Joyce Brooks - Investor Relations Lawrence Kurzius - President and Chief Executive Officer Michael Smith - Executive Vice President and Chief Financial Officer.

Andrew Lazar - Barclays David Driscoll - Citi Alexia Howard - Bernstein Kenneth Goldman - JP Morgan Akshay Jagdale - Jefferies Robert Moskow - Credit Suisse Jonathan Feeney - Consumer Edge Research Brett Hundley - Vertical Group Steven Strycula - UBS.

Good morning. This is Joyce Brooks of McCormick, Investor Relations. Thank you for joining today’s Fourth Quarter Earnings Call. To accompany this call, we have posted a set of slides at ir.mccormick.com.

We’ll begin with remarks from Lawrence Kurzius, President and CEO; and Mike Smith Executive Vice President and CFO, and then open the line for questions. [Operator Instructions] We also have Kasey Jenkins on the call, he will move into the role of Vice President Investor Relations, effective January 1st, in advance of my retirement later this year.

During our remarks, we will refer to certain 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 of these measures 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 two, our forward-looking statement also provides information on risk factors that could affect our financial results. It’s now my pleasure to turn the discussion over to Lawrence..

Thank you, Joyce. Good morning, everyone. Thanks for joining us. McCormick’s fourth quarter results led to a record 2016 performance. On a constant currency basis, we met each of our long-term growth objectives for sales, operating income and earnings per share and achieved the top end of the range for sales and operating income.

We exceeded $100 million in annual cost savings and delivered our fifth consecutive year of record cash flow and we have great momentum heading into 2017. These financial results were driven by our broad strategies, our focus on performance and our people.

I want to recognize McCormick employees around the world and our leaders for their effort, engagement and success. Together we are effectively executing a balanced approach across the business, balancing between growing sales and improving productivity.

I’m going to begin this morning with our fourth quarter results, highlight key accomplishments of 2016 and then share our business plans for 2017, after that I will turn it over to Mike, who will go into more depth on the quarter end results and the details of our 2017 financial guidance.

Starting at the top-line for the fourth quarter, we grew sales 4% in constant currency from the year ago period. Sales from our acquisitions of Gourmet Garden, a leader in Chilled Earth and Cajun Injector, a smaller business purchased later in 2016 added two percentage points of the increase.

Across our base business, the strongest rate of constant currency growth this period was in our consumer segment led by the America and the Asia Pacific regions. In the Americas, we had strong increases in our U.S.

sales of McCormick and Lawry’s brands of both spices and seasonings and recipe mixes along with the double digit increase in sales of simply Asia brand products. In the Asia Pacific region, we grew constant currency sales in China by 9% with increases in a number of McCormick brand category as well as our [indiscernible] product.

The primary area of weakness for the consumer segment was in the UK, where difficult retail environment has persisted throughout 2016. For our industrial segment, we grew sales 2% in constant currency; this period pricing had a greater impact than the prior quarters.

Pricing that related to higher material cost as well as the transaction impact of unfavorable currency rates.

We had a number of various strengths during the first quarter that we expect to continue into 2017, including food service sales in the U.S., seasoning buns in Mexico and sales in Southeast East Asia where construction will begin this year on a new facility in Thailand to accommodate our growth in that region.

With higher sales and cost savings, led by our Comprehensive Continuous Improvement program CCI, we grew adjusted operating income 6% in constant currency, gross profit margin rose 60 basis points. At the bottom-line, adjusted earnings per share of $1.27 was an 8% increase from a $1.18 in the fourth of 2015.

This includes the impact of unfavorable currency rates, which was particularly significant this period for income for our joint venture in Mexico. In summary, we overcame some economic challenges by currency rate and delivered a solid increase in sales and profit in our largest quarter of the year.

For the fiscal 2016, we had some excellent performance starting with our financial results. As I indicated, we delivered growth rates that met our long-term constant currency guidance. We were especially pleased with nearly 6% constant currency sales growth at the top-end of our 4 to 6% long-term range. With significant improvement in our U.S.

consumer business, we grew consumer sales in the Americas by 6% in constant currency. Excluding the impact of both currency and acquisitions, consumer segment sales in the Americas were up 4% in 2016.

Led by our CCI program, our fuel for growth, we reached a record $109 million of annual cost savings, exceeding $100 million for the first time and are well on our way towards reaching our full-year $400 million goal.

Importantly, this significant effort is not hampering our sales growth and in fact is fueling our investments in brand marketing, product innovation and acquisitions. We increased gross profit margin 110 basis points, the 41.5% from 40.4% and achieved 60 basis points increase in adjusted operating income as a percentage of sale.

For the industrial segment, margins continued on a strong upward trajectory this year. Our combination of innovation, acquisitions and customer intimacy continued to shift our portfolio to more value added products.

This progress, along with our cost reduction efforts, lifted adjusted operating income margin for our industrial segment to 10% compared to 7% just three years ago. 2016 was a fifth consecutive year of record cash flow ending the year at $658 million. Cash flow from operations is up at 14% compound annual rate for the five year period.

At yearend, the board announced a 9% increase in the quarterly dividend, our 31st consecutive annual increase. Between the dividend and share repurchases, we returned more than two thirds of our cash from operations to shareholders this past year. In the past five years, we have returned nearly $2 billion of cash to shareholders.

Beyond our financial performance, we had ambitious growth plans for 2016 and a number of significant achievements. A key driver of sales growth was our brand marketing, which reached a new high of $252 million importantly 46% of our advertising was in digital marketing.

With consumers interest in recipes, cooking tips and how-to videos, our business lend this particularly well the social media and other digital platforms. Among food companies McCormick was an early mover in this area and digital is one of our highest returns on investment.

