Lawrence E. Kurzius
Chairman, President, and Chief Executive Officer at McCormick & Company, Incorporated
Good morning, everyone. Thanks for joining us. Before I go to business, it is with great sadness that I mention the passing of Gus McCormick, who was one of the most beloved and admired leaders in McCormick's history. Gus's career at McCormick spanned 50 years, rising through the ranks across many functions, becoming President and CEO in 1987, and serving as Chairman of the Board for a total of 11 years until his retirement for the third time in 1999. As CEO, Gus focused McCormick on Flavor by divesting non-core businesses and driving category leadership in spices and seasonings, se7tting the course for McCormick to be the global leader in flavor. Notably, McCormick's market cap grew by 4 times under his leadership. Gus will not only be remembered for his enduring legacy of performance, but just as importantly for his deep commitment to the well-being of all McCormick employees. He truly made McCormick a great place to work by leading has biggest accomplishment as a CEO that's helping all McCormick employees have a better life. Today, as we reflect on his life and his contributions, we know that his legacy will live on. He has inspired many generations of McCormick leaders with this passion for people, focus on flavor and commitment to delivering shareholder value.
Next, I'd like to comment on the situation in Ukraine. First and foremost, we extend our deepest sympathies to the people of Ukraine and hope for an immediate end to the conflict and the suffering of innocent people. As we previously announced, we suspended our operations in Russia in mid-March. Our operations in Ukraine has been paused with the focus on the safety of our employees and their families. Our thoughts are with the people impacted by these tragic events, particularly our employees that we continue to support. To aid in humanitarian efforts, we're donating to the Polish Center for international Aid and the World Central Kitchen. I would also like to express my sincere appreciation to our EMEA employees, especially those in Poland for their many personal efforts in aiding their Ukrainian neighbors in need. Their actions epitomizes our power of people principles.
Now moving to Slide 4 and our business results. We delivered solid financial results in the first quarter, in line with our expectations, driven by the successful execution of our strategies and the engagement of employees. We are confident our strong year-to-date momentum will continue to drive strong performance throughout 2022. In the first quarter, we grew sales 3% and 4% in constant currency, on top of our 20% constant currency growth in the first quarter of last year, demonstrating again the strength of our product offering and broad global portfolio which drives differentiated growth and consistency in our performance.
Consumer segment sales while lapping high year ago demand continue to reflect the sustained shift of higher-at-home consumption compared to pre-pandemic level. Our Flavor Solutions segment growth was driven by outstanding growth with our packaged food and beverage customers, as well as robust demand from restaurant and other foodservice customers due in part to recovery from curtailed away from home dining in the year ago period. Through the breadth and reach of our balanced flavor portfolio, we are meeting the global demand for flavor and delivering flavor experiences for every meal occasion through our products and our customers' products, we are end-to-end flavor.
Adjusted operating income was down 14% or 12% in constant currency and adjusted earnings per share was down 13%. As anticipated, the profit driven by our sales growth was more than offset by the well known and anticipated headwinds of higher inflation and broad-based supply chain challenges. We have a demonstrated history of successfully navigating through volatile environment and we expect to do the same through this high current inflationary period using pricing and other levers to offset cost pressures, which is reflected in our 2022 profit outlook.
Now for more on our first quarter segment performance. Starting with the Consumer segment on slide 5, growth in the Americas was more than offset by lower sales in the EMEA and APZ regions. Total Consumer segment sales declined 2% against 35% consumer growth in the first quarter of 2021. Given the difficult year-over-year comparison, volume declines were reflected in each region. On a two-year basis, however, compared to the first quarter of 2020, each region grew sales by double digits. This growth highlights the strength of our categories and importantly, our products as consumers continue to cook more at home, demand for flavor continues to grow.
The pricing actions we've taken we're also reflected in each region's results and the elasticity impact we experienced has been lower than historical levels. As we look ahead and our additional pricing actions are phased in, the elasticity we experienced may change and this could be a cumulative effect, but we still expect the impact to be lower than historical level.
Turning to highlights by region, starting with the Americas. Our total U.S. branded portfolio consumption as indicated by our IRI consumption data and combined with unmeasured channels grew 2%, which follows a 15% consumption increase in the first quarter of 2021. This is the eighth consecutive quarter of double-digit consumption growth versus the two-year ago period. Demand has remained high and we continue to realize the benefit of the manufacturing capacity we added as well as our increased resilience. Our first quarter shipments were in line with consumption. However, some products remained stretched by sustained high demand.
