Lawrence Kurzius - President and CEO Michael Smith - EVP and CFO Kasey Jenkins - VP of IR.

Alexia Howard - Bernstein Robert Moskow - Credit Suisse Cornell Burnette - Citigroup Andrew Lazar - Barclays Evan Morris - Bank of America Merrill Lynch Rob Dickerson - Deustche Bank Tom Palmer - JPMorgan Jonathan Feeney - Consumer Edge Research Brett Hundley - Vertical Group Lubi Kutua - Jefferies.

Good morning. This is Kasey Jenkins, Vice President of Investor Relations. Thank you for joining today’s call for a discussion of McCormick’s First Quarter Financial Results and our current outlook for 2017. To accompany our call, we’ve 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 then open the line for questions. [Operator Instructions]. We also have Joyce Brooks of McCormick Investor Relations on the call. During our remarks, we will refer to non-GAAP financial measures.

These include adjusted operating income and adjusted earnings per share that exclude the impact of special charges as well as information in constant currency. Reconciliations to the GAAP results are included in this morning’s press release and slides. 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 as a result of new information, future events or other factors.

As seen on Slide 2, our forward-looking statement also provides information on risk factors that could affect our financial results. It is now my pleasure to turn the discussion over to Lawrence..

Thank you, Kasey. Good morning, everyone. Thanks for joining us. McCormick’s first quarter results were a solid start to the year delivering operating income and earnings per share growth, margin improvement and higher sales. We executed against strategies which will drive strong results as we go through the year.

Starting with our top line for the first quarter, we grew sales 4% in constant currency from the year-ago period. Sales from our acquisitions of Gourmet Garden, Cajun Injector and Giotti added 3 percentage points of the increase.

The remaining 1% constant currency sales growth was led by our industrial business this period which delivered solid sales growth from our food service brands and customized flavors in the Americas and quick service restaurants in the Asia-Pacific region. Consumer segment sales, excluding acquisitions, were comparable to the year-ago period.

We had strong sales momentum in China offset by the impact of weak U.S. food industry trends during the period and a challenging retail environment in the UK. We increased our gross profit margin 30 basis points year-on-year.

This improvement was the result of cost savings from our comprehensive continuous improvement program CCI and shifts in our portfolio to more value-added products.

We grew first quarter adjusted operating income 8% from the year-ago period on a constant currency basis led by the higher sales, increased gross profit margin and a reduction in our selling, general and administrative expenses, despite increased brand marketing.

Both segments achieved an increase in operating income and higher operating income margins. At the bottom line, adjusted earnings per share of $0.76 was an increase of 3% from the $0.74 in the first quarter of 2016. This includes the unfavorable impact of currency.

For fiscal 2017, we reaffirm our plans to deliver constant currency growth of 5% to 7% for sales, 9% to 11% for adjusted operating income and 9% to 11% for adjusted earnings per share. Each of these growth rates is at or above our long-term constant currency objectives. I’d like to turn now to a business update.

Let’s begin with the consumer segment and start with our observations about market conditions in the U.S. As has been widely recognized by food analysts and investors, U.S. consumer purchases for center-of-store food were soft in the first quarter, especially in February.

This is based on retail consumption reports for the period which showed a measurable year-on-year deceleration across many categories. While retail sales growth of spices and seasonings exceeded the performance of most center-of-store categories, continuing to display its relative strength, our category was impacted by the industry slowdown as well.

We believe that this short-term slowdown can be attributed to a confluence of factors, including unseasonable weather, a late Easter and the timing of income tax refund payments, which are likely temporary. In fact, a few weeks into our second quarter we have seen an uptick in our sales of U.S. consumer products. Our outlook for U.S.

sales of spices and seasonings for the balance of the year remains strong and unchanged from our prior projections. Taking a closer look at the first quarter, our customized IRI consumption data indicated strong category dollar growth for spices and seasonings at 6%.

During the same period, retail sales of McCormick branded spices and seasonings grew 4%. The IRI data showed pricing was 4% for both the category and McCormick with underlying volume growth of 2% for the category and flat for McCormick.

Both of these growth rates for McCormick and the category were lower than at past quarters and coincide with the general weakness in center-of-store food categories.

Within our spice and seasoning sales in the first quarter, we experienced particular weakness in Hispanic items and we attribute this in part for the timing impact of a late Easter in 2017. In this same period, we had areas of strength and the most notable was our exceptional sales growth of Gourmet Garden products.

This product line continues to build momentum in the U.S. with first quarter consumption growth up over 25% from the year-ago period. In measured channels, McCormick U.S. branded share declined 90 basis points this quarter. This overstates our share loss as we continue to achieve strong growth in unmeasured channels.

These are retail channels not captured in Nielsen or IRI data and not in the IRI consumption data I shared. In the first quarter, we had double-digit sales growth with club and e-commerce. We estimate that these unmeasured channels added another approximately 1.5 percentage points to our retail sales growth for spices and seasonings.

