McCormick & Company, Incorporated Q3 2009 Earnings Call Transcript

| About: McCormick & (MKC)

McCormick & Company, Incorporated (NYSE:MKC)

Q3 2009 Earnings Call

September 24, 2009 8:00 am ET


Alan Wilson – President & CEO

Gordon Stetz – EVP & CFO

Paul Beard – SVP Finance & Treasurer

Joyce Brooks – VP IR


Chris Growe - Stifel Nicolaus

Ken Goldman - JPMorgan

[Eric Sirota] – Consumer Edge

Eric Katzman - Deustche Bank

Mitch Pinheiro - Janney, Montgomery, Scott



Greetings, and welcome to McCormick's third quarter 2009 conference call. (Operator Instructions) It is now my pleasure to introduce your host, Joyce Brooks, Vice President, Investor Relations for McCormick. Ms. Brooks, you may begin.

Joyce Brooks

Good morning to everyone on today’s call and to those joining us by webcast. The purpose of our call is to review of McCormick's third quarter financial results and outlook. We have posted a set of slides to accompany today’s call at our website,

With me are Alan Wilson, Chairman, President, and CEO; Gordon Stetz, Executive Vice President and CFO; and Paul Beard, Senior Vice President, Finance and Treasurer.

Following our remarks, we look forward to discussing your questions. As a reminder, our presentation today contains projections and other forward-looking statements and actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events, or other factors.

In addition, information we present today, which excludes restructuring charges, as well as unusual items recorded in 2008, are not GAAP measures and we present this information for comparative purposes alongside the most directly comparable GAAP measures.

Reconciliations of GAAP to non-GAAP measures can be found in this morning’s press release and in the presentation slides for our call.

It is now my pleasure to turn the discussion over to Gordon for a review of third quarter results.

Gordon Stetz

Thanks Joyce, good morning everyone and welcome to this morning’s call. We are pleased to report another quarter of excellent profit growth. On a comparable basis earnings per share rose 14% with an underlying increase in each of our two segments.

On this same basis we achieved an impressive 19% increase in consumer business operating income which was surpassed by a 34% increase in industrial operating income. Together these increases in segment operating income translated to $1.00 increase of more than $20 million in the third quarter.

These profit results were driven largely by sales growth, favorable gross profit margin, and operating cost reductions. Let’s take a closer look at sales and then I’ll discuss these other factors.

We reported a 1% increase in net sales which in local currency was a 6% increase. As indicated on slide five, about one-half of the increase came from pricing actions and the other half from the combination of volume and product mix.

The increase in volume and mix included a 3.5% benefit from our acquisition strategy. This was largely offset by lower sales volume and product mix in the Europe, Middle East and Africa, EMEA region for the quarter.

For the consumer segment we reported a third quarter increase of 2%. In local currency we grew consumer sales 6%. As indicated on slide six Lawry’s drove a large part of the increase and we continued to see a benefit from pricing actions taken in late 2008 and early 2009.

In the Americas, consumer sales rose 8% and in local currency grew 9%. Volume and product mix added two-thirds of this increase while pricing contributed one-third of the sales growth. Pricing this quarter reflected a general increase taken early in 2009 which was partially offset by a step-up in our coupon activity in the third quarter.

Incremental sales from Lawry’s in June and July added 8% to sales this quarter. Excluding Lawry’s the impact of volume and mix was down 2% this quarter following a 2% increase last quarter. For our core items consumer takeaway of our branded items remained strong and in the US is up more than 5% year to date.

We had exceptional growth in sales of Grill Mates as a result of our marketing efforts in the US and Canada, as well as increased sales of our dry seasoning mixes which continued to benefit from a relaunch earlier in 2009 that included reformulation with more natural ingredients.

Some of the items that did not perform as well this quarter were our premium gourmet items and some specialty food items. In addition we had the benefit last year of some new distribution into the dollar store channel. We are looking for stronger sales in the fourth quarter with some incremental marketing support that Alan will discuss.

For our EMEA region, we reported a 13% decline in consumer sales. In local currency sales were down 3%. Pricing actions taken late in 2008 added 1% to sales while volume and product mix declined 4%.

