McCormick & Company Inc (MKC) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

My name is Nia and I'll be your conference operator today.

At this time I would like to welcome everyone to the McCormick & Company first quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there'll be a question-and-answer session.

[OPERATOR INSTRUCTIONS] Thank you.

It is now my pleasure to turn the floor over to your host, Joyce Brooks.

Ma'am, you may begin your conference.

Good morning and thank you for joining this morning's teleconference.

With me on today's call are Bob Lawless, Chairman and CEO of McCormick, Alan Wilson, President and COO, Fran Contino, Executive Vice President Strategic Planning and CFO, and Paul Beard, Vice President Finance and Treasurer.

Bob will begin with a discussion of McCormick's financial results for the first quarter ending February 28th followed by a review of our guidance for the year and a brief business update.

At the end of these remarks, we look forward to your questions.

Before we begin our discussions, please note that during the course of this conference call we may make projections or other forward-looking statements.

In addition, information we present today, which excludes restructuring charges, are not GAAP measures and we present this information for comparative purposes alongside the most directly comparable GAAP measures.

Please refer to this morning's press release which is posted on our Web site for more specific information on these topics.

As indicated in the press release, the Company undertakes to obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events, or other factors.

Today's event is being webcast and following the call, an audio replay can be accessed at ir.mccormick.com.

I would now like to turn the discussion over to Bob.

Thank you, Joyce.

Good morning to those on the call and those joining us by webcast.

Our first quarter results were a great start to our fiscal year.

McCormick's restructuring program is leading to significant margin improvement and we're continuing to see strong sales momentum.

I'll comment on our consumer business results first.

In the quarter we increased sales for this part of the business 8.7% and in local currency 5.5%.

An increase of 2% came from higher volume and pricing.

Volume driven by new products, effective marketing programs, and higher volumes of ethnic items and 3.5% from sales of Simply Asia Foods, which we acquired early in the third quarter of 2006.

Taking a look at each of our three regions, consumer business in the Americas had another impressive quarter with sales up 9.7%.

Simply Asia Foods added 5.4% and foreign currency had no impact.

The remaining increase of 4.3% had a favorable impact from higher volume as well as the U.S.

pricing actions taken in late January 2006.

During the quarter a number of products led to higher sales.

In particular, our line of dry seasoning mixes, items for Hispanic consumers, and our Zatarain's brand, and new products such as roasting rubs and our expanded organic line.

In Europe consumer sales rose 6% but in local currency declined 3.6%.

Of this decline 0.9% was due to our decision to exit Finland in 2006.

We also continue to be impacted by lower distribution in The Netherlands.

In total, our sales in other markets were generally flat to last year.

Please recall that in the first quarter of 2006 sales rose 5.1% in local currency and we attributed a portion of this increase to customer's buy-in preceding our implementation of SAP.

We expect 2007 consumer sales in Europe to improve in comparison to 2006, since the impact of Finland and the lower distribution of The Netherlands began in the second quarter of 2006.

In the Asia-Pacific region we increased sales 13.7% and in local currency 8.7%.

Building off momentum in 2006, China posted strong sales growth this quarter.

Changes we made in the business over the past two years, changes in our distributor network, product lineup, and organization are delivering results.

Operating income for the consumer business was $60.2 million when restructuring charges are excluded.

This was up $14 million, or 30% from the first quarter of 2006, with the benefit of higher sales and improved gross profit margins.

We are seeing the benefit of cost savings related to our restructuring program.

In addition, there's a favorable impact related to stock-based compensation that I'll discuss further in a minute.

During this period, advertising was up $2 million versus the first quarter of 2006.

In our industrial business we increased sales 4.9% and in local currency 2.8%.

This includes a reduction of 1.7% from the elimination of low margin business in our U.S.

industrial business.

In the Americas sales were down 0.5% from last year.

Foreign exchange rates lowered sales 0.3% and customer and SKU elimination reduced sales 1.7%.

A sales increase of 1.5% was due to higher volumes with our strategic customers.

Based on our projected customer orders, this increase was generally in line with our estimated sales.

