00:02 Good morning. This is Kasey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today’s Third Quarter Earnings Call. To accompany this call, we posted a set of slides at ir.mccormick.com. We will begin with remarks from Lawrence Kurzius, Chairman, President and CEO; and Mike Smith, Executive Vice President and CFO and we will close with a question-and-answer session. 00:26 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. 00:39 In our comments, certain percentages are rounded. Please refer to our presentation for complete information. In addition, as a reminder, today’s presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events or other factors. Please refer to our forward-looking statement on slide two for more information. 01:09 I will now turn the discussion over to Lawrence.

01:12 Thank you, Kasey. Good morning, everyone. Thanks for joining us. Our third quarter performance demonstrates again that the combination of our balanced portfolio with the effective of execution of our strategies to capitalize on accelerating consumer trends and strong engagement with our employees have positioned us well to drive differentiated growth. Remarkably, we delivered an eight percent sales increase versus last year and seventeen percent versus twenty nineteen. 01:40 Our third quarter results reflect a robust and sustained growth momentum as we delivered organic sales growth on top of our exceptional third quarter performance last year. Our third quarter results also include strong contributions from Cholula and FONA. 01:55 Sales growth in our Flavor Solutions segment was broad based with the at-home products in our portfolio, flavors and seasoning, growing at approximately the same rate as our away-from-home product, which was primarily driven by a robust recovery from last year's lower demand from our restaurants and other food service customers attributable to COVID-nineteen restrictions and consumers reluctance to dine out. 02:18 Our consumer segment results reflect the lapping of the year ago elevated demand in the lockdown days of the pandemic from consumers eating and cooking more at home, as well as a sustained shift to consumer at-home consumption higher than pre pandemic levels. Taken together, these results continued to demonstrate strength and diversity of our offering, the breadth and reach of our portfolio of compelling offerings for every retail and customer strategy across all channels creates a balanced and diversified portfolio that enables us to drive consistency in our performance even at a volatile environment. 02:54 Turning to slide five, total third quarter sales grew eight percent from the year ago period or five percent in constant currency. Substantial constant currency sales growth in our Flavor Solutions segment…

21:52 Thanks, and good morning, everyone. For the reasons Lawrence mentioned, my comments will also include comparisons to twenty nineteen. 22:00 Starting on slide thirteen. Our top line growth continues to be strong. We grew constant currency sales five percent during the third quarter compared to last year with incremental sales from our Cholula and FONA acquisitions contributing four percent across both segments. Our volume and mix drove our organic sales increase with Flavor Solutions growth offsetting a decline in the consumer segment. 22:22 Versus the third quarter of twenty nineteen, we grew sales fifteen percent in constant currency with both segments growing double digits. During the third quarter, our consumer segment continued to lap last year's exceptionally high demand. Versus twenty twenty, our third quarter consumer segment sales declined one percent in constant currency, which includes a three percent increase from the Cholula acquisition. Compared to the third quarter of twenty nineteen, consumer segment sales grew fourteen percent in constant currency. 22:53 On slide fourteen, consumer segment sales in the Americas declined one percent in constant currency, lapping the elevated lockdown demand in the year ago period. As well as the logistics challenges Lawrence mentioned earlier. Incremental sales from the Cholula acquisition contributed three percent growth. Compared to the third quarter of twenty nineteen sales increased seventeen percent in constant currency, led by significant growth in the McCormick, Lawry’s, Grill Mates, OLD BAY, Frank's RedHot, Cholula, Zatarain's, Gourmet Garden, Simply Asia, Stubb’s and all branded products. That's a lot of brands. Partially offset by a decline in private label. 23:33 In EMEA, constant currency consumer sales declined eleven percent from a year ago, also due to lapping the high demand across the region last year. Notably, this decline includes strong growth in our Eastern European market. On top of…

