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

Perfect. All right. Welcome back, everybody. We'll get started if everyone can find their seats. So welcome back, everyone, to our fireside chat with McCormick & Company. With me today are CEO, Brendan Foley; CFO, Mike Smith; and incoming CFO, Marcos Gabriel. Welcome, gentlemen.

Thank you.

And just as a reminder, McCormick will not be doing breakout sessions today as they have their Analyst Day upcoming on October 22 in Hunt Valley, Maryland. So hopefully, a lot of you can join at that time. They haven't done one actually in quite a few years, new world headquarters, the whole thing. So it should be pretty interesting.

Maybe, Brendan, we'll start with you. You had a number of priorities coming into this year, including most notably strengthening global leadership in your core categories. How do you feel you're performing against this priority so far, particularly as you think about Spices and Seasonings and what are you most optimistic about as you look out through the back half of '25.

Thank you, Andrew, and thank you for inviting us to be at the conference again this year. I always thrilled to be here. We always like to lead off any discussion about sort of our performance in that we really do operate in just really great and advantaged categories, but really on [ trends ] and have been. And historically, we've driven growth organic growth just through volume. And it's also really important for us to make sure that we continue to build out our leadership and differentiation in the marketplace, particularly within the food industry, but doing it with really much greater competitive posture and intensity and focus. And so high-quality growth is really important for our organization and especially not just in 2024, but even beyond 2024. And so we intentionally increased investment in the areas in which we really do have a right to win. And so what that did is allowed us to focus in on those categories which are really most important in terms of driving that growth. One of those areas was Spices and Seasonings definitely. We put a lot of energy in terms of increasing our investment in brand marketing. We talked a lot about launching even more innovation this year and getting back up to the levels of where we had been previously, back as far as in 2019. And we also invest in areas like price gap management and price pack architecture across our portfolio. And these are areas that received a lot of attention from us, particularly in this part of our portfolio. It's also about driving consumer value, whether it's higher flavor or launching even more innovation or even greater freshness for the consumer also in areas, like, we're talking about even just better quality, making sure that we're really delivering that total consumer value across our business. From a share standpoint, we like how we've been performing over the past couple of quarters. We even got some positive unit, share performance as we came out of the second quarter overall. And so I think that's an indication that we're starting to see the performance that we want to see across this part of our business. And globally, in the second quarter, you grew volume across really the entire Consumer segment, but specifically in the U.S., really driving, I think, improved volume growth was definitely a large part of our performance as well as in EMEA, we grew dollar share in a number of markets. So we really like the trend of our business. It isn't just necessarily in the U.S. but also across where we're competing globally. So that has been pretty good. I would say in the other categories that we operate in, whether it be hot sauce or the mustard or recipe mix, we like the fact that we've seen really good improved consumption through the second quarter on those categories, too. And that's directly related to a lot of the programs that we've been putting in place to support the business overall. And also notably, even though we have all seen a slowdown in traffic, in the foodservice industry, we've been growing volume in our branded foodservice business during this period of time. So doing a nice job, we think, of gaining share in that part of the market. So when I look back at the first half of the year, really pretty happy with the progress that we've made. It's sort of on plan, if you will, thinking about it that way. This is an area that I think we've put a lot of focus up against. We're getting, I think, the return and the response from the programs that we're putting in place, again, back up to that top priority of just really putting even more strength and more support in our core category areas. The other thing I'm really quite thrilled about is just the speed and quality of the execution from our team. I think we all decided we're going to act early in this fiscal year and really make sure that we are getting on top of the business much faster in terms of improved growth. And I can't thank the team enough for the amount of -- the great execution that they're delivering across the business. I would just wrap it up by saying we said 2024 was a year of investment for our business and that indeed has been the case. And we're accelerating our approach to that just higher quality growth, volume driven, and we're starting to -- definitely start to see those results. And it helps us set us up for 2025. But I would just say, importantly, this is part of our plan. And in many ways, it reflects the fact that we've got great cost savings programs, which allow us to invest more into the business and at the same time, we're driving margin improvement. So we like the progress that we're making, and we're anxious to serve, obviously, begin to talk about how we'll do in the second half of the year...

