McCormick & Co Inc (NYSE:MKC) Q3 2020 Earnings Conference Call - Final Transcript

Sep 29, 2020 • 08:00 am ET

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McCormick & Co Inc (NYSE:MKC) Q3 2020 Earnings Conference Call - Final Transcript

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Executive
Lawrence E. Kurzius

strong signs of recovery. Their business models were already oriented to drive-through or carry out, not dining in. In China, QSR traffic has returned to near normal levels, and the limited time offers and promotions are driving demand. In the rest of the APZ region as well as EMEA and Americas, the focus has been on core menu items. But moving into the fourth quarter, we see limited time offerings beginning to reserve.

Across the rest of foodservice, while it has shown signs of recovery since our second quarter, the pace is much slower and varies by channel and market. As we have previously mentioned, we expect the recovery in this area of the business to be more gradual and take time, likely years, as restaurants and other foodservice venues such as stadiums and cafeteria continue to be largely closed or operating under capacity limitations. Consumers are reluctant to dine out and the restaurant industry has experienced significant pain.

From a food at home perspective, our flavor solutions growth varies by packaged food customer, but overall we are returning to pre COVID-19 levels as expected. New product opportunities which had slowed during the crisis and had been more focused on expansion of the core are beginning to gain increased momentum, and we're excited about their contribution to growth next year.

In summary, for our total Flavor Solutions segment, business is gradually rebounding, but not yet to 2019 levels.

Moving to our global supply chain. Coming into the crisis, there was more finished goods inventory in the system, both for us and our customers, which was depleted early in the crisis. The sustained elevated level of demand, coupled with our added employee safety measures has challenged our manufacturing operations. Service has been stressed in some areas and inventory replenishment will take some time. The real pressure has been on our US manufacturing operations where we've had to suspend or curtail production of some secondary products to meet demand for our top-selling products.

While the rest of the world is also experiencing elevated consumer demand, they've not experienced the same level of manufacturing pressure given the capacity and capabilities we've built outside of the Americas in the past few years. In EMEA, where our supply chain is very well positioned to meet demand, we've gained distribution as other manufacturers have faced challenges.

For the Americas, as we said on our earnings call in June, we are expanding our workforce and increasing manufacturing capacity through optimized scheduling and investments, particularly around blending capacity as well as scaling up partnerships with third-party manufacturer. To be clear, this added capacity is still ramping up. This capacity just started to come online in August, and will continue to ramp up over the next few months and is targeted to be completely in place by the end of the calendar year. And by then, we will have added the equivalent of an additional plant for the US manufacturing capacity.

Of course, with this rapid scale-up, there are