Shelf conditions continue to improve as does our share performance with another sequential improvement in the first quarter as we expected. Versus last year, we are beginning to grow our spices and seasoning share and in recipe mixes, we had another quarter of considerable share gain, over 4 share points. We continue to see further improvement as we begin the second quarter and we are confident in our continued momentum.
In EMEA during the first quarter, we lapped high prior year demand, partially due to restrictions resulting from COVID resurgence of last year, while continuing our momentum with strong consumption growth in key categories compared to the first quarter of 2020. Our market share performance was stronger this quarter. We maintained our total EMEA region herbs, spices and seasonings share on top of strong gains in the first quarters of the last two years. Of note, Frank's RedHot has grown consumption 60% and gained significant share versus the two-year ago period.
And in the Asia Pacific region, first quarter growth was tempered by scaled down Chinese New Year celebration due to several cities in China imposing restrictions as a result of new COVID outbreak. These restrictions impacted our branded foodservice demand that is included in the Consumer segment in China.
Turning to Slide 6, our Flavor Solutions segment grew 12% or 14% in constant currency, driven by base business growth, new products and one month of incremental sales for our acquisition of FONA in December 2020. All three regions contributed to our growth, each with higher volume and product mix as well as the pricing actions to partially offset cost. Our first quarter Flavor Solutions results reflect similar market conditions across the region. As a reminder, our customer base in the Americas is skewed more to packaged food and beverage customers and in EMEA and APZ to quick service restaurant or QSR customers.
Our differentiated customer engagement and technical capabilities continue to drive outstanding growth both in base business and with new products, but our packaged food and beverage customers are at-home customer base. Our performance with these customers led our first quarter Flavor Solutions results with double-digit growth in flavors for Performance Nutrition and Health and market application, as well as savory snacks and our momentum with flavors for alcoholic beverages also continue. Our QSR momentum has been strong with core menu items and limited time offers driving first quarter growth, and other restaurant business continues to rebound.
Our first quarter results also reflect the lapping of curtailed away from home dining last year. Restaurants are benefiting from the shift to takeaway and delivery that was amplified by the pandemic. There has been a blurring between channel and most of the restaurant food being consumed off-premise. For instance, one in four dinners consumed at home is supplemented with a restaurant or other foodservice items. For our other institutional foodservice customers in our branded foodservice product category, we expected some recovery coming into 2022, and we saw that demand strengthened on our first quarter and drove growth in the Americas and EMEA region.
Now I'd like to share some comments on our momentum and the growth initiatives we have underway. Turning to Slide 7, global demand for flavor remains the foundation of our sales growth and we've intentionally focused on great fast-growing categories that will continue to differentiate our performance. We are capitalizing on the long-term consumer trends that accelerated during the pandemic, healthy and flavorful cooking, increased digital engagement, trusted brands and purpose-minded practices. These long-term trend and the rising global demand for great taste was relevant today as ever, with the younger generation's fueling them at a greater rate. Our alignment with these trends in combination with the breadth and reach of our global portfolio and the successful execution of our strategy, sustainably positions us for future growth.
In this current dynamic global environment, we remain focused on long-term sustainable growth. We continue to experience cost pressures from higher inflation and broad-based supply chain challenges. To partially offset rising costs, we raised prices where appropriate late last year are currently facing an additional pricing actions and as costs have continued to accelerate, we will raise prices again this year where appropriate.
We appreciate our customers working with us to navigate this environment. Additionally, our plans to mitigate cost pressures include our CCI-led cost savings, revenue management initiatives and taking prudent steps to reduce discretionary spend where possible. Throughout our history, we have successfully grown and compounded our growth regardless of the environment, and plan to do so again in 2022 as we continue to accelerate our momentum and drive growth from a position of strength.
In our Consumer segment across our major measured market, we have gained millions of households over the last two years and had double-digit by rate growth, our brands have gained new consumers and we have driven increased usage at the same time. This performance combined with billions of additional at-home eating occasions from consumers cooking more at home has created a new baseline for growth. We are continuing to drive our Consumer segment momentum by accelerating flavor usage, including delivering all the demand for heat, building confidence in the kitchen and inspiring flavor exploration. We're also strengthening our consumer relationships at every point of purchase and creating a delicious healthy and sustainable future. We are fueling growth through our brand marketing investments category management initiatives and new products.
