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McCormick & Company, Inc. (NYSE:MKC)
Q1 2018 Earnings Conference Call
March 27, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Kasey Jenkins -- Vice President, Investor Relations

Good morning. This is Kasey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today's first quarter earnings call. To accompany this call, we've posted set of slides at ir.mccormick.com. At this time, all participants are in listen only mode. Following all our remarks, we will begin a question and answer session. If you need to reach the operator at any time during the call, please press *0. We'll begin with remarks from Lawrence Kurzius, Chairman, President, and CEO, and Mike Smith, Executive Vice President and CFO.

During our remarks, we will refer to certain non-GAAP financial measures. These include adjusted operating income, adjusted income tax rate, and adjusted earnings per share that exclude the impact of transaction and integration expenses related to the Reckitt Benckiser Foods or RB Foods acquisition, special charges, and income taxes, excluding certain non-recurring impacts associated with the recently enacted tax reform, which refer to as the US Tax Act, as well as information in constant currency.

Reconciliation to the GAAP results are included in this morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation, which includes the complete information.

As a reminder, today's presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or other factors. As seen on slide two, our forward-looking statement also provides information on risk factors that could affect our financial results.

It is now my pleasure to turn the discussion over to Lawrence.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Thank you, Kasey. Good morning, everyone. Thanks for joining us. Our first quarter results were a great start to the year, delivering strong sales, operating income, and earnings-per-share growth, as well as singularity margin expansion. Our successful execution of our strategies and engagement of employees around the world have driven these results across both of our segments. And we're confident they will continue to drive strong results as we go through the year.

McCormick's business platform is growing an advantage, as seen on slide four. Across all regions and categories, McCormick is flavoring food and beverages. Among the first quarter highlights across our portfolio, we're pleased with Frank's RedHot and French's performance and the impact they have on our portfolio of condiments and sauces and branded food service. Further progress has been made on expanding our flavor solutions portfolio with additional growth and flavor while pruning some low margin business.

We're also continuing to win with restaurant customers with new products in all of our regions. In our consumer segment, we continue to grow our underlying business in every region. We're confident that the breadth and reach of our portfolio continues to position us to fully meet the demand for flavor around the world and grow our business.

Now, let me go into more detail in our first quarter performance on slide five, as well as provide some business comments before turning it over to Mike, who will go into more depth on the quarter-end results and our update to 2018 financial guidance.

As we said on our year-end earnings call in January and at CAGNY in February, we have confidence in our strategies and are well-positioned to deliver strong results in 2018. You can see this beginning to come through in our first quarter performance, with strong double-digit sales growth, operating profit growth, margin growth, and EPS growth.

Starting with our topline for the first quarter, we grew sales 19% with a 4% benefit from favorable foreign currency. In constant currency, sales grew 15% for the total company with strong results across both segments across each of our three regions. Base business growth, new products, and acquisitions, our three drivers of long-term sales growth, were all contributing factors.

Incremental sales of our acquisitions, RB Foods, and to a much smaller extent, Giotti, contributed 12%. In our consumer segment, we grew sales nearly 15% in constant currency, led by incremental sales from RB Foods, which contributed 13% growth. The flavor solutions segment grew sales 15% in constant currency, with incremental sales from RB Foods and Giotti contributing 12%.

In addition to our topline growth, our focus on profit realization drove additional adjusted operating income growth and adjusted operating margin expansion with our higher sales, cost savings, led by our comprehensive continuous improvement program, CCI, and our portfolio shift to more value-added product, including the addition of Frank's and French's, we grew the first quarter's adjusted operating income 38% in constant currency, and our adjusted operating income margin expanded 250 basis points. Both segments contributed double-digit adjusted operating income growth and a triple-digit basis point expansion in adjusted operating margin.

At the bottom line, our first quarter adjusted earnings per share of $1.00 was 32% higher than the $0.76 in the first quarter of 2017. Our strong growth in adjusted operating income and a lower tax rate drove this increase, partly offset by higher interest expense from debt related to the RB Foods acquisition as well as higher shares outstanding.

Our sales follow a seasonal pattern, with the first quarter generally the lightest in most of our product categories. Our strong results are in line with our expectations and the guidance we've provided and our outlook for 2018 performance remain strong and unchanged. We do, however, now expect a greater sales impact from favorable currency rates and we've recognized discreet tax benefits. As Mike will discuss shortly, we are raising our guidance for sales and adjusted EPS accordingly.

Now I'd like to turn to a business update. Let's begin with our Frank's and French's portfolio on slide six.

We continue to be pleased with our progress and with the early results from Frank's and French's. On February 1st, we successfully cut over to our system. We completed our transition services agreement with Reckitt Benckiser earlier this month and we now have full control of the operations. We continue to be on track to achieve $50 million of cost synergies, realizing the majority by 2020. As we mentioned on our January earnings call, our 2018 synergies are pacing ahead of expectations.