Looking ahead to the balance of the year, we expect our strong performance from unmeasured channels to continue. We also expect to benefit from the reversal of the timing issues I mentioned. For our consumer business in the Americas, we’re confident in our outlook for a number of other reasons.

First, we have had strong retail acceptance on new products including Lawry's brand products and the expanded distribution for our Gourmet organic line. Beyond spices and seasonings, we’re gaining distributions with new Zatarain’s items and Kitchen Basics organic and bone broth. We expect continued strength with the sales of Gourmet Garden products.

We have strong marketing plans. We successfully executed against our pricing initiatives during the first quarter and importantly, our products remain well aligned and on trend with consumer demand for flavorful healthy eating. We look forward to sharing more about our growth plans at next week’s Investor Day at McCormick.

As we look outside of the Americas, we are experiencing various retail conditions across our top markets. We grew sales in China at a double-digit rate in constant currency. The growth was broad based across our different brands and channels, including e-commerce, and we expect this performance to continue throughout 2017.

In the UK, a challenging retail environment has persisted and we’ve been impacted by a large retailer’s reduction of shelf space for food products. Given these conditions, it is particularly important to keep our brands relevant through marketing and innovation. We’ve invested in marketing with the launch of our purity campaign in the UK.

Our latest new product launches in Europe include a gluten-free line of recipe mixes in the UK and the introduction of Thai Kitchen products in France.

Sales across the consumer segment were up 2% over the year-ago period in constant currency with the benefit of higher sales and our CCI-led cost savings, we grew first quarter adjusted operating income 5% in constant currency. Adjusted operating margin for this segment expanded 45 basis points from the first quarter of 2016.

Turning to our industrial segment, we had excellent performance starting at the top line with 6% constant currency sales growth. In the Americas, we grew sales of our branded food service business at a double-digit rate with the benefit from expanded distribution as well as pricing.

We are also seeing continued momentum and double-digit growth in sales of savory flavor products from our 2015 Brand Aromatics acquisition. Across our broad industrial portfolio in the Americas, we are executing against a new product pipeline of on-trend and better-for-you products.

We are particularly excited about the increased customer demand for organic seasoning blends for snacks. In Europe, Middle East and Africa, EMEA, incremental sales from our Giotti acquisition contributed double-digit sales growth for the first quarter of 2017. Our integration of Giotti is progressing well.

This increase in sales was offset in part by the impact of our decision in late 2016 to exit a low margin business from our South African operation. We drove sales in the Asia-Pacific region, mainly in China and Australia, with new products and promotional activities of quick service restaurants.

In addition to the industrial segment’s overall 6% constant currency sales growth, our cost reduction efforts and our portfolio shift to more value-added products drove an 18% constant currency increase in adjusted operating income. Adjusted operating margin for this segment expanded 67 basis points from the first quarter of 2016.

We are continuing to shift our product portfolio for the industrial segment to more value-added products through innovation and acquisitions. Let me summarize by restating that our first quarter financial results across both our consumer and industrial segments were a solid start to 2017.

We have confidence in our fiscal year outlook for our growth plans for brand marketing, innovation across both our consumer and industrial segments and opportunities to expand distribution.

We’re balancing our resources and efforts to drive sales with our work to lower costs and are on track to achieve approximately $100 million in 2017 cost savings led by our CCI program. Around the world, McCormick employees are driving momentum and I thank them for their effort and their engagement. It is now my pleasure to turn it over to Mike..

Thanks, Lawrence, and good morning, everyone. I’m going to discuss our first quarter results followed by comments on our current 2017 financial outlook.

We started the year with an increase in adjusted operating income and adjusted earnings per share that was in line with our expectations and a more modest increase in sales as we had indicated in our first quarter outlook. Let’s turn right to our top line results as seen on Slide 11. On a constant currency basis, we grew sales 4%.

The incremental impact of acquisitions completed in 2016 and in early 2017 was 3%. The other 1% was driven by the pricing actions we took in response to higher material costs, offset partially by lower volume in the consumer segment.

On Slide 12, consumer segment sales in the Americas rose 2% in constant currency with Gourmet Garden and Cajun Injector contributing 3%. During this period, as Lawrence commented, we were impacted by weaknesses across the U.S. food industry in many center-of-store categories.

In particular, Hispanic sales were weak partially due to timing issues such as a late Easter. As we had previously indicated, our planned pricing actions in the U.S. were successfully implemented midway through the quarter. In EMEA, constant currency sales were down 5% from a year ago.

The largest decrease was in the UK where a challenging retail market continues to adversely impact sales. This included a reduction in the number of Schwartz brand products by a large UK retailer which has been rationalizing its portfolio to gain space for general merchandize.

In France, our sales of Vahine homemade dessert products were also impacted by the late Easter. We grew consumer sales in the Asia-Pacific region by 13% in constant currency. Sales from Gourmet Garden added 4 percentage points of this increase.

In China, we grew constant currency sales at a double-digit rate driven by holiday promotions as well as e-commerce growth which offset a sales decline in India. The India decline results from our prior decision to discontinue certain low margin Kohinoor products and the associated sell-off of that discontinued inventory in the first quarter of 2016.

