McCormick & Company, Incorporated

Good morning. This is Fatin Freja, VP of Investor Relations. Thank you for joining today's third quarter earnings call. To accompany this call, we have posted a set of slides on our IR website. With me this morning are Brendan Foley, President and CEO, Mike Smith, Executive Vice President and CFO, and Casey Jenkins, Chief Growth Officer. During this call, we will refer to certain non-GAAP financial measures. The nature of those non-GAAP financial measures and the related reconciliations 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. 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 slide for more information. I'll now turn the discussion over to Brendan.

Good morning, everyone, and thank you for joining us. Let me start by saying how pleased I am to join you today for my first earnings call as president and CEO. Just over one month into my new role, I am energized by our underlying business trends, which reinforce our competitive advantages and differentiation. Let's turn to our results. We drove another quarter of strong performance, reflecting sustained demand and effective execution of our growth strategies across our consumer and flavor solution segments. Our results were in line with our expectations across our business, notwithstanding challenges for our consumer segment in Asia Pacific, or APAC. where the pace of China's economic recovery has been slower than previously anticipated. Let me start with the highlights for the third quarter. We delivered solid constant currency sales growth. We continue to realize effective price realization, and importantly, volume performance, excluding China, has improved each quarter throughout the year. We continue to see top-line momentum in our business, positioning McCormick for sustained growth. We drove meaningful year-over-year margin expansion, underscoring our focus on profit realization. Year-to-date cash flow from operations more than doubled relative to the prior year due to higher operating income and working capital improvements. Our performance demonstrates the strength of our business fundamentals and the effective execution of our proven strategies while leveraging the sustained demand for flavor. Turning to slide five. In the third quarter, we drove 6% sales growth in constant currency, demonstrating the strength of our broad global portfolio. Our constant currency growth reflected strong business performance, with an 8% contribution from pricing and a 2% decline in volume and product mix. This decline in volume was driven by two factors, a 1% volume decline attributable to the impact of a slower than expected economic recovery in China, and a 1% decline related to the divestiture of Kitchen Basics, the exit of our consumer business in Russia, and the pruning of the low margin business to optimize our portfolio. All other underlying volume and mixed performance was flat for the quarter, which is a sequential improvement from the second quarter, where total underlying volume growth was down approximately 1%. I would like to now share a few highlights on gross margin and operating income for the quarter which Mike will cover in more detail. We drove strong gross margin improvement year over year, reflecting continued recovery of the cost inflation our pricing lagged last year and cost savings from our CCI and GOE programs. We remain focused on improving our margins over the long term and believe that our recovery will be a continuous build. And we expect to return to historical levels and believe there is a runway beyond that, recognizing it will take some time. Higher gross profit for the quarter was partially offset by lower than expected performance in China, as well as higher SG&A. As planned, we continued to build back incentive compensation and increased brand marketing investments. The net impact was a 5% increase in adjusted operating income versus the prior year. Overall, we are pleased with our execution and results year-to-date. These results, combined with the strong demand we continue to expect across our portfolio, and our focused approach to optimizing our cost structure, reinforce our confidence in our growth trajectory during the fourth quarter and beyond. Moving into the fourth quarter, we can continue to expect top-line momentum across our portfolio, including growth in China as we lap the COVID-related disruptions. China's growth, however, is expected to be less than originally anticipated, which when combined with its year-to-date performance, has led to a lower full year 2023 benefit than we originally expected. Despite this impact, however, we are reaffirming our sales outlook and now anticipate our results will be closer to the middle of our guidance range. We are reaffirming our operating income outlook, which highlights stronger than originally expected profit realization on our business, excluding China. Demand is strong. We are driving improvement in our margin profile and are optimizing our cost structure effectively. Now for our performance by segment. Starting with our consumer segment on slide seven, we saw solid results across the Americas and EMEA, which were tempered by our APAC region due to China, as I mentioned earlier. Notwithstanding China, we are pleased with our underlying performance. Now for some highlights by regions. First, in the Americas. Our total U.S. branded portfolio consumption, as indicated by our IRI consumption data, and combined with unmeasured channels, grew approximately 4%, excluding the year-over-year impact of the kitchen basics divestiture and the exit of DSD, direct store delivery, of our bagged Hispanic spices. There is a minor difference between our sales and consumption, which is attributable to listing fees for a significant increase in new distribution and new products. For example, our new Cholula and Stubbs items and Tabitha Brown line extensions. Importantly, our categories remain advantaged in terms of growth relative to overall macro trends, and we are well positioned to drive future growth. The fundamental strength of the spices and seasonings category is evident as cooking at home has remained elevated since pre-COVID and consumers have an increase in demand for flavor. U.S. spices and seasonings growth is continuing to outpace the total edible category in units and dollars. We have the right plans in place and are taking the right actions to grow market share in this very attractive and competitive category. We have made progress and shown improvement relative to the beginning of the year. We continue to restore distribution which was lost because of supply issues. As we look at our performance and our trends, we are happy to see total distribution point growth in the third quarter. We also continue to be pleased that our assortment on shelf is more productive than pre-COVID. In addition, we have significant new distribution and innovation that is starting to come online as customers reset their shelves. As we've said before, Restoration will take some time, and we expect to drive growth as we continue to progress. In addition to driving distribution gains, we have a continued focus on supporting our brands and optimizing pricing. As you would expect, this has become a more important part of our category management efforts in recent years. Our diverse portfolio allows us flexibility to optimize our pricing effectiveness. We look at both our everyday price and our promotional returns. as well as use innovation, including price pack architecture, to drive growth. Our efforts are yielding results. The renovation of our U.S. core everyday spice and herb portfolio is rolling out according to plan. At the end of the third quarter, we have shipped about 40% of our renovated SKUs, and notably, products that have transitioned on shelf have seen high teams improvement in velocity. And our significant brand marketing campaign featuring the benefits of the new packaging ramped up at the end of the third quarter leading into the holiday season. Our larger size Super Deal herbs and spices continues to gain share. We saw strong performance in the third quarter, driven by pricing and higher unit volume. Expanded distribution has been a major driver for our performance, as well as consumers that are seeking value and trading up to larger sizes. We have the right assortment in this environment. Our household penetration on larger sizes is greater than pre-COVID. We are confident this product line will continue to drive growth as we expand distribution