McCormick & Company Inc (MKC) 2009 Q3 法說會逐字稿

Greetings and welcome to the McCormick's third 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 on today's call and to those joining us by Webcast.

The purpose of our call is to review McCormick's third quarter financial results and outlook and we have posted a set of slides to accompany today's call at our website, IR.McCormick.com.

With me 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.

As a reminder, our presentation today contains projections and other forward-looking statements and actual results could differ materially from those projected.

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

In addition, information we present today, which excludes restructuring charges as well as unusual items recorded in 2008 are not GAAP measures, and we present this information for comparative purposes, alongside 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 for a review of third quarter results.

Thanks, Joyce.

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

We are pleased to report another quarter of excellent profit growth.

On a comparable basis, earnings per share rose 14%, with an underlying increase in each of our two segments.

On this same basis, we achieved an impressive 19% increase in consumer business operating income, which was surpassed by a 34% increase in industrial operating income.

Together, these increases in segment operating income translated to $1 increase of more than $20 million in the third quarter.

These profit results were 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 factors.

We reported a 1% increase in net sales, which in local currency was a 6% increase.

As indicated on slide five, about one-half of the increase came from pricing actions, and the other half from the combination of volume and product mix.

The increase in volume and mix included a 3.5% benefit from our acquisition strategy.

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

For the consumer segment, we reported a third quarter increase of 2%.

In local currency, we grew consumer sales 6%.

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

In the Americas, consumer sales rose 8%, and in local currency grew 9%.

Volume and product mix added two-thirds of this increase, while pricing contributed one-third of the 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 third quarter.

Incremental sales from Lawry's in June and July added 8% to sales this quarter.

Excluding Lawry's, the impact of volume and mix was down 2% this quarter, following a 2% increase last quarter.

For our core items, consumer take-away of our branded items remains strong and in the US is up more than 5% year-to-date.

We had exceptional growth in sales of Grill Mates as a result of our marketing efforts in the US and Canada as well as increased sales of our dry seasoning mixes which continued to benefit from a relaunch earlier in 2009 that included reformulation with more natural ingredients.

Some of the items that did not perform as well this quarter were our premium gourmet items and some specialty food items.

In addition, we had the benefit last year of some new distribution into the dollar store channel.

We are looking for stronger sales in the fourth quarter with some incremental marketing support that Alan will discuss.

For our EMEA region, we reported a 13% decline in consumer sales.

In local currency, sales were down 3%.

Pricing actions taken late in 2008 added 1% to sales, while volume and product mix declined 4%.

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

Our business in France is still strong, particularly with our Vahine dessert items, which will be supported with incremental brand marketing in the fourth quarter.

In the Asia-Pacific region, we reported a 4% decline in sales.

However, in local currency, third quarter sales grew 5% with one-half of the increase from higher volume and product mix and one-half from pricing actions.

As I noted last quarter, we have launched several new products in China, and are expanding distribution of our brand into 10 additional cities in 2009, bringing the total to 56 cities in that country.

This is in addition to distribution gains under way in 1,500 additional street markets this year.

Industrial business sales rose 1% in the quarter, and when foreign currency exchange rates are excluded, we increased sales 7%.

As shown on slide 10, 4% of the increase was added by our pricing actions and 3% from favorable volume and product mix.

In the Americas, industrial sales rose 4% and grew 7% in local currency.

Compared to a year ago, certain material cost increases are being recovered through our pass-through pricing mechanisms for this business, which added 3% to third quarter sales.

Volume and product mix added another 4% with one-third from Lawry's and two-thirds from our base business, which included sales of of several new seasoning products for quick service restaurants.

Industrial sales for EMEA declined 10% but rose 8% in local currency.

This increase was the result of significant pricing actions taken to reflect higher input costs for this part of our business.

Sales volume to quick service restaurants rose this quarter, but was more than offset by lower sales of our branded products to food service operators that have seen more of a slowdown in this economy.

This led to a 3% decline in volume and product mix.

In the Asia-Pacific region, industrial business sales rose 1% and 6% in local currency.

The increase was driven by favorable volume and product mix, primarily due to strong sales to quick service restaurants in China, Australia, and other markets in this region.

Looking back on sales for the quarter, we had a strong benefit from Lawry's and some areas of solid growth.

While other parts of the business remain under pressure in the current economy.

As we look below the top line, it is clear that our actions to manage cost throughout the organization continued to be an important driver of profit as well as the fuel for our increased marketing.

