McCormick & Company, Incorporated (MKC) Earnings Call Transcript & Summary

So our next presenter is McCormick, and please join me in thanking McCormick for hosting the snack break tomorrow morning. McCormick continues to benefit from strong underlying category growth in its core spices and seasonings segment. Has recently also been growing much more closely in line with category growth, given solid innovation, marketing spend and a more granular approach to pricing. So too has the company been accelerating the RB Foods growth by extending into the foodservice and international arenas with the brands. Last, McCormick continues to show both growth and margin progress in its flavor solutions segment. I'm now happy to turn it over to CEO, Lawrence Kurzius, to take us through the plans moving forward in more detail. Thanks for being here, Lawrence, over to you. Great.

Thank you, Andrew, for the opportunity to participate in the 2020 CAGNY Conference and everyone who's joining us today. Please take note of our safe harbor statement in today's presentation. As you know, some of today's remarks include forward-looking statements and non-GAAP financial measures. You can find the GAAP to non-GAAP reconciliations at the end of this presentation as well as on the McCormick website. A year ago, we highlighted how we're building the McCormick of the future, sharing the investments we're making for the future and how McCormick is sustainably positioned for growth. Critical to all these points is our overarching focus on growth. We're differentiated by our growth platform and the results we've achieved. This afternoon, I'm excited to give you a view of what tomorrow will look like, driven by our focus on growth. Our fundamentals and growth outlook are strong. Grounded in our solid foundation and fueled by our robust underlying business performance, we're making investments in business transformation to enable growth in line with our aspirations. Today, I'll leave you with a greater understanding of how we're advancing our differentiation, accelerating our core business, fueling our growth and transforming our business. Through the effective execution of our strategies, we're well positioned to drive differentiated performance while significantly investing to build the McCormick of the future and are confident we will continue our success in 2020 and beyond. We recently refreshed our strategic road map and remain focused on growth, performance and people and committed to purpose. Today, you'll hear more about our growth strategies designed to win with leadership across our categories. Our performance strategy is to win with results, both today and tomorrow, fueled in part by our business transformation investments, and win with talent as our people are key to our success. Our strategic imperatives are designed to build long-term value for our shareholders, as they have throughout our history. CP McCormick's comments in 1949 resonate today, as business leaders were obligated to make a profit for our shareholders as well as improve the society in which we live. With the successful execution of our strategies on growth, performance and people and our commitment to purpose, we're looking forward to flavoring a better tomorrow. So starting with growth. McCormick is a global leader in flavor. We operate in 2 segments: consumer and flavor solutions. We leverage our expertise in natural and clean flavor across both segments as an industry-leading -- as well as our industry-leading supply chain where approximately 14,000 ingredients are sourced from over 85 countries around the world. We provide flavor while also inspiring healthy choices. We have compelling offerings for every retail and customer strategy with our broad ranges of consumer formats and flavor applications. Our consumer segment has brands in 150 countries and territories and sells products at every price point, ranging from our premium brands to private label. Our flavor solutions segment is a culinary-inspired flavor business that develops custom flavor products for the consumer food and beverage manufacturers and the food service industry. McCormick is differentiated with a broad and advantaged global portfolio, positioning us to fully meet the demand for flavor around the world. The breadth and reach of our portfolio across segments, geographies, channels, customers and product offerings creates a balanced portfolio to drive consistency in our performance in a volatile environment. We have operations in 27 countries with approximately 40% of our sales outside the U.S. In emerging markets, including our share of joint ventures, we have a strong presence, driving 23% of our global sales. I'll take a moment here to mention the extraordinary and evolving events in China, which we're following very closely. Our primary focus is to ensure the safety and health of our employees and the quality and integrity of our products. For perspective on China, we have 3 plants in Shanghai, Guangzhou and Wuhan, and all of our activity is mainly contained within the China market. As of early last week, our Shanghai and Guangzhou factories resumed partial operations, but not yet in Wuhan. While China is our second biggest country and is less than 10% of our annual sales, its seasonality skews to the first quarter. Given the reduction of people traveling, shopping and dining out, with many shops and restaurants closed, there has been significant disruption to China's consumption. Our first quarter sales will reflect this disruption, but it is still too early to