McCormick & Company, Inc. (MKC)
F2Q10 (05/31/2010) Earnings Call
June 24, 2010 8:00 a.m. ET
Joyce Brooks - VP, IR
Gordon Stetz - EVP and CFO
Paul Beard - SVP, Finance, and Treasurer
Alan Wilson - Chairman, President and CEO
Alexia Howard - Sanford Bernstein
Alex Bisson - Northcoast Research
Ken Goldman - JPMorgan
Robert Moskow - Credit Suisse
Eric Katzman - Deutsche Bank
Mitch Pinheiro - Janney Montgomery Scott
Ann Gurkin - Davenport
Robert Dickerson - Consumer Edge Research
Andrew Lazar - Barclays Capital
Greetings and welcome to the McCormick second quarter 2010 conference call. (Operator Instructions)
It is now my pleasure to introduce your host Joyce Brooks, Vice President, Investor Relations, for McCormick.
Previous Statements by MKC
» McCormick & Company, Inc. Q1 2010 Earnings Call Transcript
» McCormick & Company Inc. Q4 2009 Earnings Call Transcript
» McCormick & Company, Incorporated Q3 2009 Earnings Call Transcript
Good morning to everyone on today's call and to those joining us by webcast. The purpose of our call is to provide an update on our business, review McCormick's second quarter financial results, and share our latest 2010 outlook. We have posted a set of slides to accompany today's call at our Website, ir.mccormick.com.
In the room with me are Gordon Stetz, Executive Vice President and CFO; and Paul Beard, Senior Vice President, Finance and Treasurer. Alan Wilson, Chairman, President and CEO is also on the call, but dialing in from a different location.
Alan will begin with the business update, followed by Gordon who will review our financial results and outlook. After that 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.
It is now my pleasure to turn the discussion over to Alan.
Thanks, Joyce. Good morning everyone, and thanks for joining us. We're pleased to report another quarter of strong financial performance at McCormick. Our results for the second quarter demonstrated our passion for flavor and the effectiveness of our strategy to invest in the business and to fuel our growth with improved margins.
Product innovation, increased brand marketing, and distribution gains drove the top-line, and above target progress with our CCI program has gross profit margin up 110 basis points year-to-date. This level of success was accomplished in the midst of a global economy that remains challenging in a number of our markets.
Although conditions remain difficult, based on these results and our latest outlook, we're well positioned heading into the second half.
This morning, I would like to begin with an update on the business environment, and progress with our growth initiatives. After that I'll comment briefly on this week's announcement of a new share repurchase program.
Across our primary markets in locations around the world, we see varying degrees of economic recovery. From our perspective, consumers in the Americas remain cautious but seem more willing to explore new flavors.
Increased retail purchases of our new products, our more exotic gourmet spices, and our authentic ethnic brands suggest that there's a willingness to branch out and to experiment with more distinctive flavors. We believe other food manufacturers are seeing this too based on the product innovation activity in our industrial business.
While parts of the food service channel continue to be a bit weak, we saw some increased demand from food service distributors. In addition, some of our industrial customers in the Americas are once again focusing on the strongest part of our value proposition, quality and reliability, which has won us an increased share of their business.
In Europe, the Middle East and Africa, EMEA, our two primary markets are the U.K. and France. These economies are still in recovery from the economic downturn, and private label pressure remains a factor, although the growth of private label moderated slightly in the latest period.
The U.K. and France will be the focus of our media in the second half as we step up our marketing behind differentiated products such as the flavorful range for Schwartz in the U.K. Beyond these two markets, our business has been affected by the severe declines in several countries where we have smaller businesses, in particular Spain and Portugal, and the currency situation for Europe is expected to turn unfavorable for us in the second half.
In away-from-home eating, quick service restaurants in Europe have maintained traffic with their value pricing and promotions, which has led to good growth opportunities for McCormick.
Turning to our third geographic region, Asia-Pacific, we also operate in some very distinct markets. China and Southeast Asia offer abundant opportunities for growth in grocery and food service channels and with global packaged foods companies, calling for a rapid expansion in new products, new distribution channels and consumer marketing.
Australia has a concentrated retail market, and our focus there remains on categories where we have a strong lead like Aeroplane Jelly and seasoning brands. Given these varying markets and economies, and the changes in consumer behavior and retailer actions, our management team has operated with a great deal of energy and agility which has enabled excellent progress with our growth initiatives.
Through the first half of 2010, we have increased marketing support by 22% to invest in the growth of our leading brands. In the second quarter, much of this increase has been in the United States to build consumer awareness and trial for our new Recipe Inspirations and Perfect Pinch products and set the stage for their future growth. We gained excellent retailer acceptance and placement for these products in the first quarter, and followed that with media advertising in the second quarter.