As we shared in our September earnings call, L2 research named the McCormick brand in the U.S. out of our 100 other food brands in its annual digital IQ ranking. This is our third consecutive year in the top five. Innovation is another important driver and 9% of 2016 sales came from new products launched in the last three years.

This rate was particularly strong for industrial business and driven impart by our work at the intersection of flavor and health. This year approximately half of new product breeds for industrial customers in the U.S. had sometimes health and wellness attribute up from 40% in 2014.

Innovation also played a role in recognition to our major industrial customer Yum Asia naming McCormick supplier of the year. For our consumer segment, we were proud to have our new Herb Grinders recognized as innovation of the year by the grocery manufacturers association in the U.S. and the new product of the year based on consumer votes in France.

On the acquisition front, we purchased Gourmet Garden a fast growing leader in chilled herbs. We are off to a great start with this business, retail consumption sales in our largest market the U.S. were up 22% in the fourth quarter from a year ago period.

In 2016, we established direct distribution for the brand in Canada and a plant in 2017 to introduce Gourmet Garden in China. At the November, we signed an agreement to acquire Enrico Giotti SpA and completed this deal in December.

Giotti is a leading flavor business in Europe with expertise in high growth health and nutrition products, including a number of beverage applications. The addition of Giotti expands our flavor capability in our Europe, Middle East and Africa region, EMEA with complementary products and a number of new customers.

Giotti supports our global industrial strategy to migrate our portfolio to flavor globally.

A new production facility in Dubai was completed this year, opening up a direct supply for our industrial customers as they expand in the Middle East and we are making great progress in Shanghai, with the construction of a new larger facility that we plan to move into and begin production in mid 2017.

Our McCormick Science Institute celebrated its 10th anniversary and its progress in advancing the health benefits of spices and herbs. Also in 2016, we were pleased that the USDA included spices and herbs in the latest dietary guidelines for Americans and on an AARP MyPlate for older adults.

And we are making miserable progress toward our 2019 sustainability goals.

Just last week at the World Economic Forum in Davos, McCormick was recognized by Corporate Nights in their 2017 Global 100 Most Sustainable Corporations Index, ranking number 14 among all publicly traded companies with a market cap about two billion and number one in the Consumer Staples industry.

Also during 2016, Diversity Inc listed McCormick among their Noteworthy 25 and we reached a milestone with our 75th year of Charity Day. Our progress in 2016 gives us greater confidence in delivering another strong year of growth and performance at McCormick in 2017.

We expected increased sales at a rate ahead of our long-term 4% to 6% constant currency objectives driven by our base business and innovation including certain pricing actions. In addition, we have nearly a full-year of sales from our acquisition of Giotti and an incremental impact from Gourmet Garden in the first part of the year.

At the foundation of our sales growth rate, is the rising consumer demand for flavor. Euro Monitors’ latest research projects that global sales of spices and seasonings will grow at a 5% compound annual rate for the next five years, up 4% in developed markets and 8% in emerging markets.

This is our largest category and accounts for about half of our consumer segment sale. With lead in these categories, you can see from our latest share information on Slide 9. Our growth strategies are designed to build consumer interest and differentiate our brands.

We are planning to increase brand marketing at the high single digit rate this year and will continue to develop our digital programs to directly connect with consumers. Our purity message drove increased sales in 2016 particularly in millennial consumers and in 2017 will be launched in the EMEA region.

There is a lot of ground work done in renovating our core products in 2016 with non-GMO labeling on our U.S. everyday spices and seasoning and a move to organic for our premium gourmet line. In 2017, in the U.S.

we are transitioning to clean label for Zatarain’s rice mixes, removing high fructose corn syrup from Laurie’s marinades and will be converting our iconic black pepper and old baken to a BPA-free recyclable package.

And in early December, we have published our 2017 global flavor forecast including predictions and ideas for modern Mediterranean cuisine, planch of grilling and out of the box breakfast ideas. First launched in 2000, our annual forcast is now eagerly awaited by our retail and industrial customers along with food editors and bloggers.

Before moving on to our new product pipeline, I want to comment on the recent retail scanner data trends for spices and seasoning in the U.S. For the fourth quarter, the category growth rate for spices and seasoning to remains strong at 5%. McCormick brand spices and seasoning grew 2%. However, this is a growth rate in major channels.

We had very strong fourth quarter sales growth in certain unmeasured channels including club, e-commerce and Hispanic retail chains. We estimate that these unmeasured added another two percentage points to McCormick’s retail sales growth for spices and seasonings.

The fourth quarter retail scanner data also reported an increase in sales of private label spices and seasonings. More than half of the increase this period related to the transition by a large retailer of their organic line from a competitive brand to a private label line.

Heading into 2017, we continue to build on our category management capabilities and partner with our customers to maximize their sales and profit for this spice and seasoning category and to drive McCormick’s share growth.

As an example, we have recently used our pricing tools to minimize the volume impact of an early 2017 price increase in the U.S., a price increase that was taken to offset our cost inflation driven in part by Vanilla and Garlic as discussed in our September call.

Turning now to innovation in 2017, our plans include a robust line up of new products for our consumer segment. Innovation is an important way to differentiate our brands and to drive growth. In the Americas, we are rolling out our kitchen basics bone broth organic recipe in mixes and Zatarain’s rice cups.

Also under the Zatarain’s brand, our team has brought new varieties, biscuit mixes and hot sauce. For grilling we had new varieties of Grill Mates seasonings and liquid marinades along with Stubb’s dry marinade mixes and longer size BBQ sauces.