In the first quarter of 2018, both Frank's Red Hot and French's consumption continue to be impacted by the previous owner's planned reductions and trade support and promotional activities, which we mentioned on our January earnings call. With that said, our first quarter Frank's and French's results are aligned with our plans. We're off to a great start. We're excited about our planned programs, growth opportunities, and the impact we'll make on these brands starting with the grilling season.

At CAGNY last month, I shared some of our plans related to Frank's and French's and I would like to iterate a summarized version of them. We're increasing the fuel to drive Frank's Red Hot. Despite being number one in hot sauce, we believe there remains significant upside for Frank's in awareness, trial, and household penetration. We will strengthen working media and regional programs behind a proven irreverent campaign to build awareness and trial.

Frank's under-indexes on the store shelf. Utilizing our category management, we are already increasing distribution points. We've had great acceptance of promotional plans by customers too and we plan to drive core innovation on new flavors and expand beyond liquid flavor, with a line of dry seasonings, recipe mixes, and refrigerated dips.

There's an exciting longer-term pipeline of new concepts developing too. Frank's also had almost no e-commerce presence and we're building this exciting brand into our e-commerce efforts as well.

Re-energizing French's mustard category leadership is already under way. We're launching a new consumer campaign that reinforces French's preferred flavor, being the trusted family favorite, and roots as a pure product, which we will support with increased working media. We're applying a category management focus to improve distribution and share of shelf, realigned shelf pricing and increased levels of quality merchandising. We already have some early wins with key customers. We will increase innovation and we will go beyond the bun and reframe mustard as better for you with McCormick's proven ability to drive flavor and recipe trends with consumers.

We'll leverage promotional scale across all of our brands, including the launch of our biggest grilling campaign ever for this summer. With a stronger go to market model in food service, we'll leverage the full portfolio across operators. And internationally, we're integrating the Frank's and French's portfolio into the McCormick global network. We've seen early successes in several of our markets.

We are well-positioned to capitalize on the opportunities for growth and cost savings now. Our enthusiasm across the organization for this acquisition and our confidence that the combination of our powerful brands will deliver significant shareholder value only continues to strengthen.

In the consumer segment, we grew sales nearly 15% in constant currency with incremental sales from RB Foods contributing 13% and our base business and new product contributing 2% with growth in every region. In the Americas, growth was particularly strong, driven by the large impact of RB Foods brands, which contributed 20% growth. Our underlying Americas business grew almost 2% on both higher volume and mix and pricing. We believe we under-shipped consumer consumption due to trade inventory reductions.

In US spices and seasonings, our IRI data indicates scanner sales through grocery channels for the category and McCormick brand were both over 4%. Outside of grocery, a large retailer's decision to convert a control label to private label along with its related promotional and merchandising actions, which we discussed on our January earnings call, reduced McCormick's multi-outlet sales growth to 2%.

While this decision hurt our branded spices and seasonings share performance, it drove growth in our private label sales. We again had strong branded growth in grocery and strong growth in unmeasured channels, including club, e-commerce, and Hispanic markets, as well as in other areas of the portfolio. The environment remains dynamic and we continue to work with our customers to optimize category performance. Overall, we continue to see good growth in our spice and seasoning brands in the US market and know we have more room to grow.

We remain confident in the initiatives we have under way to position us to continue our trajectory of long-term growth. In Europe, Middle East, and Africa, the EMEA region, growth was led by France, which had broad-based growth across the portfolio, branded and private label. Our launch last year of organic core herbs and spices and homemade desert products in France has been very successful. Our rate of sales was approximately 60% higher than a main organic competitor on both our Ducros and Vahiné brands. Our extension of Thai Kitchen into France to capitalize on the fast-growing ethnic food trends has also contributed nicely to growth.

In the Asia Pacific region, our strong sales in China led consumer segment growth, driven by a strong Chinese New Year promotion as well as e-commerce growth. India has also continued their momentum on spices and seasonings.

Across our consumer segment, we're differentiating our brands and building capabilities. In 2018, we are continuing to drive growth through additional investments and brand marketing, category management, and analytics capability and of course, innovation and new products. We have a robust global pipeline of consumer innovation and new products being introduced being introduced in 2018 as seen starting on slide eight.

We're strengthening our spices and seasoning leadership through packaging innovation in the US and in EMEA. In the US this year, we'll launch digitally connected labels with new graphics. This graphics update contemporizes the look of McCormick red cap at the shelf and will be digitally scannable, allowing consumers, through their smartphones, to immediately connect to our own sites for information on everything from transparency and sourcing of our ingredients to usage ideas and inspiration.

Our Schwartz brand in the UK and Ducros brand in France will be launching our first choice packaging initiative, a major structural and design change. Consumers prefer the modern feel and functional design of the new glass bottle and closure. It features a transparency and quality of the spices and herbs inside, while also utilizing a new closure that reinforces freshness use after use.

