Adam Samuelson: Okay, that’s helpful. And if I could just ask a separate question on the Flavor Solutions segment. And as you think about some of the different customer types that you have and geographies, how would you frame kind of recent inbound kind of bid activity in RFPs and contract win rates? Are you seeing your customers accelerate their innovation agenda to drive growth in their business? Or is activity levels slowing down? Just any color — as you think about that pipeline of new business wins, kind of how would you frame that?
Brendan Foley: I’d point to our performance in the Americas as an example as to how to think about our current momentum on our flavor business. We had really good sales growth, but we also had some volume growth. And that’s an example of what we’re seeing not only through our flavors business but also branded foodservice. And we are starting to — we are growing share in a number of the strong categories that we participate in. We talked about performance nutrition or the health end market. We see it happening there, or even in alcoholic beverages. We have been seeing some nice growth and gains in that part of our business. Is there anything particularly unique at this point in the year versus what it was like earlier in the year?
No, I don’t think I can point to anything that’s terribly unique that we haven’t already talked about before, but this has been an element of sort of continued sequential improvement of performance. We’ve been able to grow a little bit of volume here probably because of the strength of our products and technology that go into the categories we play in. And so that’s I think some of the context there. We’re happy to be growing share. We believe that we have the right plans. Now if you look at elsewhere within Flavor Solutions, our EMEA business tends to be more heavily weighted towards the QSR part of our customer base. They’re not seeing the type of traffic and promotions that they have in, let’s say, the prior year. So, we still see a little bit of pressure on overall volumes there.
Conversely, in Asia Pacific, our QSR business there is actually doing quite well. Customers are turning back on promotions. They are trying to drive more traffic in their stores. And so, we, as a result, are also seeing some nice volume growth in that part of our portfolio at Flavor Solutions. But dialing back to sort of that flavor part of our category, we are pleased with the performance that we have made so far this year. And it’s continued momentum, but nothing that there is a certain new inflection point to share with you.
Adam Samuelson: Okay, I appreciate all that color. I’ll pass it on. Thanks.
Operator: Our next question comes from the line of Steve Powers with Deutsche Bank. Pleased proceed with your question.
Steve Powers: Hey, great, and good morning. Thank you.
Brendan Foley: Good morning, Steve.
Mike Smith: Hi, Steve.
Steve Powers: Hey. So, I wanted to ask on the incremental gross margin improvement that you see in your outlook this quarter, building on a raise that happened last quarter as well. And just, if you could put a little bit of context and detail around exactly what’s driving that incremental gross margin upside? Question number one. Then, question number two is, as we’ve seen that gross margin tick up over the balance of the year, we haven’t seen you change your reinvestment strategy in terms of brand marketing. I just want a little bit of color and context as to why that isn’t a source of reinvestment as you do realize that gross margin upside.
Mike Smith: Well, thanks, Steve. This is Mike. I’ll take that one. I’m surprised it took five questions to get to gross margin, so thanks for asking that question. First of all, we’re really pleased with the gross margin performance this year. We’ve had improvement. We had a strong third quarter. You think about the things we’re doing with the cost recovery through our pricing, which we’ve really been successful at this year. The GOE and CCI commitments we put out at the beginning of the year, we’re really happy with our performance there across those segments, that’s the other thing. These margin improvements are happening both in the Consumer and Flavor Solutions side, which is really — which is great. As far as raising for the year, as you know, we’ve had good performance year-to-date.
And even with some of the challenges in China, our strong underlying performance has really held through. So, as to why we wouldn’t raise really the A&P spent, I mean, we feel really comfortable where we are from A&P with our current guide. The third quarter was up 8% and it was the highest dollar amount we’ve ever spent in the third quarter. So, we feel we’re very effective there. Actually, CPI is a topic, we get savings across all costs of goods sold, but we get it on SG&A too. And A&P is an area where the teams have gotten real cost savings or efficiencies in our advertising program. So, it’s even higher than you see from a dollar perspective. So, I think we’re confident where we are in gross margin. We’re building back. If you go back to pre-’19 — pre-COVID in 2019, our gross margins were around 40%.
Using our implied guidance this year, gets you around 37%. The interesting thing is if you look at the map on the pricing dilution that has happened, it’s been — it’s over 500 basis point headwind to us, which you can see, we’re down 300 basis points. So during that time, through CCI and other things, we’ve captured some of that back, which we continue to see in the future as we get back to those pre-COVID gross margin and operating profit levels.
Brendan Foley: Now, Steve, if I could, there was a question in there about A&P too, and just to really kind of build on that. In that, we were up significantly in the third quarter [indiscernible] at 8%, but it was probably our highest historical spend, right? So, we’re really putting a lot more in the A&P as we sort of called out, and we’ll have a strong level again in the fourth quarter, and these are going into a lot of important campaigns right now. So, I just wanted to reinforce, I think we are seeing still an increase in spend in that part of our — in that line of the P&L.
Steve Powers: Okay. That’s great. And so, I guess — that’s helpful. Thank you. And Mike, so just playing back the various puts and takes on gross margin, is it fair to say that the biggest sort of upside surprise for you over the course of the year has just — has been successful price realization, or are there elements of business mix or other drivers there? Because it feels like the productivity has come in solidly, but roughly in line with, I think, original expectations. Cost inflation hasn’t changed materially, so it seems like the buckets has to be pricier, or…
Mike Smith: The way I say it, Steve, everything is going to move in the right direction. We were successful getting our cost recovery. We got some pricing earlier as you probably inferred from some of our pricing numbers. So, we got our pricing faster than last year, which was helpful. The GOE and CCI programs, like I said, have met targets. And frankly, we’re a bit prudent this year. I think as we said — as we gave guidance in January after last year, we wanted to make sure we hit our numbers. There was a lot of big assumptions going in into 2023, pricing, GOE program, things like that, and we knew the China — we were counting on a China recovery which impacts not only gross margin but operating profit. So, we felt at this time after Q3, where we see us spending for the year, we felt it’d be a good line of sight to the commodity cost, things like that too, which gave us the comfort to get there.