In Canada, we have extensions of our La Grill products and plan to penetrate the natural retail channels with unpasturized Billy Bee Honey. In EMEA, we plan to launch gluten-free recipe mixes in the UK, improved Vahiné brand packaging and dessert decorations in France and barbaque marinades in Russia.

Also in Russia, we are introducing our Vahiné line of desert items. The dessert category there is currently growing at a double-digit rate. And in Asia-Pacific, we are rolling out recipe mix varieties in China and expanding our liquid cooking and dipping sauces.

In Australia, we are introducing our Gourmet Garden re-sealable pouch of lightly dried herbs and seasonings. For our Industrial segment, we have a robust pipeline of customized flavors for both packaged food companies and the restaurant industry. We also plan to further expand our branded product portfolio for broad line food service distributors.

We expect our innovations of more value-added products along with our acquisitions and CCI cost savings to drive further progress towards a higher profit margin for our industrial segment. Our business leaders will have more to share of market dynamics and these growth plans at McCormick April 4th, Investor Day.

Beyond the strategies to drive sales growth, we have plans to increase profit and margins. Led by CCI, we expect to achieve approximately $100 million in 2017 cost savings with these cost savings and higher sales, we expect to grow adjusted operating income 9% to 11% in constant currency, this is ahead of our long-term objective of 7% to 9%.

We plan to increase adjusted earnings per share right inline with our long-term constant currency objective of 9% to 11%. As indicated, Mike will provide details on our financial guidance and additional remarks on the financial results for the quarter. Next, I’d like to recap some recent announcements about McCormick’s Board of Directors.

Effective next week, I will assume the role of Chairman from Alan Wilson. Alan will remain a member of our board, I’m honored to have been named Chairman and I think Alan for his outstanding leadership during his term in this role. Along with his retirement from McCormick in December, Gordon Stetz retired from our Board.

We recognized and appreciate Gordon’s 29 years of service to the company including his time as CFO. Just yesterday, we announced the election of Gary Rodkin to our board. Gary is the former CEO of ConAgra and many of you know him from his previous role. We believe he will further strengthen the great group of leaders that comprise our board.

Let me summarize. We made great progress in 2016 with our growth strategies and delivered strong financial performance. McCormick is uniquely positioned as a global leader in flavor a business that is on trend with today’s consumer and healthy eating.

We are driving strong momentum with our strategies to grow sales, balanced with our CCI program and other efforts to build fuel for growth and higher margins. As we kick of the New Year, I look forward to my second year as CEO of this great company and a new role as Board Chairman.

Our leaders and employees are fully engaged and focused on our growth strategy and I have confidence in our ability to deliver the aggressive but achievable financial objectives we have set for 2017. Thank you for your attention and it is now my pleasure to turn it over to Mike. Mike..

Thanks Lawrence and good morning everyone. As Lawrence indicated, our fourth quarter financial results were a strong finish to the year. I’ll begin with some additional perspective on these results and discuss in more depth, our 2017 financial guidance.

On a constant currency basis, we grew sales 4%, pricing, acquisitions and higher volume and product mix each contributed to the increase as seen on Slide 14. In constant currency, both our consumer and industrial segments delivered solid top-line growth.

Consumer segment sales in the Americas rose 7% in constant currency versus the fourth quarter of 2015 with two percentage points of the increase from our acquisitions. The greatest increase in sales this period was in the U.S. with broad based growth across several brands as Lawrence indicated. EMEA consumer sales declined 3% at constant currency.

As in previous quarters, we grew sales in constant currency in France and Eastern Europe. However, a deflationary retail environment in the UK has continued and our fourth quarter results in that market have been affected.

This includes 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. We grew consumer sale in the Asia Pacific region 10% in constant currency. Sales from Gourmet Garden added six percentage points of this growth.

In China, we grew sales 9% in constant currency led by higher volume and product mix across a broad range of product categories. These increases were offset in part by a double-digit decline in India resulting from our decision towards the end of 2015 to discontinue certain low margin products.

For the consumer segment in total, we grew adjusted operating income 8% to $183 million. In constant currency, adjusted operating income also rose 8% from the year ago period. The impact of sales growth and the cost savings more than offset higher material costs. Turning to our industrial segment on Slide 19, we had solid sales results this quarter.

We grew industrial sales in the Americas 2% in constant currency led by sales of branded food service products in the U.S. where we have gained share with a leading customer. And in Latin America we are growing sales of snack seasonings and other products supplied from our operation in Mexico.

In Canada, we took pricing to pass through a higher material cost that include the impact of currency, but this was offset by weaker volume for industrial products in that market. Year-on-year, EMEA industrial sales declined 10%, but grew 4% in constant currency.

We had solid pricing led sales growth with packaged food customers and quick service restaurants. Industrial segment sales in the Asia Pacific region were comparable to the year-ago period in constant currency.

Growth in South East Asia and Australia was offset by a sales decline in China which was impacted by our large customer decision to diversify their supply chain as we have mentioned in previous quarters.

As we indicated in our September call, we expected our growth in the industrial segment adjusted operating income to slow from a double-digit percentage increase in the third quarter. In the fourth quarter, adjusted operating income declined 2% on a constant currency basis.

This compares to the 62% year-over-year increase in the fourth quarter of 2015. Throughout 2016, our industrial segment profit has fluctuated quarter-to-quarter driven largely by sales mix across regions, customers and products. For the fiscal year, we are very pleased with our industrial performance.

With adjusted operating income up 12% in constant currency and a record 10% margin. This follows a 24% constant currency growth rate for fiscal year 2015. We believe our growth initiatives including acquisitions like Brand Aromatics and Giotti will lead to further margin improvement for our industrial segment.