quantify the full business impact, particularly for the year. We'll provide an update on our earnings call in late March when we expect to know more. It is important to note that our China business has a long track record of growth, including a strong 2019, and our fundamentals remain very positive. While we anticipate short-term disruption, we continue to believe in a strong long-term outlook in the Chinese market for us. Flavor is an advantaged global category, growing at a 5% CAGR over the last 5 years, and our top categories are growing at an even faster rate. Our global flavor market includes categories across our broad portfolio from spices and seasonings to condiments and sauces. The rising global consumer demand for great taste and healthy eating is the foundation of our sales growth. The younger generations continue to fuel the demand for flavor and drive growth. Gen Z is the largest consumer segment, bigger than millennials, and they are just starting to enter the workforce, form households and fuel the next generation of flavor growth. They're more experimental and health aware about food and seek authentic, global, bold and spicy flavors. They place an emphasis on ethics and sustainability in making food choices. Finally, Gen Z is nostalgic for brands and flavors with heritage. McCormick, with our 130-year history, has the right brands for them. We'll grow and win with leadership. We plan to drive our undisputed leadership in spice and seasonings, accelerate our condiment and flavors global platforms, particularly in areas where we already have scale, and fuel our growth in emerging markets and channels as well as on-trend, fast-growing platforms. We plan to strengthen our connection with the consumer, especially with digital, e-commerce and social media outreach as well as drive growth through our best-in-class customer engagement and flavor solutions. Our effective growth strategies as well as a robust operating momentum all bolster our confidence in delivering another strong year of growth in 2020 and beyond. Let's move to our consumer growth plan, starting with driving undisputed leadership in our key categories. The global category for packaged spices and seasonings is $11 billion in retail sales, and McCormick continues to be the global leader with approximately a 20% share, nearly 4x the size of the nearest branded competitor. We have leading branded share positions in many countries. We've been driving our undisputed leadership through strong brand marketing, by keeping our portfolio relevant to consumers and our category management initiatives. In the U.S., our success collaborating with retailers on category management initiatives is driven first by the importance of the spice and seasoning category to our retail partners, ranked #1 in both basket ring and profit per linear foot as well as #8 in consumer trips to center store category. And secondly, our success is driven by the consistent growth we've driven in McCormick-branded consumption, a 4% 4-year CAGR across all channels with strong measured consumption and double-digit unmeasured channels. McCormick continues to drive category leadership, and we are reinventing the in-store experience for spices and extracts for consumers by introducing new merchandising elements, including a suite of navigational and inspirational elements, transforming an often confusing shelf to 3 shoppable sections. These sections are based on deep consumer insights on how consumers shop to ultimately drive category growth. We'll make it easier for them to find what they're looking for and be inspired to try something new. Customer reaction has been strong, and we're rolling these sets out nationally. While the recipe mix category is tracked in fewer markets around the world, McCormick has share leadership in key markets. Again, we're strengthening our leadership position in this category through our brand marketing investments, category management and new products. Recipe mixes offer the consumer real value in terms of convenient flavor solutions. Our efforts are driving strong consumption growth, over 3% in 2019, across our leading markets which includes the U.S., our largest market where we've delivered share growth again in 2019. We're advancing our leadership in consumer condiments and sauces by driving strong performance across our entire portfolio of global brands as well as strong regional leaders. In hot sauce, the McCormick branded portfolio has the #2 share globally, with #1 positions throughout most of North and Central America. McCormick also is the #2 global share leader in mustard with the #1 position in many key markets behind a strong portfolio of brands. All of these varieties of what we call liquid spice continue to represent a strong growth platform for McCormick. And speaking of liquid spice, we turned our beloved OLD BAY brand into a liquid with the recent introduction of a limited edition OLD BAY hot sauce. It was an unbelievable hit, selling out, heating up social media and garnering significant national media attention. This is a great example of how we're leveraging our brands and our capabilities in both product innovation and digital marketing. We have a robust global pipeline of innovation across our portfolio in 2020, including exciting first half of the year launches. Ease and convenience remain a key driver of consumer trends, and we're introducing products across the globe to provide consumers convenient solutions. In the U.S., we're relaunching our perfect -- convenient Perfect Pinch seasoning blends. And