McCormick - A taste for the future Wachovia Consumer Growth Conference October 15, 2008
Forward-Looking Information Certain information contained in these materials and our remarks, including expected trends in net sales and earnings performance and other financial measures, the expected impact of the prices of raw materials on our results of operations and gross margins, the impact of foreign exchange fluctuations and customer buying patterns, and consumer trends are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934. Forward-looking statements are based on management s current views and assumptions and involve risks and uncertainties that could be materially affected by external factors such as damage to our reputation or brand name, business interruptions due to natural disasters or similar unexpected events, actions of competitors, customer relationships and financial condition, the ability to achieve expected cost savings and margin improvements, the successful acquisition and integration of new businesses, fluctuations in the cost and availability of raw and packaging materials, and global economic conditions generally which would include interest and inflation rates as well as foreign currency fluctuations, and other risks described in the Company s Form 10-K for the fiscal year ended November 30, 2007. Actual results could differ materially from those projected in the forward-looking statements. The Company undertakes no obligation to update or revise publicly, any forward-looking statements, whether as a result of new information, future events, or otherwise.
Wachovia Consumer Growth Conference Alan D. Wilson President & CEO Gordon M. Stetz Executive Vice President & CFO
McCormick: a leading global supplier of value-added flavor solutions CONSUMER BUSINESS Consolidated Operations Joint Ventures Licenses INDUSTRIAL BUSINESS Consolidated Operations Joint Ventures Licenses McCORMICK WORLD HEADQUARTERS SPARKS, MD U.S.A.
Broad array of flavor solutions and channels CONSUMER North America, 39% Europe, 16% Asia Pacific, 3% INDUSTRIAL North America, 29% Europe, 9% Asia Pacific, 4%
Delivering great taste every day No matter where or what you eat, each day you are likely to enjoy something flavored by McCormick
Effective and sustainable strategy for growth. Strategy for Growth
has led to superior shareholder return 15% 10% 5% MKC +12.4% 10-year total shareholder return as of 9/30/08 for S&P large-cap food group companies 0% -5% Excludes Kraft from S&P 500 food group as there are fewer than 10 years of data.
2008 Priorities Performance Execution Complete restructuring plan People Shared values Succession and talent management Growth Lawry s New markets Globalization Cash Maximize McCormick Profit Improve ROC projects
2008 goals Goals Grow sales 9-10% Additional brand support Increase gross profit and operating income EPS $2.04-$2.08* Cash flow from operations +$75 million * Includes 10 restructuring charges, 7 gain on sale of Season-All and 3 cost to rebalance debt.
2008 goals and YTD results Goals Grow sales 9-10% Additional brand support Increase gross profit and operating income EPS $2.04-$2.08* Cash flow from operations +$75 million YTD results Net sales +10% Marketing +16% Gross profit +9%, adjusted operating income +6%** Adjusted EPS +11%** Cash flow from operations +$92 million * Includes 10 restructuring charges, 7 gain on sale of Season-All and 3 cost to rebalance debt. ** Non-GAAP measures adjusted to exclude restructuring charges, gain on sale of Season-All and cost to rebalance debt.
A taste for the future Effective strategy and strong performance Key growth initiatives Navigating a tougher economy On-trend and wellpositioned
Pursuing growth opportunities Acquisitions Innovation Revitalization and brand marketing Strategic industrial customers
Acquisitions are building a global footprint CONSUMER BUSINESS INDUSTRIAL BUSINESS Joint Ventures Joint Ventures Licenses Licenses
Acquisitions are building a global footprint CONSUMER BUSINESS INDUSTRIAL BUSINESS Joint Ventures Joint Ventures Licenses Licenses
Lawry s a perfect fit Strong heritage in delivering distinctive flavors Complements current portfolio Enter marinade category with #1 brand Supply chain synergies
Lawry s a perfect fit Dedicated growth strategy and integration team Marketing to build brand awareness and trial Insight-based innovation Increased distribution Retail marinades Food service products Retail seasoning blends Adds 4% to sales and 8-10 to EPS* * Net of Season-All divestment
Innovation: bringing news to the consumer
Innovation: accelerating the new product cycle Building and bringing together capabilities Ideation and trends Flavor development Product analysis Culinary Sensory evaluation 25
Revitalization and brand marketing U.S. China France U.K.
