McCormick at 2025 dbAccess Global Consumer Conference: Navigating Challenges and Opportunities

On Tuesday, 03 June 2025, McCormick & Company (NYSE:MKC) participated in the 2025 dbAccess Global Consumer Conference. The company discussed its strategic initiatives amidst challenging consumer sentiment and tariff impacts. While highlighting robust supply chain strategies and digital transformation, McCormick acknowledged hurdles like slower trends in certain segments.

Key Takeaways

• McCormick is actively managing tariff impacts with productivity programs and alternative sourcing.
• Consumer sentiment is resilient, with increased home cooking and value-seeking behavior.
• Flavor Solutions aims to improve operating margins to 14.5% by 2028 through strategic growth.
• Digital transformation is a priority, enhancing demand creation and operational efficiency.
• McCormick maintains a strong balance sheet for potential M&A activities.

Financial Results

• McCormick’s balance sheet is strong, with a leverage ratio below 3x, providing flexibility for mergers and acquisitions.
• The company anticipates EPS growth to be more weighted towards the latter half of the year.

Operational Updates

• McCormick is implementing productivity programs and pricing adjustments to mitigate tariff impacts.
• 85% or more of products sold in the U.S., Canada, and China are manufactured locally.
• Consumer behavior shows resilience, with 86% of households cooking at home, an increase from pre-pandemic levels.

Future Outlook

• McCormick is investing in core categories to drive volume growth and accelerate innovation.
• The company is focusing on digital transformation to improve retail execution and operational efficiency.
• Long-term priorities include flavor technology and R&D, sourcing agility, and maintaining company culture.

Q&A Highlights

• McCormick’s categories are performing better than industry volumes due to increased investment and innovation.
• The company is reformulating products with natural ingredients and reducing sodium.
• McCormick anticipates a 17.5% total company operating margin by 2028, driven by Flavor Solutions.

For more details, refer to the full transcript below.

Full transcript - 2025 dbAccess Global Consumer Conference:

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Okay. Good morning, everybody. I’m Steve Powers. I’m the Head of Deutsche Bank’s U. S.

Consumer Packaging Goods Research, and I’m thrilled to welcome everybody to the twenty second installment of our Global Consumer Conference here in Paris. And I am equally thrilled to welcome McCormick and Company back to the conference. As many of you know, McCormick is a global leader in flavor across consumer focused spices, seasonings and condiments as well as B2B focused flavor solutions. The company generated over $6,700,000,000 in revenue last year from products sold in 150 countries and territories around us. And I’m with us today from McCormick, as was the case last year, welcome back.

Brendan Foley, Chairman, President and Chief Executive Officer and Marcos Gabriel, Executive Vice President and Chief Financial Officer. Thanks, guys, for coming back. Good to be here.

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: All right.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: So maybe you can both chime in on this question just to get us started. Given the heightened focus on tariffs and the evolving trade policy backdrop, Maybe we can just level set on how current tariff dynamics are expected to influence your cost structure. And additionally, what specific actions you may be taking or thinking about taking to mitigate those potential impacts, whether through alternative sourcing strategies, pricing, cost optimization initiatives, etcetera?

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: Steve, I’ll get it started and just provide a little bit of an overview and then ask Marcos to help me with some additional context. We think we’re pretty well positioned in environments like these. We’ve been around for over one hundred and thirty five years and been through a lot of different environments and evolving consumer behavior changes and everything else. And so this is just another one of those periods, I think, that we feel like we’ll we’ll be able to navigate through. You know, we have the capabilities and the teams in place to be able to manage through this.

And and I think that’s real what’s really important. We established our sort of a dedicated cross functional team a while ago, just dedicated to monitoring the developments and then sort of taking the immediate actions that we need to take just to sort of continue to mitigate the situation that we’ve got. And we’re also confident in our competitive situation, too. I mean, all of our competitors have the same exact dilemma that we’re going to have with regard to what the tariff impact might be overall. And we’re taking or planning for just mitigating actions both from the short term and a long term perspective as we look at this overall.

I think one of the more important things is we’re sort of navigating this period focused on what the consumer needs, what our customer needs. That’s kind of like our ground zero on all of this. Our goal is to really just maintain and continue the positive momentum we have as a business throughout this period. That’s a top priority for us. The tariff exposure that we have is primarily through importing agricultural raw materials.