in the U.K. and Canada, we're launching ONE recipe mixes, providing easy ONE dish meal preparation following the success of the ONE launch in the U.S. last year. Adding to our convenience offering, we're delivering innovation through our new partnership with Instant Pot, whose smart, multifunction cooker is one of the top-selling kitchen appliances in the world. In the U.S. alone, 1 in 4 households now owns an Instant Pot. We've updated our slow cooker line in the U.S. with co-branding and directions for Instant Pot preparation. And later this year, we'll also launch a new range of recipe mixes designed for the Instant Pot based on the top recipes in their consumer database. Consumer demand for healthy options and transparency continues to grow as well, and we're delivering that with a broad range of new products. For instance, in the U.K., we'll be capitalizing on the growing demand for flexitarian and vegetarian options by introducing a range of all-natural herb and spice blends designed to create flavorful plant-based protein meals and help consumers looking to spice up their current repertoire of meat-free recipes. In France, we're taking advantage of the booming healthy snacking market with a new range of snacks under the Vahine brand containing a delicious mix of nuts, seeds and fruit. In the U.S., we're launching a salt-free seasoning blend line, providing consumers options to turn up the flavor without adding salt and a reduced-sugar Stubb's Bar-B-Q sauce. In 2020, we'll continue to inspire flavor exploration and experimentation with exciting new products from around the globe. In Australia, we're excited to introduce a new ethnic brand Kadahi Street to bring the magic of Indian food alive with a convenient range of authentic side dishes. In the U.S., we've introduced Grill Mates, authentic regional blends of American barbecue sauces as well as savory everything bagel all-purpose seasoning. We're also introducing new flavored mayonnaise varieties, such as guacamole, supplied by our Mexican joint venture. And in the U.K., we're extending our heat platform. Turning to Frank's and French's, we have an exciting slate of new product launches in the U.S. to continue to accelerate the growth of these terrific brands. Frank's RedHot thick sauce and varieties like Buffalo Ranch will bring great Frank's flavor new occasions where dipping and toppings are desired. We've had great success with our Frank's new products in launching them in new categories. And, in fact, half of our household penetration gains for the Frank's brand have been driven by new products. More than 2 years after the acquisition of our Frank's and French's brands, we continue to leverage McCormick capabilities to accelerate our U.S. growth. We've accelerated Frank's growth every year by increasing brand support, expanding into different categories through new products and extending points of distribution. We're pleased to have returned to French's mustard brand to growth. Renewed focus on consumer messaging and winning key merchandising windows, delivered 3% growth in 2019 retail consumption, driving both share gains and category growth for the first time since 2016. In branded foodservice, we continue to increase restaurant penetration with double-digit tabletop growth and significant new menu participation. In 2020, Frank's is celebrating its 100th birthday. And as our consumer campaign says, "Frank's RedHot is pretty hot for 100." Please join us in celebrating this milestone all year long by putting that splat on everything. Now turning to how we're fueling growth in fast-growing markets and channels. Fast-growing markets are a significant opportunity for us. In many markets, we have plans to accelerate growth, building on the results we've already driven. In China where sauces are the most common way to flavor food, we're continuing to add new world sauce flavors, contributing to the significant growth of that platform. And in India, we delivered double-digit 2019 growth driven by many initiatives, including effective promotions, new products and through e-commerce. And while our McCormick de México joint venture's robust sales performance is not included in our top line numbers, they drove the growth in our income from unconsolidated operations. We're also gaining momentum on Frank's and French's in many international markets. In China, French's mustard is a top-5 selling item on our direct-to-consumer platform, and in Australia and Mexico, effective brand marketing and promotions drove double-digit sales growth. We're also fueling our growth with health and wellness investments and are raising the awareness of the clean and healthier labels of many of our products. Organic is growing as a global trend, and McCormick has continued to expand our organic offerings. We're the brand leader in organic spices and seasonings around the world with strong positions in our key markets. The nutrition facts of many of our products in our global portfolio are simple, 0 calories, 0 fat and 0 sugar. We're delivering great taste to consumers, providing them clean and healthier flavor to enhance their eating and drinking experiences. In 2020, we'll be increasing our emphasis on messaging not only the great flavor our products provide but their contribution to helping consumers achieve their increasingly important health, wellness and lifestyle goals. Examples include highlighting the simple and clean ingredient statements of our dry recipe mixes or helping consumers to have a gluten-free, paleo or vegan lifestyle, enjoy delicious