The retail environment in the UK continues to be challenging and affected our third quarter sales in this market. Our business in France is still strong, particularly with our Vahine dessert items which will be supported with incremental brand marketing in the fourth quarter.

In the Asia Pacific region we reported a 4% decline in sales. However in local currency third quarter sales grew 5% with one-half of the increase from higher volume and product mix and one-half from pricing actions.

As I noted last quarter we have launched several new products in China and are expanding distribution of our brand into 10 additional cities in 2009 bringing the total to 56 cities in that country. This is in addition to distribution gains underway in 1,500 addition street markets this year.

Industrial business sales rose 1% in the quarter and when foreign currency exchange rates are excluded, we increased sales 7%. As shown on slide 10, 4% of the increase was added by our pricing actions and 3% from favorable volume and product mix.

In the Americas, industrial sales rose 4% and grew 7% in local currency. Compared to a year ago, certain material cost increases are being recovered through our pass through pricing mechanisms for this business which added 3% to third quarter sales.

Volume and product mix added another 4% with one-third from Lawry’s and two-thirds from our base business which included sales of several new seasoning products for quick service restaurants. Industrial sales for EMEA declined 10% but rose 8% in local currency.

This increase was the result of significant pricing actions taken to reflect higher input costs for this part of our business. Sales volume to quick service restaurants rose this quarter but was more then offset by lower sales of our branded products to food service operators that have seen more of a slowdown in this economy.

This led to a 3% decline in volume and product mix. In the Asia Pacific region industrial business sales rose 1% and 6% in local currency. The increase was driven by favorable volume and product mix primarily due to strong sales to quick service restaurants in China, Australia, and other markets in this region.

Looking back on sales for the quarter we had a strong benefit from Lawry’s in some areas of solid growth, while other parts of the business remain under pressure. As we look below the top line, it is clear that our actions to manage costs throughout the organization continue to be an important driver of profit as well as the fuel for our increased marketing.

Gross profit this quarter rose 80 basis points due in part to our move toward a more favorable business mix including the addition of Lawry’s. Our margin improvement is also being driven by our comprehensive continuous improvement program, CCI, as well as our restructuring actions and discretionary cost controls throughout our operations.

Year to date, gross profit margin is now 60 basis points ahead of the comparable period in 2008. Turning to slide 15, our progress with CCI and cost controls goes beyond cost of goods sold and enables us to reduce our selling, general and administrative expenses.

We have also accomplished the integration of Lawry’s with few incremental costs. Other factors favorably affecting SG&A this quarter were lower distribution costs, and favorable benefit expenses. As a result SG&A in the third quarter was 25.5% of net sales, a decrease of 180 basis points from the year ago period. This decrease of 180 basis points is net of a 30 basis point increase from higher marketing spending.

In the third quarter we added $2.4 million of support behind our brands. As a reminder, this increase followed $6.8 million of incremental spending added in the third quarter of 2008. Year to date in 2009, we have increased marketing by 15% to support Lawry’s as well as our other leading brands.

Operating income was $117 million. On a comparable basis excluding restructuring charges, we increased operating income 22% in the third quarter versus the year ago period. On this same basis, operating income for the consumer business rose 19% to $89 million.

For the industrial business operating income of $28.5 million was up an impressive 34% from $21.3 million in the third quarter of 2008. If you recall industrial profit in the third quarter in 2008 was unfavorably impacted by lower volumes to restaurant customers. But the increase in 2009 also compares favorably to $23 million of income in 2007.

Our tax rate for the quarter at 30.8%, included an underlying rate of 32% as well as favorable discrete tax items. This underlying tax rate of 32% reflects our current mix of business, and is more than our 2000 rate of 31%. It is also higher then our 2009 guidance of 31%, and is the rate we believe will apply to our business moving into 2010.

Income from unconsolidated operations this quarter was $3.1 million, down $2.2 million from the third quarter of 2008. This was a decline in income from our unconsolidated business in Mexico, as well as some smaller joint ventures.

Our joint venture in Mexico has actually performed very well this year when measured in local currency. We have had a double-digit increase in profit even with higher soybean oil cost through the first three quarters.