That’s the primary area where we see the impact. And a significant portion of those materials either can’t be grown in The United States or they’re not really commercially available in The U. S. For us to be able to use. And that’s a similar situation for our competitors, too.

And our manufacturing footprint, it’s also important to understand that, is designed such that whatever needs to be sold within a region is made locally within that region overall. And we have a lot of strong local brands, too. That kind of gets additional context. And so when we think about mitigation overall, we first look to productivity programs. We call our CCI, but we look to that first and all other types of cost savings in areas where we’re going to try and make sure that we can offset that with everything we can, efficiencies and the like.

But then we’ll also look to revenue management and pricing, if necessary, for that which we can’t cover. And we’ll talk lot with our customers to make sure that we do that in the right way to continue to maintain the volume momentum that we have in the category. We think that’s really important with our retailers. But overall, we think we have the manufacturing location strategy. We have really a lot of strength and resiliency in our supply chain as well as in global sourcing as well as regional local brands.

All of that kind of rolls up to competitive advantage during a period of time like this. And so we feel like we’re well positioned. Do want add anything, Marco?

Marcos Gabriel, Executive Vice President and Chief Financial Officer, McCormick & Company: Yes, I will. Yes. Thanks, Lorena. So as you know, still, mean, the situation is fluid. Mhmm.

I mean, we are going to remain balanced, agile. We’re gonna be taking a surgical data driven approach in everything in everything that we do. I mean, we’re gonna put the, you know, first, the consumers and the customers, you know, and balancing short term and long term commitments as well, always have done it. We are we want to maintain our volume sales momentum. And but at the same time, we have to protect our profitability because we have to continue to invest in the business.

Right? So it’s kind of finding the balance between keeping the volume momentum that we have in place, but also protecting our profitability. So but also just to be clear, I mean, we are in the middle of the close of the Q2 books, and we are processing any new changes in tariffs right now. And we’ll provide more of a full update at the June as part of our Q2 earnings call. But building on what Brendan said in terms of the exposure today, we have about over 17,000 unique materials that we source across over 90 countries.

And no one single commodity has a disproportional material impacted to our cost of sales. Also, it’s important to say that over the last number of years, we have been decreasing the reliance on 91 single geography. So we don’t have that as headwind to us. And then finished goods that are imported from Mexico and Canada are USMCA compliant. So those are exempt in terms of the tariffs right now.

Also, it’s important to say that across the biggest markets, U. S, Canada and China, Eighty Five Percent or more than 85% of what we sell in those markets are manufacturing in those markets. In The U. S, over 90% of what we sell in The U. S, it’s manufacturing in The U.

S. So it’s really about the ingredients that we bring from outside into these markets. And many of these markets, share performance shows that the benefits of our manufacturing strategy as well as the strength of local brands in these regions. So that is kind of the background. But then from a mitigation standpoint, we do have a number of levers that Brendan mentioned.

We’re actioning some, and we’re staying agile for any other changes that are that potentially could happen. First, as I said on our first quarter earnings call, our guidance range already accounts for the latest the tariffs that was initially implemented on China of 20%. So that is already part of our guidance. In addition, our typical sourcing strategy supported by we have a lot of data analytics, is helping this year to mitigate our exposure. And we look to continue to source from alternative places.

So that is also part of our strategy. And then finally, I would say CCI across P and Ls. I mean we have a very good CCI program across all lines of the P and L, and this continues to be a very important way of mitigating those impacts. But then at the end of the day, if there is a residual inflationary impact, we’ll take revenue management as a lever. But obviously, we want to be very data driven, surgical specific because, as I said, we want to keep the momentum going, the volume momentum going, but we also have to protect OP.

So we’re going to be very mindful on how we do it. So we’ll adjust our plans as things evolve, and we’ll be providing more detailed information at our Q2 earnings call a few Very

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: good. So you talked about volume momentum, and that’s been and I’ll come back to that in a second. But a lot of focus has been from investors on just the current state of the consumer in The U. S. As well as internationally and how that impacts your ability to drive that volume.

So how do you assess consumer sentiment in The U. S. And some of your major markets abroad? And how do you think consumer behaviors or sentiment have evolved over the recent months?

