McCormick & Company Inc (MKC) 2009 Q2 法說會逐字稿

Greetings and welcome to the McCormick's second quarter 2009 conference call.

At this time, all participants are in a listen-only mode.

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Joyce Brooks, Vice President Investor Relations for McCormick.

Thank you.

Ms.

Brooks, you may begin.

Good morning to everyone joining us today by phone and webcast for a review of McCormick's second quarter financial results and outlook.

We have posted a set of slides to accompany today's call at our website, IR.McCormick.com.

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

Following our remarks, we look forward to discussing your questions.

Please note that during the course of this conference call, we may make projections or other forward-looking statements and actual results could differ materially from those projected.

The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or other factors.

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

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

It is now my pleasure to turn the discussion over to Gordon.

Thanks, Joyce.

Good morning, everyone, and welcome to this morning's call.

We are very pleased with our financial results for the second quarter of 2009.

There were areas of strength throughout our business in sales growth, margin improvement and asset management.

This strength more than offset our increased investment behind our brands as well as an unexpected bankruptcy cost.

As a result, our profits were ahead of expectation for the second quarter and right in line with our full year growth objective.

I'll review our financial results for the quarter and then pass it to Alan for his comments on the business and our latest outlook.

We achieved second quarter earnings per share of $0.38.

On a non-GAAP basis, excluding restructuring charges, earnings per share in 2009 were $0.42.

This was a 7.7% increase from an adjusted EPS of $0.39 in the second quarter of 2008.

And is squarely within our 7 to 9% 2009 target range for EPS growth.

The profit result was driven largely by sales growth, favorable gross profit margin, and operating cost reductions.

Let's take a closer look at sales and then I'll discuss these other drivers.

Sales for the quarter declined 0.9% including an 8.3% unfavorable impact from currency.

In local currency, we grew sales 7.4%.

As indicated on slide five, we realized 4.5% from pricing actions and the combination of volume and product mix added 2.9%.

The increase in volume and mix includes a 5.4% benefit from our acquisition strategy.

This was largely offset by lower sales in the Europe, Middle East and Africa EMEA region for the quarter.

For the consumer segment, we reported a second quarter increase of 4.2%.

In local currency, we grew consumer sales 11.6%.

As indicated on slide six, Lawry's drove a large part of the increase and we continued to have a benefit from pricing actions taken in late 2008 and early in 2009.

In the Americas, consumer sales rose 16.1% and in local currency grew an impressive 18.6%.

Volume and product mix added 14.8%, while pricing contributed 3.8% to sales growth.

Pricing this quarter reflected a general increase taken early in 2009, which was partially offset by a step-up in our coupon activity in the second quarter.

A number of factors drove the double-digit increase in volume and product mix.

First is Lawry's, which added 13.3% to consumer sales in the Americas.

With the integration of this business nearly complete, sales for this business are slightly ahead of target through the first half of 2009.

We have reached our distribution objectives for the three new products and midway through the quarter began to support these products and the broader line with a comprehensive marketing program.

Second, sales volume of our dry seasoning mixes grew at a double-digit pace in the quarter.

This is being driven by a revitalization program that includes product reformulation with more natural ingredients, improved packaging, and incremental marketing support.

These convenient and affordable products fit well with the way consumers are currently shopping and preparing meals.

Third, our sales and marketing teams had great execution at the start of the grilling season, with double-digit increases in sales of Grill Mates in the US, and La Grille in Canada.

Finally, unit volumes of spices and seasoning rose in the second quarter as retail inventory reductions abated and the Easter holiday drove sales of extracts and other branded products.

While not all consumer products in the Americas had these strong increases such as the premium gourmet items we mentioned last quarter, we were very pleased with these results.

For our Europe, Middle East and Africa region, we reported a 20.6% decline in consumer sales.

In local currency, sales were down 3.4%.

Following a 2% increase in the first quarter, our year-to-date consumer sales in EMEA are down about 1% through the first half.

The retail environment in the UK continues to be challenging and affected our second quarter sales in this market.

We are encouraged that category sales remain positive and appear to be benefiting from the trend toward eating at home.

We are directing our marketing support to emphasize the value of our brands to consumers with an aggressive increase of promotion and couponing in the UK.

Our sales volume in France rose again this quarter, and included the benefit of new distribution of our Ducros brand with a value price retailer as we announced last quarter.

Our Vahine line of desert products continues to perform well in France as more consumers cook at home.