We're expanding our organic range even further. In the US, we'll be launching organic black pepper and garlic products. Following our success in France, we'll launch organic products in the UK and Poland. We're introducing new flavors and varieties. Consumers are looking for easy ways to make their favorite dishes and explore new flavors. Seasoning blends are becoming more popular to deliver both as convenience and added creative flair to any dish.

Additionally, consumers are looking for the right sizes and packaging formats to take the risk out of experimenting with new flavors or to find value in something they already use. Some examples of our launches to meet these demands include a line of all-purpose blends in the US that combine a few simple ingredients into innovative seasonings, and in Canada, a similar line of Clubhouse Signature Blends.

With a fresh approach to black pepper, we're introducing a range of pepper items in the UK segmented by flavor and heat level. In China, we're strengthening our range of spices and herbs with the relaunch of our grinders, while in Australia, we'll be launching seasoning mixes to combine with meats and vegetables in a convenient, one-dish tray-bake meal. And for trial and value in the US, we're launching McCormick Gourmet Flavor Forecast Seasonings in small size, resealable pouches as well as larger sizes of our popular Grill Mates rubs.

We're also continuing to drive growth globally through e-commerce across pure play with brick and mortar customers and direct to consumer. We're continuing to make further investments to drive content, expand resources that support acceleration and develop programs and items tailored to this channel. We had strong double-digit growth in e-commerce in the quarter and following the launch of China's direct to consumer storefronts on Tmall, we're designing products for this platform, such as one-pot rice cooker seasonings which will be available soon on the storefront.

As we announced at the recent CAGNY Conference and shown on slide ten, we are reintroducing our industrial segment as Flavor Solutions. I'd like to reiterate the key points to this change today.

McCormick Flavor Solutions is a culinary inspired flavor business. We have deep understanding of the consumer experience of flavor from real food and natural ingredients and leading technology that delivers consumer-preferred solutions for our customers. We are not a bulk herb and spice or commodity business. We are one of the top global flavor suppliers to the food industry today.

Our culinary approach to flavor development sets us apart. We have a world class global culinary team of executive and research chefs, mixologists, and culinary nutritionists who work closely with our customers and innovation teams. They excel at translating global trends into prototypes that meet the customers' unique requirements and deliver superior and differentiated flavor experiences.

Our deep expertise in the consumer experience of real food and beverage is central to all of our innovation and our success. Starting with real food and beverage, our flavor solution segment produces authentic, complex, natural flavor solutions that resonate with consumers. Flavor development at McCormick combines the art of creating iconic flavor authenticity with the science of delivering a superior eating experience.

Today's consumers are demanding transparency and flavor that's natural and clean. Our flavor solution segments provides simple transparent solutions to deliver the results our customers need. We continue to work side by side with our customers to help them with their quest to reduce or eliminate MSG, sodium, sugar, far, and artificial ingredients from their iconic products.

Because our approach to clean is rooted in our expertise in the science of food and natural ingredients, the proprietary technology platform that we have built enables us to solve these issues without sacrificing the winning flavor profiles that make the product successful. For us, clean flavor really does mean clean flavor.

Our strength in customer intimacy is also a key differentiator for flavor solutions. Innovation that really delivers against customers' brand promise requires both a deep understanding of the customer's unique goals and challenges and an exceptional ability to collaborate. Whether partnering with a global or mid-tier customer, our focus is on ensuring best in class collaboration experience. It is for these reasons that new products are a significant growth driver.

The Flavor Solutions segment grew sales 15% in constant currency in the first quarter, with incremental sales from RB Foods and Giotti contributing 12%. In the Americas, we increased sales of flavors with new products and continued momentum of our branded foods service in Mexico's snack seasonings growth.

In our EMEA and Asia Pacific regions, we continue to win with our customers in new products and promotional activities, particularly with quick service restaurants. We're continuing to refine and optimize our portfolio, increasing our sales of higher margin flavors and exiting lower margin business.

Across our flavor solutions segment, the migration of our portfolio to more technically insulated and value added categories will continue until 2018. We've already realized further results against this strategy in our first quarter, with flavor sales up double digits in North America. Beyond our strategies to drive sales growth, we will continue to focus on profit realization, as is evidenced in our first quarter results.

Now, I would like to highlight some recent news on slide 12. Our performance is not just evident in our financial results. We are also doing the right thing for people, communities, and our planet. We've been recognized as a leader in sustainability, named for the second year in a row the no. 1 ranked food products company on the Global Sustainability Index at the 2018 Davos World Economic Forum. In February, we were also recognized on Barron's inaugural 100 Most Sustainable Companies.

Our power of people principle embodies our commitment to our employees and our high-performance culture rooted in respect for their contributions and our shared values. Keeping McCormick a great place to work is one of our priorities, along with remaining competitive in the marketplace. As such, we are investing a portion of the benefit of the US Tax Act into a bonus of $1,000.00 and wage adjustments for the majority of our US hourly employees.

Mike is now going to provide some more details on the financial results for the quarter and one our financial guidance. But before I turn it over to him, let me provide a few summary comments on slide 13.

