McCormick & Company, Incorporated

Good morning. This is Casey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today's third quarter earnings call. To accompany this call, we've posted a set of slides at ir.mccormick.com. We'll begin with remarks from Lawrence Curtis, Chairman, President, and CEO, and Mike Smith, Executive Vice President and CFO, and we will close with a question and answer session. During this call, we will refer to certain non-GAAP financial measures, The nature of those non-GAAP financial measures and the related reconciliation to the 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. In addition, as a reminder, 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 statement on slide two for more information. I will now turn the discussion over to Lawrence.

Thank you, Casey. Good morning, everyone. Thanks for joining us. Our third quarter performance demonstrates again that the combination of our balanced portfolio with the effective execution of our strategies to capitalize on accelerating consumer trends and the strong engagement of our employees have positioned us well to drive differentiated growth. Remarkably, we delivered an 8% sales increase versus last year and 17% versus 2019. Our third quarter results reflect a robust and sustained growth momentum as we delivered organic sales growth on top of our exceptional third quarter performance last year. Our third quarter results also include strong contributions from Cholula and Fona. Sales growth in our flavor solution segment was broad-based with the at-home products in our portfolio, flavors and seasonings, growing at approximately the same rate as our away-from-home products, which was primarily driven by our robust recovery from last year's lower demand from our restaurant and other food service customers attributable to COVID-19 restrictions and consumers' reluctance to dine out. Our consumer segment results reflect the lapping of the year-ago elevated demand in the lockdown days of the pandemic from consumers eating and cooking more at home as well as a sustained shift to consumer at-home consumption higher than pre-pandemic levels. Taken together, these results continue to demonstrate the strength and diversity of our offering. The breadth and reach of our portfolio with compelling offerings for every retail and customer strategy across all channels creates a balanced and diversified portfolio that enables us to drive consistency in our performance even in a volatile environment. Turning to slide five, Total third quarter sales grew 8% from the year-ago period, or 5% in constant currency. Substantial constant currency sales growth in our flavor solution segment more than offset the slight constant currency sales decline in our consumer segment, driven by the factors I just mentioned. Adjusted operating income was comparable to the third quarter of last year, including a 3% favorable impact from currency. The benefit of higher sales was more than offset by higher cost inflation, and industry-wide logistics challenges, as well as by a shift in sales between segments. On the bottom line, our third quarter adjusted earnings per share was $0.80 compared to $0.76 in the year-ago period, driven by higher sales and a lower tax rate, partially offset by cost pressures. As we have stated previously, we expect growth to vary by quarter in 2021. Importantly, we have delivered outstanding year-to-date performance. Sales and adjusted operating income are up 13% and 9% year-over-year, respectively, both of which include a 3% favorable impact from currency. And we've grown adjusted earnings per share 8%. Year-to-date versus 2019, we've driven sales, adjusted operating income, and adjusted earnings per share growth of nearly 20% across all three metrics. I'd like to say a few words about the current cost environment's impact on our third quarter results, as well as our outlook, which Mike will cover in more detail. We stated in our July earnings call, we are operating in a dynamic cost environment, and like the rest of the industry, experiencing cost pressures. We're seeing broad-based inflation across our raw and packaging materials, as well as transportation costs. To partially offset rising costs, we have raised prices where appropriate, But as usual, there is a time lag associated with pricing, particularly with how quickly costs are escalating. And therefore, the phase-in of most of our actions is taking place during the fourth quarter. Those pricing actions are on track, and we appreciate our customers working with us to navigate this environment. In the last few months, inflation has continued to ratchet up, mainly with packaging and transportation costs. We're experiencing the highest inflationary period of the last decade or even two. we, along with our peers and customers, are also facing additional pressure in our supply chain due to strained transportation capacity and labor shortages and distribution. These pressures not only impact costs, but also negatively impact sales as the addition of further supply chain complexity makes it harder to get orders shipped and received by customers, and this pressure is amplified by continued elevated