However, we did experience some unfavorable impact on foodservice volumes, particularly in the northeast where winter weather curtailed restaurant traffic in the latter part of our first quarter.

Compared to where we were two years ago with this business, we have better visibility and more confidence in our sales projections.

We are encouraged by the recent acceptance of several new seasonings by one of our large customers and we're pleased with overall pipeline of new products for our strategic customers.

In Europe we increased sales 18.7% and in local currency the increase was 8.4%.

In this region the elimination of low margin customers and SKUs reduced sales 2%.

An increase of 10.4% was due to higher volume of seasonings for poultry and snack products that began to show strength in the latter part of 2006.

Incremental sales of poultry seasonings were largely due to a joint venture in South Africa add in the fourth quarter of 2006.

Sales in the Asia-Pacific region rose 23.7% and in local currency increased an impressive 18%.

We increased sales in both Australia and China and in particular with quick service restaurant customers.

These customers have awarded the supply of new items to McCormick and we're benefiting from their promotions in these markets.

With this rapid growth, the Asia-Pacific region's becoming a more important contributor to our overall industrial sales.

Excluding restructuring charges, operating income for the industrial business was $14 million.

This was up $2.5 million, or 22%, from the first quarter of 2006.

Our rate of growth of profit as well as -- was well ahead of sales increase driven by cost savings related to our restructuring activity.

As with the consumer business, the industrial business also had a benefit from the timing of stock compensation expense in 2007 versus 2006.

For the total business we increased sales 7%.

In local currency the increase was 4.3%.

The increase was driven by both price and volume, including the impact of Simply Asia Foods, which added 2% to sales.

For the first quarter of 2007 gross profit margin rose 130 basis points.

Restructuring charges in 2007 reduced gross profit margin by 10 basis points compared to a negative impact in the first quarter of 2006.

The increase in gross profit margin during the quarter was primarily driven by restructuring cost savings and a positive sales mix in part due to the elimination of a low margin business.

The impact of cost savings on gross profit margin is expected to be greater in the first half of 2007 as there was little margin benefit from our restructuring program during the first and second quarters of 2006.

By the fourth quarter of 2006, we were beginning to see more of a benefit from our restructuring actions.

As a percent of sales first quarter selling, general, and administrative expenses were 29.2% this year compared to 29.8% last year.

One reason for the decrease is that the grant date for the 2007 stock-based compensation will incur in the second quarter.

This compares to a grant date in the first quarter of 2006.

The variance between years relates to retirement-eligible employees for whom options and RSUs are expensed immediately rather than during the entire vesting period.

This created a favorable comparison of approximately $4 million in the first quarter with a similar negative comparison expected in the second quarter.

In the first quarter, this favorable comparison was offset by the $2 million increase in advertising that I mentioned in my comments on the consumer business.

Following favorable income tax rates in the third and fourth quarters of 2006, our first quarter tax rate was favorable as well.

Taxes were affected this period by a discreet tax benefit in The Netherlands.

For the balance of the year we expect an effective tax rate of 32%.

Other income statement items, unconsolidated income, interest expense, and our diluted shares were close to our expectations.

We recorded first quarter EPS of $0.33 compared to $0.11 in 2006.

Charges related to the restructuring program reduced earnings per share $0.04 in the first quarter of 2007 and $0.17 in the first quarter of 2006.

Excluding the impact of restructuring charges, EPS rose $0.10.

This increase included $0.02 from the later grant of stock-based compensation and $0.01 from the favorable tax variance.

The remaining $0.07 was due to the performance of our businesses, both from sales and improved margins.

Let's turn to the balance sheet.

At the end of the quarter our accounts receivable was up $35 million, or 10%, due primarily to foreign currency rates.

Excluding this impact the increase was in line with the higher sales in the first quarter.

Inventories continue to be well above the year-ago period, ending the quarter at $412 million compared to $355 million at the end of February 2006.

The reasons for this increase are very similar to what we've reported for November 30.

Again this quarter, the majority of the increase related to specific factors such as foreign exchange rates, increase in strategic inventory, buildup related to facility consolidations, and the acquisition of Simply Asia Foods.

We fully expect to reduce inventory levels going forward and projects to reduce inventories later in 2007 and longer term are well underway.