further and launch new line extensions. Our grilling performance was strong this quarter, supported by our Fire Up campaign, as well as contribution for new product launches that we discussed on our earnings call in June. Frank's Red Hot Sauces, French's Mustard, and Stubbs Barbecue Sauce Grubs, as well as Lowry's Marinades, all delivered significant growth in the third quarter relative to the prior year. We drove double-digit sales growth with contributions from pricing and volume across our total grilling portfolio. And we drove market share gains in mustard, barbecue sauce, and marinades in the third quarter. Our expansion into the fast-growing Mexican aisle with new Cholula taco recipe mixes and salsas is continuing to build distribution and performance to date is outperforming our expectations. Finally, in the Americas, we continue to drive double-digit consumption growth in e-commerce led by spices and seasonings. We are realizing high returns on our investments, gaining new customers, and growing with new products. Turning to EMEA, where we delivered a great quarter, our strongest quarterly sales performance in more than two years with double-digit sales growth. Notably, in the UK and France, we drove volume growth as pricing remained elevated. In both countries, we delivered significant growth in the discount channel driven by expanded distribution with new and existing customers. In other parts of the region, we are also making meaningful progress in this fast-growing channel. We grew our business in the discount channel by over 30% across EMEA in the third quarter. Our grilling activations with key retailers in France and our promotional activities in the UK, along with brand marketing support, drove strong third quarter growth across the grilling portfolio. E-commerce also contributed meaningfully to our growth in both countries. Consumption data continues to indicate that the consumer is holding up well in our categories. with consumption trends continues to accelerate across the region. We grew share in herbs, spices, and seasonings for our total EMEA business, with the UK, Eastern Europe, Italy, and France all contributing. France grew share for the first time in two years. In UK recipe mixes, we extended our leading share position during the third quarter. New products and effective in-store promotions drove share gains. We also continue to drive hot sauce category growth in the UK, with Cholula leading the growth in the third quarter. And we are also building distribution of Cholula in France. In our APAC region, while the pace of recovery in this business has been slower than expected, we continue to believe in the long-term growth trajectory of our business in China. Notwithstanding the slower recovery in China, In all regions in our consumer segment, our investments in brand marketing, category management initiatives, and new products are proving to be effective and driving strong growth across our categories. We are making sequential improvement on volume, advancing our heat platform, and are pleased with our performance. We continue to fuel our growth with the power of our brands and increased innovation in brand marketing. We are also forming strategic partnerships to reach and enhance brand awareness with loyal built-in audiences. Building on the success we have with our Tap of the Brown partnership, in light of new products in the U.S., where growth continues to accelerate, we are partnering with Nadia Hussain, a celebrity British chef who won the sixth series of BBC's The Great British Bake Off in the NBA. We are launching a delicious range of short seasonings, recipe mixes, and meal kits with Nadia, and are helping build the confidence of UK consumers in the kitchen with cook-along videos and recipe ideas. We are thrilled to partner with Nadia, and preliminary results are very positive. We are looking forward to working with her on various future initiatives across the region to expand our brand awareness and accelerate new product growth. Our brand marketing efforts continue to drive awareness and strengthen our brands. As you may have seen in July, we partnered with Mars and launched a limited edition French's Mustard Flavor Skittles. The objective of the campaign was to create top of mind awareness for French's through a buzz wordy moment to further strengthen the power of our brand. And of course, you can always have fun with mustard. We are thrilled that this was our most successful earned campaign to date with a record 5 billion impressions. It is also a perfect example of how we leverage our strengths across both segments, underscoring their complementary nature. Our flavor solutions team created the mustard flavor for this limited edition product, which builds awareness for both our consumer and food service businesses. Our segments are working together to further bolster French's success. I am passionate about how our two segments, consumer and flavor solutions, complement each other. reinforcing what differentiates McCormick and enabling us to drive sustainable growth. Looking ahead to the fourth quarter, we are excited about the holiday season and our related brand marketing plans across all regions. Importantly, with our supply issues resolved, we are better positioned than we were last year entering this season. We are increasing our merchandising levels to one similar to pre-COVID. and are supporting our portfolio with holiday brand marketing campaigns across all regions. We are expecting a strong holiday season. Wrapping up the consumer update, our year-to-date results bolster our confidence that we will continue to drive sales growth, as we have in the past. The supply issues we experienced last year are resolved, and we are using our strength in category management to increase distribution and drive McCormick and category growth. We believe the execution of our growth plans will be a win for consumers, customers, our categories, and McCormick, which differentiates us even more and strengthening our leadership in our core categories. Now turning to flavor solutions on slide 10. Our growth momentum in this segment continues to be exceptional. The third quarter marks our 10th consecutive quarter with double-digit constant currency sales growth. Our growth was led by pricing actions in all three regions. We are priced to cover current year inflation and are continuing to recover the cost inflation our pricing lagged the last two years. We remain committed to restoring our flavor solutions profitability. And in the third quarter, we again drove significant margin expansion versus prior year and expect continued progress toward our objective to build back our margin in this segment. Let me turn to our highlights by region. Our America's third quarter strong sales growth was led by pricing. with an increase in volume contributing as well. Both the flavors and branded food service product categories grew by double digits. With flavors, our seasonings growth was strong, including volume growth related to new products. We are helping our customers grow with the strength of our brands. Our continued success with providing the seasonings for co-branded items included new ones with Frank's Red Hot and Stubb's this quarter, contributed to our growth. Strength in our customers' iconic products also contributed to our seasonings growth, particularly related to our heat platform. We also have strong momentum in flavors for performance nutrition beverages and health and market applications. Our growth is outpacing the market fueled by the advantages of our proprietary technologies. Importantly, we are winning with new products for existing and new customers, largely across our mid-market customer base, who are category leaders in specific markets or are high growth innovators, and whose growth is outpacing larger customers. We continue to have a robust pipeline of new products, and our conversion rate is strong. We are creating preferred flavors, enabling our customers to continue to win in the marketplace. In branded food service, we gained share in spices and seasonings this quarter. Additionally, our recent new products, Frank's Mild Sauce and Frank's Nashville Hot Seasoning, are performing very well and are exceeding our expectations. They have both been well received by our customers, reinforcing that the demand for heat is growing at both the mild and hot end of the spectrum. We are excited for continued growth in these items as well as the overall breadth of opportunity in heat. Moving to