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: We’re in a unique position across our portfolio just with its breadth and stretch overall, especially also because, I think more importantly, even today, we sit at this intersection of just the search for value but also this accelerated trends in health and wellness in the marketplace that we all see. McCormick is end to end flavor, so we play very deeply. When you think about the flavor world, when you think about those two areas, we have a strong understanding of consumers’ needs, their behaviors, their trends. And most importantly, we don’t compete with the calories, we flavor them. So that’s really what our business is about.

I’ll just touch first on a regional basis and speak more broadly overall. On a regional basis, what we see in The U. S. And also in EMEA is still a very challenged consumer, but remaining pretty resilient. And if you take a look at the data, this painting is still pretty strong overall.

And this is also take The U. S. Specifically. You can see the declining consumer sentiment, but on top of that is a pretty stable unemployment environment and everything else. So we see things very much as they were in 2024, just sort of continuing through.

There’s this search for value, value seeking behavior. People are still making kind of quick shopping trips. They’re not buying as much per trip. They’re looking at larger sizes, you know, to kind of find even greater value overall. We even see a lot of increase in the use of leftovers as a behavior in the household.

And we track the household behavior every quarter just to understand at a global level to understand what might be changing. And just there’s a lot of consistency, what we’re seeing throughout ’twenty four into ’twenty five, I think, from consumer standpoint. So there’s a lot of offsetting sort of signals. But bottom line is challenged consumer still remaining resilient overall. I think it’s important to talk about China a little bit.

We still expect that market to have a challenged environment, but we expect a slight and gradual recovery on China in 2025. What we’re seeing in that marketplace is very similar things in terms of value seeking behavior, a lot of channel shifting and channel priorities. What we’re seeing right now is a lot more strength in the smaller format stores. Mini Marts is what our team would call them. Also a lot more growth in smaller tier cities, too.

The larger formats, like hypermarkets and large tier cities aren’t just necessarily growing as fast. So we’re seeing a lot of our resources being allocated towards where we see those areas of growth. And so far in Q1, we’ve seen a lot of that gradual slight improvement in the business, which has been pretty good. In fact, volume growth out of the business when you look at China. But still, I go back to it’s a similar condition that we’re seeing in The U.

S. And EMEA, not a ton of change from that value that challenged position that we see the consumer in right now. If we think, step back more broadly and walk away from regions for a moment and just think about overall consumer sentiment in terms of what they’re looking for, we see this kind of intersection between the search for value but also this acceleration on health and wellness trends going out there. And our portfolio kind of sits quite nicely in that construct. You know, we have to remember, when consumers are challenged, they tend to cook at home more often.

They shop the perimeter of the grocery store for fresh food. And those two things together, you know, sort of really speak, I think, to stronger trends within our categories. We definitely see that in herbs, spices and seasonings. You know, right now in The U. S, it’s number one in terms of unit growth in center of store overall.

So we’re seeing that play out in our categories. At the same time, you see this acceleration in health and wellness trends by the And so both of those can work together, if you think about it that way. And as a result of that, of the things that we’re seeing, and we track this, is 86% of households are making their meals at home. And we just see that more often. And that’s two points higher than pre pandemic.

So it’s still staying in there as sort of this learned behavior. Over the last several years, consumers have learned how to cook, and they’re having healthier meals at home. These meals are also cheaper because they’re able to stretch their budgets. Overall, there’s more eating around the table with the whole family. And so these are areas that we see as continuing sort of recurring evidence within the data that we see, but also we see that in the performance of the categories overall.

And at the same time, people are enjoying the creativity, flavor exploration. Like, there’s still joy in our categories in a lot of ways. So flavor is a long term enduring trend in our view as a result of kind of taking a look at this. And this long term trend really speaks, I think, to McCormick’s focus in these categories and why we’re performing well. Even in a value driven environment, this is what we’re seeing right now with, I think, with the consumer overall.

And the good news is that we have a broad portfolio. We have an innovation agenda that really meets the needs of consumers in this area. We’re pretty confident in terms of our performance so far and our plans, and it gives us optimism as we look forward.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Okay. Those meals at home are spicier, too.

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: And they’re spicier. So that’s

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: good for you guys. So as you just talked through, there are definitely some categories some tailwinds on your categories, but there’s the value seeking behavior. And as we look to the second half, you are starting to lap momentum that was built a year ago. So just want to kind of just test that confidence a bit as we think about the back half, especially in the context of if we have to take revenue growth management actions in the face of tariffs. So just how you’re thinking about that as you go into the second half?