Gross profit this quarter rose 80 basis points, due in part to our move toward a more favorable business mix including the addition of Lawry's.

Our margin improvement is also being driven by our Comprehensive Continuous Improvement program, CCI, as well as our restructuring actions and discretionary cost controls throughout our operations.

Year-to-date, gross profit margin is now 60 basis points ahead of the comparable period in 2008.

Turning to slide 15, our progress with CCI and cost controls goes beyond cost of goods sold and enables us to reduce our selling, general and administrative expenses.

We have also accomplished the integration of Lawry's with few incremental costs.

Other factors favorably affecting SG&A this quarter were lower distribution costs, and favorable benefit expenses.

As a result, SG&A in the third quarter was 25.5% of net sales, a decrease of 180 basis points from the year-ago period.

This decrease of 180 basis points is net of a 30 basis point increase from higher marketing spending.

In the third quarter, we added $2.4 million of support behind our brands.

As a reminder, this increase followed $6.8 million of incremental spending added in the third quarter of 2008.

Year-to-date in 2009, we have increased marketing by 15% to support Lawry's as well as our other leading brands.

Operating income was $117 million.

On a comparable basis, excluding restructuring charges, we increased operating income 22% in the third quarter, versus the year-ago period.

On this same basis, operating income for the consumer business rose 19% to $89 million.

For the industrial business, operating income of $28.5 million was up an impressive 34% from $21.3 million in the third quarter of 2008.

If you recall, industrial profit in the third quarter of 2008 was unfavorably impacted by lower volumes to restaurant customers.

But the increase in 2009 also compares favorably to $23 million of income in 2007.

Our tax rate for the quarter at 30.8% included an underlying rate of 32% as well as favorable discrete tax items.

This underlying tax rate of 32% reflects our current mix of business, and is more than our 2000 rate of 31%.

It is also higher than our 2009 guidance of 31%, and it's the rate we believe will apply to our business moving into 2010.

Income from unconsolidated operations this quarter was $3.1 million, down $2.2 million from the third quarter of 2008.

This was a decline in income from our unconsolidated business in Mexico, as well as some smaller joint ventures.

Our joint venture in Mexico has actually performed very well this year when measured in local currency.

We've had a double-digit increase in profit, even with higher soybean oil costs through the first three quarters.

Sales for this business are up significantly in 2009, with share gains in the mayonnaise category.

However, the 30% devaluation in the Mexican peso has adversely impacted our reported income from unconsolidated operations.

For the third quarter we reported earnings per share of $0.57 compared to $0.52 last year.

In the third quarter of 2008, we reported restructuring charges and unusual items related to the Lawry's acquisition, including the gain on the sale of Season-All.

These adjustments had a net favorable impact on EPS of $0.02 a share.

On a comparable basis, EPS increased 14% or $0.07 to $0.57 from $0.50.

Higher operating income added $0.11 per share, offset in part by $0.02 from lower income from unconsolidated operations.

$0.01 from the higher tax rate, and $0.01 from lower interest income.

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

We are managing our business for cash and our second year of McCormick profit are seeing great results.

With McCormick profit, we reward our business leaders not only for strong operating income but also for their management of working capital.

For the first three quarters, cash flow from operations reached $195.1 million, an increase of $79.8 million from the first three quarters of 2008.

This increase has been driven by higher net income, including the positive impact of Lawry's, as well as effective working capital management.

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

We initially set a goal for a three to five day reduction in our cash conversion cycle and through the first three quarters have been tracking towards the higher end of this range.

Cash flow from operations includes a year-to-date $35 million increase in our US pension contributions.

Any further contributions to this plan in 2009 will be minimal.

As for pension expense, we first indicated back in January both in our remarks and our financial reporting, our pension expense is favorable in 2009 as it was based on a September 30th, 2008 measurement date, but we expect this expense to increase in 2010.

Pension expense for 2010 has been getting some attention from investors so let me comment a bit further.

A big factor in the actuarial determination of this expense for 2010 will be the discount rate, which will be based on rates at November 30th, 2009.

We fully expect the discount rate at this date to be below the discount rate applied at the last measurement date.

A lower market value of assets will also affect this calculation.

Because we are still two months away, it is still too soon to know the exact amount of our 2010 pension expense for our US and non-US plans.

However, based on current conditions, the projected increase would have an EPS impact in a $0.05 to $0.07 range.

Keep in mind that any increase in pension expense is a noncash item.

I'll conclude my comments on the balance sheet and cash flow by pointing to our great progress to debt reduction.