EMEA, we continue to drive broad-based growth across the portfolio with strong growth in both our quick service restaurant and packaged food and beverage customers. Pricing drove the growth as some of our customers in both channels continue to experience softness in the volume within their own businesses. As we continue to prune low margin business in our flavor solution segment, while it did not impact the third quarter, I want to mention that we divested a small canning business, which was part of our GI operations in Italy. This divestiture allows us to focus our resources on our core flavors product category and drive further growth. Mike will have more on the future impact of this divestiture on the EMEA region in a few minutes. And in APAC, while the economic recovery in China was not as strong as anticipated, China contributed to the regional pricing and volume growth. Across the region, we benefited from our QSR customers' increase in promotional activity. The strength of our flavor solutions portfolio and capabilities, including our differentiated customer engagement and culinary-inspired innovation, are driving outstanding flavor solutions momentum. Our flavors product category, our 100% focus on flavor, Our breadth and reach, our unrivaled consumer insights, and our proprietary technology platform gives us an advantage and positions us well to continue to win in the technically insulated and value-added part of our portfolio, driving growth and advancing our flavor leadership. And in branded food service, we expect new products, increased menu penetration, culinary partnerships, and our expertise in heat to drive continued growth. Our robust growth plans and flavor solutions and effective execution of our proven strategies bolster our confidence in continuing our growth trajectory and driving our flavor solutions leadership as well as margin restoration. Now, I'd like to turn it over to Mike to provide details on our financial performance. Thanks, Brendan, and good morning, everyone. Starting on slide 13, our top line constant currency sales grew 6% compared to the third quarter of last year, reflecting 8% from pricing, partially offset with a 2% volume and mixed decline. As Brendan already mentioned, there were impacts of volume related to the slower than expected recovery in the China consumer business, the divestiture of kitchen basics, the exit of our consumer business in Russia, and strategic decisions we made related to optimizing the profitability of our portfolio. As a result, at the total company level, excluding these items, underlying volume performance was flat for the quarter and improved sequentially from the second quarter. In our consumer segment, constant currency sales increased by 1%, reflecting a 5% increase in pricing actions, partially offset by a 4% volume decline. Included in this volume decline are a 2% decline due to a lower-than-expected recovery in China and a 2% decline attributable to the kitchen basics to Vechester, our business exit in Russia, and the Hispanic product DSD exit to optimize margins. On slide 14, consumer sales in the Americas increased 2% in constant currency and included a 4% increase from pricing actions, partially offset by a 2% volume decline due to the kitchen basics divestiture and DSD items I just mentioned. In EMEA, constant currency consumer sales increased 10%, with a 13% increase from pricing actions, partially offset by a 3% volume decline primarily from exiting Russia. Excluding Russia, sales growth was broad-based across all markets and categories. Constant currency consumer sales in the APAC region decreased 11%, driven by a 15% volume decrease, primarily due to a slower than expected recovery in China. Also contributing to the decline was the impact of lapping strong China demand in the prior year following significant extended lockdowns during the second quarter of last year. Turning to our flavor solution segment and slide 17, we grew third quarter constant currency sales 11%, reflecting a 10% increase from pricing and a 1% increase from volume and product mix. Our volume growth was partially offset by the pruning of low margin business. In the Americas, flavor solutions constant currency sales rose 10%, reflecting a 9% increase in pricing and a 1% volume and product mix growth. Growth was broad-based across the portfolio, with strength in flavors, including seasonings and specialty flavors, as well as branded food service. In EMEA, constant currency sales increased 15%, with pricing actions partially offset by lower volume and product mix, including a 1% impact from exiting the private label product line mentioned earlier. Outside of this product discontinuation, volumes declined due to softness in some of our customers' volume within their own businesses. Regarding the divestiture of the Giotti canning business Brendan mentioned earlier, we expect this divestiture to impact EMEA flavor solutions by approximately 3% starting in the fourth quarter of 2023 to the third quarter of 2024. For the total flavor solution segment, we expect an approximately 1% impact, and for the total company, less than 1%. In the APAC region, flavor solution sales grew 13% in constant currency, with a 7% contribution from pricing and 6% volume growth, driven by our customers' promotional activities and limited time offers across the region. As seen on slide 21, gross profit margin expanded 150 basis points in the third quarter versus the year-ago period, reflecting our steadfast focus on increasing profit realizations. Favorable drivers in the quarter were our CCI and GOE programs, and the continued recovery of the cost inflation our pricing lagged over the past two years. We expect to finish 2023 meeting the cost recovery plans we set as we entered the year. We are very pleased with our gross margin expansion for the quarter. Historically, our third quarter gross margin has been higher than the second quarter. This year, however, they were comparable at approximately 37%. because we realized our highest level of both pricing and cost recovery from prior years in the second quarter. We expect to continue to drive margin improvement in the balance of the year. And as evident by our full year outlook and year to date results, we expect a higher gross margin in the fourth quarter compared to the third quarter of this year, as well as expansion from the fourth quarter of 2022. Now moving to slide 22, selling general and administrative expenses, or SG&A, increased relative to the third quarter of last year, as higher employee incentive compensation expenses and distribution costs were partially offset by CCI-led and GOE cost savings. Brand marketing also increased compared to the third quarter of last year, and we continue to expect a low single-digit increase in brand marketing for the full year. As a percentage of net sales, SG&A increased 160 basis points. Strong sales growth and gross margin expansion, partially offset by higher S&A costs, resulted in a constant currency increase in adjusted operating income of 5% compared to the third quarter of 2022. In constant currency, adjusted operating income in the consumer segment, which was impacted by the slower China recovery and brand marketing investments, declined 5%. And in the flavor solution segment, adjusted operating income increased 42%. Turning to interest expense and the income taxes on slide 2023, our interest expense increased significantly over the third quarter of 2022, driven by the higher interest rate environment. And quickly touching on tax, our third quarter adjusted effective tax rate was 21.4%, compared to 21.2% in the year-ago period. Our income from unconsolidated operations in the third quarter reflects strong performance in our largest joint venture, McCormick, New Mexico, We are the market leader with the McCormick-branded mayonnaise, marmalades, and mustard product lines in Mexico, and the business continues to contribute meaningfully to our net income and operating cash flow results. At the bottom line, as shown on slide 25, third quarter 2023 adjusted earnings per share was $0.65, as compared to $0.69 for the year-ago period. The decrease was driven by lapping a favorable impact primarily related to an optimization of our debt portfolio included in other income in the third quarter of last year. This impact is also a headwind to our full year results. On slide 26, we've summarized highlights for cash flow and the quarter end balance sheet. Our cash flow from operations year to date was very