The other thing, too, is, as you think of it, when Brandon was talking a little bit about the strong — our underlying performance in things like spices and seasonings, when you look at our performance in other markets, we’ve had really good portfolio — really good portfolio mix, and some of the things we’re doing on portfolio optimization with pruning low-margin business does help grow these margins also, and will help us as we go into the future.
Steve Powers: Yeah. Okay. Very good. Thank you so much.
Operator: Our next questions come from the line of Matt Smith with Stifel. Please proceed with your questions.
Matt Smith: Hi, good morning. Thank you for taking my question.
Brendan Foley: Good morning.
Matt Smith: If I could follow up on the margin commentary and the headwind from pricing dilution, as we look at the Flavor Solutions business, you’ve been making margin recovery progress there. But can you talk about the factors that are keeping the current margin 400 basis points or so below historical levels? And how much of that is the mechanical pricing impact versus other factors? And then, what supports the margin recovery from here?
Mike Smith: Yeah, it’s a great question, Matt. If you think about it, pre-COVID, we were at 14.5% operating profit, which at the time we were really happy with because we came from a low of around 6% several years before. But we also did acknowledge that as we migrated our portfolio, we had higher aspirations to get higher than that as we migrated to more flavor type products. COVID has been — and the cost related to that have really been a big challenge to us and a headwind, and also the huge cost increases that have hit Flavor Solutions. So last year, we were at 8%, as you know. This year, we’re looking to build back. Year-to-date, we’re around 10%. So probably around that for the end of the year. So, 200 basis point improvement this year.
Back to your question on dilution, at the operating profit level, we’ve had about a 300 basis point dilution impact on Flavor Solutions. So theoretically, if that didn’t happen, I know it did happen, but that 10% would become 13%. So, we’re about 150 basis points short of that pre-COVID-19 margin improvement. And things like we’ve done with GOE, which we see continuing and wrapping into next year; the dual running costs, we’re having it primarily in our Flavor Solutions business in the UK manufacturing facility, that goes away partially next year and the year after it’s totally gone, which is great; continued TCI. So, these types of things will get us back to — and portfolio migration, pruning the low-margin business, we talked about some of the private label foodservice business in the EMEA this call.
Those types of things were focused really, really well on getting our margins up. And some of the things when Brandon talks about performance nutrition and beverage, those are the flavor type of items. They’re growing faster. We really like those. They can help margin up our whole Flavor Solutions portfolio.
Brendan Foley: But we do like the progress we’re making independent of price and dilution, just on overall improvement in the margin there. So, we do believe we’re moving in the right direction.
Matt Smith: Okay, thank you for that. I can pass it on.
Mike Smith: Okay. Thanks, Matt.
Operator: Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.
Robert Moskow: Hi, thanks for the question.
Mike Smith: Hey, Rob.
Brendan Foley: Good morning. Rob.
Robert Moskow: Good morning. I wanted to know about the guide — the implied guide for organic sales growth in fourth quarter. It looks like it’s about 3% and that marks a substantial deceleration from the first three quarters. And then even when we try to look at that on a four-year basis, just using like 2019 as the base, it’s again, a big decline. We’re all looking at the U.S. retail data in Nielsen and IRI, it’s all decelerating. Are you taking that into account in your guide? And if so, it sounds a little like a disconnect from the expectations for a very strong holiday season.
Mike Smith: Hey, Rob, just to clarify, you just mentioned the word — number 3%. Our implied guide is in the midpoint is 3.7% to 11.2%, which implies 7.5%.
Robert Moskow: I’m just trying to get to your — I’m just trying to plug in a fourth quarter organic sales number to get to your midpoint of 5% to 7%, 6% for the year.
Brendan Foley: Yeah, I think — Rob, it’s Brendan. The things to keep in mind, I think for the fourth quarter, it’s our largest quarter. So, we’re not able to provide a precise estimate, but I think some broad concepts to consider is we do expect some growth in China in Consumer in the fourth quarter. If you recall, we’re lapping over a pretty severe lockdown at that time, this time a year ago overall. We still expect to have a reasonable impact from the DSD discontinuation in the Americas, heavier because it’s during the holiday season. We still expect some softness in Flavor Solutions demand that will persist, that will certainly be there, but we will also lap the impact of the Kitchen Basics divestiture, as well as the Consumer business exit in Russia. So those are just some considerations I think when we take a look at fourth quarter sales.