Across our markets in Europe, we are also communicating a health message for our super spices and herbs and have launched our freshness program to drive volume.

In the Asia Pacific region we reported a 6.3% decline in sales.

However, in local currency, second quarter sales grew 8.2%, largely from higher volume and product mix.

In China we have launched several new products and expanded distribution of our brand into 10 additional cities in 2009, bringing the total cities to 56.

This is in addition to distribution gains under way in 1500 additional street markets this year.

In Australia, our major market -- our other major market, we continued to have success with sales of slow cooker seasonings, which have increased with the beginning of this year's winter season.

While we reported a second quarter decline of 7% in industrial business sales, when foreign currency exchange rates are excluded we increased sales 2.5%.

As shown on slide 10, 5.7% pricing more than offset a 3.2% reduction in volume and product mix.

In the Americas, industrial sales rose 0.8%, and grew 5.6% in local currency.

Compared to a year ago, we still have a number of high material costs and continue to recover those costs with our pass-through pricing mechanisms for this business which added 6.1% in the second quarter.

Volume and product mix was down slightly with a 0.5% decline.

Positives this quarter include a 2.1% increase from Lawry's as well as higher sales of snack seasonings and several new seasoning products for quick service restaurants which hit the market this period.

These increases were offset in part by lower sales of bulk spices and other food ingredients and weak sales to food service distributors which service higher end restaurants in addition to smaller operators and institutions.

Industrial sales for EMEA declined 28.3%, and were down 3.2% in local currency.

The impact of currency is particularly significant as this business is largely based in the UK.

As in the Americas, pricing was an important component of our sales growth in EMEA, adding 7.1% this quarter.

This offset in part a 10.3% decline in volume and product mix, which resulted from lower sales to UK food service customers.

These lower sales were largely due to the bankruptcy of our primary UK food service distributor, as well as a general slowdown in consumers eating out.

This bankruptcy occurred in May and we have responded quickly.

We are currently supplying our spices and seasonings directly to many of our major customers.

Our sales of customized products to quick service restaurants were more favorable.

As in the Americas, consumers who choose to eat out are seeking relative value compared to other restaurant formats.

In the Asia Pacific region, industrial business sales declined 14.7%, and 6.3% in local currency due to lower volume and product mix.

Solid growth in the first quarter was followed by a second quarter decline which occurred primarily in China.

In the second quarter of 2008, restaurant customers in China began to promote heavily around the Olympics which lifted sales for a number of our products, creating a tough comparison for this year.

We remain excited about our long-term prospects for industrial growth in China, even though the pace may moderate a bit given the current economy.

Looking back on sales for the quarter, we had a strong benefit from Lawry's, some exceptional areas of growth, a few challenges and some tough comparisons.

Our actions to manage cost throughout the organization were key to offsetting significant issues and funding increased marketing.

Our success is evident as we look at the rest of the income statement, beginning with gross profit margin.

Early in 2009, we set a goal to increase profit margin at least 50 basis points.

In the second quarter, gross profit margin rose 90 basis points and year-to-date the increase is 50 basis points.

In the next few quarters, we expect to see continued increases in our gross profit margin, driven by our comprehensive continuous improvement program, our restructuring actions, discretionary cost control throughout our operations, and our move toward a more favorable business mix.

Our progress with CCI and cost controls was illustrated by the reduction in our selling, general and administrative expenses as a percent of net sales.

In the second quarter of 2009, our SG&A was 28.1% of sales, compared to 29.1% in the year-ago period.

This reduction was net of a $10.3 million increase in marketing support, up 33%, as well as a $7 million -- as well as $7 million of cost related to the bankruptcy of our UK food service distributor.

The underlying decrease in SG&A reflects our efforts to manage expense, improve productivity, and integrate the Lawry's business with few incremental operating expenses.

The second quarter decrease also included reductions in incentive compensation expense and stock-based compensation expense when compared to the year-ago period.

Turning to slide 15, operating income was $82.5 million.

On a comparable basis excluding restructuring charges and credits, we increased operating income 15.5%.

On the same basis, operating income for the consumer business rose 28.5%, to $71.7 million, an increase that included higher marketing support.

For the industrial business, operating income of $17.7 million was down $3.9 million from the second quarter of 2008.

If not for the costs associated with the bankruptcy, profit would have increased $3.1 million or 14%.

Our tax rate for the quarter at 33.7% was above our guidance of 31% for the year, and includes a discrete adjustment for taxes in prior years.