35:05 Now I'd like to share our financial results and outlook in more detail. I would like to recap the key takeaways as seen on slide twenty nine. Our third quarter results reflect a robust and sustained growth momentum as we grow strong sales growth despite a challenging year over year comparison. Year to date versus twenty nineteen, we have driven significant double digit growth rates for sales, adjusted operating profit and earnings per share. 35:31 We have a strong foundation and a balanced portfolio which drives consistency in our performance. We expect higher at-home consumption will persist beyond the pandemic and are continuing the momentum we are gaining in away from home consumption. We're confident that our growth momentum of our business is sustainable. As a reminder, McCormick has grown and compounded that growth successfully over the years regardless of short term pressures. 35:57 Our strong growth trajectory supports our confidence and our long term growth algorithm to drive continuous value creation through top-line growth and margin expansion. We are driving McCormick forward and building value for our shareholders. 36:10 Now let's turn to you questions.

36:14 Thank you. At this time we’ll be conducting a question-and-answer session. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions.

36:50 Good morning, everybody.

36:52 Hi, Andrew.

36:53 Good morning, Andrew.

36:53 Hi there. Maybe to start out at our recent conference and then, again, this morning, you’ve alluded to cost and supply chain disruptions likely continuing into fiscal twenty twenty two, others have made very similar sort of comments. Of course, you’ll have more pricing kicking in among other actions to mitigate some of the challenges. I think you also had mentioned that ERP costs could be offset by COVID expenses coming down. So, I guess things remain very fluid, of course, and you're not obviously giving specific twenty two guidance as of yet. But I'm trying to get a sense of whether on algorithm year, particularly on the profit side would be too much to ask in fiscal twenty twenty two at this stage. All things considered, particularly given what I assume will be continued margin pressure, at least through the first half next year?

37:40 Right. Well, first of all, Andrew, thanks for the opportunity to talk about it. It’s kind of pretty high level question, right? in your question, you are close to couple of my points that I would actually make to answer it. Beginning with -- just to be clear, I'm not going to give guidance for next year. 38:01 There are a lot of moving parts, things are fluid. We are right in the middle of putting together our budgets for next year right now. As we said in the call, our long -- we're very confident about our algorithm over the long term. I'm just not ready to talk about it in twenty twenty two, specifically just yet. But in our prepared remarks, I did say we expect growth in both segments. And so, I'll start there and then I'll bring it back to profit. 38:34 Our -- McCormick is unique and that we've been differentiated by strong growth as underlying trends that support our business includes demographic tailwind from younger consumers that has nothing to do with the pandemic and then many of the consumption trends we believe were reinforce and accelerated by the pandemic. So we believe that going into the pandemic, our growth was differentiated already through it, it's been differentiated and coming out, but it continues to be differentiated that we paid investments including during the time of this pandemic, both organic and through smart acquisitions that put our portfolio more and more into high growth categories like hot sauce and flavor. 39:21 And on top of this, we're trying to have the top line benefit of pricing in twenty twenty two. So we are confidence in strong growth going forward. For operating profit there are a lot of puts and takes. Over the last…

41:24 Right. I appreciate that color. That's helpful. And then one very quick follow-up and it may be tough to parse out. In the quarter though, are you able to sort of break out what impact some of the supply constraints may have had on overall sort of company organic growth? I think organic growth was up about one percent. I don’t know if some of the supply constraints were significant enough that it would meaningfully change what organic growth look like in the quarter. Thank you so much.

41:50 It actually did have an impact on the fourth quarter. I think -- sorry, I said forth, I misspoke there, it’s third quarter. And we haven't quantified that and I'm not prepared to, but it was material. We normally would not have a backlog at all to have -- the idea of having a backlog of orders is unprecedented, we have backlog that's measurable in days. And so it did have a – it definitely had an impact. It would have been our hope to actually continue to rebuild trade inventories as we went through the quarter which have not yet been fully recovered and we were not able to do so. We really wanted and planned to ship of more of these logistics challenges are very real -- we've got a very strategic discussion just now and a very tactical one. But just simply getting product out there has been a challenge in the face of the -- but it's still very high demand at the same time that we're having these logistical challenges. I’d say that the trade channels are still a bit starved for inventory.

