Joyce Brooks - VP, IR Alan Wilson - Chairman, President & CEO Gordon Stetz - EVP & CFO

Robert Moskow - Credit Suisse Alexia Howard - Sanford Bernstein David Driscoll - Citigroup Akshay Jagdale - KeyBanc Chris Growe - Stifel Erin Lash - Morningstar Jonathan Feeney - Athlos Research Eric Katzman - Deutsche Bank

Good morning. This is Joyce Brooks, Vice President of Investor Relations. Thank you for joining today's call for a discussion of McCormick's Third Quarter Financial Results and 2014 Outlook. We've posted a set of slides to accompany our call at ir.mccormick.com. (Operator Instructions). With me this morning are Alan Wilson, Chairman, President and CEO, who will begin with comments on the latest financial performance and outlook and a business update, and Gordon Stetz, Executive Vice President and CFO, who will provide a more detailed review of third quarter results and 2014 guidance. During our remarks, we will refer to non-GAAP financial measures. These include adjusted operating income and adjusted earnings per share that exclude the impact of special charges. A reconciliation to the GAAP results is included in this morning's press release, as well as the slides that accompany this call. As a reminder, today's presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or other factors. As seen on slide 2, our forward-looking statement also provides information on risk factors that could affect our financial results. It's now my pleasure to turn the discussion over to Alan.

Thank you, Joyce. Good morning, everyone and thanks for joining us. Our third quarter results included solid sales growth, a significant profit increase and strong cash flow. This performance demonstrates our progress with McCormick's growth strategies and our ability to deliver shareholder value. We grew sales 3% with particularly strong growth in our Consumer business in the Asia-Pacific region, led by a 15% growth in China and in our Industrial businesses in the Americas region and in Europe, Middle East and Africa, EMEA. In our Americas Consumer business, we're making steady progress with growth initiatives to build brand equity and strengthen our category leadership. We have the right plan and good momentum. While consumer sales in the Americas declined 1% this quarter, that's an improvement from the first half of 2014 and we expect further improvement in the fourth quarter and in 2015. Gross profit margin increased in the third quarter and a primary driver behind our improvement is Comprehensive Continuous Improvement, CCI. With great work by employees throughout the company, we now expect our 2014 cost savings from this program to be at least $50 million. Our Industrial segment has been particularly effective in raising margins year-to-date in 2014. Sales growth, higher gross margin and our diligent expense management led to a 6% increase in operating income. Income from unconsolidated operations also had strong profit impacts this quarter, led by our McCormick to Mexico joint venture. Along with 5% sales growth, this business has completed the transition to a new, more efficient production facility, a move that has raised its profitability. Clearly, earnings per share at $0.94 were ahead of our previous outlook. While we anticipated higher operating income, the tax-rate came in well below our projections. Gordon will provide the details on this. Importantly, part of the reduction…

Thanks, Alan and good morning, everyone. As Alan has described, our third quarter financial results included solid sales growth in many parts of the business, greater than expected earnings per share driven by our growth strategies along with a favorable tax-rate and share repurchase activity and significant cash flow. Let's take a closer look at sales and operating income for each segment. As seen on slide 14, we grew Consumer business sales 1% in local currency. The impact of pricing actions taken in response to higher material costs was offset in part by a slight decline in volume and product mix. Sales in the Americas were down 1% in local currency with higher pricing more than offset by a 2% decline in volume and product mix. As Alan indicated, we’re pleased with the innovation underway, stepped up brand marketing, and progress with our actions to win at retail. However, in the third quarter we had an unfavorable impact from a shift in sales. For more than five years, McCormick has offered retailers a holiday display program to encourage early in-store display and merchandising of holiday products. In 2014, we expect another year of strong holiday display activity, although retailer purchases are more skewed toward the fourth quarter than in 2013. In 2013, holiday display program purchases were more skewed to the third quarter due in part to a price increase effective in the fourth quarter of 2013. We estimate that this shift had an unfavorable impact of approximately 5% on third quarter 2014 Americas Consumer business sales and expect it to have a positive sales impact in the fourth quarter. In EMEA, Consumer business sales rose 2% in local currency, mainly due to pricing actions. Volume and product mix was down slightly this quarter as growth from product innovation and…

(Operator Instructions). Thank you. Our first question is from the line of Robert Moskow of Credit Suisse. Please proceed with your question.