With a favorable adjustment recorded in the first quarter, our year-to-date tax rate is 30.8%.

We had indicated in our initial guidance for 2009 that income from unconsolidated operations and specifically our joint venture in Mexico, would be weaker in the first part of the year and then begin to improve.

Following a $2.1 million decline in the first quarter of 2009, we recorded a decline of $0.5 million in the second quarter.

Our joint venture in Mexico continues to be adversely affected by the peso devaluation, however, the impact of soybean oil and the mayonnaise business has begun to improve and sales for the business have been robust with a 25% increase in the second quarter.

We are happy with this result, but remain cautious regarding the impact of the economy in Mexico.

For the second quarter, we reported earnings per share of $0.38 compared to $0.41 last year.

Excluding the impact of restructuring charges and credits, on a comparable basis EPS increased to $0.42 from $0.39, the increase was $0.03 or 7.7%.

Higher operating income added $0.06 per share.

Partially offset by $0.01 of higher interest expense and $0.02 from the higher tax rate.

As I stated earlier, this is right on track with our 2009 profit objective.

Before I turn it over to Alan, I'll comment briefly on the balance sheet and second quarter cash flow, and refer you to slide 18.

For the first half, cash flow from operations reached $96.7 million, versus $92.7 million in the prior year.

If you recall, cash flow from operations was down by $37.6 million in the first quarter, and was followed by a $41.6 million increase this quarter.

The increase this quarter was due in part to lower receivables and inventory and was net of a $20 million contribution in pension.

Both days sales outstanding and inventory turns improved from a year ago.

Employees and operations around the world continue to focus on asset management and given our year-to-date progress, we are on track to deliver a 3 to 5 days reduction in our cash conversion cycle in 2009.

This follows a five day decrease accomplished in 2008.

The $20 million incremental US pension contribution in the second quarter has been followed by a $12 million contribution in mid-June, bringing our year-to-date incremental contributions to this plan close to $35 million.

At this time, we expect that any further contributions to this plan in 2009 to be less than $5 million.

As stated previously, our primary use of cash during 2009 has been the reduction of debt from acquisitions with the goal of returning our debt ratios to preacquisition levels in 2010.

We continue to maintain a strong balance sheet and the financial discipline that is particularly important in this environment.

That completes my remarks on our second quarter financial results and I would now like to turn it over to Alan.

Thanks, Gordon and good morning to everyone on the call.

Our second quarter financial results are a good indication of our ability to navigate this difficult global economy and continue to generate solid financial results.

We are pleased to report a 7% increase in constant currency sales, a strong 90 basis point increase in gross profit margin and an 8% increase in EPS on a comparable basis.

While a number of factors are driving our performance, I want to highlight four this morning beginning on slide 21.

The first is Lawry's.

The acquisition of Lawry's has been an important part of our financial performance.

As Gordon indicated, our new products are on the shelves and consumers are hearing our marketing message that emphasizes the brand's wide variety of ethnic flavors.

Initial results indicate that our new marketing program is right on target.

Including the new reduced sodium version, consumer unit purchases of Lawry's season salt rose at a mid single digit rate for the last 13 weeks and a high single digit rate for the latest four week period when our marketing programs really kicked in.

Also benefiting from new flavors and television advertising, consumer purchases of our Lawry's marinades showed a double-digit increase in the most recent four weeks.

With few incremental costs, this business is delivering the sales, margin, and profit accretion goals we set forth nearly a year ago.

Another factor driving our performance that was evident again this quarter is effective cost management.

Ongoing volatility and input cost is being addressed through our pass-through industrial pricing mechanisms and earlier pricing actions for our consumer businesses.

Across both businesses, pricing actions added 4.5% to top line growth.

We're also working hard at cost reductions throughout our business.

Most noteworthy is a significant reduction in our operating cost for the past few quarters, and progress toward our $30 million goal for 2009.

Our CCI program is a large driver of this performance, as well as cost reductions from our restructuring program.

Under this program, we recently announced the consolidation of our manufacturing operations in the Netherlands, with our primary consumer production facilities in France.

These lower costs are providing the fuel for increased brand marketing support, have also provided an offset to headwinds in a difficult economy.

A third factor I want to mention is the emphasis across our organization on goals and performance.

You can see this in our working capital management and our ability to contain costs.

It's also evident in our retail placement of new products and the launch of marketing programs that resonate with consumers.

Our employees have developed new products for strategic industrial customers that are helping them build sales in a tough environment.