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: Well, building off of the last question, if we just share with you kind of how we look to 2025 when we began, we didn’t see a big rebound. We expected the consumer to be remain pretty challenged. And so therefore, we kind of thought about those trends carrying through 2025. So if you compare that with what we’re seeing right now, that’s not necessarily a big surprise. And you see that play out in overall industry volumes, too.

Maybe a little bit softer than maybe all of us would to see, but certainly, condition exists there. Now importantly, though, our categories are performing much better than that overall. What we started in late ’twenty three and kind of executed through all out of 2024 is just this increased investment in our core categories across the business to drive volume growth and drive healthy categories. This is increased A and P that we spent. We also launched incremental innovation.

We started to really gain distribution on our core part of our portfolio. And we also really we talked a lot about this already, but we implemented price gap management initiatives to really sharpen our price points on the right items at shelf. And all of that has really led to very strong performance across our Consumer segment. We’ve seen really strong performance over the last four quarters in that part of our business. So to your point, we’re starting to lap some really strong performance.

But what I would tell you is just globally, it’s not just The United States. We’ve seen very positive consumption and volume growth out of all of our markets. Globally, we’ve grown seasonings volume at a global level, not just The United States but in other markets as well. And we’re seeing great share performance in The U. S.

And Canada, whether it be volume share or unit share. It’s kind of where we’re putting a lot of our focus right now. And we like how we’re performing. And just broadly, we’re outperforming edible and center of store. So those are really strong trends.

We brought a lot of that into 2025. So it still is increased investment in A and P over the prior year, increased innovation over the prior year. But price cap management plans kind of stayed in as the baseline. And that’s kind of embedded in the business from a baseline standpoint. What is on top of that, as we go into the back half of, let’s say, 2025 right now, is we still see continued distribution growth.

We still have accelerated innovation across our portfolio. And you’ll see that through the example of we’re starting to roll out that preferred consumer package across our grilling portfolio right now. We’re launching Wanchalula innovation. We’re relaunching the Gourmet line in the back half of the year. So we have a lot of incremental activity on top of that, what is a really strong foundation in terms of performance on the business that we think is the right level of performance, being healthy volume growth overall.

So that gives us the optimism that we’re going continue to do this. I mean we don’t just repeat plans every year. We also build on top of them. And so that’s what you can expect in terms of how we’re looking at our business right now for the rest of ’twenty five.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Great. And so that was a that conversation was consumer focused. As we pivot, Brendan, over to flavor solution, just how is the consumer environment influencing performance in the top line there? And maybe any differences of note between the core Flavors business and the foodservice, food away from home business?

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: Yes. When you look at food away from home and also kind of our core sort of CPG business, when you think about flavors overall, we’re definitely seeing softer trends. And a lot of those trends are being reported by our peer companies or even our customers. So that shouldn’t be a big surprise. And that certainly has been impacting our performance.

We saw that in our first quarter overall. From a center of store perspective overall, we’re seeing that mostly happen with larger brands. At the same time, we’re seeing pockets of growth with very fast growing emerging brands, also emerging categories overall. And it tends to be in the areas where you’re seeing a lot of health and wellness type, you know, sort of benefit focus. It could be hydration, functional food, you know, with functional food benefits.

You’re seeing it with a focus on proteins. There’s a lot of focus around proteins. And all of that needs flavor. And so we see a lot of opportunity there, and we’re seeing that in our trends overall. And that’s helping to take the edge off, if you will, sort of what we’re seeing in terms of performance of some of those larger brands So that’s kind of our outlook when we think about our flavor businesses.

We’re seeing some offsets to that. In the foodservice marketplace, particularly when we think about food away from home, right now, there is softness there. But our branded foodservice business in The Americas has been flat. So we’re gaining share in a tough marketplace right now because we’re seeing sort of slower foot traffic with a lot of those customers. And then again, we’re seeing pockets of growth there, too.

Like fast casual chains right now, we seem to do very well with, and those are really doing pretty nicely in the foodservice marketplace. So we’re getting nice growth from them. In QSRs, those have been pretty soft, mostly at a global level. Although I will say in Asia Pacific, they’ve been doing pretty well overall. But in sort of North American EMEA, those who are doing a really good job at promoting their business, we’re seeing some strength there.