43:12 We’ve noticed -- we didn't narrow our range on sales to the high end of the range. So we have very strong confidence in the fourth quarter.

43:20 Got it. Thanks you so much.

43:23 Thank you. Our next question is from the line of Ken Goldman with JPMorgan. Please proceed with your question.

43:30 Hi. Thank you. Just on pricing, are there any geographies or categories or brands where maybe getting the pricing you hoped for has been little more challenging than in others? And I guess I'm curious where are you in your, I guess, journey, so to speak of taking incremental pricing to offset some of the newer or more severe headwinds you're facing? I'm trying to figure out, if you're still having conversations with customers, do you feel most of the heavy lifting is done there for maybe some of the second rounds that'd be helpful. Thank you.

44:04 Well, first of all, I won't say that there's particular problem, these actions always have some degree of commercial tension in them and so I don't want to get too specific there. As such, there are ongoing conversations with customers, I think that there are some new conversations that we had. All of our actions on pricing are on track. Particularly for the U.S. the price increases that we talked about earlier year in the year have been solved in. 44:41 There is a time lag though, especially with how quickly cost have gone up. The inflation is accelerated since we launched those pricing. So there's more work to do in that area in twenty twenty two. Phasing of most of our actions is happening in Q4 and we would expect to see the benefit of that in twenty twenty two.

45:11 And I think I'd point you back Ken to historical perspective here. We had high inflationary periods in the past in the two thousand and eight, two thousand and nine timeframe, two thousand eleven, two thousand and twelve we are being successfully put in pricing, it's actually both U.S. consumer during one of those time periods and we're able to pass through the pricing. We also pulled a lot of other levers whether it's CCI, discretionary spending to get to Andrew's point about getting back on algorithm from a profit perspective.

45:42 Great. Thank you. And I'll pass it on there.

45:48 Next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.

45:55 Thanks. I think this question will sound like Ken's question, maybe a different tack though. Is the conversation different with retailers on how to take pricing or how to think about pricing in the latest -- in relation to the latest acceleration, because I think some retailers out there consider the supply chain disruption to be temporary, the labor challenges will go away. And as a result, does that mean you have to shift more towards, I don't know more variable actions on promotions or packaging changes rather than a straight up list pricing increase.

46:40 Well again, I'm going to say that, I can't give specific about any one particular customer, certainly the pricing actions that we just took, we had a lot of company going out there. And so I think retailers -- what they heard from us was similar to what they heard from others. I'm not so sure, we have gotten that kind of feedback that retailers thinks that these increases our transitory. 47:09 There's been some discussion about inflation not continuing to escalate, but there hasn't been any discussion about this not being reset of pricing levels. And I think that there's broad recognition of that and I will say that I was on a call with yesterday, where he was saying very much the same thing. And so I think that the outlook is that these costs are not transient, they are here to stay and they're potentially going to have to find their way through in the form of pricing that gets to the consumer. And bell tightening across the entire supply chain, including us as a supplier to our customer.

47:55 Okay, great. So you're saying is, it's similar types of conversations, there's no different types of push back on the second round compared to the first round, it's a similar conversation?

48:10 Yeah. I'm not – I’m not differentiating between the two right now. I think if i got much further than that I'm getting into too specific that are good to two perspective.

48:26 Okay. Anything else you want to tell us about what Paul said? Or if you want to leave it there?

48:32 Just like us, he has got to do it in a public form, so it’s all out there.

48:37 Okay. Thank you.

48:41 Our next question is coming from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

48:47 Yes. Thank you. Good morning, everyone.

48:49 Good morning.

48:50 Good morning.

48:51 So, I guess, on the inflation dynamics you've highlighted, specifically logistics and packaging. And I just want to be clear that is that more on the ocean freight side, is it domestic trucking, all of the above? And beyond those two discrete buckets, is there anything notable in terms of your own wage rates? And are you seeing pressures in your own labor force domestically given the rise and given the broad based labor pressures you're seeing?

