McCormick & Company Inc (MKC) 2010 Q1 法說會逐字稿

Greetings and welcome to the McCormick's first quarter financial results conference call.

At this time all participants are in a less in 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 of 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 first quarter financial results and latest 2010 outlook.

We have posted a set of of sides to accompany at our website at 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.

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

Good morning, everyone, and thank you.

We're pleased to report strong financial performance for McCormick's first quarter of 2010.

Our results included 6% sales growth, gross profit margin up 100 basis points and a 16% increase in earnings per share.

Gordon will be reviewing some of the details with you shortly, but I'd like to start off the discussion by sharing with you some important business highlights.

One of our key objectives for 2010 is to increase our brand marketing support, to connect with consumers at a time when they are preparing more meals at home and looking for great taste, convenience, and a good value.

We set a goal to spend an incremental $20 million on marketing programs, with a large portion of this to occur in the first half of 2010.

For the first quarter, we increased promotion and advertising by $8 million.

This is 28% more than we spent in the prior year period.

In the US, we boosted our holiday programs with television ads and our first ever holiday flavor forecast.

Incremental advertising also featured Zatarain's reduced sodium products and the high anti-oxidant levels of our super spices.

We drove great first quarter results in our consumer business with these campaigns.

As you can see on slide six, for our US consumer business, unit volume of herbs and spices were up 7%, extracts up 23% and we achieved 10% increases for both our McCormick brand dry seasoning mixes and our Zatarain's line.

In this same market, our sales of private label and economy brands declined.

Internationally, support for our Patisserie Vahine range of premium quality home made dessert mixes lead to a solid sales growth in France.

We grew sales for a broad array of Schwartz brand products in the UK and McCormick brand sales in China were up double digit with an increase in marketing support as well as our ongoing distribution expansion efforts.

Turning to product innovation for the consumer business, our salesforce has made strong progress in transitioning our range of bottled blends to the Perfect Pinch line.

Perfect Pinch makes it easy for consumers to explore new flavors and create inspired meals.

In addition, we've had enthusiastic retailer acceptance of our Recipe Inspirations items with commitments from two-thirds of our retail accounts.

Recipe Inspirations feature pre-measured spices and a collectible recipe card that make it easy to create flavorful meals at home.

For each of these new lines, we're geared up for a dedicated marketing campaign set to launch in the next few weeks.

While I'm going to let Gordon provide the financial details, I want to make general remarks about our industrial business as outlined on slide eight.

We were pleased to win new business that included flavors sold to food manufacturers in both the United States and Mexico.

We also grew sales with a number of existing items and customers.

For example, we increased our sales to quick service restaurants in both Europe and Asia; however we continue to face some challenges in the current environment.

Demand from quick service restaurants was down in the US and we had reductions in sales of bulk honey in Canada and bulk spices in Asia.

In addition, we still have some sales weakness in the UK foodservice channel following the 2009 bankruptcy of our primary distributor.

That was a long list of pluses and minuses for our industrial business, but the net result was that we moved the sales mix toward more value-added, higher margin products, and the net result from the profit line was a big plus.

This positive mix of sales, along with CCI-lead productivity improvements delivered an outstanding 34% increase in operating income for our industrial business.

Our teams are doing a great job navigating the current environment and driving profitability.

I mentioned CCI, our comprehensive continuous improvement program, as a factor behind these results.

There was good progress across all of our operations early in the year, and we've now identified projects that account for nearly all of the $35 million to $40 million that we set out to deliver.

We are confident that this is an achievable goal for 2010.

One more highlight from the current quarter, before I turn it over to Gordon Stetz that our joint venture, that of our joint venture in Mexico.

Driven by results of McCormick to Mexico, our income from unconsolidated income nearly doubled from the year ago period.

As indicated in our January call, we expected a significant increase lead by our joint venture in Mexico.

If you recall back in the first quarter of 2009, this business was affected by an unfavorable position with soybean oil and an unfavorable currency rate.

About midway through 2009, we had worked through this inventory position and currency rates stabilized.

These improvements continued into the first quarter of 2010 and lead to a significant increase in income.