One of the other unique things that we’re seeing also is they’re doing a lot of limited time offers, and they’re using our brands. So that also creates growth for us. It also helps our consumer business overall. I think if I were just to wrap up our thinking right now on flavor solutions is we just take a long term view on the top line on this. We’re not going to get caught up in the short term issues.

We just see a lot of long term opportunity. We don’t think about our business as anchored by just certain key categories. We’re really anchored up against foretaste competencies. So it’s savory, it’s naturally sweet, it’s heat, it’s citrus in a fruit. And those are large addressable markets for us, and we see continued strong growth there.

So that’s our optimism right now behind that part of our portfolio.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Good. Just a follow-up on the small brands versus the big brands. The economics of those contracts, is contracting with small brands, is that more profitable growth, less profitable growth? Is there a rule of

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: We tend to win that business at a higher margin. So tends to be higher margin,

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: it’s more favorable. Okay. Marcos, that leads me to next question on flavor solutions margin. And I guess, what is your current thinking on that traditionally hot topic for investors? And just kind of where your confidence sits in terms of being able to get back to pre COVID levels of Yeah.

Marcos Gabriel, Executive Vice President and Chief Financial Officer, McCormick & Company: The confidence is pretty high. I mean, I would say that so before I talk to you about Flavor Solutions, let me just take a take a step back in terms of the overall company’s profile. So at Investor Day back in October, we laid out we laid out a path to get to 17.5% total company operating margin, which is by 2028, which is about 200 basis points margin expansion since 2023. And the biggest contributor to this will be flavor solutions by growing 400 basis points from 2023 to 2028. On flavor solutions, more specifically, we are halfway towards that goal of reaching 14.5% operating margin by 2028.

Over the last couple of years, we have improved the margins by three fifty basis points, which is which shows that our plans are working, And on the back of five main drivers, I would say, of margin expansion. Number one is volume growth. As we get volume, you get operating leverage through the P and L, right? Number two is mix, really, as we continue to shift towards a high margin category such as flavors and branded food service that also contributes to margin expansion. Our CCI program, robust savings and efficiencies program that we have, it’s a big component of it.

We also continue to tweak our portfolio and exiting low margin businesses. And then I’d say last but not least, there’s always some small pricing actions that we take to offset inflation and FX impacts across the globe. So those are kind of the five levers that we have used and we’ll continue to use going forward. But then just to give a little bit more of a detailed element here. As you think about all these elements, we should expect roughly half of the improvement to come from volume mix and price.

And the other half really to come from CCI program. That’s kind of what the way we’re seeing it. Obviously, it can change on a quarterly basis depending on the environment, but we expect it to be around these averages over time. And then I would say, finally, I think it’s important point is about top line growth. I mean, we’ll continue to invest in our capabilities, technology and R and D to continue to drive future growth in flavor solutions.

So this is although we are very confident in terms of our ability to improve our margin profile, this is not just a margin objective, it is margin and top line coming together. That’s how we see it. Great.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Somewhat related topic, I guess, Brendan, the Make America Healthy Again movement and consumers’ desire to eat healthier generally has put a whole lot of focus on reformulation across the packaged food industry. To what extent is do you think your flavors business is positioned to kind of net benefit from these trends? Because there’s puts and takes. There’s traditional business that will be reformulated away from you and then new business that you can win. So what role does McCormick have in reformulation?

And is it a net tailwind as you think about the next few years?

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: My context around this is, first of all, as an industry, the industry has always addressed these opportunity areas with innovation. And I don’t see this time as any different than that. We saw that with the removal of trans fats or the reduction in sodium or the introduction of just sort of non GMO. All of these are areas in which the industry has had to address, you know, calm opportunity areas. And when we look at this current period of time, I think this is going be another one of those moments where you kind of go through and a lot of innovation is going to really start to address what the consumer is looking for here.

There are a lot of long term trends towards health and wellness. So whether or not there’s going to be regulatory action, companies, McCormick included, are focused on what the consumer is looking for and what our customers are looking for. And that’s really what’s driving a lot of our behavior. And a lot of this attention has really been there well prior to even the new administration coming in. So that’s kind of the context that I would say overall that really applies here.

And big customers are responding right now by innovating and taking on projects. We have an active role in that reformulation activity. We have much even prior to this, too. Mean, a lot of it would have been a lot of focus on removing artificial ingredients or reducing sodium, etcetera. So that work continues, and we’ve been doing that really for some time.