As you know, our primary use of cash during 2009 has been the reduction of debt from the Lawry's acquisition.

Our debt net of cash is approximately down $200 million from this time a year ago.

At this point, I'd like to thank everyone for their attention and turn it over to Alan.

Thanks, Gordon.

And I'd like to add my welcome to those on today's call.

The environment we are in continues to be challenging and many consumers around the world remain under pressure.

We are compelled to remain agile in identifying and pursuing growth opportunities and vigilant in managing our costs.

With this backdrop, we're very pleased with our financial performance in the third quarter.

As you might expect, with our breadth of products and customers, there are areas of strong performance, as well as parts of our business where improvement is still needed.

Our sales and profit in Europe continue to suffer from the difficult economy in our major markets, particularly the you the United Kingdom .

Across most of our global markets, our industrial business has worked with quick-service restaurants to grow sales, but it's seen continued softness in sales to other food service channels and a slowdown in the pace of new product launches with food manufacturers.

And our income from unconsolidated operations reduced profit this quarter.

Outweighing these challenges was an underlying strength in the business.

An important factor in our success this year has been Lawry's.

Taking a look at slide 20, it's been one year since we completed this acquisition, and with excellent planning and strong execution across our operations, the integration is complete.

We've had a successful launch of new products and a great start to our marketing campaign.

This business has been integrated with very little incremental cost and has boosted both gross profit and operating income margins.

We've also benefited from lower interest rates on the acquisition debt in the last 12 months.

By any number of metrics, Lawry's has not only been our largest acquisition, but one of our most successful.

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

Our employees have been diligent in reducing costs throughout the business.

This is demonstrated by our improvement in gross profit margin and our SG&A.

We are currently tracking ahead of our $30 million goal for 2009 and now expect to reach about $35 million in cost savings.

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

Lower costs and improved margins are providing the fuel for increased brand marketing support.

On slide 22, I want to share with you the latest ROI measurements just received for our US business.

We continue to see returns above industry averages for various types of media, and are encouraged by the success of our marketing programs.

Since 2003, we've increased our brand marketing by more than 50%.

For 2009, including Lawry's, we plan to invest an additional $20 million in marketing, and by year end we'll have reached or exceeded this target.

We're positioned for a strong sales performance in the fourth quarter.

With print, TV, and interactive media, this will be our largest holiday campaign yet in the US, which will include our first ever holiday flavor forecast.

We have additional spending planned for Simply Asia and Zatarain's in the US, our Vahine line in France and some new products in China.

Together, Lawry's, lower costs and brand support have led to a solid performance through our first three quarters.

Year-to-date, sales are up 7% in local currency, gross profit margin has improved 60 basis points, and we have increased earnings per share by 10% on a comparable basis.

If you turn to slide 25, I'd like to provide an update to our financial outlook for the fiscal year.

At the top line, we're reaffirming sales growth of 2 to 3%, which includes the impact of unfavorable currency rates.

We now expect to reduce costs by $35 million, and expect at least 50 basis points of gross profit margin improvement.

Incremental brand marketing of at least $20 million will provide support for our 2009 sales growth objective, and build some early momentum heading into 2010.

Taking into account all of these factors, we've narrowed our range for 2009 earnings per share to $2.26 to $2.28, which excluding a projected impact of $0.05 per share of restructuring charges, is an 8 to 9% EPS increase on a comparable basis with 2008.

Looking ahead to 2010, we're still developing our budget and are not yet prepared to set our objectives.

But I'd like to share a few preliminary remarks on slide 27.

With the integration of Lawry's complete, and the conclusion of our restructuring program, we're focused on growth.

With product innovation, marketing programs and expanded distribution, as well as further progress with our CCI program.

As Gordon explained, pension expense will be a headwind next year.

We are also considering a further step-up in brand marketing for 2010.

We believe that with consumers eating more at home, we have a unique opportunity to introduce new product concepts that provide both value and convenience, and to support these launches with a comprehensive marketing program.

Following strong test market results this year, we'll be launching two new product lines in the US in 2010, Perfect Pinch and Recipe Inspirations.

Perfect Pinch makes it easy for consumers to explore new flavors and create inspired meals and it's priced right at just below $3.

A number of salt-free blends are included in the 18 varieties.

Recipe Inspirations are an ideal complement to Perfect Pinch for consumers who are more comfortable measuring out their ingredients and following a recipe.

These products offer pre-measured spices and herbs and a collectible recipe card.