At the foundation of our sales growth is the rising consumer demand for flavor. We are aligned with the consumer's increased interest in bolder flavors, demand for convenience, and focus on fresh, natural ingredients, as well as with emerging purchase drivers such as greater transparency around the sourcing and quality of food. With this increased interest, flavor continues to be an advantaged global category, which, combined with our execution against effective strategies, will drive strong results as we go through the year. We're balancing our resources and efforts to drive sales with our work to lower costs, to build fuel for growth and higher margins.

Our first quarter financial results across both our consumer and flavor solutions segments were a strong start to the year. We have confidence in our fiscal year outlook and are well-positioned to deliver another strong year in 2018. Around the world, McCormick employees are driving momentum and success and I thank them for their efforts and for their engagement.

Thank you for your attention and it is now my pleasure to turn it over to Mike.

Mike Smith -- Executive Vice President and Chief Financial Officer

Thanks, Lawrence and good morning, everyone. As Lawrence indicated, we delivered strong growth with our first quarter results. I'll begin with discussion on our results and then follow with comments on our current full-year 2018 financial outlook.

As seen on slide 15, we grew sales 19%, including a 4% favorable impact from currency. Acquisitions, pricing, and higher volume and product mix each contributed to the increase. Both our consumer and flavor segments delivered strong topline growth with increases in all three regions within both segments. We have also started the year with significant increases in adjusted operating income and adjusted earnings per share, as well as significant operating margin expansion.

The consumer segment grew sales 15% in constant currency. Our acquisition of RB Foods contributed 13% of the sales growth. On slide 16, consumer segment sales in the Americas rose nearly 22% in constant currency, first since the first quarter of 2017 with 20% of the increase from the acquisition of RB Foods. The remaining increase was driven pricing related to the incremental impact of 2017 pricing actions and higher volume and product mix.

EMEA consumer sales increased 1% in constant currency. The sales growth was driven by growth in France, within both our branded portfolio and private label as well as the acquisition of RB Foods. Partially offsetting these increases was an impact from the timing of trade promotional activities.

We grew consumer sales in the Asia Pacific region 6% in constant currency. In China, sales increases were driven by successful Chinese New Year holiday promotions. Sales growth in India was led by increased sales from our new consumer spice mixes.

For the consumer segment in total, we grew adjusted operating income 35% to $132 million. In constant currency, adjusted operating income rose 32% from the year ago period. The impact of sales growth on cost savings more than offset increases in brand marketing and freight costs. And as Lawrence mentioned, we expanded our consumer adjusted operating margin compared to the first quarter of last year by 220 basis points.

Turning to our flavor solution segment and slide 20, starting with sales growth, we grew constant currency sales 15%. Our acquisitions of RB Foods and Giotti contributed 12% of the sales growth. In the Americas, RB Foods drove 17% of the 18% constant currency increase in the first quarter's flavor solutions sales. The remaining growth was driven by US flavors and branded food service sales as well as sales of snack seasonings in Mexico.

Partially offsetting this growth was a major customer's global realignment of our flavor solutions sales, effectively transferring those sales from the Americas to the EMEA region, and the elimination of some low-margin business due to the continued migration of our business to higher margin products.

We grew flavor solutions sales in EMEA 12% in constant currency with Giotti and RB Foods contributing 4%. We have solid growth with quick service restaurants and within our flavors category. Sales growth was also favorably impacted by global realignment of the major customer sales from the Americas to EMEA as previously mentioned.

Asia Pacific region's flavor solutions sales grew 4% in constant currency, led by strong new product sales to quick service restaurants in China with the partial offset from the excess of low-margin business in the region. As shown on slide 24, adjusted operating income for the flavor solutions segment ended the quarter up, 56% at $62 million with a 4% favorable impact from currency.

The increase was driven by the favorable impact of higher sales, a shift to more value added products and the impact of our CCI programs that led to adjusted operating margin expansion compared to last year of 320 basis points. Across both segments, adjusted operating income, which excludes the integration costs related to the RB Foods and special charges rose 41% in the first quarter from the year ago period, including a 3% favorable impact from currency. This increase includes the impact of increasing our brand marketing by 18% in the first quarter.

As Lawrence mentioned, our focus on profit realization has driven significant margin expansion. As seen on slide 26 in the first quarter, we increased gross profit margin 240 basis points year on year. While this expansion includes an accretion impact from the addition of the Frank's and French's portfolio, the core business was also a significant driver of the margin growth.

Our portfolio shift to more value-added products and CCI-led cost savings continued to drive gross profit expansion across both our segments. Our selling, general, and administrative expense as percentage of net sells was down year on year by 10 basis points from the first quarter of 2017.

Leverage from sales growth as well as CCI-led cost savings drove the decline, partially offset by the increase in brand marketing I previously mentioned as well as absorbing increased freight costs driven by constrained carrier capacity.