and exciting foods with the perfect blend of flavor and heat from Frank's hot sauce. Through our affiliation with the McCormick Science Institute, MSI, we're supporting university research to validate and advance public awareness of the health benefits of spices and herbs, setting the stage for future health claims for flavorful and healthy eating. This is an exciting growth opportunity for McCormick. An important channel of faster growth for McCormick's feature is e-commerce. In 2019, we drove global e-commerce sales growth of 44% with strength across pure play, omni-channel and direct-to-consumer. We continue to win with best-in-class content. Our in-house marketing excellence group produced over 21,000 pieces of content in 2019. Our investments and resources across e-commerce continue to pay off, and we're positioned well for continued global growth. Turning to strengthening our consumer intimacy and personalization. We've consistently made significant brand marketing investments. And as a percentage of sales, our consumer segment brand marketing is the highest in our peer group. As we increased our brand marketing investments, our returns continued to improve, beating the ROI norms by over 2x. Our digital leadership was recognized again by Gartner L2 Research. McCormick was ranked #1 on their Digital IQ Index for food. This marked our sixth consecutive year in the top 5 ranking of over 100 food and beverage brands on the effectiveness of our website, digital, social media, e-commerce and mobile platforms. We're uniquely positioned to offer best-in-class content in the food space, and this is a clear differentiator for us. Our focus is on ensuring that whenever the consumer is thinking about flavor, we will be there. Through every interaction, our ambition is to create and sustain deeper one-to-one relationships, bridging physical and digital experiences and reinforcing our brand as the indispensable partner in flavor. This -- here's a video on how McCormick properties support the consumer's flavor journey. [Presentation]

We're scaling up digital programs and activating more opportunities for consumers to connect with us and buy our products directly. In the U.S., we're making all touch points shoppable and our products just 1 click away. We launched our first subscription platform through our McCormick shop inspired by a industry-leading flavor forecast report. And as we continue to reach young flavor enthusiasts as the official spice of Tasty, they can simply click on Buy Now when watching an online recipe video. We continue to build out our library of Flavor Maker videos, and after a beta launch last year, we're expanding our new Flavor Maker mobile app across the U.S. in 2020. With a full array of features and functions, we're creating content that will inspire consumers, tailor their McCormick-branded experiences and increased personalized services to them in the future. In China, our recent Frank's RedHot TikTok consumer campaign was an enormous success, engaging consumers with millions of impressions of user-generated content and driving significant sales to Tmall, our direct-to-consumer platform. We're continuing to venture into new and emerging areas and build valuable long-term relationships by meeting our consumers on their flavor journey. We're also staying relevant with today's consumers by messaging our strong sustainability record. Consumers overwhelmingly believe it is important for companies to help the environment and can be influenced to buy a brand by a company's practices. McCormick is committed to sustainably sourcing 100% of our 5 most iconic ingredients by 2025. We've committed that 100% of our plastic packaging will be reusable, recyclable or able to be repurposed by 2025, and we're currently already at 84%. McCormick's reputation for sustainability, transparency and community support throughout our complex global sourcing platform resonates with our consumers, customers and employees. In 2020, we'll increase our communication to leverage these initiatives with consumers, and Mike will say more about this later. Now turning to our flavor solutions segment, beginning with an overview of our flavor solutions leadership. Our flavor solutions business continues to show great performance. We're delivering sales growth through our increased resources and focus on greater value-add categories in high-growth regions. We continue to progress on expanding our portfolio with flavor growth while making strategic decisions to prune lower-margin business. The execution of our strategy to migrate our portfolio to more technically insulated and value-added categories has been a contributor, along with our Comprehensive Continuous Improvement program, or CCI, to improving our segment-adjusted operating income margin. We see a long runway for growth ahead and are making investments to drive further success. We are advantaged for growth within our flavor solutions business because of our diverse portfolio. We sell a comprehensive range of flavoring solutions from unique building blocks to complex flavoring systems. Our portfolio consists of bulk ingredients and coating systems, custom condiments, branded food service products and custom flavors. This portfolio enables us to collaborate with a wide range of customers and channels, consumer manufacturers, restaurants and distributors to deliver great taste in the products they make or sell across the food and beverage industry. We're one of the top global flavor suppliers to the food industry. Now expanding on flavors, our most