McCormick & Company, Incorporated (NYSE:MKC.V) Q2 2016 Earnings Conference Call Transcript

Jun 30, 2016 • 08:00 am ET

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McCormick & Company, Incorporated (NYSE:MKC.V) Q2 2016 Earnings Conference Call Transcript

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Presentation
Executive
Joyce Brooks

Good morning. This is Joyce Brooks, VP of IR. Thank you for joining today's call for a discussion of McCormick's Second Quarter Financial Results and Our Current Outlook for 2016. To accompany this call, we've posted a set of slides at ir.mccormick.com. At this time, all participants are in a listen-only mode. Following our remarks, we'll begin a question-and-answer session. (Operator Instructions)

With me this morning are Lawrence Kurzius, President and CEO; Gordon Stetz, EVP and CFO; and Mike Smith, SVP, Corporate Finance. (Forward-Looking Cautionary Statements) It's now my pleasure to turn the discussion over to Lawrence.

Executive
Lawrence Kurzius

Thank you, Joyce, and good morning, everyone. Thanks for joining us. McCormick's second quarter results continued the momentum we saw in the first quarter of 2016. We're driving this performance with our growth strategies and our people. My thanks to McCormick employees around the world for their effort and engagement. With our first half financial results and business momentum together, we have greater confidence in our financial outlook for FY16.

The strong results this quarter started at the topline. In constant currency, we grew sales 6% for the total company. And the increase in our Consumer segment sales was particularly strong, with an 8% increase. Contributing factors were three acquisitions completed in the last 12 months, along with growth in our base business and new products, our three drivers of long-term sales growth. Based on these results, we reaffirm our fiscal year outlook for a 4% to 6% sales increase in constant currency, and with the recent acquisition of Gourmet Gardens have greater confidence in the upper end of this range.

We saw sequential improvement in gross profit margin, with a gain of 130 basis points following a 70 basis point increase in the first quarter. This improvement is led by our Comprehensive Continuous Improvement program, CCI; and we had a benefit this period from favorable business mix, including strong sales in our core US Consumer business. As a result, we're now tracking toward the higher end of our fiscal year projection for gross profit margin improvement.

Back in February, we set a goal to achieve $400 million of cost savings over the next four years. At about 2% of sales, this is an ambitious target but one that is backed by increased resources under Mike Smith's leadership. Importantly, we're taking a deliberate approach so that we do not disrupt the great progress underway with our topline growth strategies. Through the first half of 2016, we're off to a great start with this work and are increasing our FY16 projection to a range of $100 million to $110 million.

This is our fuel for growth, as demonstrated by our second quarter investment in brand marketing, which we increased 16%, or $10 million, from the year ago period. As a further investment, we funded $5 million of increased incremental spending in the second quarter in support of our acquisition activity, a key element of our growth strategy. Even with the incremental spending to drive growth,