Hey, Adam, this is Mike. I'll take this first and Lawrence may add few comments. I mean, like we said on the call today, you're right, it's -- eighty percent to ninety percent of this is really logistics, transportation, packaging, things like that. So we have a really good line of sight to our commodity costs in the fourth quarter, obviously. 49:43 It's really both ocean freight, but also domestic freight. You've actually seen after Hurricane Ida, some of the domestic rates have gone up again. So that's part of the new news, and I think we're all experiencing in the U.S, in particular. You’ve seen globally in the UK natural gas challenges and things like that too and trucking challenges. So, it's both getting it here and getting it to customers. If on a wage rate perspective, we've taken actions just like other companies have to aggressively attract talent in our manufacturing facilities and DCs with retention bonuses and other actions like that. So I think to Lawrence’s point, these labor rates aren't going to go back down, there's been a reset of cost level that may not escalate further, that’s to be seen, but it's not -- we're not going to have deflation on labor rates.

And I'll just add to that, the cost increase that we're talking about are -- these are not things that are unique to McCormick at all. The biggest increases has been on packaged materials and on transportation costs followed by raw material and labor. And I'd say that we look lot like everybody else in that regard.

51:04 Okay. That's helpful. And then if I can ask more longer term margin question, and it's really in the Flavor Solutions business. And I guess, I'm thinking to kind a couple of years pre-COVID in that business. And you done it through acquisition and internal initiatives and done a lot of heavy lifting to get the margins in that business to the kind of fourteen percent, fifteen percent level from about ten percent back in twenty fifteen, twenty sixteen. And we're now back in the thirteen percent to fourteen percent range. I'm just trying to think about where that business can go from here once we maybe get through some of these price cost and balances in the near term. Do you think there's a lot more room on mix to really push that business higher their investments in technology and R&D on the flavor side that you've got to accelerate to temper that. I'm just trying to think about that being a driver of earnings growth, maybe beyond some of the shorter term inflationary pressure that we're experiencing right now.

52:08 Adam, we're going to have to bring you in to help write some of our IR materials. The -- we are very confident in the margin trajectory of our Flavor Solutions business. We are really changing the portfolio, the big driver of our margin improvement over time has been the shift in the portfolio, there's more value added technically insulated products, we place investments in that part of the business, we've done acquisitions in that part of the business to accelerate the growth. And as the portfolio continues to shift in that direction, it's going to drive really a structural improvement in margin. Those are just categories that command a better margin and it's going to mix the business up. And at the same time, we've made decision to get out of some of the lower margin stuff, some of which is really low margin. And we've found graceful ways of exiting some of that without getting on the wrong side of customer relationships. 53:20 So, I'd say, our long term outlook for continued expansion of our flavor solution is one of the things that underpins our confidence are long term algorithm.

53:33 I think the FONA acquisition has even gave us more confidence and continuing to migrate that portfolio with really combining their technical expertise with ours.

53:43 And there's been a number of notes that we are going to try and parse it. Organic sales out from an acquisition and so on. We're are reporting one hundred percent of what we sell in FONA as acquisition related, but we have grown that business tremendously since we bought it. And we're very – and same with Cholula as well. But your question specifically is about flavor solutions and that's really part of that portfolio migration.

54:15 Okay, That's helpful color. I'll pass it on. Thanks.

54:20 Our next question coming from the line of Chris Growe with Stifel. Please proceed with your question.

54:25 Hi, good morning.

54:27 Good morning.

54:28 Hi. I just had a question for you if I could in relation to pricing. Just understand, would you expect that your pricing would offset your inflation once all your pricing is in place?

54:41 I'm going to say that all of the levers that we're going to pull well. But part of what CCI does is offset inflation to an extent, part of it offsets cost increases and part of it we bring into reinvest in the business in otherwise, hence part of it makes its way to the bottom line and that’s the intend. So we are expecting that over time we will recover all of the costs, all of the levers, it won't be one hundred percent in pricing.

55:12 Okay. Understand. Thank you. I understand. And the other question I was going to say was, just as you get into -- is it expected that you would have a lot of these levers pulled by say, first quarter of twenty two? I know you've got some pricing going into place in the fourth quarter. I'm not trying to get to an exact time or guidance for next year. Just understand the timeframe around pulling all these levers?