While this swing in material costs and currency are noteworthy, I would be remiss if I didn't highlight the impressive sales increase from McCormick to Mexico joint venture.

Using the McCormick brand name, McCormick to Mexico products include spices and seasonings, teas, marmalades, and mustards, but the leading product line is mayonnaise.

Mayonnaise is a growing category Mexico and our business is stimulating this growth with product and packaging innovation and with advertising.

With a 350 basis point increase in market share the past 12 months, these efforts are clearly having a positive impact on retailers and consumers.

We'll hold additional topics for our investor conferences here in Baltimore, which is just a few weeks away.

A number of you have already registered for this event and you can check with Joyce if you have not yet registered and would like to do so.

At this conference, we look forward to discussing our progress with key growth initiatives and our longer term outlook for McCormick.

Those attending will have a chance to hear from and meet the key members of our leadership team.

I'll conclude my remarks with a heartfelt thanks to McCormick employees around the world for their committment, their talent and their energy.

They're driving great results and have us off to a strong start in 2010.

And now, I'd like to turn it over to Gordon.

Thanks, Alan, and good morning, everyone.

I'd like to go through some of the details behind our strong first quarter financial results.

Let's start with a look at our consumer business.

As Alan indicated, we increased our brand marketing support in the first quarter, which for this part of our business, was up 31% to $32 million, an $8 million increase.

Even with this higher spending, operating income for this business grew 8%, with higher sales and cost savings from our comprehensive continuous improvement program, CCI.

In the Americas region, sales rose 5% and in local currency grew 3%.

Our investment in brand marketing support is paying off in top line growth with increases in holiday spices and extracts, dry seasoning mixes, and Zatarain's products.

We were extremely pleased with this response to our marketing support.

Offsetting these unit increases were reductions in our US sales of private label and economy brands and an unfavorable product mix in Canada.

Our consumer sales in Europe, Middle East and Africa, EMEA, rose 13% in the quarter, with a significant benefit from currency exchange rates.

We were pleased with growth of 3% in local currency, with contributions from both favorable volume and product mix and pricing actions.

Category increases in the UK and France remain robust, and we achieved strong sales in these markets in the first quarter with incremental marketing for our Schwartz, Ducros, and Vahine branded products.

These increases were offset in part by the sales performance in some of the smaller markets where we do business, including Belgium, Italy and the Netherlands.

In the Asia Pacific region, sales increased 20% with growth in local currency 6%.

This was driven by a double digit increase in China, where we significantly increased marketing support and continued to gain distribution into new cities and retail channels.

Our primary areas of focus in the industrial business in 2010 are product innovation and margin improvement.

Through both, a more favorable business mix in CCI lead cost savings, and the first quarter we made great strides in each of these areas.

While sales in local currency declined 1%, operating income rose 34% as a result of a positive shift in our sales mix and greater productivity across our operations.

With the introduction of some new value-added products, we offset the impact of continued weakness in certain foodservice channels.

Let's take a look at first quarter sales results for each of our three regions on slide 14.

Sales in the Americas rose 1% and in local currency, declined 1%.

In response to lower commodity costs such as dairy items, we reduced pricing for certain products during this period.

We grew volume with the introduction of new flavors sold to food manufacturers in the US and in Mexico.

This was offset by the sales impact of weak demand from the restaurant industry.

For both food manufacturers and foodservice customers, we are encouraged by a number of new products in the pipeline.

In EMEA, industrial sales rose 15% and in local currency, increased 1%.

We had good sales growth with quick service restaurants in this region and with snack seasonings.

However, sales of branded products to the UK foodservice customers continued to be impacted by the bankruptcy of our primary distributer that occurred in the second quarter of 2009.

Sales rose 11% in the Asia Pacific region with a 1% increase in local currency.

Here too, sales to quick service restaurants were quite strong with improving restaurant traffic in China.

This was offset in part by a reduction in our bulk ingredient sales during the first quarter.

Across both segments, sales rose 6% and in local currency, the increase was 2%, largely from higher volume and product mix.

With an 8% increase in operating income for our consumer business, and the 34% growth in industrial products, we increased operating income for the total business 12% with operating income margin up 70 basis points.