demand. Overall, We have a demonstrated history of managing through inflationary periods with a combination of pricing and cost savings, and we expect to manage through this period as we have in the past. Now let's turn to our third quarter segment, business performance, which includes comparisons to 2019 pre-pandemic levels, as we believe these will be more meaningful than the comparisons to 2020, given the dramatic shift in consumer consumption between at home and away from home experienced in the year-ago period. Starting on slide 7, consumer segment sales grew 1%, including a 2% favorable impact from currency and incremental sales from our Cholula acquisition, compared to the highly elevated demand levels of the year-ago period. Our consumer segment organic sales momentum on a two-year basis was up double digits, highlighting how the sustained shift in consumer consumption continues to drive increased demand for our products and outpaces pre-pandemic levels. Our America's constant currency sales declined 1% in the first quarter, with incremental sales from our Cholula acquisition contributing 3% growth. Our total McCormick U.S.-branded portfolio consumption, as indicated in our IRI consumption data and combined with unmeasured channels, declined 10%, following a 31% consumption increase in the third quarter of 2020, which results in a 19% increase on a two-year basis. Demand has remained high and we are realizing the benefit of our U.S. manufacturing capacity expansion, although some products remain stretched by sustained high demand. Shelf conditions are improving and we're seeing sequential improvement in our share performance. That said, as I mentioned moments ago, the current issues related to logistics pressures continue to make it challenging for market leaders like McCormick to keep high demand products in stock, which has prevented us from making further progress and replenishing both retailer and consumer inventories in the third quarter. Importantly, though, we're better positioned than we were last year entering the holiday season and are confident in our holiday merchandising plans. Focusing further on our U.S.-branded portfolio, our 19% consumption growth versus the third quarter of 2019 was led by double-digit growth in spices and seasonings, hot sauces, both Cholula and Frank's Red Hot, and barbecue sauce, as well as our Asian and frozen products. In pure play e-commerce, we deliver triple-digit growth compared to 2019, with McCormick branded consumption outpacing all major categories. This is the sixth consecutive quarter our U.S. branded portfolio consumption grew double digits versus the same period two years ago, which reflects the continuation of consumers cooking and using flavor more at home and the strength of our brands. Our key categories continue to outpace the center of store growth rates versus the same period two years ago, favorably impacting not only the McCormick brand, but our smaller brands as well. Household penetration and repeat rates have also grown versus 2019. And when our consumers shop, they are buying more of our products than they were pre-pandemic. McCormick continues to win in hot sauce. Across our brands, McCormick rose to be the number one hot sauce manufacturer globally earlier this year. In the third quarter, Frank's Red Hot, the number one brand in the U.S., was joined at the top of the category by Cholula, which we have driven to the number two ranking. Now turning to EMEA, which has continued its outstanding momentum, we had strong market share performance in the third quarter versus last year, maintaining or gaining share across the region in key categories following our strong gains in the third quarter last year. Compared to the third quarter of 2019, our total EMEA region We drove double-digit consumption growth in herbs, spices, and seasonings. And turning up the heat, Frank's Red Hot has grown consumption 75% and has gained a significant share versus the two-year-ago period. Across the region, our household penetration and repeat rates have also grown versus the two-year-ago period. Our year-to-date higher brand marketing investments in the MEA are proving to be effective, as evidenced by the metrics I just discussed, as well as are achieving above benchmark rates for reach, engagement, and click-through, for instance, in our digital marketing. In the Asia-Pacific region, third quarter sales were strong, reflecting our continued recovery from China's lower branded food service sales last year. Our consumer product demand in the region declined due to lapping significant growth last year. The region has also experienced supply chain challenges, with ocean freight capacity constraints impacting the quarter's growth. In Australia, we continue to see strong consumption growth versus 2019, with key brands recently trending back toward 2020 levels, with Frank's Red Hot already higher than last year's elevated consumption. Across all regions in our consumer segment, we are continuing to fuel our growth with our strong brand marketing, new product launches, and our category management initiatives. We're making brand marketing investments across our portfolio to connect with our