strong, $660 million in 2023 compared to $250 million for the same period last year, a 164% increase. The increase was primarily driven by higher operating income and working capital improvements, including lower inventory. We returned $314 million of cash to our shareholders through dividends and used $187 million of cash for capital expenditures through the third quarter. We expect 2023 to be a very strong year of cash flow, as evidenced by our 2023 year-to-date cash flow from operations of $660 million, which is already slightly higher than our full-year cash flow in 2022. Our priority is to continue to have a balanced use of cash, funding investments to drive growth, returning a significant portion to our shareholders through dividends, and paying down debt. We remain committed to a strong investment grade rating. With our improving gross margin and lower inventory, we are well positioned to continue paying down debt. and we now expect to de-lever to approximately three times earlier in 2024 than we originally expected. Now turning to our updated 2023 financial outlook on slide 27. Our 2023 outlook reflects our continued positive top-line growth momentum, and with the optimization of our cost structure, increased profit realization. We expect to drive margin expansion with strong sales and adjusted operating income growth. Adjusted operating income growth is expected to be partially offset by higher interest expense and a higher projected effective tax rate. We also anticipate minimal impact from currency rates, although there will be a timing aspect as we realize an unfavorable impact year-to-date through the third quarter and project a favorable impact in the fourth quarter. We are reaffirming our sales and operating profit outlook for 2023, despite a slower recovery in China. We no longer expect a 1% contribution to our sales from lapping last year's COVID disruptions in China. And we're also revising the benefit from a China recovery to our operating income from 300 basis points to 100 basis points. At the top line, we continue to expect 5% to 7% growth and anticipate our results will be closer to the middle of our guidance range given the lower than expected China recovery. The wrap of last year's pricing actions, as well as the impact of new ones in 23, are the primary drivers of growth. Several factors are expected to impact our volume and product mix for the year, including price elasticities, which are consistent with 2022 at lower levels than we have historically experienced, but in line with the current environment. The divestiture of our kitchen basics business in August of last year and the exit of our consumer business in Russia during last year's second quarter The continual pruning of lower margin business from our portfolio. We continue to estimate the Americas consumer segment, DSD exit, and the EMEA's flavor solutions private label discontinuation to be approximately a 1% impact on the year, which began to impact us in the second quarter of 2023. And finally, the divestiture of Giotti's candy business, which closed on the first day of the fourth quarter, will have a minimal impact on total company sales for the year. We continue to plan to drive growth through the strength of our brands, as well as our category management, brand marketing, new products, and customer engagement plans. Our 2023 gross margin is projected to range between 110 to 140 basis points higher than 2022, compared to our prior guidance of 50 to 100 basis points. This gross margin expansion reflects a favorable impact from pricing, cost savings from our CCI-led and GOE programs, portfolio optimization partially offset by the anticipated impact of a low to mid-teens increase in cost inflation it also reflects more than offsetting cost pressures with pricing actions as we recover the cost inflation our pricing lagged the last two years moving to adjusted operating income we continue to expect 10 to 12 percent constant currency growth there are some discrete items expected to impact our 2023 adjusted operating profit growth first Remaining consistent with our prior outlook, we expect our GOE program to have an 800 basis point favorable impact and the Kitchen Basics to have an unfavorable 100 basis point impact. Next, I already mentioned the expected 100 basis point benefit related to China, which is lower than the originally anticipated 300 basis points. Finally, we expect a 900 basis point unfavorable impact from building back incentive compensation slightly ahead of our prior projection of 800 basis points, given the increase in earnings expectations since the beginning of the year. The net impact of these discrete items is an unfavorable 100 basis points as compared to a 200 basis point favorable impact in our previous outlook. The reaffirmation of our adjusted operating income outlook, despite the unfavorable change in the impact from discrete items, highlights stronger than originally expected profit realization on our underlying business, which is now expected to be 11% to 13% growth compared to 8% to 10% growth previously. We are reaffirming our low single-digit increases in brand marketing investments, our CCI-led cost savings target of approximately $85 million, our interest expense outlook of an estimated range from $200 million to $210 million in 2023, and our 2023 adjusted effective income tax rate projection of approximately 22%. We are increasing our income from unconsolidated operations projection to a 30% expected increase from 2022, reflecting the strong performance we expect in our largest joint venture, McCormick, New Mexico. To summarize, our 2023 adjusted earnings per share expectations reflect strong underlying business growth of 14% to 16%. above our prior projection of 10 to 12%. Combining this 14 to 16% underlying growth with a 1% unfavorable impact from the discrete items on adjusted operating profit and the combined interest and tax headwind of 9% results in an expected increase of 4 to 6%, or a projected guidance range of adjusted earnings per share in 2023 of $2.62 to $2.67. We are projecting strong operating performance in 2023 with continued top-line momentum, significant optimization of our cost structure, and strong adjusted operating profit growth, as well as margin expansion and strong cash flow. We remain confident in the underlying strength of our business and delivering on the profitable growth reflected in our 2023 financial outlook. Thank you, Mike. Before we turn it over to Q&A, I would like to provide some closing comments. Global demand for flavor remains the foundation of our sales growth, and we have intentionally focused on great, fast-growing categories. Our alignment with long-term consumer trends, healthy and flavorful cooking, trusted brands, increased digital engagement, and purpose-minded practices continue to create a tailwind for growth. McCormick is uniquely positioned to capitalize on this demand for great flavor. With the breadth and reach of our strong global flavor portfolio, We are end-to-end flavor for our consumers and customers. We remain a different kind of CPG company, one differentiated by our growth platform, the results that we have achieved over the last years, and our culture. We play in great and fast-growing categories. Our two segments, consumer and flavor solutions, complement each other, reinforcing our differentiation. The scale, insights, and technology that we leverage from both segments are meaningful and driving sustainable growth. We continue to leverage the strength of our culture and the power of people to drive success. I want to thank McCormick employees worldwide as their energy and excitement for the business is coming through in our results. Now to recap the key takeaways as seen on slide 30. Our third quarter performance was strong reflecting sustained demand and the effective execution of our growth strategies and Our volume performance, excluding China, continued to improve. We drove meaningful year-over-year margin expansion, underscoring our focus on profit realization. Our year-to-date cash flow from operation results was strong, already equal to our full year 2022 results. A reaffirmed sales and operating profit guidance, despite lower than expected China recovery, highlights the growing strength of the rest of the business. The strength of our business model, the value of our products and capabilities, and execution of our proven strategies bolsters our confidence in our growth trajectory over the long term. Now for your questions.

Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Thank you. And our first question is coming from the line of Andrew Lazar with Barclays. Please receive your questions. Great.

Thanks very much. Good morning, everybody. Good morning, Andrew. I guess we would just start off with McCormick, obviously, as you mentioned, saw some sequential volume improvement in Consumer Americas in the fiscal third quarter. And you're lapping an even easier, I guess, down 11 volume decline in the year-ago period in the fourth quarter. So I guess my question is, would you expect volume in the Consumer Americas segment to flip positively this year? in the fourth quarter? And if not, I guess, what would be the key factors that would keep you from doing so? Obviously, all in the context of an industry volume backdrop that remains kind of subdued.

Well, thanks, Andrew, for your question. Just to maybe speak first to last year's fourth quarter, I think our sales growth back in 2022 was down about 1.7% I think on sales. that was up without Kitchen Basics. And we were lapping the 2021 retail inventory build. And at a high level, I think we, you know, as we talked about on that call, entered the 2022 holiday with just a lot stronger inventory than we have, you know, we're counting on or predicting or forecasting. So, you know, the way we're looking at it is the net sales impact really was up about 4 point, a little over 4% in the fourth quarter last year. So, We're not seeing that necessarily as an easy comparison overall, but just talking to dollars first, that's kind of our view is just we're still looking at a pretty robust fourth quarter from a year ago, just knowing that we had that comparison in the fourth quarter. Now, when we look at this year's fourth quarter, as we said on the call here earlier, you will see the impact of that DSD continuation in our Hispanic Ag Spices part of our business. It just tends to be – that business tends to be heavier in the fourth quarter because of the holidays. So that will be a little bit stronger then. But to our spices and seasonings business, we continue to see improving trends in that part of our portfolio. And you should expect to see that in the fourth quarter, that sequential improvement in performance overall. And we feel like we're going to have a strong holiday here. I mean, I think the reasons why we feel good about the direction of that part of our portfolio is, you know, and you heard it on the call, we're gaining share and we're gaining distribution on super deal herbs and spices. On the Lowry's opening price point platform, we're still getting really good performance for that, but still also building out distribution. And we have one value retailer that we've only begun just starting shipments on, and they'll start to build out, you know, and fill out more store locations and because we have like just in that one particular account, you know, 85% of locations still yet to come. So we still see distribution build happening behind Lowry's overall. And that renovation that we launched here this year, we talked about in the second quarter, is doing really well where we see it getting on shelf. Now we shifted out 40%, but, you know, what's appearing on shelf is probably just a little bit different because we don't really have that data. But what we're seeing when we see that new package come on shelf is that the WASI improves quite a bit. So we're really encouraged by our performance there, and we're definitely seeing a strong consumer reaction to the new package. And so that will obviously continue to build in the fourth quarter. And we're also turning on our media right now, advertising. the benefits of the package, but then we're also having holiday campaigns starting to run too. So we feel like there's a lot of good momentum in the pipeline. Obviously a lot of that will carry into 2024, but we still feel really good about the strength of that part of our business going into the fourth quarter. What's also helping us though is that our core categories are performing a little bit stronger than overall total edible in the grocery store. So we see continued strength there just from a category standpoint. We have good performance across our other core categories like recipe mix, condiments and sauces, so we expect pretty good performance there. But there are some categories where we participate along with our food peers. It's probably at a much smaller scale, but these are categories like frozen or the Asian category. where we've seen more volume decline like we've seen in the rest of center of store in that part of our business. That's just one part of the portfolio I just gave you some color on. We're seeing definitely the type of softness that you're seeing in other categories. But the fundamental trends have not shifted. Despite this recovery in China being a lot slower, U.S. and Europe are performing as expected and As you heard in the call, we kind of reaffirmed our guidance on sales despite China, which is meant to indicate that we still see a strength in the performance of our business overall.