As Alan mentioned, gross profit margin improvement was significant, at 100 basis points for this quarter.

This was ahead of our 50 basis point projection for the year, as a result of a particularly favorable business mix during this period.

I would also note that our cost of goods sold to the first quarter included $5 million of costs associated with our recall of a limited number of products that contained an ingredient supplied by Basic Food Flavors.

Let me step in here for a few remarks.

As those of you who closely follow food companies realize, this was an industry wide issue that affected a significant number of companies and products.

At McCormick, this ingredient is a very small component in our products, and our action to recall product was done from an abundance of caution.

There has also been news about a recall of products containing contaminated pepper.

This recall affected a number of companies that purchased pepper from several of our competitors.

I want to point out that McCormick was not involved in any of these pepper-related incidents.

We pride ourselves in our committment to producing high quality, wholesome food and have great confidence in our food safety protocols and the effectiveness of our supply chain.

Thanks, Alan.

In the first quarter, income from unconsolidated operations nearly doubled from the year ago period.

As Alan indicated, an excellent performance by McCormick to Mexico lead to this impressive increase.

Keep in mind that the year on year benefit from soybean oil cost and foreign currency exchange rates will moderate as we head into the second quarter and remainder of 2010.

Our 31% tax rate for the first quarter of 2010 was above the tax rate in the first quarter of 2009 which included a benefit from discrete tax items.

We continue to expect the tax rate for 2010 to be near 32%.

Earnings per share in the quarter reached $0.51, up 16% from the prior year, and the $0.07 increase was comprised of $0.06 from higher operating income, and $0.02 in income in unconsolidated operations.

The net impact of favorable interest expense and unfavorable tax rate and higher shares outstanding lowered EPS by $0.01.

I'll comment briefly on the balance sheet and first quarter cash flow and refer you to slide 18.

As is typical in the first two quarters of our year, cash flow from operations was fairly neutral.

For the first quarter of 2010, cash flow from operations was a negative $5 million, compared to a negative $13 million in the first quarter of 2009.

The current year result includes an incremental $25 million in US pension contributions.

We continued to make head way with our McCormick profit and the focus it brings on working capital.

The McCormick profit, we reward our business leaders not only for strong operating income but also for their management of working capital and saw good progress this quarter with inventory reductions.

Let me finish up with our 2010 guidance.

If you turn to slide 19, I would like to comment on our financial outlook for the Fiscal Year.

While earnings per share exceeded our expectations for the first quarter, we continued to project a range of $2.49 to $2.54.

As we move into the balance of the year we expect a more moderate increase in our joint venture income and gross profit margin improvement closer to our 50 basis point target.

We reaffirmed 2 to -4% sales growth in local currency and continued to project a 2% benefit from favorable foreign currency exchange rates.

Other aspects of our guidance also remain unchanged.

50 basis points of gross margin improvement, $35 million to $45 million of cost savings from CCI, and a $20 million increase in marketing support.

While we do not typically provide quarterly guidance, we do want to point out that we do not expect a repeat of our 2010 first quarter results in the second quarter.

As mentioned earlier, we had particularly favorable sales mix in the first quarter that significantly improved gross profit margin.

Also, we are planning an even greater increase in our marketing support.

This is on top of a $10 million marketing increase in the second quarter of 2009.

Because a large portion of the 2010 spending is related to awareness building for our new products, it won't have the immediate sales lift we saw with our first quarter spending.

I'd also like to point out that we expect the increase in income from unconsolidated operations to moderate a bit from the first quarter's result, as pointed out earlier in our remarks.

As a result of these factors, our current outlook is for second quarter EPS to be in a $0.42 to $0.45 range.

To wrap up our remarks this morning, our first quarter sales, profit and cash have given us increased confidence in our outlook for another year of strong performance.

We believe 2010 will be a year of record financial results, and increased value for McCormick shareholders.

Now, let's take the first question.

(Operator Instructions).

Our first question is from the line of Robert Moskow with Credit Suisse.

Please go ahead with your question.

Hi, thanks, good morning.

Good morning, Rob.