55:37 I think that -- I don't want to get too deep into to talking about twenty twenty two. I did want to give guidance for the year, and I don't want to give guidance for any the quarter.

w:

56:04 And also you realize that there's a lot of focus on the U.S. timing, but this happens around the world at different time points based on local. So we'll have a lot more to say in the January call.

56:16 Understood. Okay. And I had just one question and it's just a more to understanding kind of this inventory situation we'll call it, I guess, in rebuilding. We can debate IRI or Nielsen data, but it shows like your U.S. sales down eleven percent and, again, we can debate that number. I see your Americas business again, not a perfect representation, totally the U.S. being down four. Is that gap -- this sort of inventory build you expected for this quarter year over year knowing that you were shipping below inventory -- below consumption a year ago? Or is there more inventory build to come, I guess, that’s what I'm trying to get to?

56:49 If you do the math, Chris, looking back two years. So look at the underserved twenty nineteen. Last year, you're right, we weren't shipping the consumption, demand was extraordinarily elevated. And if you strip out the acquisition, you have demand, consumption is up nineteen percent, our shipments are up thirteen. So this rate map on that would suggest we under-shipped by about six percentage points, which is very substantial. We did that's same math in Q2 and we were ahead by four. So it looks like we -- some of the -- some of the inventory build that we did. But in twenty nineteen we have holiday terms program in place, which we normally would do. Normally in the third quarter we're starting to build trade inventories for the heavy fall season. 57:37 And so that would have been part of the underlying demand. So when you net that all out, we think we're pretty close to even on shipping versus the true change in consumption. But that includes not being able to build trade inventories for the holidays as we would have hoped. And so we do think that we're -- as I said -- one of the questions earlier that, the trade channel right now is bit starved for inventory in the U.S.. Now we think of that as really slashing between third and fourth quarter and it's still going to end up getting captured within the year. 58:30 So it doesn't much change our outlook for the full year, it makes us anticipate a pretty strong -- pretty strong fourth quarter. But to ramp back to where we are on rebuilding, we're not as far along as we would have hoped.

58:48 Okay. That was good color. Thanks for the time.

58:55 Our next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your questions.

59:01 Yes. Hey, thanks. And you might just -- I think you sort of addressed this in response to Chris’s question, but just to play it back. So when we think about your intention to fully offset pressures over time and appreciating that there's a rolling process to this. I think -- I don't know, if Chris -- if you were speaking to Chris responses, id it on pricing or just all the offsets, but I guess, what I'm trying to get a sense for is just on those rolling offsets when do you think you hit run rate -- your run rate achievement of those offsets. Is that a middle of next year type of timeline? Or is it more realistic to think that it progresses all the way through and it's not until closer to the end of twenty two where you hit the full offset run rate. Just trying to get a sense order of magnitude of the pacing of your effort?

59:58 I mean, obviously, I mean a lot of depends on the future cost environment too in this. I mean, we put in pricing in the U.S. to just kind of going to partially hit in the fourth quarter like we said last quarter. The full impact is going to be in twenty twenty two. Now, if costs continue to accelerate, we'll have to address that with other actions. But I think it’s speculative at this point to try to call twenty two. And the timing is by quarter and by halves,

60:27 Okay. Okay. Fair enough. Can i ask just a cleanup up on tax and -- appreciating the three benefits you've now realized in twenty twenty one. And I'm not asking for twenty two, just on a normalized basis, has we think about your sort of the tax run rate for the business going forward. Any color on past taxes versus GAAP taxes that will great as well.

Yes, it's a great question. And obviously, we talk about this actually at our 10-Q disclosure. Now we talk about kind of a underlying rate of twenty four percent to twenty five percent based on country mix, the underlying tax rates that we have and our expectations for the year. And generally what happens and what happened this quarter, there are discrete either programs or tax team runs, there are acquisitions in the past that we clean up some of the assumptions or estimates or there's statute to limitations that drop off where we’ve tended to realize some discrete tax benefits. So it’s exactly what happened this quarter, but under the current tax regime, with Guilty and Citi and all these things globally, it's twenty four percent to twenty five percent. Obviously, we're all waiting to see what happens in Washington to see what future rates are. And I’d say our cash taxes are pretty close to that too.