With the gross margin expansion and SG&A leverage, adjusted operating margin expanded 250 basis points from the first quarter of 2017. Below the operating income line, interest expense increase $27 million in the first quarter from the year ago period, primarily driven by the debt secured for the RB Foods financing.

Turning to income taxes on slide 27, our first quarter adjusted effective tax rate was 18.9% as compared to 27.9% in the year ago period. It included a favorable impact from the US Tax Act, which reduced the US corporate tax rate from 35% to 21%. Our first quarter adjusted rate was lower than anticipated, principally due to the higher than anticipated stock option exercises, as well as the favorable impact of other discreet tax items.

As a result, we now expect that our adjusted effective tax rate will approximate 23%. There can be volatility in that rate quarter to quarter due to the impact of discreet items, such as stock option exercises and changes to our forecast and mix of earnings. Income from unconsolidated operations was $8 million compared to $7 million in the first quarter of 2017, a 16% increase, led by a joint venture in Mexico. For 2018, we continued to expect our income from unconsolidated operations to be comparable to 2017.

At the bottom line, as shown on slide 29, the first quarter 2018 adjusted earnings per share was $1.00, up 32% from $0.76 for the year ago period, mainly due to higher adjusted operating income and the lower adjusted income tax rate, partially offset by higher interest expense and shares outstanding.

On slide 30, we've summarized highlights for cashflow and the quarter-end balance sheet. Our cashflow from operations was an outflow of $21 million for the first quarter of 2018, compared to an inflow of $44 million in the first quarter of 2017. This change was driven by timing associated with certain working capital payments as well as a higher level of interest payments. These interest payments, associated with the financing of our RB Foods acquisition, are more heavily weighted in our first and third fiscal quarters.

We continue to see improvements in our cash conversion cycle, finishing the first quarter at 73 days, down 3 days versus our fiscal year end, primarily driven by our extended terms and inventory programs.

We returned $68 million of cash to shareholders through dividends and used $31 million for capital expenditures this period. We expect 2018 to be another year of strong cashflow and our priority is to continue to have a balanced use of cash, making investments to drive growth, returning a significant portion to our shareholders through dividends and to pay down debt.

Let's now move to our current financial outlook for 2018 on slide 31.

Our strong outlook for the year is unchanged, except for a more favorable impact of foreign currency exchange rates on sales, a lower adjusted income tax rate, and a lower net favorable non-recurring impact of the US Tax Act. We now estimate a favorable impact to the net sales growth rate of 2%, up from our original estimate of 1%. As I mentioned earlier, we now expect that our adjusted effective tax rate for the full year will approximate 23%.

Finally, related to our GAAP earnings per share, the net impact of two non-recurring items required by the US Tax Act, the favorable non-cash impact to the revaluation of our US net-deferred tax liabilities, less the unfavorable impact of our transition tax. This net impact is now expected to be a tax benefit in 2018 of approximately $298 million.

Our previous sales growth guidance of 12% to 14% included an 8% incremental impact of the RB Foods acquisition. Underlying base business and new product growth of 3% to 5% from higher volume, product mix and pricing, as well as a 1-percentage point favorable impact due to currency. We now expect to grow sales 13% to 15%, including our updated estimated of a 2-percentage points favorable impact from currency rates.

We expect a low-single digit increase in material costs, which combined with CCI and strategy execution on shifting to a more value-added portfolio leads to 2018 adjusted gross profit margin that is expected to be 150 to 200 basis points higher than 2017.

We expect to increase adjusted operating income 23% to 25% from $786 million in 2017, which includes a 1-percentage point impact from foreign currency rates. Our cost savings target is approximately $100 million and we are planning to increase brand marketing at a rate above our sales growth.

Our original guidance for 2018 adjusted earnings per share was $4.80 to $4.90, an increase of 13% to 15% versus our $4.26 adjusted earnings per share in 2017. This range of growth included an estimated 1-percentage point impact from favorable currency rates. Based on our new effective tax rate estimate, we are increasing our adjusted earnings per share estimate to $4.85 to $4.95, an increase of 14% to 16% versus 2017, which includes an expected 1-percentage point impact from favorable currency rates.

Overall, we expect currency favorability to be greater in the first half of the year than in the second half. For the fiscal year, we expect our higher profit and working capital initiatives to lead to another year of strong cashflow.

In summary, we are projecting excellent growth in our 2018 constant currency outlook for sales, adjusted operating profit and adjusted earnings per share, following record double digit performance across each objective in 2017.

Our 2018 GAAP earnings per share range is expected to be $6.85 to $6.95. There are several projected 2018 adjustments which are expected to drive our GAAP to non-GAAP reconciliation. First, approximately $23 million for the integration expenses related to RB Foods, which is in line with our previous estimate. Second, approximately $18 million of special charges related to previously announced organizational and streamlining initiatives.

And as I mentioned a few minutes ago, the net impact of two non-recurring items required by the US tax act is currently expected to be a tax benefit in 2018 of approximately $298 million. The total net impact of these adjustments is anticipated to be a $2.00 favorable impact to our GAAP earnings per share for fiscal year 2018.