I thought I heard a comment about private label sales being weaker in the quarter and obviously mix was stronger.

Did I hear that correctly and to what extent did that impact mix and then maybe just review if that's not it, what was so good about mix and why wouldn't it continue to be good for the rest of the year?

You did hear that right, Rob.

In the quarter our core business items, which were the focus of all of the advertising and promotional efforts did have a very strong result and private label had a weaker trend, so it had a favorable impact on the mix and you saw that in the gross margin performance.

In terms of a go forward, the indication that we're giving is that we expect the gross margin to be more in line with the full year guidance of 50 basis points.

The main reason for that is as we promote mainly into the second quarter, we're looking at awareness building activities as it relates to new product introduction so those core items that performed so well in the first quarter we wouldn't expect them to be quite as strong in the second quarter as we're shifting to spend more towards the new product and awareness building items.

But as it impacts sales, if you're spending more advertising to put even more effort on these new products and hopefully that would push you even farther away from private label, just from a sales perspective, wouldn't that keep helping your mix or aren't these new products accretive to mix?

They will be but we expect those to build over time, not to have the immediate impact in the quarter, and so what we're doing is an investment spend in the second quarter.

Okay.

Also, private label, recall, is a smaller component of the portfolio so while it did have a bigger impact it was really on those core items that performed well that we mentioned in the call earlier.

Just broadly speaking in the category, have you seen that overall that the growth in private label has slowed, and do you think we hit a peak at some point last year?

Yes, I think private label is still growing.

The rate of growth has decelerated a bit as we've seen in spices and herbs.

It has actually continued to grow in dry seasoning mixes, but we're growing a lot faster and gaining share, so we are seeing some deceleration.

Great.

Thank you very much.

I'd like to make one correction to a statement I made earlier.

I had indicated that the CCI savings for the year were going to be $35 million to $45 million.

In fact the slide is right.

Slide 19 is right.

It's going to be $35 million to $40 million for the year.

Our next question is from the line of Alexia Howard of Sanford Bernstein.

Please go ahead with your question.

Good morning everyone.

Good morning Alexia.

Just a follow-up on pricing.

I think in the US your pricing was pretty much flat year on year.

I guess we've seen price gaps to private label a bit over the last couple years in core spices.

Do you feel as though your price gaps to private label are pretty much where you want them and we wouldn't expect to see further significant deflation in that segment from here on out?

I wouldn't expect to see significant deflation; however, I would remind you that through last year, and even as we go into this year, we're still both advertising heavily and promoting heavily, to make sure that we maintain good volumes of our brand versus private label.

The price gaps are still pretty extensive on certain products and we want to make sure that we stay competitive.

Great, and then just a real quick follow-up.

Are we basically done with the foodservice distributer issue next quarter or is it still going to be a bit of a head wind?

Yes, it should finish up this coming quarter.

Great.

Thank you very much.

I'll pass it on.

Thank you.

Our next question is from the line of Ann Gurkin with Davenport.

Please go ahead with your question.

Good morning.

Good morning, Ann.

Wonder if I could start with Wal-Mart and some shelves are set with Great Value and McCormick brand side by side, particularly larger volume items like onion salt.

Can you help me understand the level of cannibalization to McCormick brand from the set of Great Value right next to the product on the shelf?

Can you help me on that?

I'm sorry, Ann, go ahead.

That's okay.

Go ahead.

A lot of the side by side products where you see both in almost every retailer aren't new.

There's been on, between 20 and 25 items, across almost all channels an overlap between the brand and private label for a long long time so there's not anything new there.

We're not going to comment specifically on the private label Great Value tests, but I will say that there's not new competition there.

We've overlapped on a lot of core items for a long, long time on both brand and private label.

You haven't seen acceleration in that side by side set in Wal-Mart at this time?

Yes, we're not really going to comment on what's going on with those tests.

Okay, and then can you help me understand a little bit more, McCormick's penetration into the trend of natural flavorings, like Pepsi was talking a lot about natural flavorings, other companies are looking to improve the natural aspect of the products.

Can you talk about McCormick's ability to service that trend?

Absolutely.

