Good morning. This is Kasey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today’s Third Quarter Earnings Call. To accompany this call, we posted a set of slides at ir.mccormick.com. Now, all participants are in listen-only mode. Following our remarks, we will begin a question-and-answer session. [Operator Instructions]. We’ll begin with remarks from Lawrence Kurzius, Chairman, President and CEO; and Mike Smith, Executive Vice President and CFO. During our remarks, we will refer to certain non-GAAP financial measures. These include adjusted gross profit, adjusted gross profit margin, adjusted operating income, adjusted income tax rate and adjusted earnings per share that excludes the impact of transaction and integration expenses related to the Reckitt Benckiser Foods or RB Foods acquisition, special charges and income taxes excluding certain non-recurring impacts associated with the recently enacted U.S. tax reform, which we refer to as the U.S. Tax Act as well as information in constant currency. Reconciliations to the GAAP results are included in this morning’s press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation which includes the complete information. 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 because of new information, future events or other factors. As seen on Slide 2, our forward-looking statements also provide information on Risk Factors that could affect our financial results. It is now my pleasure to turn the discussion over to Lawrence.

Thank you, Kasey. Good morning, everyone. Thanks for joining us. Our third quarter results continued the strong performance we delivered in the first-half of 2018, and we’re well-positioned to deliver strong full-year results. We’ve driven strong double-digit sales, operating profit and EPS growth, as well as significant operating margin expansion in both the third quarter and year-to-date. These results reflect the effectiveness of our sales and profit growth strategies, driven by the engagement of our employees around the world. Starting on Slide 4, we have a broad and advantaged global flavor portfolio, which we are continuing to grow. Among the third quarter highlights across our portfolio, in our Consumer segment’s underlying business, we drove growth in the Americas, particularly in recipe mixes and spice and seasonings, and we continued our momentum in China. In our Flavor Solutions segment, we continued winning with customers, driving base business and new product growth in both the Americas and EMEA. We also continue to make progress on expanding our portfolio with additional growth and more flavors, while pruning some low-margin business. The reshaping of our Flavor Solutions portfolio is a significant driver of operating margin expansion. In addition to the solid growth in our core business, we’re pleased with Frank’s and French’s performance and their positive impact on our portfolio of condiments and sauces and branded foodservice. Overall, we are confident that the breadth and reach of our portfolio continues to position us to fully meet the demand for flavor around the world and grow our business. Now let me go into more detail on our third quarter performance on Slide 5, as well as provide some business comments before turning it over to Mike, who’ll go in more depth on the quarter-end results and discuss our updated 2018 financial guidance. Starting with our…

Thanks, Lawrence, and good morning, everyone. Before I begin my remarks specifically on our third quarter performance, I would like to build upon Lawrence’s comments on Frank’s and French’s and provide further insights about the delivery against our acquisition plan now that we’ve completed the first year. Starting on Slide 13, as Lawrence already shared, we have created value by driving growth through expanded distribution, new products and more effective marketing, and we supplemented our core McCormick margin improvement with meaningful enhancement from the Frank’s and French’s portfolio. We are delivering against our synergy and one-time cost estimates, in fact, doing better than our acquisition plan. Starting with our original synergy target, we continue to be on track to achieve $50 million of cost synergies. And as we’ve previously shared, our 2018 synergies are pacing ahead of expectations. Consequently, we now expect to fully realize the $50 million target by the end of 2020 earlier than our original 2021 estimate. Our transaction costs and integration one-time costs are also projected to be favorable to our acquisition plan, as we shared late last year. We are well-positioned to achieve our targeted debt to adjusted EBITDA ratio of three times by the end of 2020. During the third quarter, we prepaid another $180 million on our term loans secured as part of acquisition financing, bringing our total prepayments to $280 million in this fiscal year and $530 million since the acquisition. We have now paid down over one-third of a term loan secured as part of the acquisition financing. We executed our year one acquisition plan in line with and in some areas better than our model. As a reminder, we expected the first 12 months of the acquisition to be accretive to McCormick’s adjusted earnings per share, with an increase of…

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question today comes from the line of Alexia Howard with AllianceBernstein.