Across both segments, adjusted operating income, which excludes special charges rose 5% in the fourth quarter from the year ago period. And excluding the impact of unfavorable currency, we grew adjusted operating income by 6%. For the fiscal year, the increase in adjusted operating income in constant currency was 9%.

We increased gross profit margin 60 basis points year-on-year to 44% in the fourth quarter. As we discussed in our September earnings call, the increase was at a lower rate than the first three quarters of 2016, due to rising material costs, but it was still positive and we ended the year with a 110 basis point increase.

Our selling general and administrative expense as a percentage of net sales was even with the fourth quarter of 2015, including the impact of higher incentive compensation this year. The tax rate on U.S. GAAP basis this quarter was 29.7% similar to the rate in the year ago period. Looking ahead, the 2017, we expect the tax rate to be close to 28%.

This concludes our estimate of a favorable impact from the adoption of a change in the accounting for taxes related to equity awards. Income from unconsolidated operations was $12 million compared to $10 million in the fourth quarter of 2015.

Both period had a smaller impacts from special charges attributable to minority interest in our joint ventures. And excluding this impact the year-to-year performance was comparable. We were pleased with this result, given the significant currency headwind for our joint venture in Mexico.

In 2017, we expect our income from unconsolidated operations to be about even with 2016 due to further continued currency pressure. At the bottom-line, fourth quarter 2016 adjusted earnings per share was $1.27. This was a $0.09 increase from year ago period mainly as a result of higher adjusted operating income and lower shares outstanding.

As a reminder this year-to-year comparison includes the unfavorable impact from currency on both consolidated and unconsolidated income. On Slide 28, we have summarized highlights for cash flow and the year-end balance sheet. Cash flow from operations ended the year at $658 million up from $590 million in 2015.

Higher net income and working capital improvement were the main factors driving this increase. For the fiscal year, our cash conversion cycle was better than a year ago period and we are putting programs in place, such as the rollout of extended payment terms with our suppliers to achieve further reductions.

Our capital expenditures were $154 million in line with our initial guidance and a step-up from prior years due to major construction in Shanghai and Dubai. In 2017, we expect to spend $170 million to $190 million with the completion of our Shanghai plan, and construction in Southeast Asia to support growth in that market.

We returned 70% of cash flow from operations to our shareholders through dividends and share repurchases. At fiscal yearend, $327 million remained on the current $600 million share repurchase authorization. And based on our current plans for 2017, we expect to reduce shares outstanding by approximately 2% from fiscal year 2016.

As always this is subject to change depending on our acquisition activity. We expect 2017 to be another year of strong cash flow providing the funds for continued investment in our growth strategies. Our debt leverage is low and we are well positioned to finance these investments.

In the course of my comments and Lawrence’s we have already shared some remarks on 2017. So let’s put this altogether and discuss our guidance on Slide 29. We are well positioned for another strong performance with our on-trend categories effective growth strategies and progress with CCI.

As Lawrence indicated, our financial objectives for 2017 are at or above our long-term goals for sales operating income and earnings per share on a constant currency basis. At the top-line, we expect to grow sales 5% to 7% excluding an estimated 2% unfavorable impact from currency rates.

The incremental impact of acquisitions, a partial year for Gourmet Garden and nearly a full-year for Giotti are projected to add approximately 2% for the sales growth. We anticipate a combination of pricing, higher volume and product mix to contribute 3% to 5% of growth.

We expect to increase adjusted operating income 8% to 10% from $657 million in 2016. In constant currency, our estimated rate of growth is 9% to 11%. Our cost savings target is approximately $100 million and we are planning to increase brand marketing at a high single-digit rate.

We expect our pricing actions to largely offset a mid single-digit increase in material cost. Leading to 2017, gross profit margin that is projected to be comparable to 50 basis points higher than 2016. Our guidance range for adjusted earnings per share is $4.05 to $4.13.

This compares to $3.78 of adjusted earnings per share in 2016 and excluding the impact of currency rates is an increase of 9% to 11%, right inline with our long-term goal. For the first quarter of 2017, the company expects earnings per share to be comparable to $0.74 of adjusted earnings per share in the first quarter of 2016.

As a result of a planned double-digit increase and brand marketing, a higher tax rate and the timing of our pricing actions. For the fiscal year, we expect our higher profit to lead to another year of strong cash flow. Before we move to your questions, let me recap the key takeaways from our remarks this morning.

With our fourth quarter results, we delivered a year of record sales, profit and cash. We are executing on an effective and balanced strategy to drive both sales and lower cost. Our CCI program is driving higher margins of profit and generating fuel for growth.

And we are confident that this strategy and our people will lead to another year of success and growth in 2017 from McCormick and the shareholders. Operator, let’s take the first question..

Thank you. We’ll now be conducting the question-and-answer session. [Operator Instructions]. Thank you. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions..

Good morning everybody..

Good morning Andrew..

Hi, just two questions from me.

First one I guess you just mentioned that in the first quarter one of the headwinds is timing of pricing actions and I’m just trying to get a sense of is that expected volume elasticity that comes in the first quarter, because of pricing or just the fact that pricing maybe doesn’t take full effect until we move through the later part of the year?.

Andrew this is Lawrence Kurzius. Good morning and the pricing impact in the first quarter is because that price increase that we have taken to reflect inflation on some specific raw materials is only in effect for our portion of the first quarter.

That price increase has been put in place and is ineffect now, but here we are in the middle of the quarter right now. So we only get a partial price impact for that first quarter.

We do expect some volume elasticity, we have modeled that in, but the real difference on the impact of the pricing is the effective date of the price increase, which is January..

Got it. Thank you for that.

And then, past couple of quarters, I know you have had a slide typically in the slide deck that kind of compares the McCormick brand in the core of spices and seasonings category versus the category and it kind of showed sequentially the gap in growth or the market share differential was narrowing pretty significantly, as you went through the year in 2016.