consumers, particularly online. Early in the third quarter in the Americas, We began our search for the first Director of Taco Relations. This was a dream opportunity for the over 5,000 applicants who showcased their taco expertise and enthusiasm for our product in their video application. To date, we have garnered over 1 billion earned impressions related to our search, and these will continue to grow upon the announcement of our new Director of Taco Relations next week on October 4th in celebration of National Taco Day. We're not only creating buzz through our digital marketing, but also with our e-commerce direct-to-consumer new product launches. In the Americas, we drove new, passionate users to our brands and digital properties with the launch of Sunshine All-Purpose Seasoning, a new product developed in partnership with social media influencer Tabitha Brown. Inspired by her joyful personality and health and wellness-focused recipes, this salt-free and gluten-free Caribbean-inspired blend sold out in just 39 minutes. generating record sales from e-commerce-driven innovation and over 700 million earned impressions. Our new product launches differentiate our brands and strengthen our relevance with consumers. And with our global leadership position in hot sauce, we are in the perfect position to capitalize on consumers' rising demand for hot and spicy flavors through a global heat platform. Our recent launches of Frank's Red Hot Frozen Appetizers and Cholula Wing Sauces in the Americas as well as Frank's Red Hot Craft Flavors in EMEA, have made strong contributions to growth in the third quarter. Just in time for Halloween, EMEA is introducing Dead Hot gift sets for e-commerce featuring Frank's Red Hot, and in China, our recently launched Ready to Eat Chili Paste has the highest 30-day repeat rate of all McCormick direct-to-consumer products on Tmall. Turning to category management, Our initiatives are designed to strengthen our category leadership by driving growth for both McCormick and retailers. These initiatives include simply changing shelf placement, for instance, increasing Cholula's velocity over 30% by changing its aisle placement at a large retailer to reinventing the spice and seasoning aisle shopping experience. In the U.S., we're anticipating a cumulative implementation of our spice aisle program since it began in 2020 of 10,000 stores by year end. Versus 2019, to remove year-over-year noise, sales through the beginning of August show retailers that have adopted the spice aisle changes are growing the category faster than those who have not. And McCormick's branded spice and seasoning portfolio is growing solid bid single digits faster in implemented stores versus stores which have not adopted the changes. And in Eastern Europe, the rollout of our first choice bottle which is perceived as premium in what was predominantly a sachet-only market, is elevating the spices and seasoning category and driving increased share in our Eastern European market. Moving forward, we are confident that we will continue the momentum of our consumer segment. We have more consumers than pre-pandemic. They have come into our brand, are having a good experience, and are buying our products again. We are excited about our growth trajectory and expect long-lasting growth from the sustained shift to consumers cooking more at home, fueled by our brand marketing, new products, and category management initiatives. Turning to slide 9, our flavor solution segment grew 21% or 17% in constant currency, reflecting both strong base business growth and contributions from our FONA and Cholula acquisitions. Our third quarter results include the robust recovery from last year's lower demand from our restaurant and other food service customers, many of which are lapping the curtailment of both away-from-home dining, as well as strong continued momentum for their packaged food and beverage customers. Notably, growth was driven equally from both the at-home and the away-from-home products in our portfolio. On a two-year basis, our sales also increased double digits, with strong growth in all three regions. In the Americas, our Fona and Cholula acquisitions made a strong contribution to our significant third-quarter growth, and we're executing on our strategy to shift our portfolio to more value-added and technically insulated products. We continue to see outstanding growth momentum with our consumer packaged food customers, new products, and base business strength. Consumers' rising global demand for hot and spicy flavors is driving growth for both our customers' snacks and for our seasonings that flavor them. Compared to last year's third quarter, snack seasonings grew high single digits with strong growth core iconic products, as well as new products, and the innovation pipeline continues to be robust. Our confidence that Fona will accelerate our global flavors platform continues to be reinforced by their excellent performance, with double-digit sales growth compared to last year. Beverages are driving significant growth with particular strength in the fast-growing performance nutrition category. And finally, in the Americas, branded food service contributed