And we've expanded our retail footprint into more cities and retail formats within China.

Another recent example I want to point out is our UK employee quick response to the food service situation.

By mid June we were servicing the majority of our customers with the direct supply of product.

The fourth and last factor is our leading brands and growing categories.

As most of you are well aware, McCormick has a leading position in our primary markets.

We've expanded into additional retail channels in the past 12 months and we are a leading supplier of private label in North America.

As noted on slide 24, consumer interest in spices and seasonings continues to grow.

We believe this is a result of more consumers eating at home as well as the marketing, innovation, and improved merchandising which is being driven by McCormick.

We will undoubtedly face further challenges in the second half of 2009 and into 2010.

But we believe our brands, our strategy, and our team have us positioned to succeed in growing our business.

If you turn to slide 25, I'll wrap up our remarks with a look at our current financial outlook.

When we first gave guidance in January, we indicated that profit in the first half of the year would be under pressure from currency exchange rates and joint venture income.

Even with these headwinds, and the unexpected expense of a distributor bankruptcy, we achieved 7.5% EPS growth for the first half on a comparable basis.

This was ahead of our expectations, and has us positioned to deliver our profit goal for 2009.

In fact, we are in the process of evaluating additional incremental investments in marketing and other growth initiatives, should we have the opportunity to increase our spending.

We are reaffirming our guidance for 2009 earnings per share.

On a GAAP basis, our guidance is $2.24, to $2.28, and excluding an estimated $0.05 of restructuring charges, the range is $2.29 to $2.33.

This is a 7 to 9% growth on a comparable basis with 2008, excluding restructuring charges and credits, as well as the non-cash impairment charge and items related to the Lawry's acquisition that were recorded in 2008.

We are also reaffirming our current 2009 sales growth projection of 2 to 3%.

With cost reduction goals on track, our favorable business mix, and a good second quarter results, we expect at least a 50 basis point improvement in gross profit margin.

We also expect a measurable increase in our 2009 operating income margin, which includes $20 million of additional marketing support.

Let me summarize.

In the first half of 2009, we have demonstrated our ability to overcome both expected and unexpected headwinds.

During the same period, we remain steadfast in funding incremental marketing support to drive our future growth.

The favorable mix of our business and progress with cost reductions should provide the same flexibility as we manage through the second half and I'm confident that we are positioned for another year of record financial results from McCormick.

For our shareholders and everyone on the call, thank you for participating and we'd now like to take your questions.

Thank you.

(Operator Instructions) Thank you.

Our first question this morning is from the line of [Eric Serotta] of Consumer Edge.

Please go ahead with your question.

Good morning, guys.

Hello?

Hello?

Hello.

Good morning.

Good morning.

Hello.

It appears we lost Mr.

Serotta's line.

The next question is from the line of Robert Moskow with Credit Suisse.

Hey, good morning.

Good morning, Rob.

I thought it sounded like a good quarter and you managed through the UK situation very well.

Can you give -- two questions.

One is, is there going to be an ongoing higher cost of doing business in the UK now that you're going direct?

And then second, you said that you're evaluating putting more investment back into the business if you have the money to do it.

How can you -- how are you going to balance that with the possibility of dropping some of the money to the bottom line?

Historically, you've kind of done a little bit of both.

You've kind of raised guidance and reinvested.

Can you still do that in the current environment or is the current environment tougher from a consumer standpoint?

Let me answer the first question first about the UK.

There will be a slight increase in our operating cost by going direct.

We're working through what that is and how we're going to do it but the important thing for us is servicing the customers.

Our teams have done a great job with that and we don't think it will be meaningful to results.

On the question around investment spending, typically we do upspend when we have the opportunity and let some drop through the bottom line.

It's still kind of early in the year and we've had two small quarters behind us and so we're going to continue like I think most other companies are doing to monitor it on a near term basis.

As we see the opportunity to invest, we like the results that we had in the second quarter as we increased our investment and we think driving the top line is extremely important.

We think also that staying in front of the consumer in this kind of economy is also important.

So we'll continue to evaluate it.

If there's opportunity that some of it may drop through because the sales are better than we expect, then we'll see that.

But we're not -- we don't have any indication this early to change guidance.

Okay.

So it's really going to depend on the sales.

And can you remind me what your -- there's no change to your sales guidance for the year?

No, no change to the guidance for the year.

Okay.

Thanks.

I'll pass it on.

Thank you.