Can you comment a little bit about how that share gap might have looked in the fourth quarter and maybe some of the pieces that impacted that and sort of your expectation around I guess market share in your core category in 2017 particularly in light of some of the pricing that you are taking?.

Right. We have through the scanner and everyone has remarked on this. The scanner sales show a widening gap especially in the fourth quarter where the category grew at about 5% rate and McCormick brands through scanner channels grew at about 2%.

So that nets to about 100 basis point decline in market share during that time period for spices and seasonings of business.

As I commented in our remarks, we actually had very strong sales in unmeasured channels during that same time, so we believe that the scanner sales understate our performance, we had strong sales in certain club and Hispanic targeted customers and in e-commerce. And so we believe that the measured scan data for the period understated our performance.

I’ll also comment as we said in our third quarter call that we were putting Vanilla the allocation for the holiday season. So during the holiday season, which is also the peak baken season and peak demand period for Vanilla, in advance of the price increase that we were taking on Vanilla, we had that product on allocation.

So actually we feel that our underlying business strength is even stronger than not only about showing piece of scan sales but also in our reported sales. Mike, do you want to comment on that further..

Yes, I think the other thing to remember and we talked about this a lot in the third quarter call the transition to the new Gourmet organic items was a negative impact in the third. We had it reset for the holiday period but there was a small impact in the beginning of the quarter.

So a couple of factors worked against it, but it should provide some tailwind next year also..

Got it. Okay.

So the 2017 is your hope that shares are basically more or less in line with the category or is that over the optimistic on my part?.

I have been hesitant to fin a tale on a specific quarter for share gains, because it has been a long road, but we continue to work toward a situation where we are not only matching the category growth, but where we are exceeding it and are gaining share and certainly that is our goal to get there over the course of 2017..

Thank you. See you in April..

Thanks..

Our next question comes from the line of David Driscoll with Citi. Please go ahead with your questions..

Great, thanks a lot. Good morning everyone..

Good morning David..

Good morning..

Wanted to ask, Andrew was asking a little bit about price volume elasticity on the first quarter. Can you broaden this out more towards the year, I think you got something like three points of pricing expected on the year and then it looks like I think zero to two points of volume.

We would just like to hear your thoughts, a little bigger picture on mid-single digit inflation, the last time we saw it in the price volume elasticity.

And then just a, just a second question to follow-up on the unmeasured channel benefit, I think you guys were great about how you explained what happened in the data, but maybe what I’m sure everyone would like to know is, is that benefit for the unmeasured channels? Is that something we should expect going forward, I mean it probably sounds reasonable, but I think we need to hear you say that if that’s okay?.

Yes, hey David good morning, this is Mike. Regarding the prices increases related to the mid-single digit cost increases, you are right, there is about 3% price increase, pricing impact on sales we built in about 0% to 2% on volume mix.

What we saw last year and we have these new category management tools, we put in a pricing last year little lower, but we were able to really from an elasticity perspective didn’t really see volume degradation.

So we are pretty confident this time while there are some pretty significant increases on the Vanilla and Garlic and that’s the difference I think if you look back in history with our mid-single digit price increases a couple of years ago, that was spread across the line. This is really specific against two of the sub-categories.

So there will be some impact in there v think in downsizing by consumers and things like that, but across the whole line we don’t see a price increase. So we shouldn’t see price elasticity, volume elasticity there. So we feel confident with these tools we have and the fact that is focused that’s a positive for us in 2017..

As for the unmeasured channels, the gains that we had in unmeasured channels really reflect real distribution gains that we have achieved. So we expect them to be sustainable overtime..

Great, thank you so much..

Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question..

Good morning everyone..

Hi Alexia..

Hi. So you mentioned the point about the gourmet line in U.S. consumer being somewhat challenged in the third quarter, but the sets were realigned by the holiday season. Was that line back to the solid year-on-year growth in the fourth quarter from what say the outlook for next year? and then I have a quick follow-up..

Alexia I’m not sure I got all of your question in the last part of it. But the transition on gourmet was much more difficult than we anticipated due to the retailers wanting to flush through the old UPC codes versus before they pick on the new ones.

I think if we were doing this over again, we would have worked harder to maintain the same codes on the product because it just made for a complicated execution. The scan data continues to show a decline on our gourmet business through the fourth quarter.

Nielsen is showing a much more radical decline than our custom IRI database is showing and the Nielsen database is also showing a decline thats out of line with our shipment experience and we believe that there may be a data issue there but they are not picking up all of the new codes as we make the transition.

And so that we think that the Nielsen data in particular is overstating the softness in gourmet. In gourmet, we picked up real distribution, we gained distribution and shares of shelf, substantial share of shelf in four out of our top 10 customers.

We know that the consumers are buying the new organic gourmet items at a higher rate then that the free gift items in the places where transition was completed and where we are able to measure it.

And we are confident that this going to be a real win for us as we go through the year in 2017, particularly as we lap the periods in the second half of the year where we were in transition..

Great. And then as a follow-up, obviously, we don’t know where the new administration policies are going to release. But as far as the border tax goes. Can you give us any indication at what proportion of your comps are imported and any commentary about how that could affect that happen? Thank you and I’ll pass it on..

I will let Mike answer that question specifically. But I’ll say you that the tax code changes that are really uncertain at this point. There are lot of ideas that are being chatted about in the press, there is nothing on the table and even our new president himself has made contradictory statements about border tax.

So we are a long ways from knowing what the tax proposal is going to be. I’ll say that as a company, we support a broad based tax reform that makes our business more competitive on a global basis and to the extent that overall rates go down it’s certainly a good thing for us.