For the consumer segment in total, our first quarter adjusted operating income rose 4% to $98 million.

In constant currency, adjusted operating income rose 5% from the year-ago period with the impact of sales growth and lower expenses, including CCI-driven cost savings more than offsetting higher material costs and an increase in brand marketing in this period.

Turning to our industrial segment, we had excellent results in this quarter in both sales and profit. Starting with sales growth in constant currency, we grew sales 6% with increases in each of the three regions.

Adjusted operating income was up 18% in constant currency driven by higher sales, a shift in more value-added products and the impact of our CCI program.

On Slide 17, we grew Americas sales 3% in constant currency led by pricing actions as well as double-digit sales growth of savory flavors and branded food service products which was partially offset by lower sales to quick service restaurants. Sales of Giotti contributed 14% to our 13% constant currency growth in EMEA.

Discontinuation of a lower margin business was partially offset by solid pricing-led sales growth with packaged food companies.

We grew industrial segment sales in the Asia-Pacific region 10% in constant currency, as Lawrence indicated, both our China and Australia operations at higher sales to quick service restaurants in the region benefitting from new products and promotional activities.

Adjusted operating income for the industrial segment ended the quarter up 10% at $40 million. In constant currency, the growth was even greater at 18% with the factors I already mentioned and as spelled out on Slide 20. We also increased marketing for this segment in support of our branded food service business.

Those of you who follow us closely know that the industrial segment tends to have some quarter-to-quarter profit volatility, largely attributable to customer activity including new product launches, limited time offers and other promotions.

Following an exceptionally strong first quarter, we are projecting adjusted operating income growth for this segment to slow in the second quarter. For the fiscal year, we expect both an increase in adjusted operating income and improved margins versus 2016.

Across both segments, adjusted operating income, which excludes special charges, rose 5% in the first quarter from the year-ago period. If we also exclude the impact of unfavorable currency, we grew adjusted operating income by 8% even with an increase in brand marketing. Gross profit margin was up year-on-year as well with a 30 basis point increase.

This improvement was the result of CCI-led cost savings and favorable mix. As a percentage of net sales, selling, general and administrative expense was down 20 basis points including a $3 million increase in brand marketing. Excluding this increase, we had lower expenses during the period which included CCI-led cost savings.

Below the operating income line, the tax rate this quarter was 27.8% compared to 26.9% in the year-ago period. We continue to expect the rate for the full year to approximate 28%. As a result of unfavorable currency, income from unconsolidated operations declined 17% to $7 million.

This currency impact masked a strong underlying sales performance led by our joint venture in Mexico, which grew sales at a double-digit rate in local currency. We also pleased with the performance of our Eastern joint venture in India which is delivering growth in sales and profit.

Based on prevailing currency rates, we now expect a mid to high-single digit decline in 2017 income from unconsolidated operations. At the bottom line, first quarter 2017 adjusted earnings per share was $0.76, up from $0.74 for the year-ago period, mainly due to higher adjusted operating income.

This result included the unfavorable impact from currency on both consolidated and unconsolidated income. On Slide 25, we’ve summarized highlights for cash flow in the quarter and balance sheet. During the first quarter, cash flow from operations was $44 million compared to $79 million in the year-ago period.

A slight increase in net income was offset mainly by the timing of income tax payments and incentive compensation payments related to 2016’s financial performance. We returned $142 million of cash to shareholders through dividends and share repurchases and used $30 million for capital expenditures this period.

At the end of the first quarter, $244 million remained on the current $600 million share repurchase authorization. Our balance sheet remains strong. We are generating strong cash flow and we are well positioned to fund future investments to drive growth. Let’s move now to our current financial outlook for 2017 on Slide 26.

Our strong outlook for the year is unchanged except for the impact from special charges related to the organization and streamlining actions we have underway. Our 2017 projection of special charges has increased to approximately $11 million from $4 million.

At the top line, we reaffirm our plan to grow sales 5% to 7% in constant currency which includes the incremental impact of approximately 2% from acquisitions completed in fiscal year 2016 and Giotti acquired in December 2016. We anticipate a combination of pricing and higher volume and product mix to contribute 3% to 5% of growth.

Including the estimated impact of currency, we project sales growth of 3% to 5% in 2017. On a constant currency basis, we continue to expect to increase adjusted operating income 9% to 11% from adjusted operating income of $675 million in 2016. Currency is expected to lower this range to 8% to 10%.

We plan to drive this increase with higher sales and at least $100 million in CCI-led cost savings. With this fuel for growth, we plan to also fund a high-single digit increase in brand marketing. We reaffirm projected adjusted earnings per share of $4.05 to $4.13.

Excluding the estimated 2 percentage point impact of unfavorable currency rates, this range remains an increase of 9% to 11% from adjusted earnings per share of $3.78 in 2016. In the second quarter of 2017, we expect adjusted earnings per share to be comparable to $0.75 from adjusted earnings per share in the second quarter of 2016.