Sales for this business are up significantly in 2009 with share gains in the mayonnaise category. However the 30% devaluation in the Mexican peso has adversely impacted our reported income from unconsolidated operations.

For the third quarter we reported earnings per share of $0.57 compared to $0.52 last year. In the third quarter of 2008 we recorded restructuring charges and unusual items related to the Lawry’s acquisition including the gain on the sale of Season-All. These adjustments had a net favorable impact on EPS of $0.02 a share.

On a comparable basis EPS increased 14% or $0.07 to $0.57 from $0.50. Higher operating income added $0.11 per share offset in part by $0.02 from lower income from unconsolidated operations, $0.01 from the higher tax rate, and $0.01 from lower interest income.

Before I turn it over to Alan, I’ll comment briefly on the balance sheet and third quarter cash flow and refer you to slide 18. We are managing our business for cash and our second year of McCormick profit are seeing great results.

With McCormick profit we reward our business leaders not only for strong operating income but also for their management of working capital. For the first three quarters cash flow from operations reached $195.1 million, an increase of $79.8 million from the first three quarters of 2008.

This increase has been driven by higher net income, including the positive impact of Lawry’s, as well as effective working capital management. Both days sales outstanding and inventory turns improved from a year ago.

We initially set a goal for a three to five day reduction in our cash conversion cycle and through the first three quarters have been tracking towards the higher end of this range. Cash flow from operations includes a year to date $35 million increase in our US pension contributions.

Any further contributions to this plan in 2009 will be minimal. As for pension expense, we first indicated back in January both in our remarks and our financial reporting our pension expense is favorable in 2009, as it was based on a September 30, 2008 measurement date but we expect this expense to increase in 2010.

Pension expense for 2010 has been getting some attention from investors so let me comment a bit further. A big factor in the actuarial determination of this expense for 2010 will be the discount rate which will be based on rates at November 30, 2009.

We fully expect the discount rate at this date to be below the discount rate applied at the last measurement date. A lower market value of assets will also affect this calculation. Because we are still two months away, it is still too soon to know the exact amount of our 2010 pension expense for our US and non-US plans.

However, based on current conditions the projected increase would have an EPS impact in a $0.05 to $0.07 range. Keep in mind that any increase in pension expense is a non-cash item. I’ll conclude my comments on the balance sheet and cash flow by pointing to our great progress with debt reduction.

As you know our primary use of cash during 2009 has been the reduction of debt from the Lawry’s acquisition. Our debt net of cash is approximately down $200 million from this time a year ago.

At this point I’d like to thank everyone for their attention and turn it over to Alan.

Alan Wilson

Thanks Gordon and I’d like to add my welcome to those on today’s call. The environment we are in continues to be challenging and many consumers around the world remain under pressure. We are compelled to remain agile in identifying and pursuing growth opportunities and vigilant in managing our costs.

With this backdrop, we were very pleased with our financial performance in the third quarter. As you might expect with our [breadth] of products and customers, there are areas of strong performance as well as parts of our business where improvement is still needed.

Our sales and profit in Europe continue to suffer from the difficult economy in our major markets, particularly the United Kingdom. Across most of our global markets, our industrial business has worked with quick service restaurants to grow sales but has seen continued softness in sales to other food service channels and a slowdown in the pace of new product launches with food manufacturers.

And our income from unconsolidated operations reduced profit this quarter. Outweighing these challenges was an underlying strength in the business. An important factor in our success this year has been Lawry’s.

Taking a look at slide 20, its been one year since we completed this acquisition and with excellent planning and strong execution across our operations, the integration is complete. We’ve had a successful launch of new products and a great start to our marketing campaign.

This business has been integrated with very little incremental costs and has boosted both gross profit and operating income margins. We’ve also benefited from lower interest rates on the acquisition debt in the last 12 months.

By any number of metrics, Lawry’s has not only been our largest acquisition but one of our most successful. Another factor driving our performance that was evident again this quarter was effective cost management.

Our employees have been diligent in reducing costs throughout the business. This is demonstrated by our improvement in gross profit margin and our SG&A. We are currently tracking ahead of our $30 million goal for 2009 and now expect to reach about $35 million in cost savings.