Finally, before we move to your questions, let me recap the key takeaways from our remarks this morning. With our first quarter results, we have a strong start to the year for both our core business and our Frank's and French's portfolio. We are delivering against our plans for both sales and profit realization and are confident in the momentum of our business.

Our updated outlook reflects a more favorable impact on sales from foreign currency and the benefit of a lower first quarter tax rate on our full-year adjusted earnings per share and this reaffirms our strong 2018 outlook for our underlying sales, adjusted operating income and adjusted earnings-per-share growth.

Now, let's turn to your questions.

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question today, please press *1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessarily to pick up your handset before pressing the * keys. One moment, please, while we poll for questions.

Thank you. Our first question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.

Robert Moskow -- Credit Suisse -- Analyst

Hi, thank you for the question. I was hoping to get a little bit of an update on revenue synergies. I think EMEA was up about 1% as a result of RB Foods. Lawrence, would you consider that revenue synergies? If so, can you help us quantify it? Is it $8 million or $9 million or so?

Then secondly, on the bonuses that are being given to hourlies, was that part of your original guidance and could you give us a sense of how it effects operating income for the year? Thanks.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Hey, Rob. First of all, good morning. Regarding RB, we don't have anything new to report on RB. We're really tracking right on our plans for our RB, both from an internal budget standpoint and from the model that we built when we bought the business. We hit a couple of important milestones this quarter, as we mentioned on the call with the transfer to our systems. We put the business on our SAP system and the end of the transition services agreement really gave us control of the business.

Regarding that 1% of EMEA, I struggle to call it a synergy. We built a significant amount of growth into our plans for RB. We're still confident in getting those. I think that we're on track with that. Frankly, on the international part of the business, the biggest kind of net positive story that we had for the quarter outside of the US business was in Mexico, where we transitioned the business to our long-standing joint venture partner down there and have gotten off to a very strong start. I wouldn't say that -- the EMEA, I would say, is more of what we originally planned for the business. It's part of its wrap of the existing business that was there and their sales team starting to get traction on that.

Regarding the hourly bonuses, the original guidance did not contemplate that but our current guidance does reflect the full impact of tax reform, including that. When we gave that initial guidance, the Tax Reform Act was still new, how we were going to use it -- we said we would make investments in growth and making ourselves more competitive. We used a majority of the benefit to pay down debt, which would mean dropping it down into the bottom line into cash. This was still our plan. Nonetheless, we thought this was a good and prudent action to take as well.

Mike, you want to elaborate on that at all?

Mike Smith -- Executive Vice President and Chief Financial Officer

I think as you said, it's included in our guidance. I'll leave it at that.

Robert Moskow -- Credit Suisse -- Analyst

Quantitatively, I think I said $7 million -- is that roughly the new expense that we should be thinking about in the guidance?

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

No, way less than that. It's not material. Way less.

Robert Moskow -- Credit Suisse -- Analyst

Alright. Thank you.

Operator

The next question is from the line of Alexia Howard with Bernstein. Please proceed with your questions.

Alexia Howard -- Bernstein & Co. -- Analyst

Good morning, everyone.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Hi, Alexia.

Alexia Howard -- Bernstein & Co. -- Analyst

Hello, there. I just want to ask about what are the risks to the margin expansion from here? Compared with a lot of the maybe more US-centric food companies, you seem to be defying gravity on margin expansion across many pieces of the business. Is it that your commodity costs are a little bit more favorable or are there other more favorable dynamics with operational leverage with volume expansion? Also, more specifically, what are the risks to margin expansion going forward given the more challenging retailer environment, particularly in the Americas? Thank you and I'll pass it on.

Mike Smith -- Executive Vice President and Chief Financial Officer

Hey, Alexia. It's Mike. I'll take the first crack at it. As we mentioned, a significant part of the margin expansion was due to RB Foods. The accretion we're getting from that has come through our P&L and we really like that. But our underlying business has been strong, as you alluded to. We've had really good CCI performance. That is our feel for growth, as we talked about. Last year, we hit $170 million and we're off to a strong start in the first quarter of Fiscal 2018.

We've also seen a shift, as we talked about, a shift in some higher value products across a portfolio, especially on the flavor solutions side of the business. If you think about it, we had mid-single-digit inflation last year, so we took pricing mid last year. So, we've had some positive wrap that's happened in the first half of 2018. So, that's helped the margins on the core business.

As far as risks going forward, we have low-single-digit cost increases this year. We have low-single-digit pricing planned. The environment, as you alluded to, is more difficult than it has been in the past form a retailer perspective. It's a lot more fact-based selling. But we feel like all these price increases are justified and are supportable. Frankly, most of our pricing impact this year is from pricing actions we implemented in 2017.