(Operator Instructions) Our next question is from the line of Chris Growe with Stifel Nicolaus.

Please go ahead with your question.

Hi, good morning.

Good morning, Chris.

Can you hear me okay?

Yes.

Okay.

Thank you.

I just have two questions for you.

The first one if you look at your first quarter, you had your reported sales down a little bit.

They were down a little bit this quarter.

Just to get a feel for your confidence in the 2 to 3% guidance for the year.

In the first quarter we had a little bit of a unique situation with the trade deloading.

Did you see any of that continue this quarter or any signs you can get the sales growth ticking up if you will?

We did not see continued trade deloading into the second quarter.

I think we saw -- a couple of impacts going into the second quarter.

One is the timing of Easter which had some impact.

And the second is we were very focused on making sure that we executed very well in North America on grilling.

So I think we saw the impact of that certainly in North America.

We were still -- we're still kind of part of the way through the small quarters of our year.

We feel good about our sales -- the sales guidance that we have on the table right now, the currency will start to reverse itself and our initiatives will continue to kick in.

So we feel pretty positive about where we are right now.

Okay.

Just in relation to that currency comment, it did improve this quarter versus last quarter.

And certainly more towards the end of the quarter.

Is that something that is helping your guidance or is it more helping you invest this year as you see more currency coming through?

It's a balance of items.

This is Gordon, Chris.

It's a balance of items on the guidance.

Certainly the base volume growth we have strong confidence in and the investment spend that worked well in the second quarter is giving us guidance or confidence on the guidance behind the base business.

Currency, while yes, I agree, it's improving relative to where it was earlier in the year, it is a volatile factor so we don't want to count too much on the currency.

Certainly it would be a help at the current levels but it's been a volatile environment so it's really difficult to say that that's going to be a huge help.

One thing to keep in mind is we have a much larger impact on currency on the sales line than we do on the earnings line.

And that's been true both in the tail wind and the headwinds that we'll see.

So it doesn't necessarily translate directly percentage to percentage.

Okay.

Comparisons obviously -- we'll still have negative comparisons on currency even at these levels in the third quarter and it would start to reverse in the fourth quarter at current levels.

Okay.

If I could just ask one more quick one.

And that is in relation to the business.

If you're looking at the third and fourth quarter this year, again, the marketing increasing have primarily gone into place in the second quarter and again in the third quarter.

Should we expect more investment in the third quarter than the fourth quarter?

Third quarter if you recall last year, we had a significant upspend and our intention is to certainly be at those levels again this year, maybe slightly up.

Fourth quarter, we're expecting to have a very strong program around holiday in particular to make sure that we're supporting the business well in this type of an environment, as Alan said.

Okay.

Thank you.

Thanks, Chris.

(Operator Instructions) Your next question is from the line of Eric Serotta of Consumer Edge.

Please go ahead with your question, sir.

Good morning, can you guys hear me now.

Good morning, Eric.

Sorry about that technical difficulty before.

Wanted to talk a bit about -- I'm sorry if someone asked this already.

I got disconnected.

But wanted to talk bit about what the Easter impact was in the quarter on both overall and Americas' consumer volumes.

Can you give us any rough estimate there?

It's kind of hard to quantify because of the amount of moving products.

But we think it was somewhere around 1%, maybe a little more in our North American consumer business.

A much lower impact than that on our global business.

It was -- certainly, we are very pleased with the results that we saw from the scanning and the take-away in North America on Easter, but it wasn't a significant impact in the movement between first and second quarter.

Okay.

And then to move on to the industrial side, last quarter you cited some weakness with your food manufacturer customers.

I notice that this quarter you talked about some strength with snack seasonings customers.

But could you comment more broadly about your packaged food manufacturer customers, what kind of volume and demand you've been seeing from them?

Well,--?

What your visibility is going forward?

What we're seeing is I think consistent is that they're focused on more basic kinds of products.

There are fewer incremental type innovations and more focused on larger innovations and so we're not seeing the level of activity but the things that they're placing their bets in fewer, bigger areas.

Promotional activity is more focused on value type products, just like it is in our consumer business.

So in terms of order of magnitude, and direction, was that part of the business still down and could you give us a rough sort of order of magnitude of packaged food versus restaurant customers?

Well, we don't specifically break those out, Eric.

I mean, just to reiterate, in the Americas, ex-acquisition, the industrial business was down on a volume mix basis about a 0.5%.