technically insulated and value-added category. Culinary, as our foundation, differentiates us, and it is at the heart of our passion for creating custom, on-trend food and beverage flavors. We have a world-class team of culinary, food science and flavor experts in our state of the art technical innovation centers. Our unique food heritage gives us unrivaled understanding and access to trusted natural ingredients, which, coupled with our culinary foundation, ensures a natural solution delivers a full sensory experience. Using our deep understanding of real food and beverage and leveraging our leading technology, we create authentic and natural flavors that resonate with the consumers' preference for familiar kitchen ingredients. With our broad portfolio, we deliver a range of natural flavor solutions for our customers with certifications in non-GMO, USDA Organic and Rainforest Alliance, just to name a few. Several key enablers drive our success in developing winning flavors for our customers' applications, which keep their consumers coming back for more. Highlighting 2 of our enablers, artificial intelligence and consumer insights are combined in our computational creativity technology. Our developers use artificial intelligence in flavor development, allowing them to explore flavor territories across the globe quickly and efficiently, utilizing technology to extract key insights from millions of data points in our unparalleled repository of consumer insights. Our passion for flavor and our customers with our technology is driving our wins. We're building exceptional and sustainable customer partnerships. The combination of our differentiating enablers, our culinary focus, consumer insights, technology platform and strength in application science, combined with our people, drives differentiated, best-in-class customer engagement. Our customer intimacy approach spans from product concept to commercialization with a rapid speed-to-market focus without compromising on product quality or integrity. Both McCormick and our customers are winning through our partnerships. Now I'd like to share more about our broad proprietary technology platform. Through combining the science and art of creating authentic flavors, we're creating consumer-preferred flavor solutions for every application. Our proprietary modulation technology, FlavorFull, enables delivery of solutions for common challenges, including masking sour or bitter notes and reducing salt, sugar or fat. We can solve for any low or no challenge without sacrificing flavor. Flavor spice delivers flexible natural replacements for ground spices and herbs with increased concentration and solubility. It's a real alternative that creates enhanced flavor perception and product uniformity while delivering on natural label claims. Now let me go a bit deeper on FlavorCell and FlavorReal. FlavorCell is our best-in-class solution to deliver flavor how you want it, when you want it and where you want it. It is a patented process that enables flavor delivery in low-, medium- and highly soluble products. Whether it is ensuring burn resistance on topical baked product, flavor release in confections or rapid dissolve and beverages, flavor integrity is preserved and the unique consumer flavor experience is delivered. Due to its functional ability to solve difficult flavor-delivery challenges, we believe there are solutions FlavorCell can provide that other flavor-delivery products can't. Along the natural flavor spectrum, consumers are demanding clean flavor. We're a leader in clean and natural flavor, rooted in our expertise in the science of food and natural ingredients. Clean can seem complicated, but we've been doing it for 130 years. FlavorReal, our clean and natural platform sets the benchmark for development of on-trend, organic, non-GMO and better-for-you products with our unparalleled natural ingredient supply chain and technologies enabling clean label transparency while delivering deliciously complex flavors. We capture fresh and true flavor directly from the natural source, using proprietary yet simple methods requiring minimal processing and promoting sustainability and global responsibility. To increase our growth opportunities, we're accelerating our global scale in flavors. We continue to invest in our flavor solutions infrastructure and drive growth and meet rising demand globally. In particular, we're accelerating our investments related to flavors. Our investments include manufacturing and distribution capacity in the Americas. In Asia, we're continuing our investments with additional capabilities. Most notably, we'll be replicating our Americas flavor encapsulation and liquid flavor capabilities in the region to drive more substantial growth through faster service and greater customer collaboration. Our investments increase our capacity for growth and drive efficiencies and include talent, ensuring we have the right skill set to deliver innovative products with exceptional quality. In addition to the top line opportunities from our investments, they'll drive further results related to our portfolio migration strategy. Wrapping up our flavor solutions segment, overall, through the breadth of our product and technology platforms, our customer intimacy and our culinary foundation, we continue to win with our customers. We're executing on our strategies and driving results while making investments to expand our existing global presence and drive further growth across the globe. Now I'd like to turn it over to Mike to talk about performance.