Alexia Howard -- Bernstein & Co. -- Analyst

Great. Thank you very much. I'll pass it on.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

No, if I could just elaborate on that, I don't want to miss the fact that there's been portfolio migration. We've had great growth in the high margin end of our business and we've actively discontinued some low margin business. We have a strong overall growth rate this year. So, we're taking advantage of that too. We'll use this as an opportunity to get rid of some low-margin business, which has a slight dampening effect on the sales line, but which really runs through. You can just see it in the margins that we're achieving. We think it's pretty sustainable.

Alexia Howard -- Bernstein & Co. -- Analyst

Great. Thank you very much. I'll pass it on.

Operator

Our next question comes from the line of Ken Goldman with J.P. Morgan. Please proceed with your question.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Good morning.

Mike Smith -- Executive Vice President and Chief Financial Officer

Hey, Ken.

Ken Goldman -- J.P. Morgan -- Analyst

Hey, guys. So, there's been a lot of discussion lately, obviously, about maybe the balance of power between manufacturers and retailers in the food and home industry. You guys obviously have some of what I would consider the best brands in food and home. But if you look at a couple of different things, we had a D-load. Your pricing this quarter was up by the lowest amount, by my model, anyway, in over seven years. And if you look at your LTM receivables as a percentage of sales, they've been creeping up to even before the RB deal.

So, I guess I'm just trying to get a sense in your opinion -- I know we've talked about this a little bit in the past -- but are these trends, these factors, are they somewhat one-time in nature? Obviously, the D-load is. Has it really become or is this indicative, to some extent, of how much more difficult it is to manage these customer relationships than it used to be? I'm just trying to get a sense of how much the world continues to change. It feels like every week we're hearing about more and more maybe manufacturers unable to pass on pricing.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Well, there's always an appropriate amount -- I think we've used commercial tension as a discussion of pricing with customers. I would say that the environment for taking pricing right now is pretty challenging. For any kind of general price increase, you're going to get a lot of pushback. That's pretty hard.

Now, the reason there's not that much pricing in our quarter is that most of the pricing that we've got, as Mike mentioned, is a wrap. The pricing that we've taken has been more of a surgical nature that has been justified by commodity increases. Our commodities are different than everybody else's commodities. Those increases have been fairly specific. We've really been able to get the pricing away. I'm not saying that it was easy. I'll say just the opposite. These are challenging conversations with the customer.

But we're still able to get the pricing that we need to get to cover commodities. On the industrial side of our business, we tend to operate with transparency on cost so the customer understands where the cost is coming from and many of our longer-term customers, their exposure to commodity is really booked back to back. We'll take coverage of the physical commodity to back up their needs. So, really, the pricing discussions across the full spectrum of our business while challenging are pretty well-managed.

The D-load that we mentioned really has nothing to do with pricing or balance of power. In the US in particular, trade inventory did come down during the first quarter. I'm talking about in the consumer side of the business. I think others have commented it's no secret that everyone's trying to be more efficient with their working capital. We certainly are and our customers are as well. Especially around the end of the fiscal year, there's a lot of pressure on customer inventories as they're trying to dress up their year-end numbers. That falls into our first quarter, which is our lowest-volume quarter of the year. So, it does have a meaningful impact.

We estimate that actually, the customer inventory drawdown in the first quarter of the year was about a 2% headwind on our consumer business, which means that versus actual consumption, it sets up about half of the growth that we would have otherwise soon.

I'd say that we're not overly worried or surprised by that. We saw a similar pattern last year, where in the first quarter of the year, there was a strong drawdown of trade inventory and then relatively flat for the rest of the year. So, I would hope to see a similar pattern this year.

Now, you mentioned something about receivables I didn't really understand.

Ken Goldman -- J.P. Morgan -- Analyst

I can follow-up with that afterward. It's not a big deal. I just had one quick follow-up. That's a very helpful answer. When you said it was about 2% of consumer, was that total consumer or consumer Americas? If it was total consumer -- sorry?

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Consumer Americas.

Ken Goldman -- J.P. Morgan -- Analyst

Consumer Americas, OK. Thank you very much.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Ken, just one follow-up on your point on pricing, we talked about it being a low-pricing quarter. Last year's mid-single-digit price increases were driven a lot by vanilla. We saw a lot of vanilla in the second half of the year. First quarter, we don't sell a lot of vanilla. That's the reason for the percentage is a little less than it might have been last year.

Ken Goldman -- J.P. Morgan -- Analyst

Thank you.

Operator

The next question today comes from the line of Jonathan Feeny with Consumer Edge. Please proceed with your questions.

Jonathan Feeny -- Consumer Edge -- Analyst

Hey, good morning. Thanks very much.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Hey, Jonathan.

