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.