With six varieties including garlic and lime fajitas and apple and sage pork chops, Recipe Inspirations are a twist on the familiar and a solid value with a price just below $2.

Other products recently launched or ready for 2010 include our Patisserie Vahine baking mixes in France, Airplane Gelatin create-a-jelly in Australia, and Honey Jams in China which feature honey as a natural sweetener and can be used as a spread or in tea.

We're very excited about these products and other marketplace opportunities ahead of us, and we look forward to completing our budget process, setting financial goals for 2010, and sharing these with you in a few more months.

Let me summarize.

I'm proud of our performance.

We've achieved excellent results through the third quarter and believe we are positioned for a strong holiday period.

2009 is shaping up to be another year of record financial results for McCormick.

I'd like to conclude my remarks by recognizing the employees of McCormick.

We have faced a number of challenges in a turbulent environment in a difficult economy.

To address these challenges, employees in each operating unit have been diligent in managing costs and cash.

In markets around the world, we have demonstrated an ability to identify and develop opportunities for growth in today's marketplace with new products, effective marketing, and business expansion.

Our employees, our market position, and our passion for flavor give me confidence that we will continue to build value for McCormick shareholders.

Now, as we move into Q&A, I'd like to address the most frequent question that we've been getting from investors for the past year, concerning the spice category and Wal-Mart.

In a limited number of stores, Wal-Mart will be testing a category solution which expands private label to core A and Z spices with no duplication by McCormick or other regional brands for these items.

In a similar number of stores, Wal-Mart will test a total McCormick solution with no private label, and a third set of stores will test a set primarily with McCormick and very limited private label.

We wouldn't normally discuss this level of detail concerning any of our customers, but there's been so much attention on this that we want to provide as much clarity as possible to our investors.

We will limit our comments on this test, but I'd like to add that we expect no significant impact to our financial results during the test.

We welcome this opportunity to optimize our category with Wal-Mart as we do with all of our customers.

Spices and seasonings are one of the most profitable categories for our customers in grocery.

McCormick has been a leader in this category for decades, driving growth, innovation, superior merchandising, and bringing consumers to the aisle with advertising.

I'd now like to take your questions on our results from a strong third

Thank you.

We will now be conducting a question-and-answer session.

(Operator Instructions).

Thank you.

Our first question is from the line of Chris Growe with Stifel Nicolaus.

Please proceeded with your question, sir.

Hi, good morning.

Good morning, Chris.

Good morning, Chris.

I just had two questions for you.

The first one, just as I was looking at SG&A and it being down so dramatically or so meaningfully this year at least as a percentage of sales, I wonder if you could speak more about that.

I know you have cost savings coming through but as I plans that against the incremental marketing I was surprised by the degree of the decline in SG&A.

Related to that, when you say consumer marketing is some of that going into promotion or things that would be netted against the top line, maybe that's why I'm not seeing it all come through that line.

Yes.

The consumer promotion spend that we have, some of it is certainly going to consumer advertising.

Some of it is going to more value promotion which would be a reduction in net sales so what you're seeing with our spend is pretty pure in the SG&A line.

Now, we have had very good results in terms of managing our costs this year.

We also have the leverage of Lawry's because we added virtually no SG&A as we brought Lawry's in, other than incremental advertising.

Chris, I would just like to add, it's obviously the Lawry's impact as we've talked about previously.

Distribution expenses are also a factor that we mentioned.

We've had some favorability in some employee benefits so all of those factors have contributed to improved SG&A margins.

Okay.

And then related to the consumer division in the Americas, with volume down in the quarter, given the at-home eating trend I was surprised by that.

I guess is that something where you see a need to increase your spending as well, whether it's promotion or it's consumer based marketing?

I know you have new products that look pretty exciting.

Just curious how you look at that volume decline during the quarter.

We're certainly not happy with the volume decline.

What we are seeing is that our overall volume sales are not keeping track with what we're seeing from a consumer take-away in the measured channels that we can follow.

So that's why we feel relatively good about our fourth quarter.

But I would add that last year in the third quarter, our volumes were up 4%.

Some of that was pipeline fill for sales to a couple of dollar retailers where we increased distribution which didn't repeat this year.

Right.

Okay.

Just one final one would be have you given a cost saving figure for 2010 as well?

I don't recall if you've given that or not.

No, we haven't laid that out yet.

We're still compiling our budgets and putting everything together but we would expect to do that with our fourth quarter call.

Okay.

Great.

Thank you.

Our next question is from the line of Ken Goldman of JPMorgan.

Please state your question, sir.

