Alexia Howard: Great, thank you. And just as a quick follow-up. You talked about the free cash flow allowing you to de-lever more quickly than expected. What’s your level of appetite for acquisitions next year? And where are the priorities? Is it Consumer? Is it Flavor Solutions? Domestic? International? Just wondering how you’re thinking about the pipeline on the M&A side. And I’ll pass it on. Thank you.
Mike Smith: Alexia, as you said, we’re having really good success on our operating cash flow. We’re really excited about that. As we said on the call today, we’re going to de-lever faster than we thought to get back to our 3 times target. We’re always looking at acquisitions. I mean, we have a corporate development team that is always working internally to look at those assets. We have an appetite as part of our long-term growth algorithm. A third of our 4% to 6% long-term growth algorithm is M&A. However, we’re still in the process of paying down debt. I think the fourth quarter is our biggest cash flow quarter generally. As we get into next year though, as we get closer to our targets, I think as assets come up that are attractive, whether they’re Consumer or Flavor Solutions, U.S., International, we really look for things that don’t dilute our sales growth.
Our top-line is really important to us. You look at the past with Cholula and FONA and RB, those are the type of assets we really like. Would we like it to be a bit more international? Yes. Flavor Solutions now also is an area where we really like that and look at FONA and Giotti as past acquisitions we’re really happy with. So, sorry for the long-winded answer, but I think we’re getting back to where we want to be to enter back in the M&A market. And as long as it meets those strategies in both Consumer and Flavor Solutions for attractive assets, we’ll be buyers hopefully at the right price.
Brendan Foley: But right now, paying down our debt is our priority.
Alexia Howard: Thank you very much. I’ll pass it on.
Operator: Our next question is from the line of Max Gumport with BNP Paribas. Please proceed with your question.
Max Gumport: Hey, thanks for the question. A number of your broader U.S. packaged food peers have been talking about value seeking behavior, whether it’s moving down to cheaper brands and private label, or channel shifting, or simply buying less units of food. You mentioned some comments earlier about the movement to larger package sizes that you’re seeing, but I’m curious if you can talk more broadly about how value seeking behavior is impacting your business, particularly given you’re also a large producer of private label spices and seasonings. Thanks very much.
Brendan Foley: Thanks for the question. We’re seeing value play out through many different types of actions from the consumer. Some are going to larger sizes and we see that quite a bit and as an example of where we’re taking an opportunity to continue growing even more quickly. In that part of our portfolio, we’re definitely seeing sustainable continued trends towards larger sizes. And what’s also interesting about larger sizes, at least in the categories that we have, especially spices and seasonings, is that the purchase rate is still just as fast as it was with a smaller size. So, people are going through when they have it in the household, they’re going through a little bit just as fast or more quickly. But the other way value kind of presents itself too is opportunities like this opening price point.
With the pricing that’s happened in the market, as we talked about before, it created a price pocket that we feel like we needed to fill with a brand like Lowry’s. And so that’s playing a role in our portfolio that’s offering a brand to consumers. And a lot of consumers still prefer brands. And it’s allowing them to move towards a brand that’s a lower opening price point and fills the need. And we’re seeing a lot of success with that too. But the other way we’re really talking a lot about value is directly to the consumer, especially if you think about a lot of our communication right now over the past year has been value oriented. And we’re talking about the role that our portfolio plays in terms of providing flavor for pennies of serving.
And that is really having a positive impact. Plus, a lot of our content is also focusing on how consumers continue to save money by creating, let’s say, for example, just larger batch sizes of food so they can have leftovers for a couple nights in a row, or tricks and hacks like that that allow consumers to create even more value and stretch the food dollar even further. That’s where we see our category really playing a role in the household, especially during this kind of — where there’s a lot of consumer concern around inflation, our categories are playing a helpful role in that. So, we’re looking at it from a number of different angles, but I just illustrated three right there that we are hitting pretty hard during this period of time.
Max Gumport: Thanks. Very helpful. I’ll pass that along.
Operator: Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Adam Samuelson: Yes, thank you. Good morning, everyone.
Mike Smith: Good morning.
Brendan Foley: Good morning.
Adam Samuelson: Good morning. I guess maybe trying to take Andrew’s question in maybe a slightly different kind of light. Brendan, is there any way to help frame the distribution kind of gains that you’re seeing and expect to see over the incoming quarters? Any way to quantify kind of how we should think about total distribution growth and where that will peak from a TDP perspective into 2024? It’s harder to fully see that expansion in the scanner data. And so, I’m wondering if part of it is growth in certain unmeasured channels or value retailers that aren’t captured in Nielsen.
Brendan Foley: Well, Adam, just a few things around TDPs. I’m not going to be talking about what to expect in 2024, just — because we’ll talk about that guidance as we look at early next year, but just talking a little bit more about TDP performance. It remains an important area of focus for us, and we’ve been taking a lot of action to restore distribution, which has really lost the supply over the last one or two years. I think it’s an important reminder that about half of those TDP losses are a result of just proactive discontinuations that we made. And those are not likely to be restored. But we are starting to see TDP growth, something which we said would start to come this year in the third quarter. And we believe that performance has improved versus like the previous two quarters of the year.
And I would also just share with you that our assortment on shelf now is even more productive than it was versus pre-COVID. So that velocity, those turns that we get on shelf from that assortment there is actually even more productive not only for McCormick, but also for the retailer. So that’s something really important to pass along. And we’ll start to see more distribution come online as retailers reset their shelves. We’re seeing a bit of that happen right now as we speak going into the fourth quarter, but we expect to see even more of that as we go into 2024. So that’s one, I think, context around, TDPs and distribution that we think provides context and color. We will continue to accelerate innovation, and that’s something that we did in 2023.
We’ll continue to do that in future fiscal years. That will also build on sort of the TDP momentum and distribution growth that we see. I think those are some of the points that I think that are without calling out a specific TDP number and gain to expect. We continue to see continued improvement, sequential improvement as we look at this over time. And as we mentioned in previous calls, it will take a little bit of time to get it back, but we are still making forward progress on this.