Our CCI program is a large driver of this performance as well as expense reductions from our restructuring program. Lower costs and improved margins are providing the fuel for increased brand marketing support.

On slide 22 I want to share with you the latest ROI measurements just received for our US business. We continue to see returns above industry averages for various types of media and are encouraged by the success of our marketing programs.

Since 2003 we’ve increased our brand marketing by more than 50%. For 2009 including Lawry’s, we plan to invest an additional $20 million in marketing and by year-end will have reached or exceeded this target.

We are positioned for a strong sales performance in the fourth quarter. With print, TV, and interactive media, this will be our largest holiday campaign yet in the US, which will include our first ever holiday flavor forecast.

We have additional spending planned for Simply Asia and Zatarain’s in the US, our Vahine line in France, and some new products in China. Together, Lawry’s, lower cost, and brand support have led to a solid performance through our first three quarters.

Year to date sales are up 7% in local currency, gross profit margin has improved 60 basis points, and we have increased earnings per share by 10% on a comparable basis. If you turn to slide 25, I’d like to provide an update to our financial outlook for the fiscal year.

At the top line, we are reaffirming a sales growth of 2% to 3% which includes the impact of unfavorable currency rates. We now expect to reduce costs by $35 million and expect at least 50 basis points of gross profit margin improvement.

Incremental brand marketing of at least $20 million will provide support for our 2009 sales growth objective and build some early momentum heading into 2010. Taking into account all of these factors, we’ve narrowed our range for 2009 earnings per share to $2.26 to $2.28 which excluding a projected impact of $0.05 of restructuring charges, is an 8% to 9% EPS increase on a comparable basis with 2008.

Looking ahead to 2010, we’re still developing our budget and are not yet prepared to set our objectives. But I’d like to share a few preliminary remarks on slide 27. With the integration of Lawry’s complete, and the conclusion of our restructuring program, we are focused on growth, with product innovation, marketing programs and expanded distribution as well as further progress with our CCI program.

As Gordon explained, pension expense will be a headwind next year. We are also considering a further step-up in brand marketing for 2010. We believe that with consumers eating more at home, we have a unique opportunity to introduce new product concepts that provide both value and convenience and to support these launches with a comprehensive marketing program.

Following strong test market results this year, we’ll be launching two new product lines in the US in 2010; Perfect Pinch and Recipe Inspirations. Perfect Pinch makes it easy for consumers to explore new flavors and create inspired meals, and its priced right at just below $3.00.

A number of salt free blends are included in the 18 varieties. Recipe Inspirations are an ideal compliment to Perfect Pinch for consumers who are more comfortable measuring out their ingredients and following a recipe.

These products offer premeasured spices and herbs and a collectible recipe card. With six varieties including garlic and lime fajitas and apple and sage pork chops, Recipe Inspirations are a twist on the familiar and a solid value with a price just below $2.00.

Other products recently launched are ready for 2010 include our Patissierie Vahine baking mixes in France, [Aeroplaine] Gelatin Create-a-Jelly in Australia, and Honey Jams in China, which feature honey as a natural sweetener and can be used as a spread or in tea.

We’re very excited about these products and other marketplace opportunities ahead of us and we look forward to completing our budget process, setting financial goals for 2010 and sharing these with you in a few more months.

Let me summarize, I’m proud of our performance. We have achieved excellent results through the third quarter and believe we are positioned for a strong holiday period and 2009 is shaping up to be another year of record financial results for McCormick.

I’d like to conclude my remarks by recognizing the employees of McCormick. We have faced a number of challenges in a turbulent environment and a difficult economy. To address these challenges employees in each operating unit have been diligent in managing costs and cash.

In markets around the world we have demonstrated an ability to identify and develop opportunities for growth in today’s marketplace with new products, effective marketing, and business expansion. Our employees, our market position, and our passion for flavor, give me confidence that we will continue to build value for McCormick shareholders.

Now as we move into Q&A, I’d like to address the most frequent question that we’ve been getting from investors for the past year concerning the spice category in Wal-Mart. In a limited number of stores, Wal-Mart will be testing a category solution which expands private label to core [A&C] spices with no duplication by McCormick or other regional brands for these items.