Good morning, everyone.

Hi, Alexia.

Good morning.

Hi there. So if I’m sticking with my one question, can I ask about pricing? I think, last quarter, you had 0.2% pricing come through, but you were talking about strengthening of the pricing in the back-half based on the agreements or the pricing increases that you pushed through. It was up 0.5% this quarter overall. Was that a little lower than expected? Should we expect the pricing to strengthen from here on out, or are you finding that you are having to maybe dial it back a little bit more than you expected in terms of promotional spending? Just curious about that. Thank you, and I’ll pass it on.

Hi, Alexia, it’s Mike. I’ll answer this one. We’ve launched our pricing. We talked about it in the second quarter how – particularly in the U.S. how pricing is out. If you really look at Consumer versus Flavor Solutions, on the Flavor Solutions side due to some commodity decreases, there was negative – a small negative pricing. But if you look at the Consumer side, we did see an acceleration on the pricing line, particularly in Americas up 1.3% in the third quarter. So the pricing has gone through.

Great. Thank you very much. I’ll pass it on.

Thank you. The next question is from the line of David Driscoll with Citi. Please go ahead with your question.

Great. Thank you. I had a just a quick follow-up here and then a real question. The follow-up is just on gross margins. Is the fourth quarter gross margin going to expand?

Well, we’ve seen really great performance in the first three quarters and we’ve attributed about half of that 290 basis point expansion due to RB Foods and approximately the other half due to the underlying base business. Our guidance for the year of 175 basis points to 225 basis points would suggest that the underlying business would improve in the fourth quarter.

All right. And then the real question here is on Frank’s. And apologies, you guys did a lot of color on here. Did I miss it? Did you say what the organic revenue growth was in the quarter for Frank’s? And then I’d just love to hear a little bit more about Frank’s international potential and when is this going to deliver something meaningful in terms of OI dollars?

Great. So I’ll start and I’ll let Mike follow-up. I don’t think that we said what the total organic growth was on Frank’s. We broke out the acquisition lap as sales from acquisition and then subsequently for the period that would be organic growth, which, by the way, was only two weeks. That goes into our base growth. And then going forward, we’re not, Dave, we’re not going to be breaking up Frank’s and French’s organic growth separately. As we’ve lapped the acquisition, all of that is going to go into our base growth and it’s going to be treated as base. As we’ve said, our whole and expectation with Frank’s is that, it gives us a step change in size and performance, but going forward, we continue with the growth algorithm that we’ve had out there, which is 4% to 6% top line growth in Frank’s, and French’s would be supportive of that. If there was another part to that question, I missed it.

I want to go and talk about that. I think, the other thing to think about, we did talk about how, under our ownership in the third quarter, there has been an acceleration of sales versus the previous owner, and year-to-date, we’ve had a mid single-digit increase for the same period compared to last year.

That’s a good point. I’ll say that Frank’s and French’s and I don’t want to leave Cattleman’s out of the mix as well. But that portfolio of brands that we bought from RB Foods has really performed according to our plans. I mean, it’s been uncannily close. The sales growth that we expected to get, we’ve gotten. The EPS accretion that we expected to get, we’ve gotten. Mike, you want to add?

And I think that your, Dave, your question was about when are we going to get significant international growth.

Yes, thanks.