A large number of our iconic raw materials are improted products that are grown within a few degrees of the equator and regardless of what our tax policy is we are not going to be able to move equator into the United States so those are going to going continue to be imported product.

And so to the extent that there is a border adjustment that includes those items that’s a negative for us. Historically, agricultural commodities that can’t be grown in the United States have enjoyed a tax preferential treatment and so we would hope that would continue forward, but how that policy plays out is still very much unclear.

Mike, do you want to comment on Alexia’s?.

You took everyone of my talking points. Yes, just to reiterate, I mean it is very speculative now, we are [indiscernible] we do manufacture in the U.S. or one of the good guys from that perspective. So we would any hope any policy change would take that in consideration..

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

Our next question is from the line of Ken Goldman with JP Morgan. Please go ahead with your questions..

Hi, thanks and good morning, everyone. One quick clarification from me, if I can. I think in the press release, you guided the brand marketing to be at mid single-digits, but its high single-digits in the prepared remarks in the slide.

Can you just confirm it is high single-digits for 2017?.

Ken..

Yes, it is high single-digit in 2017..

It is high single-digit you may be thinking of first quarter, where we are guiding to to double-digit..

I’ll go back and check, I thought we are in mid single-digit for the year, but I’ll go back and check. And then my real question is I just wanted to get a sense and I really appreciate the clarity on the growth in club and e-commerce, adding 2% to retail sales growth and so forth.

I also wanted to just make sure, as you head into price increases or as companies head into price increase, sometimes there can be a little bit of a buy-in ahead of time. Was there any of that you experienced that benefit the fourth quarter and maybe will be a little bit of a reversal in the first quarter.

I’m just trying to get a sense of how close your shipments were to your measure takeaway both in Nielsen channel and otherwise and what we should expect the reverberation to be if any in 1Q..

Ken this is Lawrence heere, I’ll start. I think we mentioned that the price increases were really concentrated on the items where we were experiencing commodity of the increases. The biggest increases were on the Vanilla and Garlic items.

As we said on our third quarter call as i remarked a little while ago, the Vanilla was on allocation through the fourth quarter in advance to that increase to prevent any kind of forward buy, part of it is we are trying to protect our cost position on the product and make sure that we are able to get the pricing to reflect the higher commodity cost.

Mike you want to?.

We actively made sure there was no buy-in into the fourth quarter..

Great. Thank you very much..

Ken, I’ll go back and comment. You are right, the slides and our comments today in prepared remarks do say high single-digit, the price we sustaned at single-digit and it’s high single digit that we are guiding to for the brand marketing increase..

Thank you. Our next question is from the line of [indiscernible] from Bank of America. Please go ahead with your questions..

Good morning everyone. First a quick follow-up on the 1Q outlook, you gave the cadence for earnings for the quarter. Can you talk a little bit sales, what your expectations are there, should there be more or less inline with your full-year outlook or ahead.

Can you just kind of help frame that?.

Slightly lower because of the pricing impact as we talked about but we are still seeing very healthy growth both in the consumer and the industrial side..

Okay. And then just your sales growth for the year, your underlying sales growth and size and acceleration sequentially, I guess one should we expect a sequential improvement in both segments and just trying to understand or breakdown a little bit what is the key driver behind the acceleration.

Is it new products, is it a step-up in demand that you are seeing in certain market or across certain products such as clean labeling, GMO. Just kind of talk about that and just I guess really more the sustainability of the as you think about moving forward of the acceleration..

Hey this is Mike. From a segment perspective, its relatively balanced both of our segments are implementing pricing. Industrial is a little ahead of consumer from that perspective, but they are generally balanced throughout the year.

we are really focusing heavily on, acquisitions as you know is a big component, a third of our growth algorithm but also innovation and we talked about it in the call where we moved from 8% to 9% our new products development in the last three years.

So we have it inline with our long-term growth algorithm, a lot of great new products that will help drive that growth in 2017..

I’ll also add, we have confidence in the underlying momentum of our business in the Americas where we are coming off a pretty strong year and see a good forward visibility on momentum into 2017..

I guess from some of the changes that you made to your line then again the labeling, removing artificial ingredients, are you seeing a lift and can you sort of quantify the benefit that just starting to see from these actions..

We are definitely seeing a lift, I don’t think we are ready to quantify those specifically just yet, but we absolutely know that consumers, particularly millennial consumers are interested in more transparency around the labeling of their products and understanding what is in the food that they eat.

So things like non-GMO labeling, organic labeling, just making the package transparent, so they can see what is inside all quality to millennial consumers. We have gained household penetration among millennial, which has been an important goal of our that the product changes are part of that so the changes in our advertising campaign.

And the increase that we have made in digital marketing. But I don’t think we are ready to comment specifically on the lift from non-GMO label in particular. On the change in the gourmet products to organic in the retailers where we have made the full transition, we are definitely seeing an increase in offtake and velocity though..

Okay. So just a question more directly given from against some of these initiatives. The acceleration in sales in the underlying business or the guidance really ahead of your long-term growth rate.

Is this sustainable or do you think more the new norm in the outlook given some of these the new product initiatives and the demand fall or is this just more of a one year thing because of a lot of new product that are coming?.

Well i’ll say our long-term guidance is for 4% to 6% top-line growth. our guidance for this year and constant currency is higher than that. I don’t think we are making a change in our long-term guidance at this point, but we are definitely calling out that we expect a strong top-line growth this year..

Coming off of the year, last year constant currency sales growthwas 5.5% so that’s at the high end of 4% to 6% that gives us more bullishness going into 2017 also..

Perfect. Thanks. I’ll pass it on..

