavor Solutions on Slide 9. Our sales performance in this segment continues to be outstanding. This was our eighth consecutive quarter with double-digit sales growth. Our first quarter growth was led by pricing actions in all three regions, which as we expected, accelerated versus previous quarters. Now for regional highlights. Our Americas first quarter strong sales growth was led by our Flavors product category.

Within Flavors, snack seasoning growth was strong including volume growth related to new products and strengthen our customers’ iconic products, partially fueled by their marketing as well as our improved ability to service our customers as we began to realize the benefit of the capacity we’re bringing online. Flavors for Performance Nutrition and health end market applications also contributed to our strong performance as we continue driving double-digit sales growth. We are winning with new customers and new products. Volume was tempered in the quarter by the pruning of some low-margin business. The impact of a very cold December on the away-from-home part of our portfolio and lower volume of alcoholic beverage flavors due to what must have been a drier January than last year.

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In EMEA, we continue to drive broad-based growth across the portfolio, which was led by higher sales to our quick service restaurant customers in the first quarter. Overall, our price realization nearly doubled versus last quarter. And in APC, we delivered solid volume growth in the markets outside of China, driven by demand from quick service restaurants, or QSRs, for our products to heat up their hot and spicy offerings. Overall, labor solutions demand has remained strong, particularly in certain parts of our business in our Americas and EMEA regions. As we continue to bring additional capacity online and reduce both supply chain pressure and the extraordinary cost to service our customers, we appreciate their patience and collaboration. We’re continuing our positive sales growth momentum in Flavor solutions, and we’re committed to restoring profitability in this segment, recovering margin while ensuring we keep our customers in supply and driving growth for both McCormick and our customers.

We’re confident we will achieve margin recovery. In our January earnings call, we set our price increases had just begun to catch up with the pace of inflation and we were beginning to recover the cost inflation or pricing lag in the last two years. This is continuing at an even greater rates in the first quarter. And earlier, I discussed cost through our two lead program, which will contribute to the Flavor Solutions margin recovery. GOE will have a significant impact in the Flavor Solutions segment. And finally, we continue to focus on driving growth in high-margin parts of our portfolio such as the flavor product category volume growth I mentioned a few minutes ago in the Americas region. Now I’m excited to share the growth plans we’re executing on and expect will continue to drive our growth momentum.

We continue to fuel our Flavor Solutions segment growth using our differentiation, including our culinary foundation, our unique and powerful consumer insights advantage, our proprietary technologies and our passion for providing our customers with a differentiated collaborative experience. While we cannot get too specific about product development, following a strong year of innovation in 2022, we carried a robust new product pipeline into 2023. As we mentioned at CAGNY, we are specifically targeting opportunities to grow in high-growth end markets. Applications such as savory snacks, alcoholic beverages and Performance Nutrition and have outpaced market growth and as I just shared, our robust growth momentum continued in the first quarter.

As we expect it will the balance of the year, the capabilities we built for these categories are creating significant top line opportunities. The power of McCormick and FONA together continues to fuel greater opportunities for growth. This acquisition is exceeding our expectations. We’re capitalizing on opportunities to increase our sales to existing customers by cross-selling across our more comprehensive product offering and target new customers. We’re leveraging our global footprint and capabilities to drive future growth. We are currently in the process of expanding performance nutrition into Canada as well as localizing confectionery flavors in for our FONA customer. Finally, in branded foodservice, we have a robust 2023 innovation agenda, launching more than double the new items than in 2022, including Frank’s RedHot, Nashville Hot, a line of Cholula Street Tacos, McCormick culinary Global blend and a French’s portion control package.

Our plans include continuing to leverage our culinary partnerships, inspire menu ideas with our customers, win placement on away-from-home menus, including with quick service restaurants and drive growth with promotional activities. Our robust growth plans in Flavor Solutions also give us confidence in continuing our growth trajectory and drive our Flavor Solutions leadership. Now for summary comments before turning it over to Mike. Turning to Slide 11. Global demand for flavor remains the foundation of our sales growth, and we’ve intentionally focused on great fast-growing categories that will continue to differentiate our performance. We continue to capitalize on the long-term consumer trends, healthy and flavorful cooking, increased digital engagement, trusted brands and purpose-minded practices.

McCormick is uniquely positioned to capitalize on its demand for great taste, with the breadth and reach of our strong global flavor portfolio, we are delivering flavor experiences for every meal occasion. Through our products and our customers’ products and are driving growth, we are end-to-end flavor. The strength of our business model, the value of our products and capabilities and the execution of our proven strategies give us confidence in our growth momentum and ability to continue navigating the dynamic mobile environment. As we look ahead to the balance of the year, we will continue to focus on capitalizing on strong demand, optimizing our cost structure and positioning McCormick to deliver sustainable growth. We have robust growth plans in place including building momentum with our new products and heat platform and are delivering on our commitment to increasing our profit realization.