significant growth to the quarter, as our demand for this channel has continued to strengthen as more dining options reopen. In EMEA, we had strong growth versus both last year and 2019 across all markets and channels. Quick service restaurants, or QSRs, are driving growth through increased promotional activities and limited time offers. Our branded food service sales, with easing restrictions in the hospitality industry, increased at a double-digit rate versus the third quarter of last year. And as packaged food and beverage companies, our performance was strong, on top of last year's strong growth, with the hot and spicy trend fueling growth in snack seasoning, particularly through new product innovation. Our sales growth in the Asia-Pacific region was partially impacted by the timing of our QSR customers' strong limited-time offers and their promotional activities in the third quarter of last year, which increased restaurant traffic as COVID-19 restrictions lifted. As we've said in the past, limited time offers and promotional activities can cause some sales volatility from quarter to quarter. We recognize a part of our third quarter flavor solutions results were due to the comparison to low away-from-home demand last year. Notably, our growth also includes strong contributions from Fona and Cholula, robust growth with packaged food and beverage customers, both in the base businesses and in new product wins driven by our differentiated customer engagement, and continuing momentum with QSRs. Year-to-date versus 2019, we've delivered 13% constant currency growth, including Sona and Cholula, and 6% constant currency organic growth. These results, combined with our effective growth strategies, bolster our confidence in the continuation of our robust growth trajectory in our flavor solution segment. Now, on slide 10, I'm excited to share some important purpose-led performance news. Just a few days ago, we were named as a Global Compact lead company by the United Nations for our ongoing commitment to the UN Global Compact and its 10 principles for responsible business. We are honored by this recognition for our commitment to sustainability and to be one of only 37 companies in the world and the only U.S.-based food producer to be included on this prestigious list. Sustainable sourcing is a top priority, and we've been actively working on initiatives such as our sustainability-linked financing partnership with IFC and Citi, which provides our herb and spice suppliers in Indonesia and Vietnam with financial incentives linked to improvements in measures of social and environmental sustainability, as well as our partnership with Heifer International on the launch of the Carta Forestry Project, which aims to increase smallholder farmer resilience and improve the quality of cardamom and allspice in Guatemala. In addition, Latina Style Inc. recently named us as one of the top 50 best companies for Latinas to work in the U.S. We are thrilled to be recognized for our continued efforts around diversity and inclusion. We are committed to the long-term vitality of the people, communities, and the planet we share and are proud of our impact in these areas. We look forward to sharing more about these accomplishments as well as many others with you through our Purpose-Led Performance Report, which will be issued early next year. Before turning it over to Mike, I'd like to make some qualitative comments regarding 2022. To be clear, we're not providing 2022 guidance at this time. We are a growth company, and we expect to grow in both of our segments next year. At the foundation of our sales growth is the rising consumer demand for flavor fueled by younger generations. We've intentionally focused on great categories that are growing and generating a long-term tailwind. for capitalizing on the long-term consumer trends that accelerated during the pandemic and were successfully executing on our strategies and initiatives. In this dynamic and fast-paced environment, we are ensuring that we remain focused on long-term sustainable growth. Recently, cost pressures have rapidly accelerated, and we're preparing for them to remain in 2022. We plan to mitigate these costs, which we expect to fully offset over time, through a combination of CCI-led cost savings, revenue management initiatives, and pricing actions as needed. In addition, we're taking prudent steps to reduce discretionary spend where possible. We also expect the impact of COVID-19 to persist into 2022, which will create continued broad-based supply chain challenges. We've successfully demonstrated in the past our ability to manage through inflationary environments and cost pressures. Importantly, Our strong growth trajectory supports our confidence and our long-term financial algorithm to drive continuous value creation through top-line growth and margin expansion. We have a strong foundation and remain focused on the long-term goals, strategies, and values that have made us so successful. Around the world, McCormick employees drive our momentum and success, and I thank them for their hard work, engagement, and dedication, particularly in such a volatile environment. And now I'll turn it over to Mike.