Improving brand marketing Advertising up more than 75% in past 5 years Shift toward print and interactive media for higher ROI
Growing sales with strategic industrial customers Expanding into fast growing international * markets *
A taste for the future Effective strategy and strong performance Key growth initiatives Navigating a tougher economy On-trend and wellpositioned
Strong long-term financial performance $3,000 $2,000 $1,000 $0 1997 2007 Grew net sales at 6% CAGR Increased EPS at 11% CAGR* $2.00 $1.50 $1.00 $0.50 $0.00 1997 2007 * EPS from continuing operations
A challenging environment Volatile and increased commodity costs Shift from eating out to at home eating Consumer reaction to higher food prices
Volatile and increased commodity costs Primary exposure in industrial business Industrial Pricing actions Productivity and product mix Consumer 2007 operating income by segment, excluding restructuring charges
Shift to at home eating Shift is a net positive for McCormick Impact less on quick service New products and supporting international expansion are key to growth
Consumer reaction to higher food prices Increased pricing of brand and private label Still achieving growth of branded products Minimal trade-down to private label to date Some channel shift
Strategy driving growth Strategy for Growth
Margin improvement: fuel for growth Value-added new products SAP technology and processes Supply chain initiatives Restructuring program Acquisitions
Long-term outlook Grow sales 4-6% Continue shift in sales toward consumer business Improve industrial business margins Increase earnings per share 9-11% Substantial cash generation
Uses of strong cash flow Dividends - increase in line with EPS 9-11% Capital expenditures close to depreciation Share repurchase will be minimal through 2009 but with long-term capacity to reduce shares outstanding 2% per year Acquisition fund with debt and cash from operations
Returning cash to shareholders $ in millions $ per share 300 250 200 150 100 50 Dividends per share Share repurchases 1.00 0.75 0.50 0.25 0 2003 2004 2005 2006 2007 0.00
A taste for the future Effective strategy and strong performance Key growth initiatives Navigating a tougher economy On-trend and wellpositioned
Consumers continue to eat homeprepared meals 77% Believe home-prepared meals are better for you 88% Spend less than 1 hour cooking 89% Eat a home-cooked meal at least once a week SOURCE: U.S. Grocery Shopper Trends 2007
Consumers seeking convenience A simple way to prepare meals without compromising on flavor
Interest in new ethnic flavors Offering authentic ethnic cuisine
Food safety and natural ingredients Global sourcing team and quality assurance procedures
Importance of health and wellness Advancing the culinary health benefits of spices and herbs Antioxidant Properties Inflammation Weight Management Diet Quality Dietary Assessment Learn more at www.mccormickscienceinstitute.com
Importance of health and wellness Learn more at www.spicesforhealth.com
Aligning our business with consumer trends Convenience Food safety Fresh No transfat Easy nutrition Low sodium Guilt free indulgence Premium Ethnic Organic High fiber Soy protein
Well-positioned for growth Market position and growth initiatives aligned with consumer trends Sustainable and effective strategy Ability to deliver on long-term financial goals
Non-GAAP Financial Measures The accompanying presentation includes the disclosure of non-gaap information. These are not measures that are defined in generally accepted accounting principles ( GAAP ). Management believes the non-gaap information is important for purposes of comparison to prior periods and providing a more complete understanding of underlying results and trends. Reconciliation of GAAP to non-gaap Financial Measures The Company has provided below a reconciliation of certain GAAP financial results to non-gaap financial results. The non-gaap financial results exclude amounts related to a restructuring program in 2008 and 2007 and, related to the acquisition of Lawry s in the third quarter of 2008, the gain on the sale of Season-All and cost to rebalance debt. (in millions except per share data) Nine Months Ended 8/31/08 8/31/07 Operating income $250.8 $222.1 Impact of restructuring charges 4.2 19.3 Adjusted operating income $255.0 $241.4 % increase versus prior period 5.6% Net income $173.4 $142.5 Impact of restructuring charges 2.9* 14.1* Gain on sale of Season-All ($12.9 pre-tax) (8.9) Cost to rebalance debt ($5.0 pre-tax) 3.4 Adjusted net income $170.8 $156.6 Earnings per share - diluted $ 1.32 $ 1.07 Impact of restructuring charges 0.02 0.10 Gain on sale of Season-All (0.07) Cost to rebalance debt 0.03 Adjusted earnings per share diluted $ 1.30 $ 1.17 % increase versus prior period 11.1% * The impact of restructuring activity on net income includes: Restructuring charges included in cost of good sold $ (2.5) $ (2.7) Restructuring charges (1.7) (16.6) Tax impact included in income taxes 1.3 6.0 Loss on sale of unconsolidated operations - (0.8) $ (2.9) $ (14.1)