We are confident with the successful execution of our planned and concrete actions we will drive profitable growth in 2023. I want to recognize McCormick employees around the world as they drive our momentum and success. I want to also thank all of our customers, suppliers and investors for their collaboration and patients as we move beyond the unique environment we’ve been operating in since the onset of the pandemic. The fundamentals that drove our historical financial performance remain intact, and we are confident we will continue to not only deliver strong sales growth, but also drive total shareholder return at an industry-leading pace. Now, I’ll turn it over to Mike.

Mike Smith: Thanks, Lawrence, and good morning, everyone. Starting on Slide 14. Our top line constant currency sales grew 5% compared to the first quarter of last year. This growth was tempered by a 2% unfavorable impact from the Kitchen Basics divestiture, the exit of the consumer business in Russia and lower consumption due to the COVID-related disruption in China. In our Consumer segment, constant currency sales increased to 1%, reflecting a 9% increase from pricing actions, partially offset by a 3% volume decline related to the Kitchen Basics, Russia and China impacts I just mentioned as well as a 5% decline in all other volume and product mix. On Slide 15, consumer sales in the Americas increased 4% in constant currency, including a 2% decline from the Kitchen Basics divestiture.

Growth was broad-based across all product categories, driven by pricing actions, partially offset by lower volume. Lapping elevated demand due to Omicron in the first quarter of last year contributed to the volume decline. In EMEA, constant currency consumer sales declined 2%. Pricing actions were more than fully offset by lower volume and product mix, including a 4% unfavorable impact from the lower sales in Russia. Lapping elevated demand due to Omicron in the first quarter of last year contributed to the volume decline. Constant currency consumer sales in the Asia Pacific region declined 8%, driven by a decline in volume, partially offset by pricing actions. The combination of lower volume in China due to COVID-related disruptions and the exit of lower-margin business in India drove an 11% reduction in volume.

Turning to our Flavor Solutions segment on Slide 18. We grew first quarter constant currency sales of 12%, reflecting a 13% increase from pricing actions and a 1% decline in volume and mix. In the Americas, Flavor Solutions constant currency sales rose 12%. Pricing actions contributed to higher sales across the customer base, which skews to packaged food and beverage companies as well as branded foodservice customers. Volume and product mix declined in the quarter as strong volume growth in snack seasonings and flavors for Performance Nutrition and health applications was more than fully offset by the impact of pruning of low-margin businesses and lower volume of away-from-home products as our customers’ business was impacted by cold weather.

In EMEA, constant currency sales increased 17%, with pricing actions partially offset by lower volume and product mix. EMEA’s Flavor Solutions outstanding growth was broad-based across its portfolio, led by higher sales to QSR customers. First quarter volume declined, driven primarily by softness in some of our packaged food and beverage customers volume within their own businesses. In the Asia Pacific region, Flavor Solutions sales grew 5% in constant currency with pricing actions partially offset by lower volume and product mix. Volume and product mix declined as the impact of scale back QSR activities in China due to COVID-related disruptions more than offset QSR volume growth outside of China. As seen on Slide 22, gross profit margin declined 80 basis points in the first quarter versus the year ago period.

This is an improvement from our performance last year. While more work needs to be done, we are pleased with our progress and are confident in the actions underway to continue driving further improvement over the balance of the year. Gross margin in the quarter was impacted by several drivers. First, we’re still incurring elevated costs in Flavor Solutions to meet high demand in certain parts of our business. While painful in the short term, we know making these investments to support our customers is the right approach to driving long-term growth. That said, we continue to progress on reducing the level of these costs in the first quarter. Also in Flavor Solutions, we incurred dual running costs related to the transition to our new U.K. Peterborough manufacturing facility.

We expect the balance of the year costs to be comparable to 2022 and a sales shift between our Consumer and Flavor Solutions segments as compared to last year unfavorably impacted gross margin. Partially offsetting the unfavorable drivers I just mentioned were our CCI-led cost savings as well as the cost savings from our GOE program that Lawrence discussed, and which were in line with our expectations. Finally, end of note, we offset current year inflation in the first quarter, which we expect will be the highest of the year through our pricing actions. And as Lawrence said, we continue to recover the cost inflation or pricing lagged over the last two years as we planned. While the net of these impacts drives gross profit dollar growth, there is level of dilution that tempers the actual gross margin percentage.

Now moving to Slide 23. Selling, general and administrative expenses, or SG&A, were comparable to the first quarter of last year. Higher distribution costs were offset by CCI-led and GOE cost savings as well as lower planned brand marketing and employee benefits expenses in the quarter. For the year, we continue to expect both brand marketing and employee benefits expenses to be higher than last year. As a percentage of sales, SG&A declined 40 basis points, driven by leverage from sales growth. Higher sales, partially offset by lower gross margin, resulted in a constant currency increase in adjusted operating income of 2% compared to the first quarter of 2022. In constant currency, Consumer segment adjusted operating income increased 6%, and in the Flavor Solutions segment, it declined 11%.

Turning to interest expense and income taxes on Slide 24. Our interest expense increased significantly over the first quarter of 2022, driven by the higher rate environment. Our first quarter adjusted effective tax rate of 21.8% compared to 19.7% in the year ago period. Both periods were favorably impacted by discrete tax items with a more significant impact last year. At the bottom line, as shown on Slide 25, first quarter 2023 adjusted earnings per share was $0.59 as compared to $0.63 for the year ago period. The decrease was due to higher interest expense and a higher first quarter adjusted effective tax rate. On Slide 26, we’ve summarized highlights for cash flow and the quarter end balance sheet. Our cash flow from operations for the first quarter was $103 million compared to $18 million in the first quarter of 2022.