And to Alan's point there's pockets of things that were up and pockets of things that were down.

The casual dining certainly was down.

We saw some strength in some of the snack food seasoning so on balance that resulted in a 0.5% decline in volume mix in the America's region during the quarter.

Okay.

Great.

I'll pass it on.

Thanks a lot.

Our next question is from the line of Alton Stump with Longbow Research.

Please go ahead with your question.

Thank you.

Good morning.

Good morning, Alton.

Just had a quick question on the pricing front.

As you look out over the next few quarters we have seen very firm pricing to date at the retail level, no sign of any pushback.

Can you just give me some color on if you think that will be the case over the next couple quarters?

Yes.

It's pretty volatile.

We don't expect major pricing changes with the exception of our industrial business where we have commodity pass-throughs.

We've seen commodities bounce off their lows and have picked up momentum and so as we take coverage in collaboration with those customers, we'll pass those on and so pricing will move based on the timing that we take the coverage and how commodities move.

So that one is a little more volatile.

Certainly not the volatility -- we don't expect the volatility that we saw last year.

Our consumer pricing, we typically take consumer pricing one time a year.

We took it early this year.

We don't expect any changes to that.

And unless there's something dramatic that happens with an individual commodity and we certainly don't see any indications of that right now.

Okay.

Thanks.

And then just one quick follow-up.

On the private label side, are you seeing anything different from your competitors there or has their share still held relatively at bay?

It's pretty stable in terms of private label.

As we look at it over the year, it's grown, private label share has grown a little bit.

All other share has gone down.

The all other brands category has gone down about the same amount that private label has gone up and we've pretty well held share.

Great.

Thank you.

Thank you.

The next question is from Ann Gurkin of Davenport.

Please did ahead with your question.

Good morning.

Good morning, Ann.

Just wondering your opinion on whether there has been a permanent shift in consumer behavior?

In other words, are consumers going to shift more longer term to eating at home versus going out?

Is there any trend change that you expect?

I don't expect that it's a permanent trend to people eating at home.

Certainly, as the economy stays under pressure they will continue to do that.

But what we've seen is a fair amount of restaurant closings.

But I think -- I don't think we're seeing a permanent shift away from people eating out.

I think people are certainly being more selective and more value-focused and I don't expect that trend to reverse until the economy significantly picks up.

But I wouldn't expect that we're seeing a broad trend away from restaurants.

I mean, I think certainly just in the last couple of months, as there's been a little more consumer confidence, people are going out a little more but -- so I don't expect that it's a permanent change.

Great.

Thank you.

Our next question is from the line of Mitch Pinheiro with Janney Montgomery Scott.

Please go ahead with your question.

Good morning.

Good morning, Mitch.

On private label in the US, is there any difference in share gains and/or, second, third tier brand losses in the dry seasoning mix versus the core spice category?

That's -- I'm looking to see if I have that data in front of me.

I'm afraid that I don't.

What we focused on is our dry seasoning mix has been up pretty substantially.

There are -- in terms of the competition in dry seasoning mix, it's pretty much private label and McCormick and then selected private label competition in certain areas.

For instance, we have more competition on chili mix and taco than we do necessarily on a lot of the other dry seasoning mixes.

What we have seen is our dry seasoning mixes as we've relaunched to more natural, taking MSG out, repackaged, that our dry seasoning mixes have still double-digit momentum.

I guess broadly speaking, you have about 50% of the private label spice business?

That's correct.

Is that about the same -- how's that look in the dry seasoning mix private label sector?

A little lower in--.

Little lower.

Okay.

In the consumer business, I was just a touch confused.

Ex-acquisition, ex-Lawry's, volume and mix was up 1.5% in the quarter, in the Americas?

In the Americas, yes.

And you've cited I think double-digit growth in dry seasoning mix and grilling.

So that would mean the other spice, the other business was down significantly or how -- what am I missing?

Well, in terms of the mix of the portfolio, again, Mitch, the dry seasoning mix and grilling is a smaller percentage relative to, say, the total core portfolio.

So the core items did well.

The ones that were a drag as we mentioned were the higher end gourmet type items.

Okay.

Looking at the commodity outlook for the second half, Alan, I guess you indicated that there's really nothing out there, that that's sort of worrisome for you to increase prices further.

Is there -- so is that -- can I interpret that as basically even type of commodity exposure this year versus last year for the second half?

That's probably a reasonable assumption and also recall, because so much of our business is done as we head into the fourth quarter, we are building -- we're starting to build holiday items as we go into the early summer.