In the first part of the year it's not unusual for to us report negative cash from operations.

This quarter the net cash flow was negative $75 million compared to a negative $10 million last year.

There were three reasons for this.

First, cash payments related to restructuring charges.

Second, the amount and timing of a quarterly tax payments, and third, cash payments for 2006 incentive compensation.

During the quarter, we repurchased 280,000 shares at an average of $39.22 for a total of $11 million.

This compared to $13 million in the first quarter of 2006.

At February 28, 2007 $195 million remained on the current $400 million authorization that the Board approved in June 2005.

I'd like to comment next on our financial outlook.

Excluding restructuring charges, we expect a greater increase in gross profit margin and income in the first part of the year due to the incremental impact of restructuring cost savings and Simply Asia Foods.

We also realized the timing of the stock-based compensation grant would have a favorable impact of $0.02 in the first quarter with an offsetting unfavorable impact in the second quarter when compared to the prior year.

Based upon our current projections, we expect EPS in the second quarter to be relatively even with prior year when restructuring charges are excluded.

We expect EPS for the second half to be up 4 to 5% from the prior year, again, excluding the impact of restructuring charges.

As we move through 2007 we expect a lower incremental impact of restructuring cost savings as we compare to a period in 2006 when we began to realize a portion of these restructuring savings.

Also, the third and fourth quarters of 2006 are tougher comparisons as each of these periods included a favorable tax variance of $0.03.

To summarize our financial outlook at this time, we're maintaining our sales growth of 4 to 6% an EPS projection of 8 to 10% on a comparable basis.

With an estimated $0.18 impact in restructuring charges, our projection rate for EPS is $1.67 to $1.71.

While it is early in the year, and this is typically a small quarter, the first quarter result has given us more confidence that we can achieve EPS at the upper end of our range.

As we have stated previously, should we continue to have strong performance, we will evaluate opportunities to reinvest additional profit in our businesses.

With the McCormick investor conference coming up in a few weeks, I have just a few business updates to share with you today.

First, our spice revitalization program in the U.S.

We've been extremely busy with the implementation of our new merchandising systems.

Since the beginning of this year, we've installed another 1500 stores with the new systems.

Some of the new areas we've penetrated include Tennessee, Texas, and Pennsylvania.

With the additional stores installed in 2007, we have reached a total of 3600 stores that have the new equipment.

Other features of the revitalization plan, including new products, new labels, and our flip top cap.

Among the new products we're experiencing some particularly good growth with roasting rubs and organic products in the first quarter.

The new labels continue to work their way through our distribution system and the flip top caps should be taking hold in stores throughout the U.S.

We started with the new caps on our core line and will extend it to gourmet line later in 2007.

Moving to our restructuring plan, we had a number of important actions in 2006 that are lifting margins in 2007.

The closure of our second largest plant in Salinas, California, one of our two U.S.

industrial condiment plants, the condiment plant in Scotland, and plants in Belgium and Australia.

We exited our business in Finland and rationalized joint ventures in U.S., Europe, and Japan.

Our latest announcement is the closure of a plant in France with the consolidation of production into a nearby facility.

It is a tribute to our employees that these difficult decisions and complex execution have proceeded effectively.

We are working hard to minimize the impact on employees and customers.

Our total charges for the restructuring program remain unchanged at 110 to $130 million and our goal for annual savings for this program continues to be $50 million by the end of 2008.

Just a quick update on acquisitions.

We have no new announcements today, but want to assure you that we're actively pursuing a number of brands and businesses that would be a great fit for McCormick.

In the meantime, the integration of Simply Asia Foods has gone extremely well and we will introduce some new marketing support and new products to this business in 2007.

One of our top marketing people is now leading Simply Asia Foods.

Those are the topics I wanted to cover today and now I'd like to summarize.

The growth initiatives set in place in 2005 were well executed in 2006 and are delivering outstanding results in early 2007 and we still have further to go in these important programs.

Our first quarter margins and EPS were ahead of our expectations.

This gives us two things.

First, an opportunity to invest back in the business to drive future sales, and second, a tremendous confidence that we will achieve our financial goals for 2007.