Thanks, and good morning, everyone. For the reasons Lawrence mentioned, my comments will also include comparisons to 2019. Starting on slide 13, our top-line growth continues to be strong. We grew constant currency sales 5% during the third quarter compared to last year, with incremental sales from our Cholula and Sona acquisitions contributing 4% across both segments. Higher volume and mix drove our organic sales increase, with flavor solutions growth offsetting a decline in the consumer segment. Versus the third quarter of 2019, we grew sales 15% in constant currency, with both segments growing double digits. During the third quarter, our consumer segment continued to lap last year's exceptionally high demand. Versus 2020, our third quarter consumer segment sales declined 1% in constant currency, which includes a 3% increase from the Cholula acquisition. Compared to the third quarter of 2019, consumer segment sales grew 14% in constant currency. On slide 14, consumer segment sales in the Americas declined 1% in constant currency, lapping the elevated lockdown demand in the year-ago period, as well as the logistics challenges Lawrence mentioned earlier. Incremental sales from the Cholula acquisition contributed 3% growth. Compared to the third quarter of 2019, sales increased 17% in constant currency, led by significant growth in the McCormick, Lowry's, Grillmates, Old Bay, Frank's Red Hot, Cholula, Zatarain's, Gourmet Garden, Simply Asia, Stubbs, and El Guapo branded products. That's a lot of brands, partially offset by a decline in private labels. In EMEA, constant currency consumer sales declined 11% from a year ago, also due to lapping the high demand across the region last year. Notably, this decline includes strong growth in our Eastern European market, on top of their significant volume growth last year, which was more than offset by declines in the region's other markets. On a two-year basis, sales increased 10% in constant currency, driven by strong growth in Arcamus, Schwartz, and Franks Red Hot branded products. Consumer sales in the Asia-Pacific region increased 11% in constant currency due to the recovery of branded food service sales with a partial offset from the decline in consumer demand as compared to the elevated levels in the year-ago period. Sales increased 4% compared to the third quarter of 2019, including a sales decline in India resulting from a slower COVID-19 recovery. Turning to our flavor solution segment and slide 17, we've moved third quarter constant currency sales 17%, including an 8% increase for Marfona and Cholula acquisitions. The year-over-year increase, led by the Americas and EMEA regions, was due to strong growth with both packaged food and beverage customers and in away-from-home products. Compared to the third quarter of 2019, flavor solutions segment sales grew 16% in constant currency. In the Americas, flavor solutions constant currency sales grew 19% year-over-year, with Sona and Cholula contributing 12%. Volume and product mix increased, driven by significantly higher sales through branded food service customers, together with growth to packaged food and beverage companies, with strength in snack seasonings. On a two-year basis, sales increased 15% in constant currency versus 2019, with higher sales from acquisitions and packaged food and beverage companies, partially offset by the exit of some lower margin business. In EMEA, constant currency sales grew 19% compared to last year, due to increased sales to QSRs and branded food service customers, as well as continued growth momentum with packaged food and beverage companies. Constant currency sales increased 23%, versus the third quarter of 2019, driven by strong sales growth with packaged food and beverage companies and QSR customers. In the Asia-Pacific region, flavor solution sales rose 1% in constant currency versus last year, and increased 8% in constant currency versus the third quarter of 2019, both driven by QSR growth and partially impacted by the timing of our customers' limited time offers and promotional activities. As seen on slide 21, adjusted operating income, which excludes transaction and integration costs related to the Chula and FONA acquisitions, as well as special charges, was comparable to the third quarter of last year, including a 3% favorable impact from currency. Adjusted operating income in the consumer segment declined 10% to $188 million, or in constant currency, 12%. Driven by the cost pressures from inflation and logistics challenges, partially offset by CCI-led cost savings. These logistics challenges not only impacted cost, but also negatively impacted sales. In the flavor solution segment, adjusted operating income rose 32% to $84 million, or 27% in constant currency. Higher sales, CCI-led cost savings, and favorable product mix, as we continue to migrate our portfolio, more than offset the cost pressures in this segment. Across both segments, incremental investment spending for our ERP program was offset by lower COVID-19 costs compared to last year. During the quarter, we invested in brand marketing ahead of last year, and notably, we have increased our investments 11% on a year-to-day basis. As seen on slide 22, adjusted gross profit margin declined 260 basis points driven primarily by the cost pressures we are experiencing and the lag in pricing. our selling, general, and administrative expense as a percentage of sales declined 110 basis points driven by leverage from sales growth. These impacts netted to an adjusted operating margin decline of 150 basis points. In addition to the factors I mentioned a few moments ago, a sales shift between segments unfavorably impacted both gross and operating margins. Turning to income taxes, our third quarter adjusted effective tax