The increase was primarily driven by lower incentive compensation payments. We returned $105 million of cash to our shareholders through dividends and used $62 million for capital expenditures this quarter. We expect 2023 to be a year of strong cash flow, driven by our profit and working capital initiatives. Our priority is to continue to have a balanced use of cash, funding investments to drive growth, returning a significant portion to our shareholders through dividends and paying down debt. We remain committed to a strong investment-grade rating, and we have a history of strong cash generation and profit realization. Now turning to our financial outlook on Slide 27. Our 2023 outlook reflects our continued positive top line growth momentum and with the optimization of our cost structure, increased profit realization.

We expect to drive margin expansion with strong sales and adjusted operating income growth that reflects the health of our underlying business performance as well as the net favorable impact from several discrete drivers. We expect our adjusted operating profit growth will be partially offset below operating profit by higher interest expense and a higher projected effective tax rate. We also expect there will be a minimal impact from currency rates, although there will be a timing aspect as we project an unfavorable act in the first half of the year and a favorable impact in the second half of the year. At the top line, we expect to grow sales 5% to 7%, driven primarily by the wrap of last year’s pricing actions combined with new pricing actions we are taking in 2023.

We expect several factors to impact our volume and product mix over the course of the year, including price elasticities, which are consistent with ’22 at lower levels than we have historically experienced, but in line with the current environment. A 1% estimated benefit from lapping last year’s impact of COVID-related disruptions in China, although we expect the impact will vary from quarter-to-quarter given 2022’s level of demand volatility. The divestiture of our Kitchen Basics business in August of last year and the exit of our consumer business in Russia during last year’s second quarter, and finally, the continual pruning of lower-margin business from our portfolio. As always, we plan to drive growth through the strength of our brands as well as our category management, brand marketing, new products and customer engagement plans.

Our 2023 adjusted gross margin is projected to range between 25 to 75 basis points higher than 2022. Adjusted gross margin expansion reflects a favorable impact from pricing, cost savings from our CCI-led and GOE programs, partially offset by the anticipated impact of a low to mid-teens increase in cost inflation. We expect cost pressures to be more than offset by pricing during the year as we recover the cost inflation or pricing lagged the last two years. Moving to adjusted operating income. First, let me walk through some discrete items and their expected impact to our 2023 adjusted operating profit growth. First, the cost savings from our GOE program are expected to have an 800 basis point impact. The savings from this program are expected to scale up as the year progresses.

Next, the benefit of lapping the impact of COVID-related disruptions in China is expected to have a 300 basis point favorable impact. The Kitchen Basics divestiture is expected to have an unfavorable 100 basis point impact. And finally, an even 100 basis point unfavorable impact is expected as we build back incentive compensation. The net impact of these discrete items is a favorable 200 basis points. This favorable impact, combined with expected 7% to 9% underlying business growth, which is driven by our improved operating momentum, results in our adjusted operating income projection of 9% to 11%. In addition to the adjusted gross margin impacts I just mentioned, this projection also includes a further low single-digit increase in brand marketing investments and our CCI cost savings target of approximately $85 million.

We are anticipating a meaningful step-up in interest expense, driven by the higher interest rate environment, which will impact our floating debt. We estimate that our interest expense will range from $200 million to $210 million in 2023 and spread evenly throughout the year. As a reminder, in 2022, we realized an $18 million favorable impact from optimizing our debt portfolio, which we will lap in 2023. The net impact of these interest-related items is expected to be approximately an 800 basis point headwind to our 2023 adjusted earnings per share growth. Our 2023 adjusted effective income tax rate is projected to be approximately 22% based upon our estimated mix of earnings by geography as well as factoring in a level of discrete impacts.

Versus our 2022 adjusted effective tax rate, we expect this outlook is to be a 100 basis point headwind to our 2023 earnings growth. To summarize, our 2023 adjusted earnings per share expectations reflect strong underlying business growth of 8% to 10% and a 2% net favorable impact from the discrete items I just mentioned impacting profit, the GOE program, the China recovery, the Kitchen Basics divestiture and the employee benefit cost rebuild, partially offset by the combined interest and tax headwind of 9%. This results in an expected increase of 1% to 3% or a projected guidance range for adjusted earnings per share in 2023 of $2.56 to $2.61. We are projecting strong operating performance in 2023 with the continued top line momentum, significant optimization of our cost structure and strong adjusted operating profit growth as well as margin expansion.

While this performance is expected to be tempered by interest and tax headwinds, we remain confident in the underlying strength of our business and that with the execution of our proven strategies, we will drive profitable growth in 2023.