Good morning.

Good morning, Ken.

Thanks for the color on both Wal-Mart and pensions.

I think just any insight there that you provided will help take some overhang away from the stocks and I appreciate that.

My question is on discounting.

It's not just for you guys but for food companies in general.

I'm curious how you think about that.

Because we're in a period where list prices haven't gone down as much as some had feared but food manufacturers are starting to spend against discounting, couponing, whatever the action is.

How long do you think that is -- how long are you comfortable discounting in general before you're starting to worry about the brand equity?

It hasn't been that long ago that we've seen some other companies in other categories discount too much and hurt the brand equity so I'm just curious how you balance that out in your strategy when you think about returning some value to the retailer and to the consumer.

What we're trying to do is make sure that the value gets in the hands of the consumer and then in store respond with merchandising so that there's kind of a 360-degree to bring consumers to the shelf in a time when there's a lot of uncertainty.

We've been doing that for most of this year as we head into a tough economy.

It has been working through the first part of the year.

We want to make sure that we continue to provide that Val value for consumers in the fourth quarter this year as well as we will into next year and we'll keep evaluating the return and how that's working for us.

So I'd say I think it's going to be with us for a while, especially because unlike some of our other food industry compatriots, we're competing almost primarily with private label so what we want to do is make sure that our price gaps as the consumer buys them are reasonable and the consumer doesn't have a reason to go other places.

Thanks very much.

Thanks, Ken.

Next question is from the line of Eric Serotta of Consumer Edge.

Please go ahead with your question, sir.

Good morning, guys.

Good morning, Eric.

Just wanted to follow up on Chris Growe's question regarding volume growth in the Americas.

Looks like volumes were down about 2%, X-Lawry's.

You highlighted that the real weakness was in the gourmet and some of the other premium lines, and that things like dry seasonings, mixes, and Grill Mates were up.

I guess my question is, given the relative size of the gourmet and some of the premium lines that you called out that were weak, I wouldn't expect it to have such a pronounced impact on the volume number.

So how is I guess the mainstream portfolio of core spices and seasonings performing from a volume mix standpoint in the quarter?

And I have a couple follow-up questions.

Okay.

Let me start with the one and then we'll get at it.

First off, it's volume and mix, not just pure volume.

So while our dry seasoning mix is up pretty substantially, it doesn't offset the dollar sales impact of, say, gourmet spices.

Gourmet spices at retail tend to be about $4 a unit whereas dry seasoning mixes tend to be about $0.70 to $0.80.

So while the actual physical volume may be up, it's the combination of volume and mix that is down and something that we are not -- that we want to continue to drive.

We stated in an earlier quarter, we are trying to sell what consumers want to buy and they're finding the lower price points of dry seasoning mixes to be a value.

That's something we're going to drive and get in their hands.

In terms of the core volumes, it's responding not as robustly in consumer sales as it is in the actual take-away.

So we're still seeing healthy volume growth at retail.

It just hasn't translated as strongly into what we're seeing in our overall sales, although, again, I'd remind you that we're heading into our fourth quarter when core spices are by far the largest selling items.

Another factor in that that Alan mentioned earlier is the distribution we had last year into the two new value priced retailers that we're going up against this year.

And those are all core spices.

Sure.

Thank you.

And to follow up along those lines, you mentioned that overall take-away in core spices was above your reported sales numbers, which would mean that there was I suppose some dropdown in retailer inventories.

Is that -- relative to a year ago.

Is that a fair assumption or is that a fair conclusion?

And what's your assumption with respect to retailer inventories as we get into the critical selling season, very narrow window that retailers have to sell in this very high margin category for them.

I think most retailers have been pretty upfront about the fact that they are growing their sales a lot faster than they're growing their inventories and we've seen it in a number of recent reports.

The fourth quarter for us is so important, not just for us, but for the retailer, because, again, it is very high margin and we've tracked our plans and our shipments of the holiday merchandising programs, a lot of the product that we sell in the fourth quarter goes through on displays and it looks very positive at this point.

We have an all-out effort on making sure that the retailers have what they need for the consumers when they come to buy their holiday spices.

Great.

And one last housekeeping question.

Did you quantify how much pension was up in fiscal or should be up for all of fiscal 2009?

Favorable this year, Eric.

It's actually favorable this year.

Right how much the favorable benefit was this year?

We did not quantify it.

That's disclosed in our Q and it's been running I'd call it maybe roughly a favorability of about $2 million to $2.5 million a quarter.

Great.

Thanks and good luck, guys.