Keep in mind that we had a very low tax rate in the second quarter of 2016, at 23% which is below our outlook of 28% for fiscal year 2017. In addition, the impact of unfavorable currency exchange rates is particularly high in the second quarter of 2017.

This impact is not only translation but also transactional which places pressure on our gross margin in the second quarter. We are also planning additional investments in our brand marketing.

As a final remark on our outlook, we are on track for another year of strong cash flow for fiscal year 2017 with higher adjusted net income and actions underway to improve our working capital. That completes my remarks. So let’s turn now to your questions..

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions]. Our first question is from the line of Alexia Howard with Bernstein. Please proceed with your question..

Good morning, everyone..

Good morning, Alexia..

Hi. So a couple of questions. First of all, on the share losses in measured channels, is that still share losses to smaller brands in other parts of the store or is it private label and is it likely to get any better? Thank you..

Alexia, we lost through measured channels about nine-tenths of a share point. And as we mentioned on the call, we think that that overstates our actual loss because of the strength that we experienced in the unmeasured channels.

But regarding the measured channels in particular, we think that we actually have been quite effective in our responses to the smaller competitors. We made our brands more relevant. We’ve bought the most successful of them frankly, the Gourmet Garden business. And so we think that we’ve done a pretty good job of dealing with the smaller competitors.

I don’t want to leave out Hispanic brands also where we’ve had quite a strong response with our branded products with the launch of items like Lawry's Casero range and the continued expansion of our El Guapo in the truly heavily Hispanic-targeted stores. I’d say that right now private label is the bigger issue particularly on a dollar share basis.

Part of it is something that we’ve created ourselves.

A great deal of our category management effort has been directed towards changing the price structure of the category and encouraging retailers to take higher pricing on private label, and you’re seeing that coming through in the data where private label dollar growth is very strong over and above unit growth.

I don’t want to lose track of the fact that about half of the reported private label growth is actually not through growth but it’s a conversion of a controlled brand by one of the major retailers from a branded item to their private label and a reclassification of sales in the data..

Great. Thank you.

Can I just have a quick follow up on the transactional effects of FX? Could you just describe where those are happening just so that we can understand from which region to which region are some of these things being shipped and sold?.

Sure. This is Mike, Alexia. Obviously last year with Brexit happening in June, we saw a large decrease in the euro and the pound and actually a lot of currencies like the peso after that. So if you go back to last year, remember the first six months of last year we had margin expansion between 70 and 130 basis points.

It became a little more challenging in the second six last year as some of this currency rates went against us. You’re seeing that really the biggest impact for us in the first half of this year is in the second quarter and if you look at the currency charge, you can see that very clearly.

We see that trend building for us in the second six of this year, so you’re seeing really a timing issue between the two years..

Great. Thank you very much. I’ll pass it on..

Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your questions..

Hi. Good morning..

Good morning, Robert..

Good morning. I agree with your comments that first quarter had probably some transitory issues related to center-of-store slowdown. But when I compared the retail growth rate that you cited for your category in first quarter at 6% and I think it was only 5% in fourth quarter.

And then for your McCormick products, I think it was 4% in both when you brought it all in together, including Hispanic and club. So is the consumer slowing down in the category in first quarter compared to fourth or not? Because I think the numbers you provide indicate that it really wasn’t quite so bad..

Well, I think that you’re referring to dollar growth and there’s a bit more pricing in the first quarter than it was in the fourth quarter. And so I’m going to go to the second part of your question, which is do we see a consumer slowdown in the first quarter. And absolutely yes and it’s across a whole center of the store.

Everybody has published on this and the Nielsen data that is out there shows that the center-of-store had quite a strong slowdown especially going into February. That impacted the spice category. Relative strength was still good compared to other categories, but there was certainly an impact on the off-take.

Look, we expect that our Q1 sales growth to be the lowest sales growth quarter for us in 2017. We only had a partial quarter of the pricing, so that impacted our dollar sales.

Most of our distribution wins come on stream later in the year and we had some known losses last year that we knew were going to flow into this year, like the UK distribution loss, I know that’s not U.S. but I’m talking at the total company level right now.

We didn’t talk about it on the call and it was factored into our expectations for the quarter but we even had one day less because last year was leap year. And although that’s a small thing, it’s still 1 percentage point.

What we didn’t anticipate was the slower industry sales in the U.S., which as we’ve discussed on the call we think are really due to transitory factors. We don’t see anything in our data going into March.

I know we’re getting into second quarter here, but we don’t see anything in our data going into March to suggest the slowness that we saw in January and February as continuing. And for the reasons that we gave on the call, we think that it is transitory and the timing of tax payments. I think Lent had a big impact on us.

Our business has a very high index to Hispanic consumers who are more catholic. The later Easter made all of Lent fall outside of the quarter and we’re certainly seeing the reversal of that in March.

And then the weather that was out of sync with the season where it was just very warm and that discourages consumption of the cold weather items that normally we sell a lot of during that time of year, chili, gravy and all of the things that go along with that..