The next question comes from the line of Akshay Jagdale with Jefferies. Please proceed with your question..

Good morning..

Good morning..

Good morning, Akshay..

Hi, I just wanted to follow-up on the market share question, thanks for the clarification on the measured, unmeasured, but your organic sales growth guidance of 3% to 5% you said is balanced across both segments.

So let’s say the mid point is 4%, if the category is growing at 5% and you are growing at 4% that assumes, that you are going to continue to lose a little bit of share including the unmeasured channel.

Am I reading that incorrectly or and then I have a follow-up?.

Yes, Akshay its Mike, you have to be a little careful, because you know the category as we talk about it and that share is really our spices and seasons business, it is like half of our business in the U.S. So it’s a much broader business with things like dry seasoning mixes, Zatarain’s, Tai Kitchen and industrial so.

You are trying to park it down to a very kind - that’s a big part of business, but it’s not more than half of our business..

Yes, just what I’m trying to understand is intra quarter as we follow your business, one of the things that obviously you look at is market share and there has been some of a disappointing trend despite all the initiatives you have taken in that regard. So for the U.S.

business, I mean how important is it to look at market share and you know when do you think you will be able to reverse those measured channel market share trends?.

We continue to work towards again not just matching the market but exceeding the market growth rate. I’m reluctant to be pinned down on a specific quarter, but this is a goal that we are working towards and that we expect to get to in 2017..

And in terms of what gets you there, obviously you have done a great job consistently increasing your marketing spend, you are ratcheting that up a little bit again next year. Is new products as a percentage of sale going to be greater than 9% or are there any other moves on execution that will help you reverse this trend on market share? Thank you..

Well I think there is a series of activities and programs that we have in place that are driving our business and that we expect to generate market share gains. Part of it is renovation of our core business, part of it is innovative new products that again 9% is the middle of our target range globally for new products.

We aim to have 8% to 10% of our sales from new products introduced in the last three years. We would expect that rate to continue. We continued to increase our investment in marketing expenditures A&P delivered against the consumer, we continue to shift that to the most effective channels.

We said in our remarks that digital is now up to 46% actually in the U.S. its over 60% and so we are trying to drive our business with the consumer and particular with the younger consumer entering into the market, the millennial consumer.

I think we got a great tailwind from the millennial generation also where we index well, we are very confident that we are going to get there..

Thank you. I’ll pass it on..

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

Hi, thank you. You mentioned a big customer in the U.S. I guess the mass customer that transition to its organic line or an organic competitor of yours to private label and that caused private label to increase. And then I think you also mentioned in the UK, another customer I guess transitioned away from Schwartz and I think to lower priced product.

Lawrence have you thought through like what kind of the trend there is, are these just kind of one-offs or is there a risk that the category gets devaluated more in 2017 as private label gets in these two markets gets a bigger share of the shelf..

Hey Rob, good morning by the way. That’s really a great question, a great point. That the moves that these customers have made toward private label have tended to devalue the category in their source.

Although we didn’t comment on it, we did see a couple of retailers put heavier promotional emphasis on some private label products during the holiday season, which also devalued the category for them.

And we are able to go back to those customers and show them particularly with the tools that we have and with the kind of dialogue we have with customers today.

Precisely what the missed opportunity was for them and generally that they have missed, that they have lost category profit and in particularly these customers category share versus their peers who did not make these moves. I think that the situation in the U.S. is a bit different than the situation in the UK though, the big customer in the U.S.

to transfer this brand to a private label is part of our broader effort on organic that went well beyond our product category. And so it really wasn’t specific to the herb and spice category or targeted against us specifically.

It was a part of a broader multi-category initiative and I think is really more directed at making them competitive versus the natural food channel rather than trying to do anything specific in the spices category.

In Europe, that the big customer in the UK, this is part of a deflationary environment in the UK, that particular customer again has a particularly strategy, that goes well beyond spices and herbs, but that did impact us and that was a drag on our performance in the EMEA.

Broadly in EMEA we are still seeing good growth and good gains in other markets, but UK is a difficult spot right now..

I guess my follow-up this big customer in the U.S.

when you say it’s a broader initiative, I think trying to put their own brand on more organic items in the store or is that what is happening?.

They are trying to put their own private label brand on more organic items in the store, that correct. Well I don’t want to say the customer you probably know who it is..

[Indiscernible]. Okay. Thanks..

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

Thanks very much and good morning..

Good morning..

Just two questions, i wanted to - it’s been a long time since i did Freshman algebra. Can you give us what percent of your U.S. spices and seasonings sales are going to these unmeasured channels roughly speaking and if you can detail around what is the club, I know that only one maybe two club stores where you dont have data.

So just the blanket one is probably the easiest number to give. And my second question is looking to your 2017 guidance, when you consider Giotti, what contribution would you be expecting as you think about that number from acquisitions considering laps and distribution gains and everything else? Thanks very much..

We don’t get into a data by channel that discretely is definitely less than 10% of our sales, we talk about e-commerce sales for the food category less than 2%. So you can pluck for numbers and make it work that way.

From a Giotti perspective, we bought that business in mid December, as most of our acquisitions during that first year we really don’t look, because we have to make investments and things like SAP and integration cost.

We don’t look at that as being accretive to EPS and frankly it’s a little bit of drag in the first quarter as we integrate it, but look forward to be relatively neutral in 2017..

I’am sorry, I’m purely talking about the sales, I didnt understand the accretion part. Can you give me a sense of how much it’s going to contribute to sales and not just Giotti but anything, any leftovers from non-comparable acquisitions you made and distribution gains perhaps on recent acquisitions in 2017..

Yes, we talked and discussed about the 2%..

2% for the full-year 2017 I thought that was just a 2016 number, that’s 2017?.