In a similar number of stores, Wal-Mart will test a total McCormick solution with no private label and a third set of stores will test a set primarily with McCormick and very limited private label. We wouldn’t normally discuss this level of detail concerning any of our customers, but there’s been so much attention on this that we want to provide as much clarity as possible to our investors.

We will limit our comments on this test, but I’d like to add that we expect no significant impact to our financial results during the tests. We welcome this opportunity to optimize our category with Wal-Mart as we do with all of our customers.

Spices and seasonings are one of the most profitable categories for our customers in grocery. McCormick has been the leader in this category for decades, driving growth, innovation, superior merchandising, and bringing consumers aisle with advertising.

I’d now like to take your questions on our results from a strong third quarter.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Chris Growe - Stifel Nicolaus

Chris Growe - Stifel Nicolaus

I just had two questions for you, the first one just as I was looking at SG&A and it being down so dramatically or so meaningfully this year, at least as a percentage of sales, I wonder if you could speak more about that. I know you have cost savings coming through but as I balance that against the incremental marketing, I was surprised by the degree of the decline in SG&A. And I guess related to that, when you say consumer marketing and some of that going into promotion or things that would be netted against the top line, maybe that’s why I’m not seeing it all come through that line.

Alan Wilson

The consumer promotion spend that we have, some of it is certainly going to consumer advertising, some of it is going to more value promotion which would be a reduction in net sales. So what you’re seeing with our spend is pretty pure on the SG&A line.

Now we have had very good results in terms of managing our costs this year. We also have the leverage of Lawry’s because we added virtually no SG&A as we brought Lawry’s in, other then the incremental advertising.

Gordon Stetz

I’d just like to add, its obviously the Lawry’s impact which we’ve talked about previously, distribution expenses are also a factor that we mentioned. We’ve had some favorability in some employee benefits so all of those factors have contributed to improved SG&A margin.

Chris Growe - Stifel Nicolaus

Okay, and then related to the consumer division in the Americas, with volume down in the quarter, given the at home eating trend, I was surprised by that. I guess, is that something where you see a need to increase your spending as well, whether its promotion or its consumer based marketing. I know you have some new products coming out that look pretty exciting, but just curious how you look at that volume decline in the quarter.

Alan Wilson

We’re certainly not happy with the volume, what we are seeing is that our overall volume sales are not keeping track with what we’re seeing from a consumer takeaway in the measured channels that we can follow.

So that’s why we feel relatively good about our fourth quarter but I would add that last year in the third quarter our volumes were up 4%. Some of that was pipeline fill for sales to a couple of dollar retailers where we increased distribution, which didn’t repeat this year.

Chris Growe - Stifel Nicolaus

And then have you given a cost saving figure for 2010 as well, I don’t recall if you’ve given that or not.

Alan Wilson

No, we haven’t laid that out yet. We’re still compiling our budgets and putting everything together but we would expect to do that with our fourth quarter call.


Your next question comes from the line of Ken Goldman - JPMorgan

Ken Goldman - JPMorgan

Thanks for the color on both Wal-Mart and pensions, I think just any insight there that you provided will take some overhang away from the stocks and I appreciate that. My question is on discounting, and its not just for you but for food companies in general, I’m curious how you think about that because we’re in a period where list prices haven’t gone down as much as some had feared. But food manufacturers are starting to spend against discounting couponing, whatever the action is. How long do you think that is, how long are you comfortable discounting in general before you’re starting to worry about the brand equity. It hasn’t been that long ago that we’ve seen some other companies in other categories discount too much and hurt the brand equities. So I’m just curious how you balance that out and your strategy when you think about returning some value to the retailer and to the consumer.

Alan Wilson

What we’re trying to do is make sure that the value gets in the hands of the consumer and then in store respond with merchandising so that there’s kind of a 360 degree to bring consumers to the shelf in a time when there’s a lot of uncertainty.

We’ve been doing that for most of this year as we headed into a tough economy. It has been working through the first part of the year. We want to make sure that we continue to provide that value for consumers in the fourth quarter of this year as well as we will into next year.