And having said that, we’re really quite involved in that. We’re also really well positioned, I think, up against what the consumer is looking for today overall. We have just a very deep seated expertise and capability. When you think about where we start is we do everything from natural ingredients. And that’s kind of how we approach things as a flavor company overall.

And that’s one of the ways in which flavor companies are trying to address these issues. This is kind of the strength of McCormick. But it’s also sort of our overall culinary foundation kind of puts us in a pretty good place to address that. What we’re seeing today right now in the marketplace overall is a lot of sort of increased active project work up against this. There was a lot before this, but there’s still a lot more coming through.

We saw a lot of companies active up against this, whether they be small emerging customers or really large CPG manufacturers. We see a significant amount of step up in activity, and we’re engaged in that, too. But this reformulation activity, I think, is it’s kind of important. It will create a lot of incremental opportunity, but it’s also been there for a long time. This is part of the business, if you will, overall.

So we do think that this is an area which McCormick will participate quite heavily.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Okay. Is the acceleration activity does that lead to an acceleration in competition for the for this business? I mean, do you as you think about the the race to be involved and be in the pole position to, you know, to get this at the table for reformulation, that does that, you know, with net benefits? Or does it come with incremental costs to compete?

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: I don’t see this coming with an incremental cost to compete. But you’re typically competing, especially with larger companies, with sort of a collection of labor houses who are also approved to work on for that customer. And so if we’re an incumbent on something, we’re going to have the opportunity to really address what they’re looking to do, take something out or add something in or move an additive, whatever it might be. Those are areas that we get an opportunity to do for the things that we already work on today. So

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Marcos, we heard Brendan express his confidence in the back half. So just want to pivot back to that and get your perspective. You started 25% with, I think, very solid first quarter results, particularly on top line. But as you think about we’ve seen kind of quarter to date, year to date and kind of think about the back half, both across Consumer and Flavor Solutions, where is your kind of personal confidence

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: set for

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: the remainder

Marcos Gabriel, Executive Vice President and Chief Financial Officer, McCormick & Company: Mean, as you know, mean, we cannot comment on current quarter. We just closed the books closing the books this week, I would say. And so we’re going to be reporting a few weeks. We’re going to be providing more an update there. But let me just first highlight some of the areas of progress from our first quarter earnings call.

So in Q1, we felt pretty good about our results because we continue to accomplish the things that we said we would accomplish. At a total level, we grew total organic net sales within our midpoint of our constant currency guidance range. In the consumer segment, we drove volume growth across all regions, which was very good results. And the fourth quarter in a row growing consumer volume across the globe. And as expected, operating profit was impacted by timing and EPS was also impacted by FX.

So we talked about those items in Q1. We don’t guide specifically twenty quarter, as you know. But as you think about the second quarter, some considerations to keep in mind, this is kind of mostly in line with what we said back in March. Starting with the top line, Consumer segment, we expect to continue volume growth as consumption continues to be strong for us. On Flavor Solutions, as we said, volumes will fluctuate, yes.

And that’s due to the timing of customers’ activities. As we said before, we’re seeing softness in customers’ volumes driven by large CPG companies, but also particularly in EMEA in the QSR segment. And that will impact our results, right? In terms of OP and EPS, I would say that we continue to expect that our growth will build throughout the year and will be more weighted towards the second half of the year. As I said before, earnings per share will be impact on reported dollar basis, will be impacted by FX more so than the operating profit, and that is due to our JV in Mexico.

Although the Mexico business itself, that JV has performed extremely well. The FX translation year over year will continue to be a headwind for us. And then on tax, we still expect the tax to be at 22% for the year. But in the second quarter, the tax will be higher due to timing of discrete tax items. So it’s a quarter to quarter movement that we’ll see in terms of tax.

So what is important is that we want to continue to maintain our flexibility to invest behind the growth levers that have yielded results for us so far. We’ll continue to invest in supply chain to get the demand support the demand that we have as well as to optimize our operations. We’ll continue to invest in A and P and R and D, technology. But and always, CCI will always be kind of the way to provide the feel for us to for these investments.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Great. And are there any incremental considerations with respect to second quarter with given tariffs took place since April. Obviously, the original China tariffs are embedded. Will you experience incremental costs from tariffs as of April 2 and forward? Or is that more a second half issue?