Lawrence Kurzius: Thank you, Mike. Now that Mike has shared our financial results and outlook in more detail, I’d like to recap the key takeaways as seen on Slide 29. Our first quarter sales growth reflects the strength of our broad global portfolio and the effective execution of our strategies. Our underlying business performance was driven by our pricing actions and strong ongoing demand. Our first quarter progress on margin improvement reflects the level of urgency with which we are addressing the pressure points from last year. We are committed to increasing our profit realization, and our actions are yielding results on optimizing our cost structure and recovering the cost inflation or pricing lag last year. We expect our progress to scale up as the year progresses.

We have robust growth plans in place, including building momentum with product innovation and renovation and are driving improvement in our margin profile. We expect to drive profitable sales growth at an accelerated rate in the balance of the year and have bolstered confidence in delivering our outlook for 2023 in building shareholder value. The compounding benefit of our relentless focus on growth, performance and people continues to position McCormick to drive sales growth. This coupled with our focus on recovering cost inflation and lowering costs to expand margins, will allow us to realize long-term sustainable earnings growth. Now for your questions.

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Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. Thank you. And our first question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question.

Ken Goldman: I was just curious how 1Q came in versus your internal expectations. I guess, post in a broad sense, and maybe if anything specific stands out in terms of drivers. I won’t ask if you considered raising guidance. I assume it’s a little early in the year. But if the quarter was above what you would forecast, were there specific reasons that stand out. And I guess, is there any reason to think some of those drivers can’t continue into 2Q and beyond maybe?

Lawrence Kurzius: Ken thanks. We are off to a solid start on the year. That is for sure. And we’re really pleased with the start of the year. We had good sales growth and we made excellent progress on our plans for improved profit realization. Most of our team that we have planned for the years in place and our GOE program is beginning to show results. And as I said, we are bolstered in our confidence — in our guidance, in part because the quarter did come in a little bit better than we planned. There’s no one specific thing that stands out. But overall, it was a little bit better. We had a sense of that confidence already when we spoke at CAGNY. And — from where we were at that time, it came in pretty much as we thought.

Mike Smith: And as you said, Ken, the first quarter to your March Madness, I think we put some points on the board, and we’re going to continue focusing on growing the business. And as Lawrence said, we’ve made real good progress on our cost agenda to it, which is great.

Ken Goldman: Got it. And then sort of along the same lines, but maybe more specifically, Flavor Solutions volume, they were down slightly in the first quarter, but was our hardest comp of the year. It was high pricing. It seems that they’re doing pretty well in the scheme of things. Just curious how to think about modeling volumes for Flavor Solution into and for the rest of the — 2Q rather and for the rest of the year, just given that there may be a little more moving pieces than usual. You have that pricing. And then you guys mentioned some headwinds in 1Q, maybe some lower sales to CPGs in EMEA, for example. So I just wanted to get a sense of that kind of cadence as we go through the year as far as you can tell now.

Lawrence Kurzius: Sure. It was strong performance. In our guide for the year, we’ve said our volumes are going to be flattish overall. And I’d say our expectation by segment is maybe a little bit — a little bit positive in Flavor Solutions, a little bit negative in the Consumer. But overall, all of it within kind of a plus or minus one range versus flat. And so I think that’s a good way to think about it. We do expect to see strong pricing impact the year as we go through the whole year on Flavor Solutions.

Brendan Foley: I would just — Ken, just to maybe add a few thoughts to that. We did see volume strength in our portfolio, especially — I think we called it out in the script of it just from snack seasoning on Performance Nutrition and Health, and that’s pretty consistent with what we’ve been seeing, but the offsets really are not related to price elasticity. So I think that’s maybe important to call out. And there was a couple of things noted like some cold weather impact on branded foodservice or we’re certainly seeing an inflationary impact on our customer base and EMEA. They’re going through a fair amount of inflation right now in that market, the consumer is. And just pruning of — natural pruning of lower margin business. So, those are having an impact, too, on the volume profile. But I think our confidence still for the balance of the year is where Lawrence placed it.

Operator: Our next question is from the line of Andrew Lazar with Barclays. Please proceed with your question.

Andrew Lazar: I was hoping we could talk a little bit about what you’re seeing evolve in terms of price gaps in core spices and seasonings versus private label, particularly with some of the incremental pricing that came into play sequentially in the first quarter.

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

Brendan Foley: Andrew, we still see price gaps continuing to narrow compared to private label. That happened in Q4. We saw it again in Q1. It’s really a result of seeing more private label taking price on the shelf. So that seems to be coming through and reading through the scanner data. And we would say and what we’re seeing is that the impact just continues to moderate. Again, it’s pretty consistent with what we saw in Q4. We really do believe a lot of our initiatives and a focus on value is also having a positive impact on our brands. And we continue this effort, whether it’s messaging or focused on value sizes, et cetera. So that’s also probably having an impact too. So that’s really the nature of what we’re seeing right now with regard to price gaps in private label.

Andrew Lazar: And then you mentioned — it’s early, I know, but early results of sort of the Lawry’s sort of value brand launches or kind of doing what you wanted to do. I think you said that over half of the purchases are from new buyers to McCormick. And then I think overall, incremental to the category. So I’m just trying to get a sense of where — I guess, where are these new consumers to the category coming from where they just didn’t operate in this category before? Or what is it about the Lawry’s brand launch that’s drawing, I guess, new consumers overall to the category because that’s obviously particularly important, I guess, for your retail partners as well?