Alan, you mentioned on the call that I think you had flowed through new pricing structures for the category in about half of the retailers or at least half of the retailers had accepted it. Can you give us a sense of what that means for your pricing in 2015? I imagine it's a positive but how is it a positive? Does it improve the relative pricing that you have versus competition? And what does it mean to your top line for U.S. consumer next year?

Yes what we’re talking about is actual retail pricing where we're analyzing the category, looking at all the stuff that's there and getting to the optimum price level for us and our competition. We're looking at things like margin parity, so that we make sure that the retail margins for our products are similar to the retail margins for other people. In some cases, it means raising the price -- the retail prices of some of our competition. The net impact of what that's doing, and also one thing I'll also make a point is getting sharper price points on some of the more price sensitive items from our standpoint. The net impact of that is its closing price gaps and we see that as very positive.

Okay and then a follow-up regarding China. I remember last quarter, I think your QSR business had shown some signs of improvement and now you're saying that you're cautious on fourth quarter. What has changed to change your tone? Is there something specific?

Well, as we went into last quarter, we were seeing increased foot traffic and some momentum in that business and then, as you've probably seen from our QSR customers, report of a supply issue which has impacted foot traffic again. We still see that business as being pretty resilient over time and the Chinese consumers tend to come back, but when they have these well publicized quality issues in the store, it erodes confidence and impacts short term traffic and we're seeing some of that like our customers have reported.

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

Can I ask about the U.S. Consumer business? Over the past year you've had a bit of market share encroachment from private label and also from some smaller brands. Where are you in reversing those trends and how confident are you that the share trends will continue to be fairly decent? Thank you.

We're seeing some of the impact of the efforts that we've made between a combination of our new products, our category management activities and frankly some of those price gaps being closed. So what we've actually seen in the more recent periods and actually for the year, private label share in spices has not grown in the U.S. It's been pretty flat and in more recent periods, we've seen private label share flattening and actually declining a little bit. The second piece of that is we've actually grown share in the Recipe Mix category. We're up about a share point and so we’re seeing some of that. The share erosion that we've seen has declined somewhat. We were last year looking at about a 1.5 of share, now it's less than a share point and we're continuing to see momentum. So we're pleased that we have the right plans and the right kinds of activities that are going to continue to build that back. I'd also remind you that we have a healthy, growing category. So we have not seen the growth rates of category level off at all and so we're participating in good categories, both in Recipe Mixes and Spices and Seasonings.

And then as a quick follow-up on the -- you mentioned acquisitions being on the radar screen. Are you continuing to look at fairly small bolt-on acquisitions, mainly in emerging markets or has your thinking changed on that? Thank you and I'll pass it on.

We are open and evaluate larger acquisitions. But the ones that we've had the most success with have been the tuck-in acquisitions that we know how to manage, largely in emerging markets, although we have some more developed market candidates as well.

Thank you. The next question comes from the line of David Driscoll with Citigroup. Please proceed with your question.

To be totally honest, when I looked at the press release this morning I thought, wow, this looks fantastic. Then as I get reading it further, guys, it seems more confusing. So a couple of questions here, the tax-rate, you spent a long time on it, but I still don't think I came away with maybe the most important issue here. Is this a sustainable rate for many years to go? It felt like last year when you gave the initial guidance, there was this massive increase in the tax-rate. It was a huge headwind and it was really a dampening factor on the outlook this year but lo and behold, here we are and gosh it's nowhere near that. So, the first question is, what do we do with the tax-rate long term and how do you put some confidence around it?

The best estimate I would have on a go-forward basis for the tax-rate and I have to put two caveats around this because it's one of the factors that impacted the volatility you've obviously described. Based on current legislation and business mix, the rate that we provided for you for the fourth quarter of 28% would be a reasonable rate. Now, I appreciate the significant change during the course of the year, that significant change we spoke about is primarily a factor of the legislative environment and as we started the year, we had rules coming out of France that we thought were going to be a negative impact on that tax-rate and that was going to be a sustainable higher rate until the final regulations were published this quarter and we were able to interpret them more clearly and get advisory input on it and that became one of the biggest factors in the reversal of that outlook for the quarter. So I would say simply at the moment on current business mix and current legislation that 28 is probably a good number, but again, it's a volatile legislative environment and I don't know what different countries or different legislators are going to do as we proceed.