And Brendan, given your position in the flavor industry, I'm curious about what you're seeing in terms of consumer trends, especially with the U.S. consumer, here we're hearing a lot of weakness across the consumer complex. What are you seeing in terms of consumers moving towards value? And how does this influence your growth strategy?

We're in a unique position in the industry. When we think about flavor, we're end-to-end flavor. We think about flavor from all different sides of the industry. And so we get a really unique view, I think, in terms of what's playing out there. There's a strong understanding in terms of consumer trends, preferences and where the overall flavor trends are driving. Our view of the consumer really hasn't changed a whole lot since the second quarter. Since we talked about in the second quarter, our -- the consumer definitely -- there is a resiliency there, but they definitely remain challenged. I mean what we're seeing right now is they continue to exhibit value-seeking behaviors. One way to think about what we're seeing in the trends is you still see an increase in the amount of quick trips to the grocery store at the expense of [indiscernible]. We're seeing smaller basket sizes because they're buying just for what they need. I know there's a really big debate about calories and how much are being consumed at one point in time. We're seeing really just as many calories being consumed. But I think what's happening is a lot more focus on less waste. We just see, again, this pattern of behavior of just really lying on leftover, and et cetera. So that's definitely playing in this value-seeking behavior as consumers decide how they're really deciding to spend their money when it comes to the food. If you look at foodservice, we're definitely seeing slower trends on traffic. I think what's coming through in the data that we're looking at is it tends to be -- that slower traffic is tends to be sourced from either a lower income consumer or maybe the older consumers. And so we're seeing that's where the slowness might be coming down through foodservice. And it's definitely shifting into more food and home consumption overall. It's important to remember, though, during times like this, consumers, when they're pressured, they tend to cook at home more often. And so we definitely believe we're seeing that. They tend to shop on the perimeter of the store more frequently. We're definitely seeing accelerated growth there, in that part of the store. And that really helps categories that McCormick participate in because you got to flavor that broccoli, you got to flavor the chicken. You're not buying things already prepared or made and you're going out to eat necessarily as frequently as you used to. And so that tends to benefit our categories. And in fact, I think we're talking about back in the second quarter, when we were talking about the performance of our categories, we're still -- those categories that we operate in, still lead unit consumption center of store. They're still outperforming. And that's just directly, I think, connected with what we're seeing happen overall, I think in the grocery store. One of the things we have to kind of step back and think about is during the pandemic, consumers really did learn how to cook because they had to, in a lot of ways. And also, they're still cooking a lot more right now because there's this period of high inflation. And as savings were depleted and stimulus was depleted, we definitely see that behavior still happening, I think, overall. Still -- and this has been a pretty consistent number for the past 2 years, about 86% of meal occasions are happening at home, which is still about 2 points higher than it was pre-pandemic. They haven't really moved a lot. It just sort of stayed there, and that's where consumers are right now. And so that's really, I think, what is some of the data that we keep looking at is consumers are still in the kitchen. Now a lot of this is a learned scale, and it really brings a lot of benefits, I think, to consumers, healthier meals. It also tends to be cheaper, too. And so it allows consumers to stretch kind of the food dollar, I take a little bit longer. And so that's an opportunity for consumers. It brings families together, which is always a good thing. And it also really allowed people to kind of continue exploring on flavor. So we think a lot of this increased amount of cooking at home has just sort of stayed in place for a while has really ultimately been net pretty good for the consumer, but it's just -- we've just seen more people more comfort with that now, and they still enjoy doing it overall. On value, we're seeing a number of things start to play. If I think about value as a trend. What's interesting is I'm seeing a little bit more movement and shift towards larger sizes, which had increased, didn't kind of stay flat for a while, and now we start to see it reappear again. And so it kind of tells us a little bit that people start to think about value that way. And then ironically, [indiscernible] time, really small sizes are starting to grow fast, too because you're starting to see that, that's an opportunity like mini or trial sizes and it's an opportunity to try new flavors. So it lowers the barrier to trial for people. They're not going to really spend a lot, but it shows they still want innovation, but they really want to take away, I think, what it might take to kind of try that new product. So we see these mini or trial sizes start to grow a lot. And then the other thing was kind of indication of the mindset for value is, we have this business we call recipe mix. Those are the seasoning packets that you find in grocery stores. And you might find -- it's a single meal play, it's probably around $1.29 to $1.49. And that's a real value for the consumer. And now we're starting to see that unit volume really start to accelerate. So it tells us how consumers are thinking, and kind of, how they're operating and spending their dollars in order to get the most value that they can. They're still buying brands and still buying high-quality products. But those are some of the trends that we're seeing, I think, overall. I think from a Gen Z perspective, and this is kind of a fun area for us because this is obviously our new future consumer. And right now, what we're seeing them do is lean into higher quality and more expensive items in terms of flavor. We're seeing velocity pick up on our gourmet line, and it's coming from this cohort. So it's kind of interesting to see how Gen Z is playing. Their cooking skills aren't where they need to be. They're still kind of building their own homes or apartments or whatever it might be. So we see a lot of growth right now in seasoning blends. And that's really kind of the fastest-growing area of the Spices and Seasonings category. And that's because it's like a flavor hack. Typically, when you're cooking with herbs and spices, you might start your meal prep with that or use it throughout the meal prep. But if you don't know what you're doing, they're kind of adding this at the end of the meal, it's a way to flavor of meals. So we're seeing a lot of seasoning blends grow especially with this cohort Gen Z because of that. So it kind of adds a lot of excitement, I think, the category in terms of new products and things that we're working on. We just launched this new Flavor Maker blends, which directly approaches that and is specifically for them overall. Now just a couple of other trends that I think are worth noting. In food and beverage, we're seeing e-commerce continue to gain more share of sale of total sales. And so it continues to creep up and grow. It's actually where you see more unit movement going on right now in terms of unit growth as well as it's being driven by -- in the mass channel. We're seeing a lot more delivery happen. And so it's becoming even a greater convenience for consumers. And so that's an area that we see growth. And I would just say, even during this time of value, flavor exploration still remains an active part of our category. We just have to make sure that we have all different forms of value for that consumer, and we have the innovation agenda to match that.