And we’ll keep evaluating the return and how that’s working for us. So I’d say I think its going to be with us for a while especially because unlike some of our other food industry compatriots, we’re competing almost primarily with private label and so what we want to do is make sure that our price gaps as the consumer actually buys them are reasonable, and the consumer doesn’t have a reason to go other places.


Your next question comes from the line of [Eric Sirota] – Consumer Edge

[Eric Sirota] – Consumer Edge

Just wanted to follow-up on Chris’ question regarding volume growth in the Americas, it looks like volumes are down about 2% ex Lawry’s, you highlighted that the real weakness was in the gourmet and some of the other premium lines and that things like dry seasoning mixes and Grill Mates were up, I guess my question is given the relative size of the gourmet and some of the premium lines that you called out that were weak, I wouldn’t expect it to have such a pronounced impact on the volume number. So was, how was I guess the mainstream portfolio of core spices and seasonings performing from a volume mix standpoint in the quarter.

Alan Wilson

Let me start with the one and then we’ll get at it, first off its volume and mix not just pure volume so while our dry seasoning mix is up pretty substantially it doesn’t offset the dollar sales impact of say gourmet spices. Gourmet spices at retail tend to be about $4.00 a unit, whereas dry seasoning mixes tend to be about $0.70 to $0.80.

And so while the actual physical volume may be up, it’s the combination of volume mix that is down and something that we are not, that we want to continue to drive. We stated in an earlier quarter we are trying to sell what consumers want to buy and they’re finding the lower price points of dry seasoning mixes to be a value.

That’s something we’re going to drive and get in their hands. In terms of the core volumes, its responding not as robustly at in consumer sales as it is in the actual takeaway. So we’re still seeing healthy volume growth at retail, it just hasn’t translated as strongly into what we’re seeing in our overall sales.

Although again I’d remind you that we’re heading into our fourth quarter when core spices are by far the largest selling items.

Joyce Brooks

Another factor in that that Alan mentioned earlier is the distribution we had last year into the two new value priced retailers that we’re going up against this year.

Alan Wilson

And those were all core spices.

[Eric Sirota] – Consumer Edge

And to follow-up along those lines, you mentioned that overall consumer takeaway in core spices was above your reported sales numbers which would mean that there was I suppose some [drop down] in retailer inventories. Is that relative to a year ago, is that a fair assumption or is that a fair conclusion and what’s your assumption with respect to retailer inventories as we get into the critical selling season and its very narrow window that retailers have to sell in this very high margin category for them.

Alan Wilson

I think most retailers have been pretty up front about the fact that they are growing their sales a lot faster then they’re growing their inventories and we’ve seen it in a number of recent reports. The fourth quarter for us is so important, not just for us but for the retailer because again it is very high margin and we’ve tracked our plans and our shipments of the holiday merchandising programs, a lot of the product that we sell in the fourth quarter goes through on displays, and it looks very positive at this point.

We have an all out effort on making sure that the retailers have what they need for the consumers when they come to buy their holiday spices.

[Eric Sirota] – Consumer Edge

And did you quantify how much pension was up in fiscal, or should be up for all of fiscal 2009.

Gordon Stetz

Its actually a favorable this year, its actually a favorable this year.

[Eric Sirota] – Consumer Edge

Right, how much the favorable benefit was this year.

Gordon Stetz

We did not quantify it. That’s disclosed in our Q and its been running, I’d call it maybe roughly a favorability of about $2 million to $2.5 million a quarter.


Your next question comes from the line of Eric Katzman - Deustche Bank

Eric Katzman - Deustche Bank

I guess my question, let me first touch on the cash flows and the balance sheet, yes you have pension going up next year, but you’ve been taking your cash flow and paying down debt post the Lawry’s deal. My calculation suggests you’re now down to about 2x net debt to EBITDA. Do you see a more aggressive share repurchase program or is the priority on cash flow going to be towards debt pay down.

Alan Wilson

Our priority is still going to be on debt pay down through next year.