Great. Thanks. I'll pass it on and leave it there. Thanks so much.

Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your questions.

Good morning, everyone.

Good morning.

Can I ask about the market share trends that we're seeing in America's consumer markets? It's obviously been under pressure for some time because of the distribution losses and so on. But I'm wondering if there's light at the end of the tunnel in terms of when either the comparables get easier or innovation helps to turn it around. I'm just wondering what the outlook is there, and then I have a follow-up.

Thanks, Alexia. Yeah, I think as we take a look at our performance overall in terms of shares, et cetera, just talking maybe specifically to spices and seasonings, Dollars are a bit tricky because we're seeing private label and our competitors take more price right now in the last couple of months to catch up to the pricing that we've taken in the marketplace. But this is helpful, obviously, because it starts to close price gaps. And so I think you're seeing some stronger dollar performance there. But from a unit standpoint, we believe we're performing even better. That lag is even less. And so as we then look to the pipeline of activities that we have going on, much like I just mentioned, Don, on the previous question, whether it's parts of our product line that are really starting to build momentum or distribution that builds momentum, we see a strong pipeline across that part of our portfolio as well as just stronger overall marketing initiatives now that we have really a shared supply across all of our portfolio. So when we talk about light at the end of the tunnel, we just see sequential improvement over the course of time as we claw back on distribution points, which we've grown this quarter, as well as just the pipeline of activity and renovation that we have across our portfolio. You're seeing a good view of that right now, but there's more to come. And so we do feel pretty confident about our ability to continue driving sequential improvement whether it's in spices and seasonings or across other categories. I think, too, we think some of the same things we've done in Europe, for example, where we've had, as we mentioned today on the call, really good share performance and volume performance in markets like UK and France, which are similar to the US. So those type of activities we're doing, whether it's innovation, upgrading, renovating the mine, have had success over there, too.

Great. Thank you. And just as a quick follow-up, you talked about the free cash flow allowing you to de-lever more quickly than expected. What's your level of appetite for acquisitions next year, and where are the priorities? Is it consumer? Is it flavor solutions, domestic, international? Just wondering how you're thinking about the pipeline on the M&A side, and I'll pass it on. Thank you.

No, Alexia, as you said, we're having really good success on our operating cash flow. We're really excited about that. As we said in the call today, we're going to deliver faster than we thought. to get back to our three times target. We're always looking at acquisitions. I mean, we have a corporate development team that is always working internally to look at those assets. We have an appetite as part of our long-term growth algorithm. A third of our 4% to 6% long-term growth algorithm is M&A. However, we're still in the process of paying down debt. I think the fourth quarter is our biggest cash flow quarter, generally. As we get into next year, though, as we get closer to our targets, I think as assets come up that are attractive. Whether they're consumer flavor solutions, U.S. international, we really look for things that don't dilute our sales growth. Our top line is really important to us. You look at the past with Cholula and Fona and RB. Those are the type of assets we really like. Would we like it to be a bit more international? Yes. Flavor solutions now also is an area where we really... I really like that and look at Soda and Giotti as past acquisitions we're really happy with. So sorry for the long-winded answer, but I think we're getting back to where we want to be to enter back in the M&A market. And as long as it meets those strategies in both consumer flavor solutions for attractive assets, we'll be buyers, hopefully, at the right price. But right now, paying down our debt is our priority.

Thank you very much. I'll pass it on.

Our next question is from the line of Max Gumpert with BNP Parma. Please proceed with your question.

Hey, thanks for the question. A number of your broader U.S. packaged food tiers have been talking about value-seeking behavior, whether it's moving down to cheaper brands and private label or channel shifting or simply buying less units of food. You mentioned some comments earlier about the movement to larger package sizes that you're seeing, but I'm curious if you can talk more broadly about how value-seeking behavior is impacting your business, particularly given you're also a large producer of private label spices and seasonings. Thanks very much.

Thanks for the question. You know, we're seeing value play out, you know, through many different types of actions, you know, from the consumer. Some are going to larger sizes, and we see that quite a bit, and as an example of where we're taking an opportunity to continue growing even more quickly. In that part of our portfolio, we're definitely seeing, you know, sustainable continued trends towards larger sizes. And what's also interesting about larger sizes, at least in the categories that we have, especially spices and seasonings, is that the purchase rate is still just as fast as it was with the smaller size. So, you know, people are going through, when they have it in the household, they're going through a little bit, you know, just as fast or more quickly. But the other way value kind of presents itself too is opportunities like this opening price point. With the pricing that's happened in the market, as we talked about before, it created a price pocket that we feel like we needed to fill with a brand like Lowry's. And so that's playing a role in our portfolio. That's offering a brand to consumers. And a lot of consumers still prefer brands. And it's allowing them to move towards a brand that's at a lower opening price point and fills the need. And we're seeing a lot of success with that too. But the other way we're really talking a lot about value is directly to the consumer, especially if you think about a lot of our communication right now over the past year has been value-oriented. And we're talking about the role that our portfolio plays in terms of providing flavor for pennies a serving. And that is really having a positive impact. A lot of our content is also focusing on how consumers can continue to save money by creating, let's say, for example, just larger batch sizes of food so they can have leftovers for a couple nights in a row, or tricks and hacks like that that allow consumers to create even more value and stretch the food dollar even further. That's where we see our category really playing a role in the household, especially during this kind of, where there's a lot of consumer concern around inflation, our categories are playing a helpful role in that. So we're looking at it from a number of different angles, but I've just illustrated three right there that we are hitting pretty hard during this period of time. Thanks.

Very helpful. I'll pass that along. Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Pleased to see you with your question.