Great. Thank you for that. And Brendan, there's always concern over private label and how those interplay with your brands. Can you talk a bit about how you view private label today? And in that context, how do you think about pricing over the long and near term? And where do you think the consumer is on their journey in terms of adjusting to these new higher price points that we've all been having to adjust to the last 2 years?

Private label seems like an evergreen question. I think we're going to get this all the time. And...

Particularly in spices and seasonings for...

Certainly is. And we're a market leader in the categories in which we play in, and all the major markets that we're in, but we're also a leading private label supplier in U.S. Spices and Seasonings. So we have presence in both parts of our categories. And we're really diligently addressing our competitiveness within private label. So we made a real concerted approach to make sure that we took a really strong look at price gaps that were happening out in the marketplace there. It was more to make sure that we are at the right price premium versus private label. And so we've done a lot of good work around that. And so far, we're seeing really -- if we compare our performance to private label, our unit volumes are doing really well. We're seeing overall price gaps are really the lowest what they've been in the last year in terms of us versus private label. And so we feel like we're really getting the right traction and performance, I think, up against private label as a part of our category right now. But think about that, private label, though is kind of an important -- plays an important role in any category, and you have to really take it to whole -- look at the whole consumer proposition. And so we work a lot with our retailers to make sure that we have strategies that really drive the entire category, and that includes the performance of private label. But also and make sure that -- we have to make sure that our brands, and we do this really well is we have offerings at every price point across the category. And so we've really done a nice job of making sure that our branded portfolio is really available at all those different price pockets throughout the whole portfolio. One of the things we did recently because we know brands really still matter a lot. They really do. And we launched a part of our line is called Lawry's opening price point as a way to help compete up against private label on top of all the other programs that we have. And what we're seeing there, particularly we're still building out distribution, but a lot of our distribution is also coming in the form of dollar and the discount channel. And we're seeing a lot of trade up from private label into that brand. And it's actually growing the category. So we know that brands really matter and we start to see that level of performance. And we think it's going really nicely that we started now to launch other seasoning blends in that line. And so those will start to come out, but it kind of gives you an opportunity to think about that whole portfolio is very broad. We have the broadest portfolio out there in the industry. That, combined with private label and having really the right effective category management strategies, we think we're driving a lot of success for our customers and for the category and also for our brands. So we're pleased with, I think, the progress that we've made there. I would say, overall, in terms of pricing, I don't know if the consumers fully adjust yet to the superhigh prices. I think we've kind of made our focus areas just to make sure we meet consumers where they are on an item-by-item basis to make sure that we're competitive overall. And when we look at our execution on shelf, we're really proud of the category management, revenue management discipline that we have to really get, I think, the effective performance on the shelf, not only for our brands, but also for the category overall, and the consumption has been good. And so we like the path that we're taking, but private label has been part of that story for sure.