Eric Katzman - Deustche Bank

And then in terms of the business, I guess you threw up some slides there on ROI with regard to advertising and I guess with the volume numbers being through this year relative to I think you said double-digit increase in advertising, its not clear to me that you’re getting such a great ROI, at least maybe that’s the difference between the shipments and the off take, but maybe you could go a little bit more into that as to why you’re so comfortable that the ROI is good.

Alan Wilson

Part of the incremental spend is Lawry’s. So, and we’re just starting to see the impact of that. But based on the marketing mix analysis that we’ve been doing consistently for the last seven or eight years, its still showing that we’re getting the ROI and we’d see that again in the consumer takeaway.

Eric Katzman - Deustche Bank

And then on the industrial side of the business, I guess there’s been some mixed signals between companies. Some of them are saying that they’ve seen a stabilization, some are still seeing weakness spreading into QSR, while others have seen maybe even a little bit of a pick up, you have a pretty broad based view there. Can you just talk about the food service component and what you see of late.

Alan Wilson

We’re not seeing a broad recovery in overall food service. We’re benefiting from some specific wins with customers on some new initiatives that have been very successful. So I wouldn’t necessarily read it that the food service business has 100% recovered based on the fact that we had pretty good sales.

Ours were specific products that were impactful for significant customers. Its kind of like the discussion that we’ve had over the last couple of years where if McDonald’s for instance is winning because they’re selling more coffee, it doesn’t necessarily help us. In this case I wouldn’t necessarily translate into overall success in the broad food service industry.

But we’ve been successful with some new products that have done very well.


Your next question comes from the line of Mitch Pinheiro - Janney, Montgomery, Scott

Mitch Pinheiro - Janney, Montgomery, Scott

On the industrial side, it’s a pass through type of pricing mechanism, what are the expectations for the fourth quarter on the industrial side.

Alan Wilson

Its going to be a function of our customers’ products and promotions I guess is the best way to describe it. Are you talking in terms of pricing or just—

Mitch Pinheiro - Janney, Montgomery, Scott


Alan Wilson

Commodities have moderated but we’re looking out a little ahead, we’re not as close in so pricing, we’ll be passing through decreased pricing as the coverage rolls off and we replace it with lower cost coverage.

On the whole, we’re seeing some decent signs of life again in our overall industrial customer mix but not, its still not as robust as we would like to see. We’ll see some continual pricing downward as commodities go down.

Mitch Pinheiro - Janney, Montgomery, Scott

But is this sort of on a lag basis, is that correct. Maybe a three to six month lag.

Alan Wilson

No its not the lag that it was before, but what you may be seeing is a lag because of coverage positions. We’re actually passing through the actual commodity positions on major commodities that we’re taking with customers.

Mitch Pinheiro - Janney, Montgomery, Scott

And then, when you look at the Americas, the volume decline, product mix, how does your dry seasoning mix and the gourmet spices performance compare to the category.

Alan Wilson

We’ve gained market share in dry seasoning mix, gourmet is down significantly so but I wouldn’t necessarily say we’ve lost share in gourmet spices. We don’t necessarily break out the separate gourmet category. We’ve held share overall in spices, but in gourmet the switch has been more from the premium products to more of the every day products.

Mitch Pinheiro - Janney, Montgomery, Scott

And has there been, how has private label done in those two categories.

Alan Wilson

Private label is largely not playing in the premium category. There certainly some customers who have differentiated private label so there’s a few there and I’d say its not substantial enough to really even talk about.

Private label in general has grown this year but what we’ve seen in the last couple of periods is a reduction in the growth rate. They’re still growing and they’re still gaining, private label is still gaining share, but its not as strong as the share gains that we saw early in the year.

Mitch Pinheiro - Janney, Montgomery, Scott

Also I would assume its fairly logical and consistent with prior periods, but in terms of channel mix, in terms of where your volumes, are you still, has anything changed there.

Alan Wilson

Volume growth is still stronger in the unmeasured markets then it is in the measured markets, but still grocery is a significant percentage of our overall US consumer business.


There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Joyce Brooks

Thank you for joining our call today. If you have any other questions for us, you can call me at 410-771-7244. A replay of the call will be available early this afternoon at our website, Thank you joining us today.

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