Employees throughout the Company are working hard to change and grow our business.

Their focus and accomplishments are delivering great results in our key markets around the world.

To our shareholders and everyone on the call, we thank you for your interest and attention.

And now Alan, Fran, Paul, and Joyce and I would gladly answer any questions that you may have.

Operator, we're ready for questions.

[OPERATOR INSTRUCTIONS] Your first question is coming from John McMillin of Prudential Equity.

Good morning, everybody.

Good morning, John.

So your full-year tax rate guidance basically has come down from 32.5 to 32.

Is that right?

Yes.

And your second quarter, you know, kind of suggestion, Bob, because historically you usually earn about as much in the second quarter as you do in the first quarter.

I know we have stock-based compensation, so that's about $0.02, so you're kind of guiding to a 32 number.

Why would it be that much below, let's say, take this quarter, take $0.02 off for stock-based, a penny off for tax rate.

You know, I know I'm splitting hairs a little bit, but why wouldn't it be more in the 34 area?

John, one of the things that we mentioned in the January conference call that especially in Europe we're going to increase our advertising expenditures and promotional expenditures throughout 2007.

A significant amount of that hits in the second quarter because that's a heavy promotional activity period for us in Europe.

And we also planned for the barbecue and holiday season in May to increase our expenditures in promotional areas in the U.S.

consumer business, and then add to that restructuring savings that flow irregularly throughout the year.

We're pretty comfortable to say that we're going to be in the flattish range 2007 over 2006.

Okay.

And the organic sales number in the quarter was up 2.

Correct?

And that's the number you gave in terms of if you stripped out acquisitions, currency, that price mix number, was it 2.0?

2.3.

Yes, it is.

And just my last question.

When you had your last big investor conference down in Hunt Valley, there was a lot of optimism around Zatarain's and just like there's optimism now around Simply Asia.

It kind of -- while your 10-year record is great, it certainly represented kind of a peak in terms of optimism on the stock.

You certainly then went through a difficult kind of period.

As you plan for this investor conference, what do you think is different in terms of -- because there was a lot of confidence expressed at that conference, I guess, it was three years ago that really wasn't fulfilled.

Well, John, I don't mean to quarrel with you, not fulfilled.

I think if you look at our consumer business performance over the period of time, I think we've exceeded most of our objectives.

Granted, in the fall of 2005 and early 2006, we did have hiccups in the industrial business.

And you're absolutely right, that was not something that was planned as we went through that investor conference.

But I think if you look -- and I can't tell you too much or there's no reason to have a conference.

If you look at our conference and what your expectations should be is further excitement around our consumer business, further excitement about restructuring and investment from the cost savings, and further excitement about our industrial business and how we're going to grow that and improve margins, and then further excitement about the rebound in Europe, which has been a focal point for us for two or three years.

Those are the four themes that we're going to come in a couple weeks and talk at in length about and hopefully bring you up to the same level of confidence that we're at.

Okay.

Great.

Thanks a lot.

Thanks, John.

Thank you.

Your next question is coming from Jonathan Feeney of Wachovia.

Thank you very much.

Good morning.

Good morning, Jon.

Bob, why don't you talk a little bit about the increase in, I guess, advertising promotional expenditures?

You said $2 million just in the U.S.

consumer business.

Do you have a target as far as, like, percent of sales, where you feel like that business needs to get to sort of reinvigorate growth, whether Europe, Americas, or both?

We have a target, we haven't released it, Jonathan, at this point in time.

I think it's fair to say, and Alan reported at the end of the first quarter, I mean the U.S.

expenditures on promotion and advertising are getting up to a level where we're comfortable with them, but the rest of the world, Asia and Europe, are not where we desire them to be at this particular point in time.

We have proven time and time again, as we really focus promotion and advertising dollars on our consumer businesses, whether it's new products or focusing on our core brand and our brand umbrella strategies, we can drive unit sales.

It's mainly external to the United States investment over the next one to two to three years in the consumer promotion advertising area.

So are you saying like relative advertising rates within the U.S.

should stay about flat?

I would say flat to up slightly, yes.

Okay.