Yes, thank you. Good morning, everyone. Good morning. Good morning. I guess maybe trying to take Andrew's question in maybe a slightly different kind of light. Brendan, is there any way to help frame the distribution kind of gains that you're seeing and expect to see over the incoming quarters? Any way to quantify kind of how we should think about total distribution growth and where that will peak from a TDP perspective into 2024? It's harder to fully see that expansion in in the scanner data, and so I'm wondering if part of it is growth in certain non-measured channels or value retailers that aren't captured in Eielson.

Well, Adam, just a few things around TDPs. I'm not going to be talking about what to expect in 2024, just because we'll talk about that guidance as we look at early next year. But just talking a little bit more about TDP performance, it remains an important area of focus for us, and we've been taking a lot of action to restore distribution which we really lost the supply over the last one or two years. I think it's an important reminder that about half of those TDP losses are a result of just proactive discontinuations that we made. And those are not likely to be restored. But we are starting to see TDP growth, something which we said would start to come this year in the third quarter. And we believe that performance has improved versus like the previous two quarters of the year. And I would also just share with you that our assortment on shelf now is even more productive than it was versus pre-COVID. So that velocity, those turns that we get on shelf from that assortment there is actually even more productive, not only for McCormick, but also for the retailer. And so that's something really important to pass along. And, you know, we'll start to see more distribution come online as retailers, you know, reset their shelves. We're seeing a bitter back happen right now as we speak going into the fourth quarter, but we expect to see even more of that as we go into 24. So that's one, you know, I think, you know, context around, you know, TDPs and distribution that we think, you know, provides context and color. We will continue to accelerate innovation, and that's something that we did in 2023. We'll continue to do that in future fiscal years. That will also build on the TDP momentum and distribution growth that we see. I think those are some of the points that I think without calling out a specific TDP number and gain to assess, we continue to see continued improvement, sequential improvement as we look at this over time. And as we mentioned in previous calls, it will take a little bit of time to get it back, but we are still making forward progress on this.

Okay, that's helpful. And if I could just ask a separate question on the flavor solution 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 and 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? As you think about that pipeline of new business wins, how would you frame that?

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. That's an example of what we're seeing not only through our flavors business but also branded food service. And we are growing share in a number of the strong categories that we participate in. We talk 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. Now, 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 to go into the categories we plan. 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, you know, in 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 or 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're trying to drive more traffic in. in their stores, and so we, as a result, are also seeing some nice volume growth in that part of our portfolio in flavor solutions. But dialing back to sort of that flavor part of our category, we're pleased with the performance that we've made so far this year, and it's continued momentum, but nothing that there's sort of new inflection point to share with you.

Okay.

I appreciate all that, Connor. I'll pass it on. Thanks. Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Hey, great, and good morning. Thank you. 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 of context and detail around exactly what's driving that incremental gross margin upside, question number one. And 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.

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 an 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 solution side, 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 AMP spend, I mean we feel really comfortable where we are from AMP 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. AMP is an area where the teams have gotten real cost savings or efficiencies on our advertising program, so it's even higher than you see from a dollar perspective. I think we're confident where we are in gross margin. We're building back. If you go back to 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 math on the pricing dilution that has happened, it's over a 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 built, 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. Now, Steve, if I could, there was a question in there about A&P too. And just to really kind of build on that, you know, in that, you know, we were up significantly in the third quarter, I understand, at 8%, but we, That's probably our highest historical spend, right? So we're really putting a lot more as A&P has been 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.

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 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 have to be pricier or... The way I say it, Steve, is 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. You know, the GOE and CCI programs, like I said, have met targets. And frankly, we're a bit prudent this year. You know, 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 into 2023, pricing, GOE program, things like that. And we knew that China, you know, we were counting on a China recovery, which impacts not only gross margin, but operating profit. So we thought at this time, after Q3 2020, you know, where we see us ending for the year, we felt a good line of sight to the commodity cost, things like that, too, which gave us the comfort to get there. The other thing, too, is as you think of it, when Brandon was talking a little bit about our underlying performance in things like spices and seasonings, and you look at our performance in other markets, we've had really good portfolio, a really good portfolio mix. And some of the things we're doing on portfolio optimization with pruning low margin business does help reduce margins also and will help us as we go into the future.

Okay, very good. Thank you so much.

Our next questions come from the line of Matt Smith with Stiefel. Let's just see what your questions are.

Hi, good morning. Thank you for taking my question. 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 for 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?

Yeah, that'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 costs related to that have really been a big challenge to us and a headwind – and also the huge cost increases that affect 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 math 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 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 CCI. So these type of things will get us back to – and portfolio migration, promoting a low-margin business. We talked about some of the private label food service business in the EMA this call. Those type of things were focused really, really well on getting our margins up. And some of the things, when Brandon talks about performance, nutrition, beverage, those are the flavor type items. They're growing faster. We really like those. They can help margin up our whole flavor solutions portfolio. 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.

Okay, thank you for that. I can pass it on.

Thank you. Our next question comes from the line of Robert Moscow with TD Cowen. Please proceed with your question.

Hi. Thanks for the question. 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 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? If so, it sounds a little like a disconnect from the expectations for a very strong holiday season.

Hey, Rob, just to clarify, you mentioned the number 3%. Our implied guide is in the midpoint is 3.7 to 11.2, which implies 7.5. 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. Yeah, I think, Rob, 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 and consumer in the fourth quarter. If you recall, we're lapping over a pretty severe lockdown at that time, you know, this time a year ago overall. We still expect it 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 laugh at the impact of the kitchen basics to vestiture 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. Yeah, I think, Rob, just to follow up on my point before, From a reported basis, our implied fourth quarter guidance is 3.7 at the low end to 11.2%. That includes about a 2% FX favorable because FX is backloaded favorable this year. So constant currency is in 5 to 5.5 range. So I'm not sure where the 3 is coming from for the fourth quarter you mentioned. To make it as a follow-up with Fatima and Casey, we can make sure your model is okay. Okay.

That's fine. So maybe that answers the question, Mike. So you're not expecting any kind of decel in U.S. retail conditions in fourth quarter? No.