Thanks, Lawrence, and good afternoon, everyone. Starting with our performance strategies. We will win with results. Our plans include delivering superior results with purpose, accelerating fuel for growth and driving continuous value creation. And in our recent strategic refresh process, we have added transform to create capacity for growth as an imperative. The execution of these effective performance strategies with our overarching focus on growth and profit realization fuels our confidence in continuing to deliver industry-leading financial performance in 2020 and beyond. Starting with transformation. Our investments in business transformation will fuel our growth and build long-term shareholder value. We are expanding our infrastructure and capabilities to meet demand not just for today but for years to come. Our last enterprise resource planning implementation, or ERP, was in the early 2000s. And since then, we have more than doubled in size. This growth, as well as changes in technology, requires us to modernize our ERP systems and reinvent our business processes. This transformative investment allows us to realize a scalable platform for growth. Our investments extend beyond ERP to our business analytics capabilities, the development of our employees and in our industry-leading supply chain, all of which enable us to sustainably meet growing demand and increase our competitiveness for years to come. We are implementing a global operating model to deliver aligned and simplified processes that will allow us to grow at scale through increased digitization and automation. Technology is the backbone for this model, and we have begun a multiyear program to replace our existing disparate ERP systems with SAP HANA, a single global system. As we mentioned on our January earnings call, with the recent completion of milestones for a global template build, we are projecting the total cost of our ERP system to be between $300 million and $350 million from 2019 through the anticipated completion of our global rollout in 2022, with an estimated split of 40% capital and 60% operating expense. The total operating expense impact for the program is estimated to be between $180 million to $210 million. In 2020, we are projecting our total operating expense impact to be approximately $80 million, which is an incremental $60 million over the prior year. While our most significant ramp-up in expenses is 2020, we will have fairly similar spend in 2021 before winding down our investment level in 2022. Our ERP platform will be the technology platform connecting people, processes and data to run our business. It will enable us to transform our ways of working and realize the benefits of a scalable platform for growth. When joined with our globally aligned processes, our ERP platform will drive efficiencies, agility, a higher degree of operational excellence, faster decisions and allow us to remain forward focused on growth. The benefits we expect to realize include: first, driving further growth through unlocking actionable insights, increasing our customer responsiveness and realizing synergies faster from multi-region acquisitions; second, generating cost savings by reducing transactional costs and gaining capacity and improving working capital; and finally, being the foundation for our control environment, digitization, automation and analytics across the business. We're also expanding our actionable insight power through continued investments in business analytics capabilities, both in tools and resources. We're developing unique and proprietary analytics in many areas, such as marketing optimization, social listening, sourcing agroscience, revenue management and product development. For instance, in revenue management, we have created a suite of capabilities that enable price elasticity and retail shelf price modeling not only for individual products but also as part of our category leadership across entire categories to optimize profitability for both McCormick and our retail partners. And in product development, we have partnered with IBM on the use of artificial intelligence, which Lawrence mentioned earlier as computational creativity. These capabilities are key differentiators for McCormick, improving the speed and quality of data-driven decisions and unlocking new growth opportunities. Driven to innovate is 1 of our 5 key principles and reflects our unrelenting focus on what is next and recognizing that innovation has and always will propel our business forward. We're continuously reinventing our business, and it is everyone's responsibility to embrace breakthrough ideas across all aspects of our business. To further enable that responsibility, we are investing in employee development through our Innovate.All program. This initiative is built on 4 growth behaviors, which allow all employees to be more agile, enable more rapid execution of projects and more effectively achieve innovation and growth. This investment will help us to ensure all employees have the tools and skill sets to transform McCormick together to achieve our growth objectives. Turning to our global supply chain network and organization. Having the right capacity and capabilities is critical to our growth. We have identified a series of investments in our global supply