And just one other question about this European sort of restructuring you're going through.

Is this just sort of, I mean, the tip of the iceberg here?

I mean, are there, you know, we've talked for a while about across the whole industry a lot of people are having problems with their cost structures, manufacturing and western Europe.

I guess is this part of a five, 10-year plan where you're going to see a lot of cost savings potential?

I think if you go back, Jonathan, to our announcement in late 2005 and 2006, we indicated North America would be our focus early on.

And as we moved into the latter part of 2006 and 2007 our focus on restructuring, post SAP implementation, would be, you know, Europe, Middle East, and Africa.

That's exactly what we're doing now.

This isn't a five-year program.

Once again, what I said in the conference call script, our anticipation to save $50 million by the end of 2008 has a component of that built into the European plan, which we'll see plans to execute that sort of mid to late 2007 and start to impact early 2008 into 2009.

Okay.

Thanks very much.

Thanks, Jon.

Thank you.

Your next question is coming from Chris Growe of A.G.

Edwards.

Good morning.

Good morning, Chris.

Good morning.

I just wanted to ask you, Bob, relative to the sales growth in the quarter, it was a little lower on the organic basis, a little lower than what I expected and I know you had a little bit of a hit this quarter from your consumer division, just the year-over-year compares.

But with the pretty substantial marketing increase last year, you got a little pricing in the U.S.

this year that was still coming through.

I'm just curious if you've got any thoughts on sale growth on an organic basis for McCormick?

I think if you look at our total number, Chris, I think it's right where we desire it to be.

Once again, you have to take into consideration our accelerated program and aggressive program in SKU reduction and on customer elimination in the industrial business and in the consumer business.

We're still doing some of that in Europe and we're still doing some culling out in Europe.

So it's not just dedicated to the United States or North America, but we're pleased with our overall sales performance.

You're going to hear more from Mark Timbie on the U.S.

consumer business relative to the performance of Project Roll, which allows us to have the new merchandising system, the new products, the new distribution in the investor conference coming up in a couple of weeks.

So if, I mean, there's a lot of excitement around that U.S.

consumer business and Lawrence Kurzius will bring the same excitement around our European business and Alan will bring the same excitement around our Asia-Pacific business.

Today, we purposely today didn't go into a lot of detail around that because in two weeks, we're hopefully going to answer all your questions either through the script or in the question-and-answer period.

Okay.

I look forward to that.

I wanted to ask you, as well, on the -- we've been going through several quarters of pretty substantial levels of inventory growth.

In this quarter we saw a little more receivable growth as well and you've explained that.

I'm curious when you think we should start seeing the improvements in working capital.

That's a point that I was getting a little more concerned about.

I was curious what your thoughts were on that?

Once again, I tried to explain in the script, John -- Chris, about how it increased, but it's on my radar screen and you can rest assured it's on Alan's radar screen to get those inventories down.

As we move through 2007, what I tried to say, we have robust programs globally to bring those numbers down as we finish out 2007 as we move in 2008.

Would '07 be below '06?

In defense of the businesses, though, most of what you're seeing is either strategic inventory, currency, or protecting our customer service as we go through the SAP conversion and plant consolidation.

So, I mean please don't construe anything, it's a number that is not premeditated by the leadership team in this company.

While the number is high, it's not a shock where it is for us.

Okay.

And the last question I had for you was on stock compensation expense.

You had mentioned the $4 million swing from the first quarter to the second quarter.

There was another $1.5 million or so that was in lower compensation expense.

Is that with us now?

Is that just a lower number for the Company going forward?

You mean for the whole year?

Yes.

Will that carry through for the year?

And then in the first quarter there was a $4 million swing, is lower by $4 million, but there's another $1.5 million.

I was curious if that's just with us going forward for the year?

We do anticipate that our stock-based compensation expense will lower as we cycle through because of our changes and how we granted options in this year, next year, and the year after that, but I believe that that's the answer.

Okay.

Thanks a lot.

Thanks, Chris.

Thank you.

Your next question is coming from Eric Serotta of Merrill Lynch.

Morning, everyone.

Good morning, Eric.

Just wanted to follow-up on the Americas industrial business.