Okay. And maybe a question for Mike. When I look at your back half implied EPS guidance now, I think it implies some pretty strong double-digit earnings growth off of what was a pretty tough third quarter anyway.

So what’s driving that strong earnings growth? Is it going to be the full impact of the pricing? Is there an incremental benefit in terms of restructuring savings, because of these new special charges, is that helping also?.

Yes. Well, I think what you’re seeing – the main thing is back to the transactional, the timing of the first six versus the second six. We really got hit in the second quarter pretty hard compared to last year and that was the biggest gross margin increase last year to 130 basis points.

We’re also seeing CCI really is more back loaded this year than in the past. We’ve got a lot of great projects to get to our 100 million and actually hope to exceed that. We’ve expanded this program globally. So we will see additional savings in the latter part of the year. Plus pricing; we’ve talked about the U.S.

a lot but also some of our European operations do price in the second quarter range, so we get the full impact in the second six there too..

Okay. Thank you..

Thanks, Rob..

Our next question is from the line of David Driscoll with Citigroup. Please proceed with your questions..

Good morning, everyone. This is Cornell Burnette in with a few questions for David..

Good morning..

Great.

Just wanted to know if you could impact perhaps what the timing of the Easter shift meant to the top line in the first quarter and then what would that imply for 2Q?.

I don’t want to try to quantify that but there’s no doubt that there was an impact on our business as a result of that. On our core McCormick business we index strongly to the Hispanic consumer or Lawry's brand index very strongly to the Hispanic consumer. And a portion of our Lawry's range is actually specifically targeted to them.

Hispanics tend to be more catholic than general population and have the Lent in timing as a vigor impact on us as a result; also our Zatarain's product which are also heavily influenced by the Lent in timing were impacted in this period as well.

It’s just unfortunate that Lent literally started on the first day of March and so it completely fell out of our quarter and that does have an impact in both shifting consumption and in shifting retailer purchases in anticipation of that consumption. I’m not ready to quantify it but we believe that it was pretty real..

I’d go to our yearly guidance of 5% to 7% and assume the rest of the quarter should be around that range. First quarter, we came 4% slightly below that 5%. So you can assume the second would be in that range..

Okay, very good. And then can you just talk a little bit, it seems like the Asia-Pacific segment in consumer did some really nice things here. I think China was particularly strong for you.

I’m just wondering if you can describe what’s going on in that market and kind of how – what driving some of the strength there and how sustainable that is going forward?.

Well, in particular for us China’s growth was strong and broad based and this continues really a long-term trend there. There’s not any particular news about it. We have had a long run of high-single digit, low-double digit growth in China that has continued to this day. And we could see a long runway of growth in that market.

Our brands are gaining share in all of the categories that we compete in, in China. We’ve got continued strong growth of new placements and distribution. And on top of that, e-commerce is developing as a strong growth channel for us in China.

Last year, our e-commerce business in China was up over 100% and it is also up over 100% year-to-date this year..

Okay. Thank you..

Our next question is from the line of Andrew Lazar with Barclays. Please proceed with your questions..

Good morning, everybody..

Good morning, Andrew..

I guess with all the variables that you’ve highlighted that impacted volume in the Americas consumer segment in the quarter, I’m just trying to get a better sense of whether you can parse out volume elasticity and whether that was more or less in line with your expectations given the recent pricing actions, because it’s obviously hard to tell from our perspective given all the impacts that hit volume in the quarter?.

Andrew, we just took that pricing in January and so it’s really too soon to read that through with the consumer. We don’t have any reason to believe that what we model and expected is any different than what we were actually realizing in terms of elasticity.

Remember, most of the price increase that we took was directed towards vanilla which was commodity driven. We’ve certainly gone up but so has everyone else. Whether branded or private label, vanilla beans are over $200 a pound and everybody’s got a price accordingly. So the elasticity would really be whether people stop using vanilla at all.

I think we’ll have a better read on that in a few months particularly as we get past the Easter baking season, we’ll have a better sense of that. Right now, the demand for vanilla is pretty much what we expected it to be..

Got it..

And we did expect an elasticity impact due to the size of the increase that we took..

That’s helpful. I appreciate that. And then your comments about obviously just what you’re seeing at least thus far in March in terms of center-of-store for your category on consumption is certainly encouraging given some of the broader industry concerns that we saw earlier in the year.

Is your sense, Lawrence, that the broader center-of-store you’ve kind of seen maybe some of that sort of relative rebound from January and February consumption as well, or is your sense that maybe something in your core spices and seasonings category is a little bit different and more favorable to the rest of the store?.

Well, certainly we’re seeing it in our products and in our category. And I’ve really taken a bit of a guess here but I would guess that the same is true for other categories as well to the extent that whether lent, tax refunding timing impacted the center-of-store and that’s kind of the underlying reason for the slowdown in our area.

I would think that the reversal of that that we’re experiencing would hold true for others. I’d also say that in our industrial business the demand for flavors from our consumer packaged goods customers is really strong and so I would say that bodes well as well..