rate was 14.1%. compared to 19.3% in the year-ago period. Both periods were favorably impacted by discrete tax items, with a larger impact this year due to the favorable impact of a reversal of a tax approval. Adjusted income from unconsolidated operations declined 5% versus the third quarter of 2020. Based on our year-to-date results, we now expect a mid-single-digit increase in our adjusted income from unconsolidated operations for 2021, up from our previous projections of a low single-digit decrease. This improvement is driven by strong performance from our McCormick to Mexico joint venture. At the bottom line, as shown on slide 25, third quarter 2021 adjusted earnings per share was 80 cents compared to 76 cents for the year-ago period. The increase was primarily driven by a lower adjusted income tax rate. As compared to the third quarter of 2019, our 10% increase in adjusted earnings per share was primarily driven by sales growth. On slide 26, we summarize highlights for cash flow and the quarter-end balance sheet. Through the third quarter of 2021, our cash flow from operations was $373 million, which is lower than the same period last year. The decrease was primarily due to the payment of transaction integration costs and higher use of cash associated with working capital. This includes the impact of planned higher inventory levels to support significantly increased demand and to mitigate supply and service issues, as well as buffer against cost volatility. Through the third quarter, we've returned $272 million of this cash to our shareholders through dividends and used $190 million for capital expenditures. 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. Now turning to our 2021 financial outlook on slides 27 and 28. With a broad and advantage-flavored portfolio, a robust operating momentum, and effective growth strategies, we are well positioned for another year of differentiated growth and underlying performance. tempered by the higher inflation ahead of pricing and the logistic challenges we previously mentioned. For 2021, we are projecting top line and earnings growth from our strong base business and acquisition contribution, with earnings growth partially offset by incremental COVID-19 costs and ERP investment, as well as a higher projected adjusted effective tax rate. We continue to expect an estimated 3 percentage point favorable impact currency rates on sales. And for the adjusted operating income and adjusted earnings per share, a two percentage point favorable impact of currency rates. At the top line, due to our strong year-to-date results and robust operating momentum, we now expect to grow constant currency sales 9% to 10%, which is the high end of our previous projection of 8% to 10%. It includes a 4% incremental impact from the Cholula and FONA acquisitions. We had initially projected an incremental acquisition impact in the range of 3.5% to 4%. We anticipate our organic growth will be led by higher volume and product mix, driven by our category management, brand marketing, and new products, as well as pricing. We are now projecting our 2021 adjusted gross profit margin to be 150 to 170 basis points lower than 2020 due to the increase in cost pressures I mentioned earlier. While we continue to expect a mid-single-digit increase in inflation for the year, it has moved higher and is now approaching a double-digit increase in the fourth quarter. Overall, our projected adjusted gross margin compression reflects unfavorable impacts from sales mix between segments, cost inflation, and COVID-19 costs, partially offset by pricing and margin accretion from the Cholula and Sona acquisitions. As a reminder, we price offset cost increases. we do not margin up. Our estimate for COVID-19 cost remains unchanged at $60 million in 2021 versus $50 million in 2020 and is weighted to the first half of the year. Reflecting the change in gross profit margin outlook, we are lowering our expected constant currency adjusted operating income growth. Our adjusted operating income growth rate reflects expected strong underlying performance from our base business and acquisitions. projected to be 8% to 10% constant currency growth, which includes the higher inflation ahead of pricing and logistics challenges, and partially offset by a 1% reduction from increased COVID-19 costs compared to 2020, and a 3% reduction from the estimated incremental ERP investment. This results in a total projected adjusted operating income growth rate of 4% to 6% in constant currency. This projection includes the mid-single-digit inflationary pressure as well as our CCI-led cost savings target of approximately $110 million. It also includes an expected low single-digit increase in brand marketing investments. Considering the year-to-date impact from discrete items, we now project our 2021 adjusted effective income tax rate to be approximately 21%, as compared to our previous projection of 23%. This outlook versus our 2020 adjusted effective tax rate is expected to be a headwind to our 2021 adjusted earnings per share growth of approximately 1%. We are lowering our 2021 adjusted earnings per share expectations to 5% to 7% growth, which includes a favorable impact on currency. This reflects our lower adjusted operating profit outlook and lower adjusted income tax rate, as well as the higher adjusted income from unconsolidated operations. Our guidance range for adjusted earnings per share in 2021 is now $2.97 to $3.02. This compares to $2.83 of adjusted earnings per share in 2020 and represents 8% to 10% growth in constant currency from our strong base business and acquisition performance, partially offset by the impacts related to COVID-19 costs, our incremental ERP investment, and a tax headwind. I'll now turn it back to Lawrence.