Our brand marketing is resonating with consumers, particularly as we connect with them online. And as we expand the capabilities of our marketing excellence organization globally, you're gaining efficiencies, executing with greater speed and shifting our investments to working dollars to drive greater effectiveness. Our U.S. spice aisle [Phonetic] reinvention is further driving our category leadership with growth for McCormick and our customers. This initiative is continuing this year with additional stores being implemented and we're also starting to build momentum with similar initiatives in Canada, the U.K. and France.
Our consumer new product innovation differentiates our brands and strengthens our relevance with our consumers. Our new products are focused on what's important to consumer such as freshness, modern packaging, convenient and flavor exploration, as well as affordability and value. 75% of global consumers find it more economical to cook at home and in the current inflationary environment it resonates even more now. Our products are already part of the consumer solution to manage inflation across their whole grocery basket. For instance, inflation is hitting the meat case hard and a little bit of our Flavor can make the lesser [Indecipherable] meat more palatable and makes the consumers wholly on [Phonetic] both more affordable and flavorful.
We have products at all price points that attract many types of consumers and households, as well as different income level. We continue to focus on assurance. We're launching new products that appeal to all types of consumers such as additional entry level price points for affordability, as well as value offerings, including larger sizes to meet the needs of price conscious consumers. And with our new products and recipes tailored to popular new appointed [Phonetic] such as air fryers and instant pots, we are providing consumers flavor inspiration and greater convenience when using our products.
In our Flavor Solutions segment, we plan to continue migrating our portfolio to more value-added products and technically insulated products, particularly our flavors product category. We're targeting opportunities to grow with our customers in attractive, high growth end markets such as alcoholic beverages, savory snacks and performance nutrition. We have been outpacing the market growth in these categories. They all contributed first to strong growth in our first quarter results and further migrated our portfolio.
Following a record year of new product growth last year, we are excited about our robust 2022 pipeline of culinary and smart innovation. We are leveraging our broad technology platform to develop clean label, organic and better for you solution to some of our customers' issues without compromising on taste. We're using Sage [Phonetic] our AI-enabled product development tool to develop consumer preferred flavor at an increased speed that have a track record for lasting longer in the market for our customers. And we are building a pipeline of opportunities to accelerate our global seasonings growth by expanding our mid-tier customer base being added the core supplier list and strengthening our leadership in heat.
We plan to continue to drive Flavor solutions growth through our differentiated customer engagement. We have a strong passion for creating a flawless customer experience. Across both segments, our strong sales and growth plans bolster our confidence in continuing our growth trajectory. We also recognize we are operating in a challenging global environment.
Before Mike reiterates our guidance in a few moments, I'd like to comment on some current conditions. We will continue to monitor the situation in Russia and Ukraine very closely and adapt accordingly. Cost inflation has remained persistent with recent escalation in some areas such as transportation costs and as such, we have raised our cost inflation guidance. It is now a mid-to-high teen increase. And in regard to COVID, as I mentioned earlier, there are new COVID restrictions being imposed in several cities in China. We are continually assessing the dynamics of these conditions as they involve. We recognize there will be some near-term impact, which we expect to mitigate later in the year, in part with additional pricing action. We are well positioned to deliver another strong year of growth and performance in 2022 through the effective execution of our strategy and with our robust operating momentum.
In addition to delivering top tier financial results, we are also committed to doing what's right for people, communities and the planet. We recently released our 2021 purpose-led performance progress report which highlights our key initiatives and the progress we are making, including our recent announcements on the update of our science-based target to reduce greenhouse gas emissions by 2030, aligning with the United Nations 1.5 degree Celsius target as well as our commitment to net zero by 2050. As we move forward in 2022, we're excited to continue to share our progress and success on all our purpose-led performance goals.
Now for some summary comments of Slide 11 before turning it over to Mike. The combination of our strong business model, the investments we have made, the capabilities we have built and the power of our people, position us well to continue our robust growth momentum. We are in attractive categories and are capitalizing on long-term consumer trends that are in our favor. We are actively responding to changing market conditions, consumer behavior and customer needs, while remaining forward looking in an ever-changing environment. We have a strong foundation and are well equipped to navigate today's environment, responding with agility to volatility and disruption, while remaining focused on the long-term objectives, strategies and values that have made us so successful. Through the execution of our strategies that are designed to drive long-term value, we have grown and compounded that growth successfully over the years regardless of the environment. Our fundamentals that drove that performance and our momentum and outlook are stronger than ever. McCormick employees continue to do a great job navigating a dynamic environment. Their agility and teamwork drive our momentum and success and I want to thank them for their dedicated efforts and engagement.
Now, I will turn it over to Mike.