You've clearly shown some better than expected progress in terms of profitability there.

The top line there, when you adjust for the customer and SKU rationalizations, looked like it was running slightly under 2%.

Just wondering how that compares with your expectations about how the focus on the top 10 and top 50 customers is really going to drive greater both visibility and greater growth with them?

Eric, I think there's two things I would comment on.

One, it's right in the range of what Alan and Chuck Langmead expected for the particular quarter.

I think there's an impact there also in the foodservice area.

And I'm certain you've heard this from other manufactures that everybody on the call follows.

The weather at the end of the quarter did have a real impact on us, especially up in the northeast here.

So that's pretty much public information whether it's the restaurant business or whether it's a foodservice distributor business.

So if you look at that number, we would say it's slightly lower than we would like, but right where we anticipated being based upon all the factors that were coming at us.

Okay.

And over time as you -- as the year unfolds and as we get into further focus on these top strategic accounts next year as well, what do you think a reasonable organic top line growth target is for that business?

I think we've shared in the past and once again I don't want to pre-empt Chuck's presentation at the investor's conference, Eric.

We've said in the past, in the 2 to 3% range is something we're comfortable, that's net of any SKU rationalization or industrial customer eliminations.

But if we could kind of leave that on the table, Chuck addresses that over the next three years at the investor conference.

Okay.

Looking forward to it.

Okay.

Thanks.

Thank you.

[OPERATOR INSTRUCTIONS] Your next question is coming from Terry Bivens of Bear Stearns.

Good morning, everyone.

Good morning, Terry.

Bob, just going back to the new shelves.

You mentioned a number, we appreciate that.

But can you give us a little more color there?

Are you getting any pushback from any particular accounts?

And most importantly, can you give us a little bit more visibility into some of the lifts you're seeing where they're already in the stores?

I'll let Alan handle that, Terry.

Okay.

We're really pleased with the progress that we're making and we're right on schedule with the plans that we laid out.

As you can imagine, we have very detailed plans around specific territories and customers that we're setting.

We're not commenting on specifically what's happening with customers, but because we're taking a regional approach and we're setting one region at a time, but we're real happy with where we are with that.

Specific to just the lift of the merchandising, we're not breaking that out because all of our stores around the country are getting the impact of revitalization, whether it's new merchandising, at this point or not.

But we're seeing very strong growth as you've probably seen through the grocery [IRI] numbers and through our sales growth in the U.S.

consumer business.

We're very happy with the lift that we're getting on the whole program.

Okay.

Thanks very much.

Thanks, Terry.

Thank you.

Your next question is coming from Robert Moskow of Credit Suisse.

Hi.

Good morning.

Good morning.

I was just curious, you said that you were getting to your comfort level on advertising as a percent of sales for the U.S.

I just want to confirm that that's what you meant.

That maybe if sales continue to rise, you would continue to reinvest in advertising and it's the ratio that you meant.

Right.

I said I'm getting, on a comfort level, didn't say we're at the maximum level, Robert, I didn't mean to infer that.

If there's an opportunity to reinvest and we have programs that require incremental spending, whether it's around what Alan just talked about, the whole revitalization process, we're in a very unique time in our U.S.

consumer business today and we shouldn't construe that a certain percent of sales of advertising or promotion dollars is a fixed amount for us.

This is a huge program for us, this whole spice revitalization and as we have opportunities to upspend, we're going to take advantage of those because we believe it's good for the brand, number one, and number two, will drive unit sales over time.

Yes, that's what I kind of figured.

So does that mean, though, that you're increasing your advertising investment this year?

Is it higher year-over-year?

It's small year-over-year at this particular point.

But once again, I think as we said earlier in the script, if there's opportunities to upspend, I can tell everybody on the call, there's lots of people lined up to spend the incremental monies if there's any available.

Got it.

Okay.

Thank you.

Thanks.

Thank you.

We have a follow-up question coming from Chris Growe of A.G.

Edwards.

Hi.

Good morning.

I just want to confirm, or ask a question regarding the productivity savings and it sounds like that generated a lot of increase in the gross margin for the quarter and then more first half weighted.

Are we looking for about a $30 million run rate still for those savings this year?