Following on this, just wanted to ask about when you take down your operating profit guidance for the year, the growth guidance, does this affect management incentive comp and if so how much?

We have a mix in our yearly incentive comp that's based partially on EPS and so there's a positive impact to that although we look at discrete items and exclude those and the other part is on what we term as -- we call it McCormick profit but it's a proxy for economic profit which is operating income with a charge for working capital. So it will impact our management incentive comp in a way in a bit.

No, what I'm really getting after right there guys is when we think to ’15 do we think that management comp kind of comes down this year because of the lower op profits and then rebounds next year? And it's a factor affecting the algorithm? Or is that -- I'm just running too -- trying to be too specific on something?

Yes, that’s pretty specific but to recall, last year a big part of -- because of our results, our bonuses were impacted negatively and so we're building some of those back as we perform a little better.

Last little detail. FX in the fourth quarter, you said for the full year it doesn't matter but rates have gone crazy. Can you just give us some comment on your fourth quarter FX impact?

Well certainly there is going to be downward pressure. We haven't quantified the exact impact in the quarter, but I would say we're definitely going to be experiencing downward pressure and that's incorporated in the full year guidance that we've given you.

Our next question is from the line of Akshay Jagdale of KeyBanc. Please proceed with your question.

Two questions, first one, just a clarification on what you said on pricing, your pricing strategy in North America. Can you just talk a little bit more about that? Because what if your competitors decide to lower their prices or keep their prices where they are while you're increasing your price points? How should we think about that risk? And so maybe you can just clear clarify what you said before because I was a bit confused on that and then I have a follow-up.

Yes, just to be clear what we're doing is making pricing recommendations on the category. We can't control what our competition does, although I will say that what we've seen over history is when we lead in pricing and that's our pricing to the retailer, it takes some time for our competition to follow because of our share position. No other competitor is going to lead in pricing until we take pricing, nobody else does and then they follow it gradually and we're seeing that impact now from last year's price increase, just takes a little more time for the others to flow through. If they choose to lower prices or promote heavily and that sort of thing, then we'll adapt and respond like we always do.

But just to follow-up, so the need for this arises from your analysis of the category relative to other categories and what's the general message that you're sending out to retailers, that prices need to be higher or lower or it's a mixed bag?

It's a mixed bag and frankly what we're trying to do is help them as they analyze the category with competitive prices relative to their competition and looking at the margins they're taking on McCormick items versus competitive items.

Okay and just a follow-up on your guidance for 4Q. You mentioned the factors that are impacting EBIT growth to be lower now. I'm not clear as to which ones really change, right? So it seems like the mix impact is pretty significant on EBIT but is that because you're expecting lower consumer growth now than you did before or higher international sales growth? I mean it's not clear which one of those changed to cause that.

We're reflecting certainly what we've seen on the international markets and its impact on the margins year-to-date and what we anticipate on a go-forward basis into the quarter. So as we said in the call, we're maintaining the sales guidance but we're acknowledging that a lot of the sales growth year-to-date has come from the international growth and that's certainly impacted the margin structure and that's part of it. It's also acknowledging that we're investing behind our brands and we're having confidence in the programs that we have in place. We're not going to be pulling back on any of those programs. In fact, we're leaning into those in the fourth quarter, Alan described them to you. So that's a significant increase in Q4 which certainly is going to have an impact near term on the profit but we think it's the right thing long term for the category.

And then the caution that we talked about in China.

Right, right -- in the industrial segment.

The next question is from the line of Chris Growe of Stifel. Please go ahead with your question.

I just had two questions for you and I'm sorry to ask another follow-up on this one. But I just want to be clear on the pricing recommendations that you're changing. Is there any direct benefit to you from these price changes? Is it more about getting the prices right to the consumer at retail?

More about getting the prices right to the consumer at retail.