61:48 Thank you very much.

61:52 Our next question is from the line of Rob Dickerson with Jeffrey. Please proceed with your question.

61:58 Great. Thank you. I just wanted to touch on private label for second, given you still operate that side of business a bit as well as brands. Obviously, there's been kind of ongoing discussion kind of where state of that overall industry kind of sits as we kind of get through the pandemic. So I’m just curious, given some of the comments around, let's say, trade inventory not exactly where you want it to be going and did pricing forthcoming. I'm just kind of curious what you've seen or heard the retailers as of late around demand for kind of your private label products versus brands? And then just kind of how you think about price gaps as you kind of enter this pricing phase. That's first question. Thanks.

62:47 Sure. Well, generally across all categories, private label has loss share in the pandemic as a group have gained and then recent results that we just announced, our brands were strong private labels . When it comes to pricing, that costs are going up for every raw materials, packaging, labor and transportation and that applies for private label as well and so pricing actions that we are going forward are including the private label products that we manufacture and I would expect that in many cases, just because the price at a lower price point that they may see a higher percentage inflation rate because of the same costs flow through, but it's going to be a bigger percentage.

63:43 Okay. Fair enough. And then just quickly, we've obviously heard from a lot for companies so far your elasticity measures look great relative to history, given some of this elevated demand. I'm just curious, again, I know you are not giving twenty guidance, but you have to have some thoughts as to kind of what you might be baking in on the elasticity side, kind of what I’m hearing is, if there's growth expected in both segments next year and pricing coming. I'm kind of assuming that the answer here is that there could be some incremental distribution gains to offset some of your elasticity, demand remains elevated, just kind of any comments around that kind of volume side versus the price side and where you thinking your elasticity you can shake out? Thanks.

64:32 Sure. The demand remains elevated, our categories for -- we're already growing before the pandemic and we need to growth through it and there's – we have talked endlessly about the underlying demand for flavor growing, the younger consumers are fueling that. And as we've gone through the pandemic, we've gained household penetration, usage rates are up and we haven't talked about it much, but we -- I think we had a comment about it in the prepared remarks that purchases per purchase occasion are up a lot. And so consumers are buying more of our products and we expect that to continue to be the case. So I'd say our outlook continue to be positive for strong sales growth. 65:27 And if you look at consensus sales for next year that are out there, they're pretty anemic and I guess we're trying to definitely suggest that there's a reason to reconsider that.

65:41 All right. Thank you. It’s very helpful, Lawrence. Appreciate it.

65:46 Thank you. Our final question is a follow-up from the line of Robert Moskow with Credit Suisse. Please proceed with your questions.

65:53 Hey. Just very quickly, Lawrence, I think you quantified on a two year basis Americas shipments up thirteen percent, consumption up nineteen percent and doesn't that also include your private label business being down in that two year period. So therefore the gap isn't really six hundred basis points. It might be a little bit less.

66:19 It's a very call number overall compared to our branded portfolio change, it’s definitely less than one percent differential.

66:27 Less than one percent. Okay. Thanks for the math.

66:33 Thank you. At this time, I'll turn the floor back to management for closing remarks.

66:42 Oh my gosh, we are out of questions. Great. Thanks everyone for your questions and for participating on today's call. McCormick is differentiated by the breadth and the reach of a balanced portfolio, which has sustainably positioned us for growth. Very are very pleased with our outstanding year to date operating performance, which proves the strength of our business model, the value of our products and capabilities as a company. Looking ahead, we expect to drive even further growth as we continue to execute on our strategy, actively respond to change consumer behavior and capitalize on new opportunities. Thank you for your time this morning.

67:17 Thank you, Lawrence. And thanks everyone to joining today's call. If you have any further questions regarding today's information, please reach out to me. This concludes this morning's call. Have a good day everybody.