Great. Thank you. See you next week..

Looking forward to it, yes..

Our next question is from the line of Evan Morris with Bank of America Merrill Lynch. Please go ahead with your questions..

Good morning, everyone..

Good morning, Evan..

When I look at how 1Q played out – when you gave guidance, you said that EPS was going to be kind of flattish year-over-year and one of the variables was a planned increase in marketing expense. We didn’t I guess really see any sort of follow through of benefit on the top line given some of the factors that you talked about.

So if we think about 2Q and the guide for flat again, is there a need now to have to raise or spend more on marketing than initially planned because you didn’t get any kind of lift or real return in 1Q, or is that 2Q guide flat EPS really all gross margin and tax rate related?.

I’ll start this and then I’ll pass it over to Mike. But we did have a modest increase in marketing spend in first quarter and we expect – actually we expect a greater increase in marketing spend in the second quarter of the year. And I wouldn’t characterize as not giving it a lift. It does not – the A&P spend and the sales don’t happen simultaneously.

I think we feel pretty good about the return that we get on our investment from marketing spend. We have an expectation about strong growth and we’re leaning into that growth with our spending and I think we’ll continue to do so as we go through the year.

We plan a pretty good increase in our investment behind our brands for the year as a whole and we believe that’s part of what drives our growth.

Mike, do you want to --?.

Yes, I think the thing to consider too is second quarter where Easter is now, the investment spent in the A&P is up a bit. It’s on our full year guidance but it’s really focused. We have a big increase in working media as we activate media, digital against Easter. So that’s where you’ll see a lot of focus in Q2..

Okay. And then just on the UK, some of the weakness there and you talked about one of the retailers taking away some shelf space.

Is that going to continue to be a headwind? Is that now done and behind and what’s sort of your outlook or expectation for the UK consumer business for the balance of the year?.

That is really the story in the UK, Evan, is that one retailer – it’s a very concentrated market, so the customers are larger and they all matter and has a big impact not just on our UK business but it’s big enough that it impacts our EMEA business as a whole.

The change in shelf space and items in distribution with that retailer really occurred during the fourth quarter of last year. And so that’s an unfavorable comparison that we’re going to carry for that region for the whole year. I will also say that that’s really baked into our thinking that 5% to 7% constant currency.

We’ve got a great story in other markets and other markets in that market. We continue to invest in marketing in the UK even with this change because it’s important to show both that customer and the other customers in the market and frankly the consumer the relevance and importance of our brands.

And we’re leaning in there with A&P and also with new product launches, like the gluten-free recipe mixes that we’re launching in the UK.

Mike, you want to add anything else?.

No, you covered it..

Thanks. I’ll pass it along..

Sure..

Our next question is from the line of Rob Dickerson with Deustche Bank. Please proceed with your questions..

Thank you. Good morning..

Good morning..

Just a couple of questions; the first one is just on acquisitions. It seems like with the 3% growth year-over-year in net sales I guess that’s approximately let’s call it a $30 billion contribution to the top line.

Is there any way to give me incremental color on what the operating profit contribution was?.

Generally we say in the first year of an acquisition between integration costs, deal cost, things like that, they’re pretty flat from an operating profit perspective. So Giotti for example, we bought that in mid-December, so you won’t see much impact from that.

One of the things you’ll see in the first two quarters is a lot of integration costs and that does speak to the second half strengthening too as another factor. Gourmet Garden, we’re very happy with that business and we don’t disclose separately the impact there but it definitely is positive..

Okay, thank you. And then just on the unconsolidated line I think it used to be comparable for the year, now you’re down a bit.

Is that just noise essentially, is that FX related or is there something else we should be aware of?.

Yes, definitely it’s FX related, Rob, on the peso which is very volatile as you know, has gone against us actually the last two years. But our underlying results from a sales perspective on our Mexican joint venture are excellent..

Okay, cool. And then in capital allocation, obviously the leverage is still low. You like to do acquisitions. But just in terms of buyback, I don’t think there’s a target for the year.

Is expectation as cash flow build throughout the year that we should be baking in some type of buyback and we’re just considering, I don’t know, let’s call it the cash five year or four years and spending about $200 million a year, is that probably about the same for this year?.

At the rate we’re buying, you’re right. The hope is obviously our first use of cash is really to go after acquisitions when our pipeline is robust. But in lack of acquisitions we would look at doing other buyback or some sort mid to late year..

Okay, great. See you next week..

See you, Rob..

Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your questions..

Good morning. It’s Tom Palmer on for Ken..

Good morning, Tom..

Just had a quick question on the consumer Americas side.

When you look at the sales headwinds in the first quarter compared to the robust sales trends we saw late last year, do you think selling ahead of the price increase might have pulled volume just looking in arrears or because it was a mid-quarter increase, do not really think that was a factor?.