Yes.

Okay.

That's all I needed.

Thanks a lot.

Thanks, Chris.

Thank you.

Your next question is coming from George Askew of Stifel Nicholas.

Yes, good morning.

Good morning, George.

Just two quick questions.

One, on the stock compensation expense, can you give us the dollar amount for each of the two segments?

I know it will probably be in the Q, but do you have that handy, by chance?

We don't disclose that, but executive stock-based compensation goes to executives.

Sure.

I think you have some knowledge of the size of our divisions.

Okay.

Okay.

And regarding the lift from gravity-fed shelving, Alan, you answered the question a moment ago, but are you, I mean is it ahead of plan for those stores where it's been in place for a material amount of time?

Is it exceeding expectations, just that merchandising effort, not looking at the entire strategy, but just looking at the gravity-fed shelving.

Is that exceeding your expectations or about in line?

Where's that scoring on the tally?

It's about in line with expectations, but remember there's a -- it's more than just the shelving that we're seeing the impact from.

The new products are driving growth as well as the new packaging and the new graphics that we're seeing.

I wouldn't try to isolate it just to the gravity-fed shelving.

That certainly is a key component of our strategy, but it's not the only component that's driving the growth.

George, the only comment I would make, and Alan made a very appropriate -- we monitor the IRI data.

If you look at some of the IRI data and some of the impact it's having, that gives you a better visibility on what some of the movement is relative to the overall category and we're driving the category.

Once again, and the difference between ours and what another supplier did out there from a conversion standpoint and a project standpoint from a merchandising, ours is a component of three or four packages not just one particular merchandising system.

Right.

Okay.

Good.

Thank you.

Thanks, George.

Thank you.

Our next question is also a follow-up question coming from John McMillin of Prudential Equity.

Can you just update us on pepper prices?

I know they ran up a lot at the beginning of the year.

Have they moderated, do they represent any concern to you?

They've moderated, John.

And I think what we said last quarter, we've taken some appropriate price increases throughout the world to offset some of the increases, but they have moderated lately, yes.

Okay.

Thank you.

Thank you.

Your next question is another follow-up question coming from Eric Serotta of Merrill Lynch.

My follow-up questions have been answered in the interim.

Thanks.

Thank you.

Your next question is coming from Mitchell Pinheiro of Janney Montgomery.

Good morning.

Just following up sort of on John's question with pepper.

I thought you were taking price increases across your line, your pepper line in the industrial side.

And I thought I remember an up 3% sort of average for -- I thought it was the consumer business.

Is that basically what the pricing was in the quarter or can you comment on that if you haven't already?

It was less than one across the entire consumer business.

It was about an average of 3% across the lines that contained pepper and varied based on what the formulas were.

Was that including, what about the industrial side?

I know you don't answer that, but is there a --

If I look at industrial, once again, most of our business there's pass-throughs.

Okay.

And once again, as prices go up we have pass-throughs, as prices come down, we obviously take back some pricing.

So from a margin perspective on the pepper through the industrial business segment worldwide is probably neutral.

Okay.

Are there any, are there also any issues, any other sort of commodity or your raw material inputs that are, we should be aware of in terms of variability?

No.

The only variability of commodity that tends to have tremendous fluctuation right now is soy oil through our Mexican joint venture.

Once again, we manage that differently than we have in the past, as you know.

And we don't see that as an inhibitor to achieving our numbers in Mexico.

Okay.

And vanilla, was that year-over-year, was that down?

About flat.

About flat.

Okay.

All right.

Thank you very much.

Thanks, Mitch.

Thank you.

[OPERATOR INSTRUCTIONS] It appears we have no further questions.

Thank you.

This concludes today's call.

As Bob indicated, we look forward to more discussion on April 12th at our investor conference in New York.

Through April 3rd you can access a telephone replay of today's call by dialing 877-519-4471 and the access code for this replay is 8426093.

You can also listen to a replay on our Web site after 2:00 p.m.

today.

If you have further questions or points to discuss regarding today's information or our upcoming conference, please give me a call at 410-771-7244.

Thank you.

This concludes our conference.

You may now disconnect.