Right. So, for international, we’ve – I think, we touched on those in our prepared remarks. We’ve converted all the distributors over to us. We’ve added new distributors in 20 countries, where the brands were not represented previously, and where we have infrastructure, we’re taking the business actually away from the distributor and converting it to our direct distribution and management. We highlighted India in this call, because it was new and we’ve really just gone on the shelf with our sales organization in India. And in the last call, we mentioned, in Mexico, through our JV, we have a very substantial presence at retail, a strong sales force. We didn’t include it in our prepared remarks. But I’ll say here that we’ve gained some significant retail distribution on Frank’s in particular in Mexico. French’s had pretty good distribution; Frank’s did not. And we’ve had some significant distribution gains there. And then, over in the UK, we have a very strong sales organization. We actually merchandised the stores Frank’s already had some good presence in the market, and we’ve converted that to our sales organization, where we’re going to be able – where we’re continuing to be able to drive it.

That’s helpful color. Thank you guys so much.

Next question comes from the line of Robert Moskow with Credit Suisse.

Hi. I was hoping to zero in a little more on the change in the operating income guidance. You took down the high-end of the guide when we exclude the currency. And I think, you mentioned higher investment in branded marketing, but I didn’t hear any numbers. Did you raise the investment that you’re expecting for the year, or are you really just continuing to invest at the same rate that you were going to spend at originally?

Yes, I mean, Rob, you saw we had a 36% increase in the third quarter, it’s pretty significant. Our guidance has been we’re going to grow our A&P above our net sales growth. We haven’t given a particular how far above that will be, but we’ve taken the opportunity and now we’re at 23% A&P growth versus a sales growth of 17%. So we’ve taken the opportunity to really drive in the third quarter into the fourth some of these investments to really build – and these are brand-building advertising. It’s not promotions, things like that between gross and net. So, these are things we’re going to build into next year and really get us on a good footing.

And I will comment, Rob, that our underlying business is really performing according to plan. The changes that we made in guidance were really dropping through the tax and the FX changes that we’re offsetting and we’ve dropped the full amount of those through to the EPS line. We’re not giving quarterly guidance and there may be some timing issues that exist between market expectations and our own plans that we are letting roll. We’re really confident in the guidance that we have given and the level of A&P increase that we’ve planned may not fully appreciate it as we continue to invest in our business to drive growth. I’ll also point out that in raising the guidance, we’ve also narrowed the range and taken it to the high-end even with that A&P investment.

Yes, but Lawrence, it’s related to a tax benefit that I don’t think that repeats next year. In fact, originally, the tax rate was supposed to go up sequentially in 2019. Is that still the expectation?

Well, I don’t think that we’re going to give any guidance for 2019 until we get to our next earnings call, when we talk about the end of the year, and we’ll give updated guidance for – well, I should say, we’ll give our first guidance for 2019 then.

Okay. I’m going to sneak one more, if I could. I think the sales guide requires a pretty big step-up in organic sales growth now that you have RB in the core. It looks like RB grew double digits in the third quarter, probably does it again in fourth. Is that right, that organic sales will have to be like up around 7% in fourth quarter for the sales guide for the year?

I think that your math is good and I’m not signing up for 7%, but that would be within the range. So we have a pretty wide range on sales growth still. Our fourth quarter is still the strongest quarter of our year. We have a strong seasonality in our business, particularly in the Americas. And so we that’s – we typically have a – maybe a wider range around sales growth outlook going into the last quarter of the year than many companies do, just because it’s still such a large proportion of our total annual sales. Mike?

And, Rob, I mean, there was some concern, I think, going into that second-half of the year that we were lapping a strong second-half last year. And I think, we’ve shown with a base business growth – the sales growth of 4% in the third quarter that we were able to lap the strength. So we feel good about the fourth quarter or the full-year guidance of 11% to 13% constant currency.

Got it. Okay, thank you.

The next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question.

Good morning. It’s Tom Palmer on for Ken. Thanks for taking my question.

Hi, Tom, go ahead.

Thanks. I just wanted to ask on the consumer side. I know a lot of the margin decline was attributable to the marketing spend. But it seems like it was down on kind of a run rate relative to the last few quarters a bit more than just based on marketing. Are there some other items that you could highlight that maybe hit during the quarter? And then maybe comment on their persistence as we look towards the fourth quarter and potentially beyond, if you want to address it.?