Brendan Foley: Yes. It is performing better than we expected right now. And so we’re pretty pleased with the performance. A lot of the volume that we are sourcing as we called out, it’s definitely incremental to from a retailer standpoint, but also a lot of new brand buyers are coming into the McCormick franchise through Lawry’s. I think its people seeking the brand. They’re looking for value. And so, we see that playing out. And it’s been largely positive as we think about building out even more distribution. These are some of the positive results that we’re getting from this. It’s just simply turning faster itself. But their — Lawry’s brand really is appealing to sort of a number of consumers. It’s really strong with Hispanic households.

It’s strong with many other sort of demographic groups, and we see them coming into those stores being offered. They may not be buying then private label or they may not be buying in other retail outlets. So that’s where we see a lot of the growth coming from in the incrementality. You’re going to see more distribution growth on this, though, in 2023.

Operator: Our next question is from the line of Alexia Howard with Bernstein. Please proceed with your question.

Alexia Howard: First question is on China. You called out the fact that the China lockdowns and disruption over there pressured sales this quarter. Is that getting better? And what should we expect in Q2? And then I have a follow-up.

Lawrence Kurzius: Well, of course, China was really complicated story this quarter because our first quarter begins in December. And in December, the country was still largely in lockdown — now they got a train going behind the ground. The country is largely locked down in December, then they reopened and they had a very concentrated pandemic period or a huge proportion of the population. I wonder if you’ve lost — but a question of the population got COVID. So that was quite a big impact on McCormick. We thought that post-Chinese New Year would probably begin to see a recovery. And I think we were seeing that unfold after Chinese New Year in a positive way. And in second quarter, we’re going to lap the lockdowns from last year, and we’re expecting a significant recovery in China.

As we go through the second quarter, we’re certainly going to have double-digit growth compared to a year ago unless there’s some other exogenous shock. The question on that double digit is just what the first number is, but it’s going to be big.

Alexia Howard: Great. And then…

Lawrence Kurzius: Brendon?

Brendan Foley: No, I just think, Alexia, we’re optimistic that this normalization will continue to unfold in the market. We expect to see much of that come through in Q2.

Alexia Howard: Great. And sorry about the noise there. We’ve got some very impatient taxi drivers out here on the New York City street apparently. A quick follow-up. Inventory, retailer inventories were a big upset last quarter in terms of the year-on-year changes. Is that now behind us? And are you seeing any shifts, particularly in North America relative to the Nielsen data that we’re seeing, consumer takeaway versus shipments?

Lawrence Kurzius: Well, I said that we thought that this would be behind us in the first quarter, and that’s largely how it’s played out.

Operator: The next questions are from the line of Robert Moskow with Credit Suisse. Please proceed with your question.

Robert Moskow: For modeling purposes, I wanted to know the phasing of the comparisons on your incentive comp. I couldn’t quite tell in first quarter whether it was flat year-over-year? Or it was a — and also for the rest of the year, it’s a big number for the full year. Can you tell us how to think about it in the second and third…

Lawrence Kurzius: I’m going to let Mike go for this one.

Mike Smith: Yes. It was a relatively small favorable first quarter, but it will build during the year, as we said on the last conference call. So third and fourth quarter, second half will be significantly higher. That’s why you’ll see the impact.

Robert Moskow: Okay. When you said favorable, so it was favorable in first…

Mike Smith: Last year. Yes, slightly unfavorable at first. But over the next three quarters, really the third and fourth and second half will be — that’s where you’ll see the incrementality versus…

Robert Moskow: Right, right, right. Okay. And I guess a similar question on China. I remember you called out an $0.11 per share impact in 2Q last year. So can I assume you’re going to get all that back and more? And then in third, was there also an impact? It was never quantified, but it must be significant, too.

Lawrence Kurzius: We — and actually because of the second fourth quarter negative impact, we had a big negative impact in the second quarter and then had a reopening, solid third quarter and then a re-lockdown in the fourth quarter. We’re just part of our miss in the fourth quarter. You had no idea that was going to happen when we gave guidance. I think our full year guide for the order of magnitude that you’re talking about…

Mike Smith: Yes. If you look at that the 2023 outlook chart in our earnings deck, a 3% impact on EPS, that’s the full year impact, which is around…

Robert Moskow: Sure. Okay. But it’s really 2Q and 4Q that are the real comparisons?

Mike Smith: Yes. Those are the — exactly. Yes.

Robert Moskow: Okay. Last question. Have — do you think your sales force will get some more momentum regaining shelf space that they lost in 2022 as a result of the packaging redesign? Is that kind of a good way to get in with retailers to regain some of the SKUs that were cut? Or is it kind of two separate discussions?

Lawrence Kurzius: I think that absolutely, there is a tremendous opportunity for our sales force this year for a couple of reasons. One is that our service is in much better condition so that we don’t have as many unproductive conversations with our customers. The second is the sheer amount of innovation and the balance that we’re bringing to our customers is going to be really positive. And Brendan, I’m going to ask you to just say a few words about that.