I think to -- people think private label, do you think that's a big scary thing for most CPG companies. Frankly, a lot of our markets we play in are heavy private label. And we do really well there. You think about the U.K., it's 50% private label market. Generally, when you have a high private [ label ], then you have a #1 brand leader. You don't have as many of the brands like you have in the U.S. So we've found through our category management tools, getting the price points right, we can play in every environment, whether it's a high branded environment like the U.S. or France or a high private label environment like the U.K.

Great. Within -- maybe shifting gears a little bit. Within Flavor Solutions, Brendan, maybe you could help bring to life that business for us a little bit. It's one that's less transparent, harder for us to get a sense of, explain your product categories and the customers you serve. And it'd be great if you can illustrate maybe how McCormick is truly different from a lot of the other flavor houses that many of us in the audience end up tracking pretty closely.

So the great things about McCormick is somewhere today, whether it's been at home or away from home, you probably eat a product flavored by McCormick, that's the way we think about how broad we are and what end-to-end really means for us. Most people know about our brand and McCormick through the consumer segment, what you find on grocery store shelves, et cetera. But when we think about [indiscernible] Flavor Solutions, our business stretches well beyond just that consumer business. And when you think about our Flavor Solutions segment, think about -- we play in a lot of areas where we have unique building blocks for flavor. It's a complex flavor systems. And we sell to a number of, sort of, a broad part of the marketplace in terms of different customers and channels. But broadly think about it as that part of our business is we're selling to CPG manufacturers, but also in the foodservice industry. And so this is the breadth that we have beyond just consumer retail and our brands overall. And so that's a pretty exciting part of our business. As you know, it's roughly around 40%, maybe slightly higher than 40%. I'm going to break it down in a way that brings it down to sort of different categories within Flavor Solutions. The first one is branded foodservice. Think about this as our consumer brands now going into the foodservice environment and that could be branded herbs and spices, condiments and sauces, seasoning blends, all going into foodservice. They're going to be a larger packaging. But really the application is back a house where chefs are using these products to flavor the meals or the food products that they're creating, or front of house could be on tabletop, for example, if you're seeing a bottle of McCormick Grinders or Frank's RedHot sauce. This is our presence in branded foodservice. And it's roughly of our total Flavor Solutions segment, about 25% of that part of our portfolio. And this is an exciting area of growth for us. And so I'd say that's kind of the first area. The other area that we compete in is custom condiments and coatings and just bulk herbs and spices overall. That's roughly sort of a little less than 25% of this total portfolio of Flavor Solutions. And this is primarily what we're serving into kind of the QSR type of the industry. So we're serving quick serve restaurants there. And it could be in the form of just sort of their condiments or coatings systems for protein, we'll be selling in there and that part of our business. But the largest part of it is the flavor category that we're talking about here. And think about that as seasonings, other flavoring systems, dry and wet marinades that we might manufacture and sell, seasonings, specialty flavors. This is the area which I think as you're referring to, Andrew, tends to be maybe at times, maybe at least understood. I'll do my best, again, we're always doing this slide is trying to make sure that we explain this business as easily as we can. This is where we tend to compete against other flavor houses. And when you think about flavor houses, everyone comes to market with a particular strength. For McCormick, I'm going to break down that strength in terms of flavor competencies at first. What we tend to be really good at is savory, another area we call sweet brown or think about that as naturally sweet. So think about vanilla as a way to sweeten up and provide flavor. Heat, it's another competency that we have that we're really pretty good at, and an emerging strength in citrus overall. Now think about those competencies and now where they're applied, where you might find them in the marketplace. And so there, from an application standpoint, when you think about seasonings, think about the snacking category, chips, crackers, bakery items too, isn't necessarily just snacking. But you see a lot of applications in terms of seasoning. We also flavor beverages. So we'll flavor dairy beverages, we'll flavor nonalcoholic beverages and also alcoholic beverages. So we tend to operate in that application. Another area that we've been calling out a lot in the last couple of years since we bought FONA is also Performance Nutrition. And there, just to be very clear, think about like those powdered protein drinks and the flavoring that you'll find in there. And so we'll flavor that. And then lastly, I would say is think about protein flavoring. And a lot of times, we're really very good in sort of this area and marinades, so we also flavor products that way. Those are the areas in which we tend to have a strength overall in the flavor industry. And those flavor competencies can go across a lot of different applications, but I'm just laying out the ones that are probably more prominent in terms of our customer base. But overall, when you think about what makes us different than other flavor houses, what's -- it's almost -- the best way to describe it is the point that one starts from. For us, what's unique about McCormick in this part of the flavor industry is that we start with a food and culinary heritage, our base starting point is natural ingredients. And so that kind of makes us unique in terms of our point of entry into the flavor industry overall. And it really does give us a real expertise in terms of that flavor experience when we're starting with natural ingredients. And it tends to really lend itself towards clean and natural-type flavor applications compared to our peers. Now the starting point is different, and this is a little bit of the difference between all the different flavor houses where they begin, that's where McCormick begins. The one thing that we don't have in our portfolio is fragrance. This is not part of what we're going to do. And we're so focused on flavor. That's not an area we're going to go into. We don't have the competency in that, and we're not going to be good at it, overall. Also, unlike most other flavor houses, they don't have a consumer business, we do. And that gives us a real understanding of not only, sort of a deeper understanding of that brands play, but also, I would say it's even more profound when you think about consumer insights and the amount of leverage we have from a knowledge standpoint about what's going on in the marketplace. And that is a real leverage and the difference that we have versus our competitor set there in flavor. And that becomes a real competitive advantage when we're talking to customers and thinking about what's next in flavor, where opportunities can go in terms of flavor development. And so those are the things that really distinguish us. I would say also those flavor competencies that we have tend to be McCormick strengths, we tend to be really good at seasoning, really good at savory and other flavor houses are really good at other areas. And so -- but we all compete in the same big broad market.