Yes, I think you’re talking about op margin, not gross margin. I think you…

Yes, yes, op margin.

I think, you’ll see in the results that gross margin continues to expand and OP was down. I’d say that the – that there was an offset to the gross margin expansion due to A&P increase and some freight distribution costs, but we’re not…

A little bit of FX, too, Tom.

Right. Thanks. But the vast majority was due to the increase in the Frank’s marketing to your point.

And so as we look towards the fourth quarter, I mean, could it be down year-over-year again on the op margin line for consumer, or do synergies and other items start to offset that?

We don’t give quarterly guidance, especially by segment. So I think if you just look at the full-year and you can make some assumptions there.

Okay. Thanks.

The next question is from the line of Rob Dickerson with Deutsche Bank. Proceed with your question.

Great. Thank you so much. So, yes, I think I’m going to ask the last question just in a different way. There did seem to be a little bit of margin pressure in the Consumer segment in the quarter, despite very impressive top line organic sales growth. But if you just look at the year-over-year in dollars in operating profit, I think, it’s up around $14 million. And if we think about what that RB contribution likely would have been off of a 9% year-over-year on the top line, it sort of, I think, implies that the base would maybe have been flat to down in Consumer, despite the top line up. So I don’t know if I’m thinking about that in the right way. Can you just provide some color around base operating profit in Consumer?

The base was definitely up ex RB. It might even get a little messy because of the two weeks last year and the full impact of RB this year is causing some of the math, I think, in your mind. But operating profit for the base business was definitely up relative to the margin.

Yes, and I’ll say that your question really is around is there margin pressure on that part of the business, and I’m going to have to say no. We’ve gotten the pricing through that we expected to get really in the second quarter. So, you’re seeing that come through in the third quarter results, and so that’s not a pressure point. And I think that the freight cost – freight distribution cost pressure that we’ve had this quarter is really not a significant change from the prior, and our outlook forward isn’t any – there’s not pretty meaningful change there either. So I’ll just say that we’re not feeling any margin pressure in that part of the business other than kind of I’ll say, the normal commercial tension that exists between the supplier and the customer. But there’s not a – I would not characterize that as being under margin pressure.

Okay.

And we’ve made some decisions around spending and investing behind our brands that are different than decisions that have been made by some other CPG companies. So we’ve leaned into a brand marketing investment that’s very consumer-directed to drive the continued growth of our business. We’re confident that that spending has a strong ROI. Our holiday advertising or digital advertising are some of our highest-return items, and those are areas where we’ve leaned in. We’re able to start holiday relatively early. We’re able to up our digital spending going into the quarter, and so like going through the quarter. And, of course, we’ve – as we’ve said all year that we would, we’re going to introduce marketing campaigns behind French’s and Frank’s, and that’s what you’re seeing coming through.

Fair enough. Thank you so much.

The next question comes from the line of Steven Strycula with UBS. Please proceed with your questions.

Hi, good morning.

Good morning.

So it’s good to see a food company investing in brand equity advertising, so congratulations there.

Thank you for that.

One – I’m curious, Lawrence, what is your view when you speak, especially with bringing in new brands such as French’s and Frank’s? What is the temperament from a lot of the retailers right now as to whether they want to see you guys investing in your business and partnering with them between the gross to net sales line, which you were touching on in the last question versus necessarily the brand equity advertising that you appear to be signaling and how you were spending in third quarter and fourth quarter? Any type of context would be helpful, and then I have a follow-up?