Brendan Foley: Yes. It isn’t — as we would always say, Rob, it’s never just one thing, it’s a system of things, and that really drive that competitive strength, and that applies, I think, to your question as well. Yes, we have a big renovation plan as you called out, and that’s definitely going to be a big lever. And I think it’s all about driving and improving the category. And so our sales organization certainly is kind of selling behind the strength of story. We’ll continue to reclaim distribution points, not only over this year, but also over next year. That’s part of the process of doing this. But as Lawrence called out, I just think our innovation platform is going to continue building also additional distribution points.

We really like our innovation platform and the items that we’re coming out with this year. So, we expect to see a lot from that too. And all of these things put together with a very, very strong levels of brand marketing, brings together a really strong category conversation with the retailer. I think importantly, though, we keep pointing out the performance of McCormick and our other brands on shelf just continues to sort of outperform competition. And so those are some of the things that we use in category management to really prove the case that it’s a more productive shelf, the more McCormick guidance you have on it.

Mike Smith: And I think supporting those new products in our brand marketing, we were slightly favorable in the first quarter versus last year, but you’ll see in the second quarter that support will increase year-on-year.

Operator: Our next question is from the line of Max Gimport with BNP Paribas. Please proceed with your question.

Max Gumport: For the question. First one is on gross margin. So it came in well above Street expectations in the quarter. And I recognize it’s early and you talked about putting points on the board. But I do wonder that as you think about your path to mitigating the pressure points that impacted this line last year, have your used changed at all? It would seem like with inflation accepted to ramp down through the year and your GOE program as to ramp up through the year, you might now have a bit more visibility towards the higher end of your previous 25 to 75 basis point guidance range.

Mike Smith: Again, this is the first quarter. The first quarter results though do really give us — they bolster our confidence, as Lawrence said, the pricing realization, recovering those costs we’ve had and, frankly, over recovering in the year, which gives us more confidence, the GEO program, the implementation of those programs, which are very programmatic in nature gives us more confidence. But before we start celebrating, we want to, again, put points on the board in the second quarter. I will note, consumer margins, operating profit margin, up 110 basis points in the first quarter. We’re really happy with that. And while Flavor Solutions is still negative, it was about 200 basis points less than that last year. There was a sequential improvement from the fourth quarter, and we’re really focused on driving those margins higher this year.

Lawrence Kurzius: And I think you’ll see as we go through the year, that we will steadily improve that flavor solution margin performance. But as Mike said, this is our first quarter, it’s also the smallest quarter of the year. We certainly bolstered in our confidence, but we don’t want to get overconfident.

Max Gumport: Great. Makes sense. And then on the GOE program, is there a number you’re giving for the first quarter? I realize it’s $75 million for the year, but just curious if you can get in for what occurred?

Mike Smith: Yes. I mean basically, like two months ago, we said it’s a small impact on first building into the second then in the second half is where you see the significant impact it scales up.

Operator: Our next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Steve Powers: Yes. Just going back maybe to the question on trade inventory that I think Alexia originally raised. Just to play it back, it seems like from what you had said before that you exited the quarter with trade inventory levels roughly in balance from the consumer business. Just want to make sure that was correct. And then so as we go forward, I guess the base case is that you ship more or less to consumption for the balance of the year with maybe a little bit of opportunity to ship ahead to the sense that the renovation work leads to those incremental distribution points. Is that the right interpretation of what you said so far?

Lawrence Kurzius: Well, I think if I took the question mark of replacement, we have the answer. But Brendan, do you want to comment on that?

Brendan Foley: Yes. I mean maybe, Steve, just to focus on the front end of your question first. What we saw in the first quarter, we did — shipments were in line with consumption. But I think more importantly, the dynamics that we would typically see in the first quarter following a holiday season played out as it behave much like a normal period of time. So that’s what we’d hope to see in Q1. That’s what we did see in Q1. And what that, I think, means looking ahead now, which is kind of the back end of your question is we see things normalizing and operating a little bit more like we would typically operate. I have to think a little bit of what that means by the end of the year, but we would just see a shift to consumption model really play out as we normally do.

Just remember, though, in that fourth quarter, we have a big — that’s our biggest quarter of the year, in our big holiday season. So we tend to kind of even things out after Q1 and then sort of like begins again as we think about that cycle. So that’s the way I would think about it. But the important takeaway for me and I think maybe in this call is that we saw a normalization of that, how that would typically behave in Q1.

Operator: Our next question is from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

Adam Samuelson: So, I guess I wanted to come back to Flavor Solutions. And I think the comments in response to earlier question was kind of expect to see the margins there build through the year. And that’s also, I think, where the majority of the global operating effectiveness program would show up. Can you just remind us this year, kind of the excess costs that you’re carrying for the U.K. facility as you execute the changeover to the new plant, and we think about that layering out of the system in ’24 and beyond? And maybe more broadly, help us think about the road map to building the Flavor Solutions margins back up to the mid-teens level that they were at pre-COVID?

Mike Smith: Yes. I mean we’re roughly comparable on the little bar facility the last year, as we said, I mean, in…

Lawrence Kurzius: After this quarter.