That's helpful. Mike and Marcos, you started '24 with strong first half results. Guidance was set prudently for '24. How do you think the business is performing both in Consumer and Flavor Solutions so far do you still expect positive volumes in the second half of the year? And do you continue to expect China consumer to be neutral for the year?

Great. I'll start, Andrew. First, I'd like to thank you for hosting such a great conference. I mean I've been the CFO for 8 years, and this will be my last one, which is kind of bittersweet, but you can tell the last one standing remotely. Congratulations to Barclays. It's like the A&M Nederman give me last [ night ]. Well, first of all, I mean, we are very happy with our first half performance. As we said on our earnings call a couple of months ago, strong volume growth. As any good CFO will tell you, we've just started our fourth quarter. We're in a quiet period. It's the first day of close. So we'll know our numbers in about 3 weeks, and we'll share them with you in the earnings call. But as of Q2, really good -- the investments we've made, we've talked about increased brand advertising, price cap initiatives, our increased innovation really bearing results. Our consumer business in Q2 showed positive volume growth, which is great across all regions in the Spices and Seasonings area, which you know is a very core category for us. We grew volumes and we grew share in the U.S. from that -- from a unit perspective, which is really important driving these units, which is very important for us. So this year, as Brendan said, it's a year of investment for us in all those areas. The nice thing is with all those investments, we've been able to grow margins, which was another focus for us this year. So our increased Comprehensive Continuous Improvement program, our Global Operating Effectiveness are driving the savings that are allowing us to invest to drive growth in the second half and into 2025. And mentioning 2025, I'll turn it over to Marcos.