Yes, I’m going to say a comment just I’m going to – we’ve asked everyone to limit themselves to one question, but I’m going to give you a three-part answer to it, so sorry for those of you on the call, just roll with me. We may go a minute over here. But first of all, the initial response was terrific to us buying these brands, because retailers expect that we’re going to make brand-building investments. And some of the incumbent players in these categories who are more focused on, I will say, rev management, taking profitability out of the category, and we’re not as focused on building our brands. I’m not going to name any names, but you can probably imagine who I’m talking about. So that’s the first thing. The second thing is that as we have introduced the different brand-building ideas and our category management ideas, they’ve been strongly embraced by retailers. So the demeanor there has been very positive. I’ll say that’s true on both the retail side of the business and the food service side of the business. And then the third thing is that the retailers – it’s not really an A&P question, but it’s an innovation point. They are appreciating some of the innovation that we’re bringing to these brands, and in particular, the launch of the frozen wings, which we’ve for the first time mentioned on this call that’s – I’ve said that we had a long pipeline of terrific innovation ideas. This is one of them coming to market. That has really been embraced pretty well by the retailers as well.

All right. Thank you.

Okay.

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

Hi, can you hear me? Thanks for taking the questions.

Yes, can you hear us?

Yes, I can hear you.

We’re using a new sound system here, Akshay, by the way, so we’ve had a couple of little sound hiccups.

Well, I guess, somehow I knew that telepathically. But anyway, the – I just want to clarify one clarification, which is regarding the EBIT guidance.

Yes.

It sounds like to me and I know you don’t want to be specific for competitive reasons. It sounds like to me, the main – the FX neutral EBIT guidance is same. So FX is one of the primary drivers of the adjusted EBIT being down. But the other one, which might be a similar amount or close to that is your brand investments, right? I mean, it’s a pretty significant increase that you’re planning and it looks like you’re taking the opportunity to really step on the gas on that. So I feel what you’re trying to tell us is that the underlying trends are good and base momentum. So you’re investing back in the business more than you previously expected, right? That’s what I’m hearing. Is that a fair sort of characterization of what you’re trying to communicate?

Akshay, this is Mike. I’d characterize them kind of leaning into the brand building activities towards the end of the year. For those of you who follow us a long time, if we over-deliver on CCI a lot of times, we’ll push it in the brand marketing. So it’s kind of a similar thing we’re leaning in and really setting ourselves up great for the fourth quarter next year.

Got it. And then just one last one on, just one follow-up on the U.S. business. Obviously, the really strong organic sales growth there and good momentum. But if you take a step back and think about sort of the market share issues, et cetera, where are we over like a three-year period? I mean, how much closer are we to being, at least, share neutral all the noise aside? I mean, are we – how do you feel about that?

Well, I think that you guys – I want to first of all say that our – yes, I think the market share you’re referring to specifically in the herbs and spices category were – while there’s still some share erosion, we have closed the gap, I would say that on unmeasured channels we’re doing. We continue to do well and we’re confident that we’re on the right track there. In other categories like a recipe mix category, we are definitely gaining share. And particularly, if you look at the traction that we’re gaining on the acquired brands in the most recent – I think the most recent data is beginning to show the distribution gains that we’ve gotten, you’re seeing some of the best trends of the year. We talked all year that we expect to have sequential improvement, as we went through the year on our consumer business and in particularly – particular in the Americas. You’ve – and that’s what you’ve seen, and I think we feel really good about the guidance that we’ve got for the year or just for the strong finish to the year and continued strong growth.

Thank you. I’ll pass it on.

Thank you. I’ll now turn the call back to Lawrence Kurzius for closing remarks.

Great. Thanks, everyone, for your questions and for participating on today’s call. McCormick is a global leader in flavor and we’re differentiated by a broad and advantaged portfolio, which continues to drive our growth. We’re responding readily to changes in the industry with new ideas, innovation and purpose with a keen focus on growth performance and people we continue to perform strong globally and build shareholder value. I’m pleased with our strong year-to-date results. I’m confident in our continued momentum in the last quarter 2018 to drive even further growth, and I look forward to reporting to you on the shareholder value we will continue to create.

Thank you, Lawrence, and thanks to all for joining today’s call. If you have any further questions regarding today’s information, you can reach us at 410-771-7140. This concludes this morning’s conference call. Have a nice day.