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

Jun 30, 2016 • 08:00 am ET

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

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Presentation
Operator
Joyce Brooks

Good morning. This is Joyce Brooks, Vice President of Investor Relations. 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, Executive Vice President and CFO; and Mike Smith, Senior Vice President, Corporate Finance.

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, as well as information in constant currency. Reconciliations to the GAAP results are included in this morning's press release and slides.

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 two, 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 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 fiscal year 2016.

The strong results this quarter started at the top-line. 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 lead 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