Okay. That's what I figured but I wanted to make sure it was clear. It was a little confusing. Thank you. If I could ask about the U.S. consumer performance this quarter given you had this 5% drag roughly from shipment changes year-over-year, would it be fair to say your underlying growth this quarter in U.S. consumer was around 4%, just given the performance that was reported versus the adjustments that came through from the shipment planning.

Yes, that's right.

Okay. That does suggest an improvement in the business, that's good. And then one final question if I could maybe to Gordon on the gross margin. So you had CCI savings coming through. I guess you had some pricing as well offsetting cost inflation. So I'm just -- gross margin was softer than what I expected. Is that more about the business mix shift or are there any other factors we should be aware of in terms of offsetting inflation or CCI savings that kind of thing.

It's geographic and segment mix.

Okay. Do you know how much that was in terms of a factor in the quarter on the gross margin?

I don't have that quantified in front of me right now but it would be a significant factor.

(Operator Instructions). The next question is from the line of Erin Lash of Morningstar. Please proceed with your question.

I was curious about the Skillet Sauces, the launch of Skillet Sauces. Obviously that has been a highly competitive category and one in which several other packaged food firms have entered. And you talked to the fact that the Spices and Seasonings category growth rates overall remain healthy. I was wondering -- obviously skillet sauces moves you further into that center of the store packaged food type space. And so I was wondering if you could speak to how your product is differentiated and how you expect to compete in that category.

The products that we've launched have been more instead of being more premium; have been more focused on everyday classics with a twist and so effectively they're liquid versions of our more popular dry seasoning mixes and so we think that distinguishes us. We've obviously as everything that we do, we test with great flavors. So we believe that's going to deliver and just to remind you, we're in the liquid category already with our Lawry's wet marinades. So while this is a new launch for us and a new category that has been growing, we believe it will help with the category growth rate. We're not going head to head with the stuff that's already out there. We've got a different mix of products.

And then I was just wondering if you could speak a little bit more to the plans for the holiday in terms of how you're maybe positioning your products, if you're positioning I guess your products any differently given the importance of the holiday season in terms of your overall results.

I wouldn't say we're necessarily positioning them differently. But we are -- as we always are very active with display activity to make sure that the stores have the product that they need as the consumers are shopping for the holiday meals. We are continuing to increase our advertising and marketing support behind the products as we go into the fourth quarter and we're working with retailers to make sure to get those displays up and in the right place so that consumers can find them.

The next question is from the line of Jonathan Feeney with Athlos Research. Please proceed with your question.

So when you communicate this mixed bag of pricing with retailers, are there any units for which you're actually recommending price should go up?

I would say generally no, but there are certainly at least in terms of our products, we're looking at what the right level of pricing to hit the -- for the consumer is and we're managing gaps.

And you mentioned you've done a good job maintaining that -- I should say stopping any kind of encroachment in private label share. When you go through the data with retailers, is there a really big difference? Is it the big difference in velocity between your products and private label that makes it compelling for the retailers? Is that what you lead with? Or is it a difference in absolute dollar margin to the retailer? What is the bigger factor of those two? Because I know it's a category that you have a unique level of dialogue and frankly control over, given your manufacturing on both sides private label and branded compared to some other food categories.

Yes it's more helping the retailer maximize their dollar profit and get the right margin mix for the items and remember, in our category it's a fairly small, limited number of items that are duplicated across all the brands. So there is about 15 to 20 items which are duplicated from opening price point, private label and then all the competitive brands that actually matter. And so those we're really working on getting the pricing right. The broad array of the stuff we offer are the things that are unique to certain times of the year like poultry seasoning and sage at Thanksgiving and some of the baking items at the holidays. So it's really kind of managing those things that aren't necessarily -- that are duplicated so we get the pricing right and all the things that aren't duplicated making sure the availability is there.

I guess just one follow-up to that, then. How is it do you think -- why is it do you think that retailers maybe got their pricing a little bit out of whack on some of these products? Do they not understand the consumer? Did the consumer change? I guess any thoughts you had on that.

Well as we talked in some of the earlier calls, we saw a lot of stuff that was coming in through either produce departments or through a DSD supplier that may not have been visible to the center store category managers and some of that is just bringing that to their attention because we're seeing lots of stuff that has just found their way in and we see it sometimes. And couple of the selling stores (indiscernible) is to help them understand the impact on their inventory levels for stuff that's not necessarily adding to category growth. So we're kind of telling the whole category story and that's the role that we can play given our position.