I don’t think that it was a factor. I think you’re exactly right that we took the pricing mid-quarter precisely to make sure that to the extent there was any kind of pre-purchases by customers that it would wash itself out. But importantly we also had – the primary item that we took the increases on in the U.S.

were vanilla and we put vanilla on allocation to our customers, partly to manage any kind of forward buy we did not want to – in the face of a strongly rising commodity, we did not want to sell out our inventory at a below market price. So I think we managed that pretty well. I don’t think that that is what happened.

I think that what we really saw was slow consumption in January and February that washed through..

Okay, thanks. And just a quick one. I know we’ve asked about this in past quarters but just wanted to circle back. We still see in Nielsen scanner data weaker sales trends on the gourmet side.

Is that still something that on your end you’re seeing more robust sales trends there or was there a bit of a slowdown here in the first quarter there?.

During the transition to organic we did have some disruption at the shelf which we have worked through. And on the tail end of that we had a lot of heavy promotion by a couple of retailers of their organic private labels.

That really related not so much to their desire to be competitive in the spice category but more to a total store promotion on natural and organic items to be competitive with the natural food channel. And there was some irrationally low pricing on organic items through the December and January period in particular.

We’ve seen that go back to normal and we’re optimistic that we’re going to see better trends on our gourmet business. In addition, we had a lot of new placements and expanded distribution on gourmet that really comes on a little bit later in the year as the retailers go through their self-reset cycles.

So our outlook for gourmet particularly as we lap that transition period from a year ago is actually quite positive. And we believe the conversion to organic was absolutely the right thing to do..

Okay. Thank you. See you next week..

See you next week..

Our next question is from the line of Jonathan Feeney with Consumer Edge Research. Please proceed with your questions..

Good morning. Thanks very much. I guess first to follow up and then a bigger question. My first question is a follow up on Evan’s question. I don’t think brand marketing was up double digit this quarter. I think you told us it was up 3 or something that gets to like mid-single digit.

Can you kind of correct me on what’s going on with brand marketing and how that worked in this quarter? And secondly on Easter, back in 2014 it was almost the exact same Easter spilt. Ash Wednesday I think – there was four less days but it was almost the same thing.

Ash Wednesday I think was March 5 in 2014 versus it having been – like February 10 the year before. You didn’t talk about Easter shift in that call. It was asked in the Q&A. And I’m just wondering maybe some of these new acquisitions give them a more impact of Easter.

But any color you can give us – I know you didn’t want to specifically quantify it, but any color you can give us on maybe there’s innovation around fish boils or something like that that’s made our business a little bit more Lent and Easter heavy for future modeling purposes? Thanks..

Hi, Jonathan. This is Mike. On your first question, we didn’t say brand marketing was up double digits. It was up $3 million as you alluded to in the first quarter..

I’m sorry.

I meant in the – that was going to kind of be the plan, wasn’t it, from the guidance?.

Yes, we were hopeful. We did really hit the UK hard, as Lawrence mentioned, with purity. But some of the timing, as we said around Easter, we made some decisions there to focus it on where it could be most effective..

Got you. Thank you very much for that..

On the impact of Easter and Lent, we’re talking about it in the context of one of the factors that influenced the slowness in January and February, not just for us but for the industry as a whole. The timing of Lent versus last year we believe is one factor but I’m certainly not saying that it’s the only factor.

And I think we’re all looking for the reasons why that period was slow. It does seem that there were some events that would have created a shift versus prior year, the timing of Easter being one; weather being yet another. And I don’t want to underestimate the impact that the change in U.S.

income tax refund policy has had pushing those refunds later, especially for consumers at the lower end of the economic spectrum who tend to spend those refunds. Often that’s their earned income coming back to them, those go into regular household consumption and I think it has the same kind of impact as a change in SNAP payments..

Thank you very much. Look forward to seeing you next week..

See you, Jonathan..

See you then..

The next question comes from the line of Brett Hundley with Vertical Group. Please proceed with your questions..

Thank you. Good morning, guys..

Good morning, Brett..

Just two questions for you, the first on raw materials. You guys are reiterating an expectation of mid-single digit increase in raws for 2017 and I know we’ve all seen headlines on vanilla and garlic.

I think you guys have made comment in the past that you would expect to see vanilla and garlic cycle off as the year progresses and I don’t know if that’s still the case.

And so when you reiterate a mid-single digit increase, are you may be seeing things go from a plus 4% to a plus 5% or a plus 4% to a plus 6%, or do you see things staying relatively stable still at this point? And if things are shifting a little bit within that mid-single digit increase, is there any incremental pricing that would be required or would you just hope to drive more cost saves as I think you mentioned, Mike? Any color there would be helpful..

Hi, Brett. This is Lawrence. I’m going to start and I’m going to pass it to Mike. But we are not indicating any cycling off in the second half for vanilla. Now garlic is an annual crop and so there will be a new crop midyear and we’re hopeful that that’s going to take some of the pressure off of garlic and we may see that one cycle down a bit.