Thank you.

(Operator Instructions).

Our next question is from the line of Eric Katzman with Deutsche Bank.

Please proceed with your question.

Hi, good morning.

Good morning, Eric.

Good morning.

I guess my question -- let me first touch on the cash flows and the balance sheet.

Yes, you have pension going up next year but you've been taking your cash flow and paying down debt post the Lawry's deal.

My calculation suggests you're down to two times net debt to EBITDA.

Do you see a more aggressive share repurchase program or is the priority on cash flow going to be towards debt paydown?

Our priority is still going to be on debt paydown through next year.

Okay.

All right.

And then in terms of the business, I guess you threw up some slides there on ROI with regard to advertising and I guess with the volume numbers being through this year relative to I think you said double-digit increase in advertising, it just -- it's not clear to me that you're getting such a great ROI, at least maybe that's the difference between the shipments and the offtake, but maybe you could go a little bit more into that as to why you're so comfortable that the ROI is good.

Part of the incremental spend is Lawry's, so -- and we're just starting to see the impact of that.

But based on the marketing mix analysis that we've been doing consistently for the last seven or eight years, it's still showing that we're getting the ROI and we see that again in the consumer take-away.

Okay.

And then last question, I'll pass it on.

On the industrial side of the business, I guess there's been some mixed signals between companies.

Some of them are saying that they've seen a stabilization, some are still seeing weakness spreading into QSRs, while others have seen maybe even a little bit of a pick-up.

You have a pretty broad-based view there.

Can you just talk about the food service component and what you see of late?

Yes, we're not seeing a broad recovery in overall food service.

We're benefiting from some specific wins with customers on some new initiatives that have been very successful.

So I wouldn't necessarily read it that the food service business has 100% recovered based on the fact that we had pretty good sales.

Ours were specific products that were impactful for significant customers.

It's kind of like the discussion that we've had over the last couple of years where if McDonald's for instance is winning because they're selling more coffee, it doesn't necessarily help us.

In this case, I wouldn't necessarily translate into overall success in the broad food service industry, but we've been successful with some new products that have done very well.

Okay.

Thank you.

Sure.

(Operator Instructions).

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

Please proceed with your question.

Good morning.

Good morning, Mitch.

So on the industrial side, you know, it's a pass-through type of pricing mechanism.

What are the expectations for the fourth quarter on the industrial side?

Well, it's going to be a function of our customers' products and promotions I guess is the best way to describe it.

Are you talking in terms of pricing mix?

Pricing.

Commodities have moderated but we're looking out a little ahead.

We're not as close in.

So pricing, we'll be passing through decreased pricing as the coverage rolls off and we replace it with lower cost coverage.

On the whole, we're seeing some decent signs of life again in our overall industrial customer mix, but not -- it's still not as robust as we would like to see.

But we'll see some continual pricing downward as commodities go down.

But is this -- so it's sort of on a lag basis, is that correct, maybe a three to six month lag?

No, it's not the lag that it was before, but what you may be seeing is a lag because of coverage positions.

We're actually passing through the actual commodity positions on major commodities that we're taking with customers.

Okay.

And when you look at the Americas, the volume declines, product mix, how did -- how does your dry seasoning mix and gourmet spice performance compare to the category?

We've gained market share in dry seasoning mix.

Gourmet is down significantly, so -- but I wouldn't necessarily say we've lost share in gourmet spices.

We don't necessarily break out the separate gourmet category.

We've held share overall in spices but in gourmet, the switch has been more from the premium products to more the every-day products.

And has there been -- how's private label done in those two categories?

Private label is largely not playing in the premium category.

There are certainly some customers who have differentiated private labels, so there's a few there, and I'd say it's not substantial enough to really even talk about.

Private label in general has grown this year but what we've seen in the last couple of periods is a reduction in the growth rate.

They're still growing.

They're still gaining -- private label is still gaining share but it's not as strong as the share gains that we saw early in the year.

Also, I would assume it's fairly logical and consistent with prior periods, but in terms of channel, channel mix in terms of where your volumes, are you still -- has anything changed there?

Volume growth is still stronger in the unmeasured markets than it is in the measured markets, but still, grocery is a significant percentage of our overall US consumer business.

Okay.

All right.

Thank you very much.

All right, thanks, Mitch.

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.

Thank you.

Thank you for joining our call today and if you have any other questions for us you can call me at 410-771-7244, a replay of the call will be available early this afternoon at our website, IR .McCormick.com.

Thank you for joining us today.