In fact, we do believe we're having, again, underlying improvement. We've mentioned this the last few quarters, and we continue to progress there. Got it.

Got it. Okay. Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please just use your question.

Great. Thanks so much. I just wanted to ask a question about the renovated SKUs. I think I heard you say in the prepared remarks about I think it's 40% of the renovated SKUs maybe are on shelf. So maybe just as a reminder, just curious kind of when you think about total SKU selection, it sounds like maybe it's more spice and seasoning, kind of what percent is being renovated and then What's the feedback so far as to why that's driving velocity? It's just consumers are more attracted to different packaging or it doesn't sound like these are different SKUs. Thanks. Thanks for the question. Just to make sure I clarify what we said in the prepared remarks, about 40% of those SKUs are shipping. The SKUs we're talking about is part of our core herbs and spices line. These tend to be those The straight fill items, meaning it's a bottle of cumin or a bottle of cinnamon, etc. So that's what we're calling those straight fill spices. And we have this ability to the SKUs that are being shipped. It's not as easy to track exactly what has hit shelf yet. And that's really dependent on the retailer's plans. But where we know it has, there's really been an improvement in velocity Overall, and one of the drivers of that, just there's a lot of different benefits from this new package. We've talked about it before, but it is nitrogen flush, so there's even, what we're providing there is just greater long-term freshness. Until you open up that package, we're really securing the freshness of that product. There's sort of a nice click and snap with the cap that really kind of tells the consumer not only just through seeing, but also listening, there's a real sort of snap to disclosure that kind of, again, creates to retain freshness. And the package is 50% post-consumer recycled plastic, so it also has a big sustainability benefit. It just has a great appearance on the shelf overall. And so we knew that this was a strong packaging innovation because we've launched it in other markets around the world, like in EMEA, And also, it's also going also in Asia Pacific, too. So we have some experience with this package and how it performs, and we're seeing similar, if not better, velocity performance as we get started here on U.S. shelves. So that's a little bit of context around what we're seeing from that renovation in our product line. And just to re-emphasize, that 40% has really shifted. If you walk into a store today, it might be 10% of the items or 5% or 20% depending on the stores, but it depends sometimes on their supply chain too. So we see a good tailwind into next year from this too. Got it. Okay, super. Thanks. And then maybe just quickly and kind of simplistically on SG&A, Q3 you ran for total SG&A about 22% of revenues. Clearly that's up, but kind of in line-ish. relative to maybe the prior four or five years. As we think about Q4 and then, I guess, kind of going forward, is like 22% of sales, is that kind of fair? Or could there be certain quarter-to-quarter movement? Thanks. Yeah, I mean, third quarter, I think, was a bit of a high watermark for SG&A. you know, we had a big incentive comp, as we talked about on the call, you know, incentive comp got billed back for a couple reasons. And remember, last year's third quarter was way down because an incentive comp was getting adjusted then. So the bill back this year was a big part of SG&A on a smaller quarter than the fourth quarter. So you've got to think about it in mathematical terms, too. And really, that incentive comp was driven, you know, not only by the EPS improvement, which is everyone in the company, which is great, within our regions, The mix of our regional underlying strength of America's region did drive a bit more incentive comp, but also the great working capital performance. People forget this sometimes. We're an EVA, economic value added company. We have a working capital charge component of our incentive compensation. Last year when working capital wasn't great, we all got dinged for it. This year we're doing great and just coming through incentive comp. So it's just another reason we're driving cash and really those type of activities help us lever down and things like that, which are really great. So a bit more of that impact in the third quarter. And then brand marketing, we mentioned up 8%. So really strong performance there. And for the year we stick to our guide as low single-digit BMPs. And maybe if I could just sneak one last one in. AsiaPak, you know, clearly understand what you're talking about in terms of just kind of slower China recovery. And I think, you know, you called out maybe, you know, a few kind of one-off drivers, but maybe it's more NIO-driven. Kind of net-net, right? AsiaPak and consumer, you know, we're still down a quarter, but clearly AsiaPak and Flavor Solutions is doing better. And I realize like part of your China business is in consumer, but like maybe it's still somewhat food service. So I'm just trying to understand kind of the, you know, the comparison between kind of, you know, Asia pack consumer versus Asia pack flavor solutions and what's driving the Delta. That's all. Thanks. Well, appreciate that question there, Rob, on China. You know, it's probably worth, you know, unpacking that a little bit. I would say, though, despite the pace of recovery in this business, you know, having been slower than expected, we continue to believe in the long-term growth trajectory of that business. And, you know, it's also when you step back on a constant currency basis, we are growing this business versus a year ago, we've grown sales in the high single digits. So, yeah, we're disappointed that the pace of recovery wasn't what we expected it to be. But nevertheless, we are growing sales, you know, year over year. And even despite the volatility since 2019, we've grown our total China business at a 3% CAGR on a constant currency basis, which is kind of in line with the long-term algorithm. So this is really an element of an economy that certainly is recovering more slowly than what we would have expected. And where we see that now, this kind of goes into sort of how we're thinking about labor solutions versus consumer. And part of that consumer business isn't the food service channel, but people are just simply not necessarily going out to a lot of the catering and outside dining events that we've seen in the past, and that's just been a slower recovery overall. We're also seeing that also happening in retail. Consumer spending is just soft right now overall in China, and we're seeing that play out. Where we start to see, and this is actually more of a change in this quarter, just more of the typical promotional activity or limited time offers that we tend to see in the QSR segment have begun to come back a little bit more. So that gives us some reason to believe that this is just a slower recovery than what we planned, but the fundamentals that drive that business are still there, and it's just going to take a little bit more time to get back to what we expect from this part of our business. All right, super. Thanks so much.

Thank you. We've reached the end of the question and answer session. I'll turn the call over to Fat and Freja for closing remarks.

Thank you all for joining today's call. If you have any further questions regarding today's information, please feel free to contact me. And that concludes this morning's conference call. Thank you.