So a lot of our commodity cost is already locked in as we head into the second half of the year.

And last question.

Are you seeing -- the trends, certainly the heightened food safety issues, and combined with supplier consolidation, are you seeing any change in momentum on the industrial side relating to those two issues?

Yes.

I mean, we're seeing certainly a lot of the major food companies who may have been more looking for price type suppliers, coming and putting food safety and security much higher on the list as they're making their selection and we're seeing the benefit of that with certain of our customers.

There's still certainly going to be the price pressures.

Everybody's under the same kind of cost pressure that we have been.

But we are certainly seeing our food safety and security message resonate with our major customers.

Okay.

All right.

Thank you very much.

Thank you.

The next question is coming from the line of Robert Moskow with Credit Suisse.

Please proceed with your question, sir.

Hi, thanks.

Just a follow-up.

Gordon, do you have any interest expense guidance for the year?

You paid down some debt in the second quarter.

How low can it go?

Well, we're still anticipating to be up year-over-year, obviously because of the higher debt levels.

Obviously, it's going to be a function of the short-term interest rate environment.

It could -- we'll generally put a little bit more debt on in the third quarter and we generally pay a significant amount down in the fourth quarter.

So the run rate at the current level is probably about right.

It could tick up a bit in Q3 and then Q4 come back down.

Okay.

How accretive was Lawry's in the quarter?

We haven't provided that information.

I mean, we're still in line on the annualized basis with the 8 to 10%, I mean the $0.08 to $0.10 on an annualized basis and last year we got about $0.03 of that.

So it's roughly in line with that and there's not a huge amount of seasonality to the business, so you can back into the math with that.

Okay.

All right.

Well, thank you.

Thanks Rob.

The next question is a follow-up question from the line of Eric Serotta with Consumer Edge.

Thanks for taking the follow-up.

You guys commented earlier that or you commented on the first quarter that there was a significant retailer inventory destocking and I think you commented that it moderated or that inventory levels were a bit more normal this quarter.

Could you comment about your expectations for retailer -- normal seasonal retailer inventory build as we head into the peak selling season?

Do you think it's going to be less, greater, greater, lessor about the same as previous years and why?

We expect it to be pretty similar to previous years.

Everybody's being cautious and managing for cash, certainly, but I think if you take it back to where we were at the end of last year and the beginning of this year, there was a lot more pressure on the balance sheets than there is right now.

So -- but I would expect it to be pretty much the same.

Recall, in our business, because a lot of our products are very seasonal products, so if you miss the purchase cycle for grilling in the summer, you miss it for the year.

If you miss poultry seasonings, sage and turkey gravy in the holiday, you miss it for the year, you don't miss it by a week and retailers are very conscious of that and conscious of the profitability of spices and dry seasoning mixes in their mix.

We're in the top five in terms -- categories in terms of generating profit dollars for the grocery store.

So it's something that they're pretty conscious of and I don't expect them to be very cautious in the fourth quarter.

We could continue to see some quarter-to-quarter moves based on managing cash, but I don't expect it to be significant.

Okay.

And then the past two years I believe it's been or two years ago you accelerated some shipments of some holiday prepacks from the fourth quarter to the third quarter.

I believe it was kind of flattish last year in terms of the timing.

It was the same as what it was two years ago.

Do you -- you know, will that practice continue again this year?

Is that the new norm of sort of preshipping or preshipping to get some earlier merchandising on some of those holiday prepacks?

I'm sorry.

We have the same program in place that we've had the last two years and we expect a similar kind of impact on it.

The retailers who get the products in earlier, put them up earlier and sell more and that's the story we're continuing to help them understand and drive and it's good for us and it's good for the retailer.

We expect it will be roughly in line with where it's been the last couple of years.

Okay.

Great.

Good luck.

Thanks a lot.

I also wanted to direct one thing Eric I said earlier.

I said the Americas volume mix ex-acquisitions was down 0.5%.

Including acquisitions it was down a 0.5%.

I just wanted to make that correction.

That's on the industrial side.

Thank you.

Thank you.

Our next question is from the line -- a follow-up question from the line of dress Chris Growe from Stifel Nicholas.

Thanks again for taking the follow up.

I just have two quick questions for you.

I just want to be clear on last quarter there was a lot of discussion about mix in the Americas and consumer foods and if I -- if you talked about it I missed it.

Could you tell me how that looked in the quarter?