That's one that's right up our alley.

We typically provide natural flavors and seasonings, as you know, we have a fairly significant business in snack seasonings, and we have been working with our customers for quite a while in taking artificial flavors and other products out and replacing them with natural seasonings, and so we're very very heavily integrated in that.

Fantastic.

Thank you very much.

Thank you.

Our next question is from the line of Alex Bisson with Northcoast Research.

Please go ahead with your question.

Good morning everyone.

Good morning, Alex.

A couple questions for you.

First, will there be any lingering impact from the basics food recall in the second quarter?

No.

We believe that we've fully reserved the impact of that.

Is there any opportunity to pick up some business in the pepper market as a result of the recall from the other guy?

Yes, we've seen an increase in inquiries certainly, as people look out what they need to do for their own food safety, and our record has been exceptional in that area, so we are getting increased inquiries on that.

If my memory serves, retailer sell-through is very strong in the fourth quarter and around the holiday season so I was just wondering if you could talk about the importance of restocking at the retailer level to your consumer business in the first quarter.

Yes, absolutely.

As we see strong consumer takeaways through the periods, there is some restocking that happens and vice versa, if we find weaker takeaways than certainly that will impact us as retailers adjust inventory.

That's why we're making the investments that we're making with consumer spending is to make sure that we keep that momentum going, and we're pleased with the momentum we've seen at the retail.

Okay, and then I guess just finally on advertising, in the past, you've gotten some very strong returns out of advertising.

Are you still pleased with those returns A, and then secondly, given how front end loaded your advertising looks to be this year, is it possible you won't have enough dry powder in the second half of the year, or could you maybe overspend the $20 million that you're expecting to increase the advertising by?

Yes.

We continue to evaluate the effectiveness of all of our marketing programs and put more money behind the ones that are working and shift away from things that aren't working as well.

We certainly are front loading the increased spend, but recall we had a significant increase in our spending through a good bit of last year, so we feel pretty confident that we have lots of fuel in the engine.

It doesn't say that if we don't see opportunities that if we see opportunities for returns or if we do better with our CCI projects that we won't look for opportunities to investment spend but we feel like we've got a pretty well lined up program for this year.

Excellent.

Thank you very much.

Thank you.

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.

I wanted to follow-up to a degree on that mix question earlier because you also mention mix is a pretty material driver of your profits in the industrial division and again is that something you saw that's unique to that quarter or something that could continue to help drive even amid weaker restaurant sales pretty strong profitability in that division?

Well, as we indicated, we had some pricing that were pass throughs as commodity costs came down and as we said, when those items were going up that was a depression on the margin, and as they come back down it actually is a help to the margin so that phenomenon we would continue to see as commodity cost pass throughs run through.

Product mix and timing of customer promotions is always a factor and it will be a function of the timing of when our customers and what's the current pipeline launch certain items and that also can be a positive and a negative on the mix as well.

Okay.

And then we did see a little better or a little improvement in the Europe consumer division.

A number of factors I'm sure were involved in that, even increasing your marketing as well.

Is that a better consumer environment at the heart of driving that improved trend, or do you credit the marketing for most of that or it sounds like the categories are doing fairly well.

Yes, a combination of both.

We've tightened up our message, and feel like we're resonating better with consumers but there is an improved market, and we were very happy to see positive volume in Europe.

I think it's the first time we've seen that in several quarters, and we anticipate to continue to drive that, but that's one we're pleased to see, but it is a combination of both.

Okay.

Better environment and our marketing programs are more effective.

Okay, that sounds great.

Thank you.

Thank you.

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

Please go ahead with your question.

Good morning, everybody.

Good morning, Eric.

I screwed up the mute function already.

I guess my first question has to do with if you could explain the difference between some of the strong numbers that you talked about in terms of US holiday programs, I think you said core spices were up seven, extracts were up 23, dry seasoning mix up 10, Zatarain's up 10, and then yet when I look at the segment results, I think you said in local currency in Americas, the business was up three, so is that all private label?

I mean like--

No, also in Canada we had a negative mix in volume performance that was not as strong within those areas so that helped dampen down the growth of those items.