chain network, which we expect will enable us to sustainably meet growing global demand. Our ERP investment, business analytics and employee growth behaviors are all the foundation for transforming and building a global supply chain of the future. We are expanding our infrastructure and capabilities by optimizing our distribution network as well as modernizing and expanding our manufacturing capabilities globally. In the Americas, we have begun significant reengineering to add distribution capacity and optimize our customer response time as well as increase our efficiencies through the use of technology. In EMEA, we will be making investments in manufacturing automation to not only create capacity but also reduce repetitive manual activities. In the past several years, we have added new facilities in our APAC region to service these high-growth markets, and our investments in the region will continue with the addition of new flavor solutions capabilities, as Lawrence previously mentioned. These investments will provide integrated solutions in conjunction with our ERP deployment, which allows us to fully leverage the digital technology platform. Our supply chain investments are also about our technically advantaged supply chain program and its progress related to global strategic sourcing. McCormick has a long legacy of sourcing from over 85 countries around the world, and we are excited about our journey. We are sourcing with purpose to deliver a differentiated and sustainable supply of spices and herbs. Through agricultural science programs, the application of digital technologies and data analytics, combined with supporting farming communities, we are driving brand differentiation and supply resiliency. We are transforming the sourcing value chain and expanding our strongest competitive advantage. Let's now watch a video that highlights some of the work we are doing on one of our most important agricultural raw materials, cinnamon. [Presentation]

Now for results with purpose, starting with our financial performance and outlook. We continue to be differentiated by our top-tier growth objectives. When you compare our long-term guidance to our packaged food peers, McCormick is best-in-class for both sales growth targets as well as for our expected increase in adjusted earnings per share. Our confidence in our long-term outlook stems from our strong track record. Over the last decade, we have delivered steady growth in sales, adjusted earnings per share and cash flow. Over the past 4 years, we have expanded our adjusted operating income margin by 330 basis points. Our confidence in the sustainability of our margin expansion is supported by the strength of our CCI program, which began in 2009. We employ a balanced approach to use savings from our CCI program to drive profit realization or reinvest to drive sales growth. Over the last 4 years, we realized $463 million in CCI, exceeding our 4-year $400 million goal that we set in 2016 to signal a step change to a higher level of annual savings, and we are not done. There continues to be a long runway beyond 2019 to deliver additional savings and fuel our growth. In 2020, we anticipate an additional $105 million of cost savings. With our teams now working on both CCI and our ERP implementation, continuing this cost savings momentum shows our pipeline is strong, and we look forward to the benefits from ERP, which will augment our savings in years to come. We are also driving record cash flow through our profit growth and working capital improvements. In 2019, we achieved our eighth consecutive year of record cash flow from operations, up over 15% versus 2018 and nearly 61% over the past 4 years. We continue to reduce our cash conversion cycle, executing on programs to achieve working capital reductions, ending 2019 down 47 days or 50% from 2015. We anticipate another year of strong cash flow in 2020. We will carry extra inventory during our ERP deployments to ensure adequate supply and risk mitigation but expect continued progress from other working capital programs, which will drive further reductions in our cash conversion cycle. We are focused on using our strong cash flow to pay down our debt and grow our dividend. At year-end, we announced a 9% increase in the quarterly dividend, marking our 34th consecutive year of dividend increases. We have paid dividends every year since 1925 and are proud to be a dividend aristocrat. We have also paid down $1.25 billion of our $1.5 billion term notes related to the Frank's and French's acquisition, ending 2019 with a net debt to adjusted EBITDA ratio of 3.4x, and are on track to achieve our 3x leverage target by the end of 2020. We are committed to paying down debt. However, with a clear line of sight to a 3x leverage ratio, we are exploring acquisition opportunities, which are a key part of our long-term growth strategy. We have been continually managing our pipeline of opportunities and filtering them against our strategies where acquisitions will fit our vision of being the leading flavor company, meet our financial thresholds and deliver shareholder value. Our priority is growth and making significant business transformation investments will not limit our ability to make acquisitions. We have a history of creating value through