Yes. Thanks, Mike, and happy to be here, Andrew, as well. So we had a good first half. As Mike mentioned, we made sequential volume improvement since Q4 of last year, especially in the Consumer segment. And we expect to deliver total positive volume growth in the second half of the year. So we believe that the plans that we have in place, we have confidence in those plans and they will drive improved the results not only going into the back half of the year in 2024, but also in 2025 and beyond. So just giving you some insight by segment. If you think about it, the Consumer segment, our growth levers brand marketing, innovation, the surgical price gap management that we put in place, all those are working and they're expected to improve our volume trends going into the back half. Similarly, Flavor Solutions, volume trends are expected to improve in the second half. And that is aligned with the timing of the -- some of the customer activities that we talked about in Q2. In addition, we do have a very robust innovation pipeline with most of our customers, which is also helping. And then I would also say that branded foodservice has performed very well so far this year despite the softness in the overall market. So overall, the trends that we saw in Q2, they do remain consistent across the business going into the second half. As it relates to China, to your second question there, Andrew, I mean, similar to what some of our peers are reporting. The market conditions continue to be challenging, but we still expect sequential sales improvement as we move through the second half of the year. And obviously, we continue to believe in the long-term trajectory -- growth trajectory of the China business and we're driving plans and enhancing capabilities to serve the Chinese consumer and customers there.

Great. Great. And also staying with you, Mike and Marcos, how would you characterize the direction of Flavor Solutions margins over time? Do you expect you'll be able to get back to pre-COVID Flavor Solutions margins? And what kind of time frame should we think about if so?

Yes. I think the direction is going in the right direction, is going north. And just to give a little historical perspective, when I became CFO about 8 years ago, we put a lot of focus into profit realization and the margins on our Flavor Solutions side of the business did grow over time to around 14% right before COVID. And obviously, the cost implications of that did put a hurt on the Flavor Solutions side, a lot of extra supply chain cost to service our customers during that time. But we've really made great progress in the last 1.5 years. In 2003, we increased margins by about 200 basis points. So getting back to 10% through a lot of those cost savings initiatives I mentioned, taking out some of those onetime supply chain costs and really building for the future from a volume perspective. This year, we're on track and our guidance for the whole company is about an 80-basis-point improvement from an operating profit margin perspective, which Flavor Solutions will be a big part of that. But going back to the playbook, we had 8 or 9 years ago, growing margins, we'll talk about how we're going to continue to grow those margins over the next couple of years.

Yes. So before we go into the margins, how we're going to get there? I mean, let me start by noting that we've had a couple of years of very solid top line growth in the Flavor Solutions business over the last couple of years, 2022, 2023, particularly in the flavors and branded foodservice segment. So -- and which would be even more impactful if we have higher margins. So the focus for us is really to continue to drive margins improvement over time. And this improvement will come through three main levers, I would say. The first one is portfolio migration. We're going to continue to shift towards higher-margin categories such as flavors, and branded foodservice. Number two is volume as we return to volume growth, we expect the operating leverage to run through the P&L and improve margins. And then finally, I would say, CCI, our continuous -- Comprehensive Continuous Improvement program, our savings initiative program. It's very robust in driving efficiencies as well helping the margin profile. In addition to that, I would say that we continue to make progress optimizing our cost structure across the supply chain network. And we're also training or exiting low-margin business. So all of these elements, they will -- they give us confidence to continue to improve, that will continue to improve the margin profile going forward. But also as a growth company, we are very much focusing putting investments behind this business to continue to drive top line growth. So as you think about it looking forward, Flavor Solutions is going to be about the combination of -- and the balance between continue to drive top line growth as well as improving the margin profile. As Mike mentioned, I mean, 2024, we guided 80 basis points of margin improvement for the overall business. Flavor Solutions is going to be roughly the same. And then over time, we continue to improve margins in line with our long-term algorithm.

Great. And Mike, guess how long can McCormick lean in with investments while still maintaining margins, I guess before investor concern on gross margin crops back up. So how do you feel about the returns on the spend and how they played out so far? Because I think, it's one broader concern in the industry, which is there's flexibility now gross margins have improved. The industry is leaning in on promotional and merchandising spending to get volumes moving. But the longer we go without seeing meaningful improvement, the more concern will crop up about longer-term margin degradation?