Our next question comes from the line of Eric Katzman with Deutsche Bank. Please proceed with your question.

Couple of questions, why don't we start out with the advertising spend. It seems like during the year it's kind of been deferred each quarter to meet up with what your expectation was initially for the full year. So was there something about the product lineup or the landscape that's made so much of the advertising spend kind of fall into the fourth quarter?

Well typically, the fourth quarter is where we spend the heaviest and some of that spend is to support new products and so we've lined up the actual spend with the distribution level of the new products. So there is a piece to that that we've managed, but by and large -- because we do in the U.S. business and to a lesser extent in our other developed markets, and awful lot of our sales are skewed towards fourth quarter. And the fourth quarter is when we have our highest returns on investment for advertising.

Okay. Second, you talked pretty I guess aggressively about the balance sheet and the ability to look for M&A. I know you've been very kind of EVA or economic profit focused as opposed to kind of the rest of the world that doesn't seem to even care about that anymore. It seems like it's all about EPS accretion but -- how are you seeing multiples in your ability to drive economic profit again in that context?

Yes that's always the balance and we've been pretty disciplined. Through the years, we continue to be pretty disciplined on making sure that we can more than pay back the cost of capital over time for the deals that we make. Certainly that means that in highly contested deals we get bypassed in some cases. But we've been pretty disciplined. We know what our targets are. We are willing to pay the prices we need to pay but we also make sure that we know how to get the returns. And we have as you well know a pretty good track record on generating the value that we promise.

Okay and then last question I guess is it seems like maybe its 24 hour news these days, but it seems like the world is -- I don't know aflame in every region and we don't get great views on your input costs. I think Alan, you had mentioned to me at one point some concern over pepper cost rising. Are you seeing pressure on some of your crops and kind of how does that figure into what sounds like basically lower prices at retail for the spice category led by your discussions?

We are seeing some pressure, specifically on pepper and we're evaluating our plans as we go into next year. We're not making any changes to this year but we're evaluating how to respond to that for next year. But we're certainly seeing some upward pressure. It's pretty volatile world with everything from political unrest to some uncertain weather and -- but that's the kind of thing that we've always dealt with. But I will say that we're currently evaluating and getting our budgets ready for 2015 and making decisions on how we're going to approach it, what we do see as some input cost pressure.

Just last follow-up, but I think it's an important issue. So I kind of read your comments about the category management work with the retailers as essentially being lower price points. If you have somewhat inflationary pressure, you didn't comment about vanilla or cinnamon but does that -- do you have additional kind of productivity savings that can kind of act as an offset to all that looking into next year, which is kind of sounds like it's more relevant to next year in any case.

Yes and we are continuing to look at and beef up our CCI programs and looking at other ways to help offset some of that inflation and to make sure that we stay within the right gaps that consumers are going to be able to buy our products.

Our next question is a follow-up from the line of Robert Moskow with Credit Suisse. Please proceed with your question.

Are you able from an antitrust perspective to look at Spice and Seasonings acquisitions domestically anymore or do you feel more comfortable looking outside that category?

We generally are looking more broadly at adjacent categories in the U.S. market. And I wouldn't say never that we couldn't, but I will say that most of our targets in the U.S. market are adjacent categories not directly Spice and Seasonings.

Thank you. At this time, I'll turn the floor back to Mr. Alan Wilson for closing remarks.

I want to thank everybody for your questions and for being on the call. We recognize that our financial results this quarter were a bit complex and with the tax-rate variance, the shift in sales and special charges. Putting these aside, we want to leave you with a few takeaways; we're making steady progress to improve the results of our U.S. Consumer business. We're driving increased sales and profits in a number of our international markets and we continue to invest in our growth and fuel these investments with above target CCI cost savings. This performance has us on track for record sales, profit and cash flow in 2014. Throughout McCormick, we're executing against our plans that have us well positioned for the future. Thanks for your time and attention today.

Thank you, Alan. I would also like to add my thanks to those who joined us this morning. (Operator Instructions). You can also listen to the replay on our website later today. Thank you.