Mike Smith: After this quarter, but into next year, there’s still going to be some carryover into next year. So I almost hesitate to say a number right now. Overall, we’ve said before around $20 million of kind of dual running costs on an annual basis. So a good chunk of that should go away next year. But again, that depends on there’s a lot of factors relating into that. But if you think about this year with Flavor Solutions, the first quarter is one of the highest commodity and other costs were and that will — just like on the consumer side of the business, that will go down the rest of the year. Pricing realization will support that. Then the GOE business — the GOE program, and that really benefits both of our segments too.

I wouldn’t say all of us going to Flavor Solutions. It’s really across the board where we’ve had inefficiencies that have built up in the system since the pre-pandemic. We’ve called out some of those very clear examples of Flavor Solutions like Topak and things like

Adam Samuelson: And I guess then as we think about kind of exiting this year on Flavor Solutions and beyond, I mean you’re still kind of — the margin structure of the business seem to be well below where you were a couple of years ago. And just trying to think about kind of some of the building blocks, whether it’s, say, concentrated customer base and getting kind of the full price recovery there? Is it mix? Is it capacity? I’m just trying to think about what — where the margins have gotten to in 2018, 2019. And exiting this year, they’re still going to be in kind of high single-digit range, I think.

Mike Smith: We think we have a long runway of improvement Flavor Solutions margins. You refer back ’18 and ’19. I mean our margins are 14-ish range, and we feel we can get back there over time as we over — we recover those costs, we’ve talked about as costs moderate as we get more efficient. So we don’t see 2019 as really the ceiling. And our portfolio — the pruning portfolio driving more towards the higher-margin products as we — you’ve seen accelerated growth there we talked about today. So, we do — but it’s not going to happen snap your fingers by the end of this year. This is a program that is going to play out over the next couple of years.

Adam Samuelson: Well, I get that’s not going to happen just this year, but if I just push in — the business mix isn’t all that different today versus where it was three or four years ago. So apart from we’ve had this big run of inflation, what’s really changed in terms of the profitability of the portfolio today?

Mike Smith: Well, I mean the three things we said in the last earnings call, where the significant inflation and we’re recovering that inflation now through incremental pricing. The significant incremental costs we’ve incurred since pre-COVID, we’re addressing them through the GOE program across both segments and the incremental cost for driving additional capacities as an example, a little of our investment. So, those three things have really driven that operating profit degradation, which we are in the process of now reversing.

Lawrence Kurzius: And I would say that it’s not true that the business mix has not changed. The business mix has changed, and we continue our portfolio migration towards more value-added products. You hear us talking about pruning the portfolio. We have not been specific because we don’t want to talk about things that are — that might be identifiable to a specific customer, but there’s definitely been a movement within our portfolio, both by category and within product categories to improve that business for the long term. And Mike said that we don’t look at the pre-pandemic operating margin as a ceiling. As we said at the time, we look to some of our pure labor house peers who publish public numbers who have significantly higher operating margins. That’s more what we aspire to in the very long run.

Operator: Our next question is from the line of Peter Galbo with Bank of America. Please proceed with your question.

Peter Galbo: Mike, just to go back to the question around kind of GOE and to square some of the gross margin kind of math on the quarter. It seemed like you were saying GOE was pretty minimal in terms of contribution to gross in 1Q. But maybe you can just help us like the other components, what did CCI contribute in 1Q? And just where did the actual inflation rate — the COGS inflation rate in the quarter fall relative to that low to mid-teens number for the year?

Mike Smith: Well, we’ve said, I mean, the first quarter is the highest of our inflation rates turned out to be that way, and it will go down the rest of the year sequentially. GOE was a small impact as you referred to. CCI roughly, is really spread throughout the year. So we don’t get really specific around what CCI occurs because it’s a continuous program. So you have every quarter. It’s approximately the same level as last year or slightly higher, depending on your guidance. We said that this year is $85 million. Last year, it was $85 million, so probably roughly the same. But I think as you think about the margin improvement, the pricing realization that we’ve seen — as you’ve seen in our numbers, is really driving a good chunk of that. So that’s what gives us confidence on the rest of the year too. We’re recovering these costs. We said that we incurred the last couple of years. We’re catching up this year, and you’ve seen that in the first quarter.

Peter Galbo: Okay. That’s helpful. And Lawrence, maybe just — you talked a little bit about drilling season and some of the new product innovation. We’ve heard from some others as well. Just curious how you’re thinking about promotional maybe cadence over some of the summer holidays, if that’s maybe the depths aren’t back to a more normal level. But are you seeing a chance to maybe increase promotional frequency as you get into some of your bigger, more important holiday season?

Lawrence Kurzius: Actually, I would say that with our higher — with our improved service levels, I’d say, our promotional levels have also normalized. Now we were able to support promotional volumes now. The promotions that we run tend to be ROI positive. I think that’s an important part of building back market share that we didn’t talk about actually in making our points and I’m glad you asked the question. But sometimes promotion is thought of as dealing back price has not what we’re talking about. We’re talking about quality merchandising events that drive consumer takeaway. We’re going to over a little bit over time, but we’re going to take everybody’s question. So hope they’re not too long.