So it's a combination of private label and Canada?

Yes.

Okay, and then the second question I had, given that we don't have as much visibility into your ingredients, can you talk a little bit about just one like your assumptions regarding fiscal 2010 inflation and then what you're thinking long term for some of, again, not necessarily energy or packaging but more of the specific stuff like pepper and vanilla and the stuff we don't have great visibility on.

Sure.

We've seen some increases in prices in some of the spice commodities but by and large, it's been fairly benign.

As you know, as we build, we take coverage at different parts of the year and as we go into the back half of the year, we typically would be pretty well covered on commodities.

Going forward, I would expect to see some inflation as we head into 2011, but we're seeing, for the most part, those commodities to be fairly benign for 2010.

Okay, and then I guess, I'm just trying to think about with maybe this is a better question for the Analyst meeting, but--

Go ahead and ask it so we'll have time to prepare.

The industrial business, I guess with the pass through mechanism, that makes margins kind of swing around as you kind of noted, and so therefore, if that's not the right way to look at it and it's better to look at it just on EBIT dollars, the EBIT dollars there I guess you put up about $21 million this quarter, and then by and large over the last couple of years, you've been generating 20 million or so, a little bit more than that per quarter.

What gets that business to really move up?

Is it just the economy, or is there anything else that you can do?

Yes, it is things that we can do and that we are working on doing, in penetrating those large customers, and as you know, and we'll dwell on this more in the investor conference, but as you know, we place a lot of focus behind a critical few customers, and those are customers that we believe are going to grow and do well and so we will grow with them and as we service their needs and we wrap ourselves around their initiatives, so that's a big component of our strategy.

There's also some mix opportunities for us in terms of new product innovation and some of the things that we're doing to strengthen our technical installation as products move up, and then this whole trend towards natural and more healthy is one that plays very well for us.

Okay, I'll pass it on, thank you.

Thanks, Eric.

(Operator Instructions).

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

Please go ahead with your question.

Hello, good morning.

Good morning, Mitch.

Just a couple admin questions.

First, regarding the $8 million increase in your brand marketing in the quarter, how much of that was just due to the spike in media rates?

I'd say very little of that, Mitch.

It really was a concerted effort around our own execution of certain programs.

Okay, so then in the mix then, how do you guys think about your mix of media, like print, web, TV?

We evaluate that, and we'll share some of that information at the investor conference, but we evaluate that based on the effectiveness and the kinds of things that we're trying to do.

We've always had a pretty heavyweight towards print, because it will lend itself to recipe, we're making increased investments in the web, but we do believe and we see from our returns analysis that TV is a good vehicle for us.

And the purpose of the marketing, I mean marketing here in the first half, there's not a lot of new product launches right now and it's not your core cooking seasonal though Easter is important obviously, so is this just sort of halo awareness advertising or is there some specific strategies that you're focused on here?

Well our strategy specifically second quarter is launching the new products, Recipe Inspirations and Perfect Pinch so that's where a good bit of that increased spending is going to be.

Also because as we're building for grilling season we're maintaining and increasing a little bit of our spend behind Grill Mates, so our business is heavily weighted to the holiday cooking season, but we've got seasonal products virtually all through the year that we want to make sure that we support that react and respond very well to advertising.

Grill Mates is one that year on year we continue to see double digit increases, even in the first quarter this year when you don't think people are grilling, we're continuing to drive that franchise, and it responds really well to advertising, so those are the kinds of things that we're doing but the heavy spend in second quarter is recipe inspirations.

Okay.

And just last question is relative to Easter.

Is Easter, does Easter have any of the timing of Easter have any impact relative to last year?

I think it was only about a week different than last year so quarter to quarter our sales results shouldn't have a big impact.

I think last year was more of an impact from trade inventory changes that we saw.

Okay, actually one more question, just on the industrial side.

So in the Americas specifically, the volume was up I guess about what, 0.6%.

Of that, how much, can you sort of break down maybe by channel a little bit or give some color on foodservice versus sort of the new product pipeline from your ingredient customers, in terms of the growth rate there?