Well, we combined the discussion with volume and mix.

So on the US Americas in total volume mix ex-acquisitions was up 1.5% in the quarter.

We don't separately break out volume and mix.

Didn't you talk last quarter though about product mix hit if you will, to the business from, say, more dry seasoning mix of sales?

Certainly the dollar ring of a DSM packet is less than the dollar ring of some of, say, gourmet items, and that double-digit increase in the dry seasoning mix line won't completely offset some of the declines we saw in gourmet, just because of the dollar ring.

So that's factored into that volume mix number of 1.5% increase.

The last question I had was just on the Europe consumer business there was some mention of some increased promotional items and some coupons and that kind of thing.

Do you count that as part of the $20 million in marketing or is that separate of that investment?

Depends on what the -- part of the marketing mix is.

In terms of the value advertising and things that we're doing, that will certainly be part of that increased marketing spend, to the extent that we're doing price promotion, it would be an offset to net sales.

But for the -- and it's a combination of both.

Certainly, the media that we are -- that we're funding right now in the UK is very much focused on value.

But we're also doing some price promotion to entice consumers to continue to buy our products.

Okay.

Thank you.

Thank you.

Our next question is from the line of (inaudible) Barclays.

Please proceed with your question, sir.

Hi, it's an Andrew Lazar, how you doing?

Hi, Andrew.

Just two things I guess.

First, I'm curious, the jump in the consumer EBIT margin in the quarter, up 200 to 300 basis points, certainly higher than we typically see in the May quarter.

I assume that's kind of primarily Lawry's driven but just want to make sure if there was something else going on there?

Certainly Lawry's is a help but I don't want to also -- we've had a lot of activity as you know through our restructuring and CCI programs on managing SG&A so I don't want to attribute it all to Lawry's but certainly Lawry's is a help to that.

Got you.

Okay.

And then just one last one.

I guess there's been maybe over the past couple quarters kind of building, I don't know, chatter or interest and it seems like it's been more specific to McCormick for some reason around potential shifts or changes in your merchandising programs or shelving with various retailers.

Things along those lines.

I'm surprised it hasn't come up yet on the call.

I was just wondering are there any things around that that you can talk to, just to kind of address maybe what some of those concerns have been and whether they've been sort of well-placed or not?

Well, again, we're not going to comment specifically on specific customers.

But what we are continuing to see is a lot of consumer response to our programs.

We're going to see obviously different programs by different retailers around the country.

And we find that consumers will continue to buy our spices, predominantly over others.

If retailers want to generally sell what consumers want to buy and in this category that's McCormick.

So there's not a lot new to update.

There's obviously tons and tons of speculation around there as to what's going to happen.

And we just aren't going to -- we're not in a position to talk about that at this point.

But what we're seeing is consumers still want to buy McCormick spices.

We're supporting it with merchandising and advertising very heavily and are well positioned, we think, to hit the results that we've laid out.

I assume it's fair to say that retailers test a lot of things, a lot of the time that probably never really make it or that never rise to a level of kind of us talking about it that often.

And I assume that just continues to happen.

I would assume like it normally does but maybe I'm off on that.

It does and it will continue and different retailers are going to try different programs.

We certainly see -- we see a wood saw impact on things like retailers who institute a clean floor policy with no displays in one year and then they find they're way out of stock in the holiday season and the next year the displays are back in the store.

That kind of thing happens all the time from various retailers and so we're working on this on the Street every day to make sure that our products are in the store and well merchandised.

Thanks for your comments.

Thanks, Andrew.

Thank you.

There are no further questions at this time.

I would like to turn the floor back over to Ms.

Brooks for closing comments.

I would just like to wrap up real fast before Joyce jumps in.

We feel like we've had a very solid operating results for the quarter.

We had very strong performance in North America.

Good cost control across the whole business.

And it allowed us to make a very strong investment in marketing.

Obviously, we've had some headwinds to offset with the bankruptcy in Europe and some of the overall economy that we've had to deal with but we feel like this was a very solid quarter.

As we go through the year, we continue to look for opportunities to invest behind our brands.

And make sure that we're continuing to drive the strong sales results and we really thank you for your attention and support.

My thanks as well.

I just have a couple housekeeping comments through July 2.

You can access the telephone replay of today's call by dialing 877-660-6853.

The account number for the replay is 309 and the ID number is 323045.

You can also listen to a replay on our website later today and if you have any further questions, please give me a call at 410-771-7244.