It's a fair question. And at CAGNY, we laid out a plan to really invest in 2024, especially early in things like brand marketing, price point, price cap management, increased innovation through our R&D resources and digital. And you think about that increase, we said at the time, it was about $80 million increase, but about 10% growth on normal, so not totally outsized, but a good investment for us and really leaned in the first half because we wanted to meet the consumer where they are, and we've shown through the consumption trends, things like that, you talk about ROI. We're really pleased with the performance because it has turned the volume trend, as we talked about a few questions ago. The reality about McCormick, though, and we think about things in a longer-term perspective. And we -- even back in CAGNY, we're talking about second half of '24 volume growth into '25, so continuing into the future. To think about McCormick's our long-term growth algorithm, which is so important when you think about the top line, 4% to 6% net sales growth, 1/3 from base volume growth, 1/3 from innovation, 1/3 from bolt-on M&A. That drops you down to 7% to 9% operating profit growth. Really robust CCI or cost savings programs. You drop some of that to the bottom line to get OP growth in the 40 basis points, but you also invest in things like A&P growth. We've been investing in A&P growth for the last 10 years every year pretty much as a higher percentage of net sales, even through the COVID years. We called out a little bit more in CAGNY some of the other areas we're investing in. So frankly, as volumes come back and if we get closer to our sales growth algorithm, that allows us more room to even invest more in the business, you get to that virtuous flywheel, I think, that we've talked about. So more investment doesn't scare me because we've shown that's been our -- that's the way we've operated the business for a long time.

Marcos, as you step into your new role, what will be the same and what will be different? And any differences in capital allocation priorities?

Well, thanks for the question, Andrew. I mean first, McCormick is a great company and it's a great business and with great people. I'm excited to be and humbled to be working closely with Brendan. I mean, Brendan hired me 7 years ago and I'm excited to be working with Brendan along the way, and Mike, obviously, over the last few years and as I step into this role and continue to drive and advance our leadership and differentiation in the space of flavors. So I have been a member of the management -- the senior management team for some time now. I joined the company as the CFO of the Americas region, working with Brendan, managing the biggest region of McCormick. Then I moved into becoming the CTO, the Chief Transformation Officer of the company, leading a series of transformation programs as well as the Global Business Services. So I have been part of the influencing the strategies of the company and being part of shaping the global teams. So you shouldn't expect significant changes from me, except for my accent, you shouldn't expect a lot coming between me and Mike. Obviously, I'm going to continue to support Brendan executing on his priorities. Growth, performance and people will be -- continue to be very disciplined in terms of capitalizing the right opportunities to continue to drive topline growth, margin as well as cash. And we remain committed to a long-term algorithm, as we stated in our calls. So -- and we're looking forward to sharing more of those plans and our strategies and our priorities at our Investor Day in October with all of you. So -- but as I look forward to officially taking on the role, and I'd like to continue to build off of Mike's instrumental contributions over the past so many years and 8 as the CFO, and Mike has been a great mentor to me and to many others within the company. We, as a team, we think both, and we want to pursue a very ambitious agenda. And McCormick is a global company. It's in great categories, and we have great opportunities in front of us. So I would say that my focus is going to continue to be helping shape up the strategy that we have in place, but also I would say around this -- the focus around disciplined execution is going to be very important and as we continue to move forward. And that's going to be enhanced through a series of programs that we have in place including digital transformation, which is something that is very close to my heart, and that I believe that can continue to drive McCormick forward. To your question about -- Andrew, about capital allocation, I mean, our priorities remain consistent. A balanced use of cash, funding investments to drive growth, returning a significant portion of cash to shareholders via dividend as well as paying down debt. And as it relates to paying down debt, we've made good progress over the last couple of years. I mean, by -- at the end of 2023, we closed our leverage ratio at 3x and I believe we're going to continue to make progress as we head towards the end of this year. We create -- we generate most of our cash in the second half of the year. So that leverage ratio will continue to improve as we close 2024. And then, as you know, deleveraging gives us the flexibility to continue to pursue M&A opportunities. And our M&A, I would say, has not changed. Strategy has not changed. I mean, it continues to be a very important part of our long-term algorithm. As you know, we have done M&A very successfully over the past few years and we'll continue to do so, but in a disciplined approach and always thinking about M&A from acquisition through integration and making sure that we realize the synergies as we integrate those assets. So overall, I would say, we will continue to focus on those assets that are accretive to net sales, profit as well as cash.

Perfect. Well, I think it's all we've got time for here. We've covered a lot, Mike, congratulations on a wonderful run at McCormick. Marcos, welcome to the CFO role. And Brendan, thanks very much for being here, and we look forward to seeing you in Hunt Valley on October 22.

Thank you.

Thank you.