Yes, it's really a mixed bag which is why it kind of netted out to be only up slightly, but what we saw is in foodservice, basically casual down, QSR flat and some growth in foodservice distributors for really the first time in several quarters so we're seeing some good response there but there's still pockets of weakness that we haven't seen recover.

The consumer food manufacturers didn't have the level of new product innovation last year that we would typically see and some of that is carrying over into this year but we did have a number of new product wins for consumer manufacturers that have started to launch and we're seeing volume of that but it wasn't enough to offset the lack of the carryover from last year.

Hopefully that was a little confusing because there's so many ups and downs in it, but we're seeing pockets of optimism and still some hangover from weakness from last year.

Okay, that was helpful.

Thank you very much.

Thanks, Mitch.

Our next question is from the line of Andrew Lazar with Barclays Capital.

Please go ahead with your question.

Good morning, everyone.

Good morning, Andrew.

This may also be a topic that perhaps you get into more detail at your meeting, but I know the continuous cost improvement has been obviously a big enabler for your business and it shows through this year as well, but when you look at the absolute sort of numbers, whether it's as a percent of cost of goods or what have you, and you benchmark that relative to a lot of peers, many of whom who as you have seen stepped up their productivity efforts of late given the environment and everything else, I'm curious how much benchmarking you've been doing there, if there are opportunities to sort of step up that rate quite a bit, because there does seem to be a big delta relative to at least where you are, even though I know the numbers are big for McCormick, there's a big delta between where you are and where a lot of your peers are as a percent or cost of goods or what have you.

Andrew, we will be covering this in more detail at the investor conference and Jim, who is in charge of our supply chain, will be doing a very good discussion around that.

In answer to your question, we do benchmark this and make sure we're challenging ourselves adequately on the cost savings that we are targeting and we are continuing to look at areas where we can achieve more cost savings.

I will say we're still looking at definitions that we include relative to other companies, and some of the things that we put in that 35 to 40 are very very hard year-over-year savings.

Other things that relate to productivity and capacity improvements you've heard me say this before, we're learning other companies are including those types of metrics and we have those outside of that 35 to 40 million so there may be a bit of a disparity in terms of what's being counted in these things but we'll go into a fair amount of discussion on that in the investor conference for sure.

Got it.

In other words, some things are more on going as you may define it in terms of what you're doing with your business over time?

Right, right.

Okay, and then second thing, just a smaller one.

I'm curious, when you purchase ingredients in industrial, now I guess more on sort of the half or in concert with some of your big industrial customers as part of the way you purchase there, I'm curious, does that offer you any sort of additional scale purchasing advantages, relative to when you were doing it on your own outside of those customers or not really?

Well typically the kinds of things that we would be cooperating on are large commodities like soybean oil and flour and things like that, so it's pretty hard to take advantage of scale in those kinds of largely publicly traded commodities.

It's more making the decision on what point we're going to lock in and how long we're going to lock in and those sorts of things so I wouldn't say there's a scale advantage in that regard.

Got it.

Okay, thanks very much.

Thanks, Andrew.

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

Please go ahead with your question.

Thanks for taking the follow-up.

I think you kind of mentioned that you were spending a lot more on promotion.

Well you're definitely doing marketing but i think you also said it was to Ann's question regarding promotion and the price difference versus private label, how much did promotion impact your top line?

I don't remember if you mentioned that.

Whatever promotional dollars that go to a price reduction would read through in the price and in the case of Americas, we didn't show any price, so whatever, if you recall we had a price increase in the first quarter of last year.

We anniversaried it, so we may have had a little bit of a price benefit from that anniversary that was negated by the promotion, so I don't know if that helps to answer it but that's where it would read through.

Well, not exactly.

I guess so was it material at all, or is the promotional levels that you're seeing again to keep the gap versus private label, I guess you're saying the promotional levels are not so significant that they needed to be called out and whatever they are, they are pretty effective given that private label is down?

That is what we're saying.

Okay, thanks.

Thanks, Eric.

Thank you.

There are no further questions at this time.

I'd like to turn the floor back over to Ms.

Brooks for closing comments.

Well, thank you for participating in today's discussion.

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