acquisitions as well as implementing technology solutions. We are committed to retaining the discipline we have historically demonstrated in both areas to continue this track record. As Lawrence mentioned earlier, we expect an impact from the situation in China, but it's still too early to quantify. As we know more, we will evaluate any impact to our current full year outlook, as seen on this slide, and provide an update in our earnings call in late March. Our current guidance projects another year of robust underlying base business driven by the momentum, effective growth strategies and focus on profit realization we have shared this afternoon. We expect to grow sales 2% to 4%. Our adjusted operating income growth rate, excluding the incremental business transformation impact, reflects expected strong underlying business performance from sales growth and margin expansion. Our underlying business performance is projected to generate adjusted earnings per share growth of 7% to 9%. This robust growth is offset by both the tax headwind as well as the unfavorable impact from our incremental ERP investment. We don't expect our ERP investment in 2021 to impact our growth algorithm. Given there is variability in our business from year-to-year, especially related to transformational events, we evaluate our performance against our long-term objectives over several years. With that said, a review of our 5-year compounded annual growth rates, which includes our 2020 guidance, projects that our sales and adjusted operating income growth rates are expected to exceed our long-term objectives. Additionally, our adjusted earnings per share performance is also in line with our long-term objective. We are winning with results. At McCormick, we take pride on delivering industry-leading financial performance while also doing the right thing with responsibility to the long-term vitality of people, communities and the planet we share. We've been recognized as a leader in sustainability. For the fourth straight year, we were named by Corporate Knights in their 2020 Global 100 most sustainable corporations index at the Davos World Economic Forum, again ranking #1 in the food products industry. To highlight some of our actions to positively impact communities and planet, we've recently introduced Drone for Good, the first ever certification program for sustainability in the herbs and spice industry, which will raise current industry standards of sustainably sourced ingredients to a higher level, including assurances that products have been sourced in a way which protects farmer livelihoods and ensures gender equality. Partnering with organizations around the world, we're also helping nearly 16,000 farmers, an increase of over 5x since 2017, to increase skills, education, income and health, and we are reducing our environmental impact. For instance, through our efficient use of resources, such as our LEED certified buildings or our use of renewable energy. To execute our growth and performance strategies successfully, our people are key to our success. We plan to win with talent. We are proud of our culture, which began with CP McCormick's introduction of the power of people. In today's highly competitive talent market, our differentiated culture is a key strength as we strive to attract and retain the best talent. Our high-performance culture is rooted in our shared values and engages all employees through our multiple management philosophy of encouraging participation and inclusion with respect for the contributions of every employee. With over 12,000 employees around the world, we are creating a diverse global workforce. And finally, we are evolving as a learning organization, such as the development investments I mentioned a few moments ago. Our employees are positioning us for growth, and our goal is to ensure McCormick remains a great place to work. To conclude, I hope our presentation provides you greater insight and appreciation of McCormick. Our fundamentals and growth outlook are stronger than ever. Our underlying business performance is robust, and we are making significant business transformation investments to enable future growth and build the McCormick of the future. We are confident the momentum of our business is sustainable, and we will continue to deliver differentiated results. Our focus on growth is relentless as we continue to drive McCormick forward, flavoring a better tomorrow, and further building value for all of our shareholders. It looks like we have time for a couple of questions.

I'm going to take the -- we may -- whatever questions we don't get to in the room, we'll certainly take in the breakout, but I see Andrew Lazar.

Thank you. Lawrence, a couple of years ago, McCormick was not keeping pace with the growth of its core category in spices and seasonings in the U.S. That's changed a lot, right, over the more recent, let's call, a year or 2, where you're now absolutely keeping pace with a category that's still been pretty strong. In thinking about the sustainability of that, maybe you can talk a little bit about some of the specific actions that were taken to drive that shift, particularly in light of the, from time to time, concerns that seem to come up around private label growth in the category and things of that nature.