Yes..

Thanks so much..

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

Hey, good morning thank you for the question..

Hey Brett..

Good morning. I just wanted to revisit the market share topic. You know there has been further consolidation in the U.S. retail spice area recently, and I am actually wondering your thoughts on whether or not that provides any opportunities or risks as it relates to your pursuit of category growth.

And I guess I’m wondering now as well just because it seems like brand support spend is a little bit more kind of front-end weighted this year versus last year?.

Yes, when you talk about further consolidation, I assume you are talking about the purchase of the ACH brand by B&G. ACH was already, they were a pretty good market of their brands, they are webber brand in particular is a well advertised, well supported business.

So, I’m not sure that we see any particular new threat, its hard to know what B&G would do with those brands but typically they have got kind of under loved, under marketed businesses and we would not characterize this as one of those.

[indiscernible] brand that they also own, is one of the gourmet brands that’s not organic that on the shelf right now and say that they probably lost in distribution as we gained places on the shelf.

We do have an acceleration of our brand spend and the marketing spend in the first quarter of the year, also cautious to you that that’s the kind of our smallest quarter of the year. So, a big percentage is not as many dollars as say the smaller percentage in the fourth quarter..

Just really quick on the A&P spend, we have mentioned the puree campaign which has been really successful in North America so we are spending there in the first quarter, but we have expanded that to Europe. So in the first quarter, some of that increase is also related to the UK in some of those markets too..

I appreciate that Mike. And then, the other thing I want to squeeze in real quickly was your New Spring product lineup, you know that was announced in April last year and it comes in January this year and we have seen some other package through companies talking about this innovation and schedules picking up overall.

But I’m wondering if that has meaning this time of year and as well I mean the new products that you are bringing this year tend to be more focused on product outside the spice racket seems and so I’m curious how that might affect contribution margin potential as we think about your new product lineup..

And generally across our branded categories, gross profit, operating profits generally within the same range, so whether it’s a dry seasoning mix, spice and herb, the vanilla. So there is really no kick from that perspective from these new products. And we have really made a the last couple of years of making sure new products don’t degrade margins.

Really focusing on [indiscernible] upfront, making sure they hit the right price points right away and then supporting them with A&P..

And obviously we are quite excited about these new products where we wouldn’t spoken about them. In the U.S. kind of coming from Zatarain’s originally myself I love the new Zatarain’s items that extend that brand and a very attractive margin.

Our Vahiné expansion in EMEA is also expanding a great brand and again that margins on our Vahiné business are comparable to our spices and herbs. And the wet sauces in China that are being loss take advantage of the squeeze pouch format that we developed for our ketchup and Thai chili sauce product in that market.

I’m really quite excited about the theme over there, quite excited about the rate of innovation in China is pretty low, a lot of the business has been built by continuing to build distribution and household penetration on existing items and relatively low rate of new product.

So this is a big introduction for them leveraging a very efficiently manufacturing facility and package format that we can scale. So those would be quite attractive margin items for that business, a little bit below our global average, but still quite a good contributor for that region..

Thanks for the color guys..

Thank you. Our final question is from the line of Steve Strycula with UBS. Please proceed with your question..

Hi, good morning..

Good morning, Steve..

Good morning..

Two quick questions for you. First would be a modeling one, just wanted to get a sense of the gross margin cadence, how the first quarter should trend versus kind of the full-year. Just given the cadence of price increases and then I have a got one more operational question to follow-up..

If you talk about the price increase, the fact that we will get about half a quarter impact would put some negative pressure on the first quarter comparing the of the year..

Okay.

And then relate to the European business, particularly the consumer business, you spoke about, I think a little bit on Rob Moskow’s question, but just want to get a senses as are you seeing across the big four retailers, just decrease display space for spices in general, is a more allocation of private label, reduction in weeks of supply and key retailers and then should we be modeling this to kind of process for the next three quarters or is it just more contained to a one-time correction in the fourth quarter?.

Well, first of all, I would say for retail, I think you are talking about the UK business rather than that - and so in the UK private label has always been a bigger factors, its probably the highest market share private label market we operate in and so this is kind of a steepening of that trend.

This move is by one particular retailer, other retailers in that same market of course, each of them sees what the other does. So that particular market is a challenging market for us, but again that’s just one country out of the whole continent. We have very good trends in our other markets in that region [indiscernible] Eastern Europe..

Okay thanks, one small tax question.

I might have missed it when Mike was speaking earlier but the full-year I think you said you guided to around 28% in the first quarter would be higher, can you kind of just recap or flush that out as to kind of like the magnitude of first quarter versus balance of the year?.

Yes, the underlying tax rates that we see generally depends on where you make the money in the U.S. or overall, but generally 29% or 30% and then we talked about this new accounting standard, we are adopting this year which is a slight favorable which gets us down into the 28% range.

A lot of times your discrete tax items don’t have - they will be very variable during the year, in the first quarter right now we don’t see a lot of those, you could - I would suggest 29% to 30% is probably the right tax rate for the first quarter.

But a lot factors go into that tax rate and with this new accounting standard, you are probably going to see some variability across the industry as far as tax is. It will make it a little more difficult to forecast quite frankly..

Alright, well thank you..

Thank you. I’ll now turn the floor over to Lawrence Kurzius for closing remarks..

Thanks everyone for your questions and for participating on today’s call. We are driving growth at McCormick, our experienced leaders and engaged employees are executing on a strategy designed to build long-term value for our shareholders and we look forward to continuing to report to you on our progress..

Thanks Lawrence and thanks to everyone for joining today’s call. If you have further questions regarding the information today, you can reach us at 410-771-7244. That concludes this mornings conference..