Marcos Gabriel, Executive Vice President and Chief Financial Officer, McCormick & Company: It is more towards the second half. We might experience some. We’re still closing the books in Q2, but it’s more towards the second half of the year. Okay.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Great. A question for both of you because, Marcos, you mentioned technology investments in your answer there. As we think about kind of panning back out, there is a pretty substantial digital transformation going on inside McCormick. Maybe just talk a little bit about that, what’s going on and what the goals are and how that’s going to contribute to value creation over the next one, two, three years.

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: This is a pretty exciting area, I think, that we spend a lot of time on both Marcos and I spend a lot of time on this. And I would say that we’re really proud to be a leader in flavor, also a leader in identifying trends. But if you think about the future, you’ve got to really be aligned with technology to be able to still do that. And so this is really all about continuing to hold that position that we have as a leader in the categories in which we operate, and that’s end to end flavor. Technology is going be an important part of that.

We see digital acceleration as it remains as one of our top five global priorities that I set out. So it will be there. It remains there overall. And for us, what this means overall at a high level, what we’re focused on is continuing to drive demand creation. That’s one of the key priorities there.

That’s all about meeting consumers with where they are and allowing that digital and data and AI as an example to really allow us to do that more effectively. It’s also about accelerating product innovation on top of that, and we’re seeing already examples of that happening. It’s also optimizing retail execution, whether it be online or off line. That’s another part of what digital transformation is meant to do. And then also, lastly, it’s operational efficiency.

Whether it’s on our plant floor or it’s how we source raw materials, this all plays a role in that future competitiveness that we want to make sure that we continue to maintain that competitive advantage. And all of this enables us to just really better serve our consumers, better serve our customers, and continues to drive our leadership and differentiation. Marcos, you want add more detail to that?

Marcos Gabriel, Executive Vice President and Chief Financial Officer, McCormick & Company: Yes, I can. I can, yes. So we are making investments in IT and technology to support just the transformation journey over the the last few years. We are very pleased with the progress to date. So first, I would say that, you know, we are strengthening our enterprise digital foundation, and that is implementation of the s four HANA across Americas, which is well underway right now.

We’ve taken an intentionally derisked approach to those implementations and through a functional deployment approach. Instead of going big band, we’re going on a functional deployment basis to avoid any disruption. So that is going very well for us. We’re also advancing our data analytics strategy. That’s the use of AI and machine learning technologies across the globe.

And then I would say that the other part of our global foundation is the Global Business Solutions Organization or GBS. We have hubs in Americas, in Europe and in Asia. And that those hubs, they play a critical role in standardizing and automating processes globally. So that’s kind of help us It’s not only about the technology, but it’s also about the ways of working and transforming processes that comes together.

And then so that’s kind of the foundation. On top of it, we always think about in a way of the strategic pillars that we have, growth, performance and people. So how can technology influence and contribute to those three pillars? On growth, for example, we’re enhancing how we serve consumers and customers with end to end experiences. Examples are like targeted and tailored brand marketing content.

And that is helping us be more effective in terms of our media spends. We’re enhancing revenue management capabilities with tools such as machine learning and predictive analytics there in that space to keep our volume momentum going and be very surgical. And we talk about surgical being surgical, that is part of our strategy in terms of revenue management. And enhancing the speed of innovation, both in the consumer and flavor solutions through the use of technology. So that’s kind of the top line.

When you think about the performance pillar, there’s several initiatives underway. For example, in procurement, we’re leveraging machine learning technology to identify historical patterns of cost and be able to predict future pricing. We’re using that very effectively. We’re deploying digital shop floor collaboration tools in some of the sites globally. We continue to enhance our forecasting capabilities, and that is very important to us as we continue to drive working capital improvements.

And then I would say, the last big piece is automating processes and getting more of the real data on a timely basis to improve our SG and A spend and where we spend the money around SG and A specifically. And then people, it’s all about reinventing the ways of working through the use of technology and continue to train and upscale our people. So all of these elements that I just mentioned, we are realizing the benefits already, and we expect more to come in the future. Great.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: And I guess, as you’re answering, I was thinking about M and A. And McCormick, clearly, historically, M and A has been central to the strategy and presumably will be going forward. So related to that, one, just sort of update on your kind of M and A stance and readiness for deals. And then two, as you think about this digital transformation, does that make future M and A integration easier? Number one.