But outlook for vanilla which is the major impact item is for it to be strong. We had actually hoped for some relief from the new crop you may or may not have seen in the news. There was a large tropical cyclone in Madagascar that struck the vanilla growing areas at a very inopportunity time. Madagascar produces about 85% of the world’s vanilla crop.

The estimates right now are that 20% to 30% of the crop was lost as a result of the cyclone. So we see this high vanilla pricing continuing certainly well into 2018. So I just wanted to address that part of it..

Vanilla is growing over a two to three year cycle, so it doesn’t have a quick bounce back like garlic which is an annual crop. I’d just kind of say to your range question, I’d still stick with the mid-single digit range. We’re buying crops from 80 different countries.

There’s always something up or something down and cinnamon might be going up and pepper might be going down, but generally mid-single digits is still where we stand for the whole commodity base..

Okay. I appreciate the clarity there. And then my last question is just it’s on the U.S. consumer set and I know that the issue that’s affecting you in the UK is completely different from what I’m about to ask. But I think that the issue in the UK really stems from Aldis and the Lidls of the world. And what I wanted to ask you about the U.S.

is as you see the greater proliferation of Aldi and then Lidl coming onto the U.S. market I think summer time here, especially on the East Coast looks like is where they’re targeting which is obviously a highly populous area. Do you have expectations of existing grocers here in the U.S.

trying to beef up private label or become tougher on pricing in order to compete with the potential proliferation of additional discounters here? And can you talk about how you position yourselves in that environment and also just the growing importance of brand marketing as something like that happens as well?.

Sure, Brett. That’s a very broad set of questions but I will start by saying that the discounters you name are important customers of ours in Europe that we are engaged with and do business with. Aldi has been in the U.S.

for many years and has some several thousand stores here and is a customer as well, and we would expect with the entry of Lidl to this market and our existing relationship with them that they will be a customer as well.

I certainly think that all of the traditional retailers and mass merchants have their attention quite firmly focused on the entry of these competitors into the market and they’re all preparing their response to them. And I think this will continue to add to the competitive robustness of the U.S. market.

I think that frankly as much as the traditional retailers are challenged, I think this is a huge challenge to the dollar channel which has been in existence for many years and for U.S. consumers, it’s filled a similar niche..

Brett, to your point too it would be important for branded food companies to really focus on effective media spending but also innovation and that’s what we’ve been driving over the last couple of years to really drive innovation on our brands across the whole business..

Thank you very much..

Thank you..

Our last question today comes from the line of Akshay Jagdale with Jefferies. Please proceed with your questions..

Hi. Good morning. This is Lubi filling in for Akshay. Most of my questions have been asked already but maybe I can get your thoughts on M&A.

So I know you’ve recently completed a few smaller deals but can you just comment on how we should think about your appetite for additional deals going forward, and maybe how you would characterize the current pipeline and valuations?.

Well, I’ll say a few words about this. First of all, as part of our growth algorithm that a third of our growth comes from base business, a third comes from innovation and a third from acquisitions.

And so we will continue – you should expect to see a continued – lumpy stream because there has to be a willing seller but continued stream of bolt-on acquisitions. As we have said over the last couple of years, we have broadened our lens to include both consumer flavor businesses and industrial flavor businesses.

And so over the last – both last year and really already this year to [indiscernible] Giotti was a 2017 deal. We’ve acquired an industrial flavor business in addition to some consumer businesses. I think we’ll look forward to the same. We also are considering larger assets.

Those are going to come at an even less regular interval, but we continue to consider larger assets as well..

Thank you. And then just in terms of – so in the industrial segment, I think you mentioned in your prepared remarks that you saw double-digit growth in the branded portfolio. Can you maybe just expand a little bit on what drove that and then how you see those trends sort of playing out for the balance of the year? Thank you..

Specifically in the U.S. food service business, we have had some strong distribution gains. We have a strategic partnership and category captaincy with one of the major food service distributors and that’s driving a lot of sales growth for us..

Thanks. I’ll pass it on..

Thank you. At this time, I’ll turn the floor back to Lawrence Kurzius for his closing remarks..

Great. Thanks everyone for your questions and for participating on today’s call. As I said, we expected Q1 sales growth to be the lowest quarter for us in 2017 for the reasons that we discussed. For the rest of the year, particularly in our Americas consumer business, we expect strong sales growth for the reasons we gave in the prepared remarks.

We had strong acceptance of new items, expanded distribution on our gourmet range, plus we’re lapping the transition on that range from last year, continued strength on Gourmet Garden, the pricing actions and this is true for the whole company not just for the U.S. business have been completed.

Our marketing plans are strong and importantly our products remain well aligned with what consumers choose to eat. Taste continues to rank number one in what consumers use in making their decisions about their food purchases. We’re aligned with today’s move towards more healthy flavorful food. We’re confident in our growth plans.

With our steadfast focus on growth, performance and people, we’re well positioned to deliver strong financial results and shareholder value in 2017..

Thank you, Lawrence, and thanks to all for joining us today. If anyone has any additional questions regarding today’s information, please give us a call at 410-771-7140. This concludes this morning’s conference call..