Operator: The next question is from the line of Cody Ross with UBS. Please proceed with your question.

Cody Ross: I just wanted to hit back on the last question as it related to your volume expectations for the quarter. How do you think about promotions for the rest of the year, especially in terms of what your competitors are doing? Are you seeing promotions increase? And then as it’s related, how did your volume come in, in the quarter relative to your expectations?

Lawrence Kurzius: Well, as I said, I think our — our ability to full schedule of merchandising activity with our customers. I think that’s part of what gives us confidence in our outlook for the year, frankly, is that we’re able to have those kinds of positive conversations with our customers as opposed to some of the negative ones that we might have been having over the last few years about supply and their desire to promote. I mean, I think some great examples are like our French mustard where we finally have bottles in supply, and we’ve been able to drive 20% volume growth for the last two quarters and gained significant share. And I think that we’re going to do a similar thing with growing products. I think the renewal of our ability to meet our core product demand is also allowed us to innovate.

And so those promotions, in many cases, are showcasing our products in store, which also, I think, will contribute to volume. And again, our outlook for volume on the Consumer side of the business relatively flat for the year, I think we’re up against a tough comparison in the first quarter, and that’s part of the reason why volume is down lapping Omicron a year ago and so on. But I think we’re pretty optimistic actually on volume. And the pricing actions that we needed to take are loaded to the year. And again, so I think that, that’s something that will — it’s not in the way of growing our volume.

Cody Ross: And then just one last question, more on capital allocation. Your leverage stands above 4x. You called that out as a reason why interest expense is moving higher this year. Historically, share repurchases have not been a big use of cash. Just given the difficult operating environment in the credit markets right now, can you share with us how you think about prioritizing debt pay down versus M&A? And then in that context, can you also update us on what the M&A pipeline looks like right now?

Lawrence Kurzius: It’s always dangerous when the CEO talks about capital allocation, so I’ll let Mike give us the talking here. The one thing I’ll say about M&A is it’s not our priority right now, but we would not miss a good strategic opportunity.

Mike Smith: Yes. And I’d say like we’ve said, both at CAGNY and probably in the earnings — last earnings call two months ago, I mean our priorities right now is paying down debt, generating more cash, getting our debt-to-EBITDA back down to 3x by the end of 2024. So really nothing has changed from that. And we continue — as Lawrence said, we continue to look at great assets along the way, but our priority right now is paying down debt.

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?

Lawrence Kurzius: Well, I will say that, that is a wide-ranging question, and I can go absolutely while answering it. However, we have gotten rid of some — when I say when we said we’re pruning the business, I mean, some of it is not visible, as we talked about on a previous question. But some of it is Kitchen Basics, for example, is a brand that — well, it’s a great brand. We like it a lot. It was the only thing we had in that aisle. It was hard for us to bring our category management tools to bear on it and it was a little bit of an orphan. There was pressure both from leading brands and from private label on that. And we didn’t see a good path to grow it with a good return for us, the wrong owner of that brand. And so we’ve thought about other parts of our portfolio that way.

The things that we’ve gotten out of have tended to be pretty small, though. And that’s a good example of one of the bigger things that we’ve done. Most of what we — the other things we’ve gotten out of have been small or would be less familiar to you because they’re in a different region of the world. But the innovation that we will do is differentiated. It brings more differentiation to our brand, flavors, blends that are hard to duplicate. We brought on a technology into some of our innovation as we have with the true taste technology that we are using in our new stubs rugs. And I think we just had a tough act to follow. And the renovation that we’re doing on our core herbs and spice brands is going to be very differentiating, not just versus private label, but versus other brands.

I mean to be able to have that oxygen-free atmosphere that is going to bring freshness to the market and a better appearance and aroma for consumers, that is going to be very differentiating and difficult to follow quickly. That’s for sure. And a lot of the things that we’re doing around that renovation are either trademarked or patented. And I think — I mean, I think that everything you look at, whether it’s the pruning of our portfolio or the migration of our portfolio to higher value or technically insulated products on the Flavor side, to the innovation that we’re bringing in our brands, serves to differentiate us, extend our leadership and push the gap between us and private label to be more of a discussion around total value and cost and benefits than just about the cheapest price.

Brendan Foley: And we really love the categories we’re in, whether it’s or Frank’s RedHot, things like that. So, it’s — we’ve intentionally picked these categories.

Lawrence Kurzius: Thanks for your question. And that is our final question. So, I was waiting for the moderator to possibly say something, but that’s okay. It’s not necessary. But core alignment with consumer trends and the rising demand for Flavor in combination with the breadth and reach of our global portfolio and our strategic investments provide a strong foundation for sustainable growth. We are disciplined and our focus on the right opportunities and investing in our business. We’re continuing to drive further growth as we successfully execute on our long-term strategy, actively respond to changing consumer behavior and capitalize on opportunities from our relative strength. We continue to be well positioned for continued success and remain committed to driving long-term value for our shareholders.

Kasey Jenkins: Thank you, Lawrence, and thank you to everybody for joining today’s call. If you have any other questions, please follow-up. Please feel free to contact me. This concludes this earnings call. Thank you all, and have a great day.