And number two, would you consider M and A in terms of acquiring some of the capabilities you’re trying to build as opposed to building it organically?

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: Yes. Let me kick it off with a couple of observations. I’ll ask you that when we think about especially like the S4HANA and that implementation, a lot of that had to do with very much what you just said, Steve, which is that enables us to even more effectively do transitions and integrations if you have just a better platform from which to do it from. So that is one of the if there were 10 reasons, it was on the list, if you think about it that way. When we think about also opportunities and assets that we evaluate, their current posture from a technology perspective certainly influences what we think about.

What incremental cost might there be? Do we have to do any excessive lifting? Or is that going to be maybe a capability that allows us to shortcut and be able to do things much more quickly? So we do think about that, and we sort of think through all of those different elements. Obviously, there would be a preference or a premium if we can find those capabilities somewhere else and adopt them in.

I think our Phona acquisition was a good example of being willing to do that and change the way we operated based on the way that acquired company operated.

Marcos Gabriel, Executive Vice President and Chief Financial Officer, McCormick & Company: Yes. I mean what I would add is that the Global Business Solution or the GBS organization plays a critical role in terms of helping to integrate new assets. As we become more of a standardized company globally. And those hubs across the regions that we have, in addition to the technology that’s going to enable it, I mean, processes is really key. So if have processes standardized and good technology, you can integrate assets more and more quickly and realize the savings more quickly as well.

In terms of your question about readiness for M and A, our balance sheet, it’s in a good position, I would say. We’ve been paying down debt over the last eighteen months or so. We are in a position now that we’re below 3x leverage ratio, and we are in a comfortable position for acquisitions. But we’re going to stay disciplined. We’re to stay disciplined in terms of the assets that we acquire.

It has to be accretive from the standpoint of net sales, operating profit and EPS. So we’re going to stay disciplined, but we do have the firepower to pursue acquisitions. Great. Yes.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: We’ve got a couple of minutes left. Brendan, if we think long term, five, ten years in the future, as you plot the direction of the company in coordination with the Board and with your leadership team, What are maybe one, two or three trends that you think are most important, that you think investors should think are most important in terms of the future direction of McCormick?

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: Yes. The handful that I think about all the time, I would say the first was probably the role of flavor you know, that plays with the consumer. We know in flavor is an enduring trend, but we also expect a lot of change and dynamic change to happen over time, especially when you think about the acceleration of health and wellness. I mean, that’s just a trend that we always knew was there. It just starts to accelerate right now.

And so we think that’s going to be a pretty hard part of it. That’s how it shapes culinary trends and how we deliver flavor, etcetera. Not surprisingly, you might appreciate sourcing agility is something that we think about a lot. And I would this would have been in my list well prior to April of this year. And that is there’s both climate change.

There’s also a political environment, and we have to think about where that sourcing is going to come from. And we’re really pretty good at it, and so we think very long term on this. But I think about the supply, the integrity of what we source. We think about where there might be developing multiple origins. We spent a lot of time on this, I would say.

Digital transformation is definitely sort of a third pillar. That speed of technology change, you need to really stay focused on that as an overall long term trend. And that really just affects how we work and how we compete. And so we think that that’s going be one of those long term trends. And then the last two I think about a lot is just flavor technology and R and D.

We have to keep investing in our business if we’re going to stay ahead on those flavor trends that we’re talking about. So that’s a big area, and that will continue to be an area of investment. And then lastly, I think about McCormick people and culture. It’s one of the most important things I think that’s kind of, you know, stood the test of time at McCormick. And so why spend more time thinking about that as a key trend is just when you think about us getting bigger, you know, how do you retain that culture, you know, along the way and not lose it?

So that’s a big area of priority, and I think about that as a trend when you think about the incoming workforce, how are you going to source talent, and then combine that with what is traditional McCormick people culture, we want to retain that. So those are the areas that I think about the most.

Steve Powers, Head of Deutsche Bank’s U. S. Consumer Packaging Goods Research, Deutsche Bank: Okay. And with that, we’re right at time. So thank you, Brendan. Thank you, Marcos. Thank you, McCormick.

Thank you all.

Brendan Foley, Chairman, President and Chief Executive Officer, McCormick & Company: Appreciate it.

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