Jonathan Feeny -- Consumer Edge -- Analyst

You've had some pretty impressive growth in the flavor solutions business. I know part of that going back historically has been strength in your one key, but several quick serve customers, but overall, it seems like you're gaining a little bit of share and certainly emphasizing that a little bit more. I'm wondering long-term about the competitive landscape. When you talk about the new capabilities you're bringing to customers, are you typically winning new business from other players or as you move up market not to just the coatings and ingredients, maybe people have thought of your business historically to more flavor systems -- where are you sourcing that business? Is it competitors or is it new business wins? Thank you.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Hey, Jonathan. For us, it's new business wins, but there's no such thing as whitespace out there. So, those new business wins from us are definitely coming from other competitors. Flavor is a growing business. So, I suspect that flavor on the industrial side is growing as well. But we're definitely winning a new business, even within our existing customer base. We're continuing to win. But the new customers that we've added definitely puts us -- we're definitely gaining share in that part of the business.

So, we really wanted to call it out because I think this has been something that's been underappreciated. For the last three years, we've made a real concerted effort to be more of a value-added flavor supplier, more of a flavor house, and to migrate away from some of the legacy commodity business that was in that industrial business. So, yes, these are fair gains. Mike, you want to...?

Jonathan Feeny -- Consumer Edge -- Analyst

Thank you.

Operator

Our next question comes from the line of Chris Growe with Stifel. Please proceed with your question.

Chris Growe -- Stifel Financial Corp. -- Analyst

Hi, good morning.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Good morning, Chris.

Mike Smith -- Executive Vice President and Chief Financial Officer

Morning, Chris.

Chris Growe -- Stifel Financial Corp. -- Analyst

I just wanted to ask just to be clear on a bit of a follow-up from an earlier question -- it sounds like you expect the inventory levels to remain at these low level going forward. This is the second year of a reduction early in the year. Are they too low? We've heard this from other companies that at times, they're reaching down to quite low levels in relation to the shelf being fully stocked. Are you seeing any issues with that in retail right now?

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

That's a good point. I think with individual customers, they very often do overshoot and come back. But I don't want to get too caught up in individual customer anecdotes. When you roll it all up together, the generally trend of trade inventories is downward. Everybody's applying new technologies and putting greater emphasis on trying to be more efficient. So, there is a general downward trend.

While we have, just looking back at our historical data, seen that the impact tends to be biggest in our first quarter, again, it's the combination of most customers having their year-end spend and it's our lightest seasonal quarter of the year. So, that is a factor. But we don't generally see it coming back over the course of the year. There is a downward step in inventory. How low is too low for the industry? I don't know. Once the inventory is taken out, it's out.

So, to continue to have the same impact, they've got to take out another tranche of inventory. But we think that this is a long-term trend and frankly, it's not a surprise. To us, as we think it's actually healthy for the industry. There's been a lot of consolidation in the industry too, some recent bankruptcies too. So, that takes out inventory in the supply chain and really drives us to drive our CPC favorable. We're doing the same thing.

Chris Growe -- Stifel Financial Corp. -- Analyst

Okay. Just another question, if I could, in relation to -- you discussed more value-added products, I think in relation to the gross margin performance. So, I'm just curious about the private label performance versus the brand performance for McCormick. Have we lapped that conversion of that large customer to private label? Is that an ongoing negative for the business? Is it due to their promotional efforts or due to the actual still lapping of that label change?

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Well, first of all, that label change, we have really not lapped it. That was a label change that happened really over this last quarter. It started the fourth quarter and had it fully in effect really maybe not even fully in effect for this quarter. It might have been only partially in effect for this quarter. So, no, we haven't lapped it.

But two things happened there. First was the conversion from a controlled brand to private label. For us, that was financially neutral. That control label already had a margin structure that was comparable to our private label and you know we're a large supplier of private label in herbs and spices. This is a profitable business for us. It does not have the same growth margins as brands, but it has a decent operating margin. The impact of that label change was really neutral.

The part that hurt was that it was a decision by the customer to do some extraordinary pricing and merchandising on that product. To the extent it traded down consumers from brand to that label, it was a negative both for us and frankly, it was a negative for the customer's profitability as well, which they fully understand at this point.

Chris Growe -- Stifel Financial Corp. -- Analyst

How about from a higher label, private label versus branded for McCormick overall and what that meant for your gross margin? Was mix a factor from that benefit of your gross margin there?

Mike Smith -- Executive Vice President and Chief Financial Officer

Overall, it's a slight detriment. As Lawrence mentioned, it has a low gross margin. But from an operating profit perspective and a working capital perspective, it's not that far from a bottom line operating profit for consumer. It's worth a lot of overhead in our plants. We only do private label for the large customers. We don't do a lot of boutique private label. So, it's good business for us, not only in the US, but we do EMEA also.

Chris Growe -- Stifel Financial Corp. -- Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

Adam Samuelson -- Godman Sachs -- Analyst

Yes, thanks. Good morning, everyone.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Good morning.

Adam Samuelson -- Godman Sachs -- Analyst

Maybe first just the point of mix within the portfolio and you talked about that being a clear tailwind to the results this quarter. Any clarity or color you can provide by business line or region where that was a particularly notable benefit or was that pretty broad-based across the whole business.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Adam, I think if you look how we described Asia Pacific as an example, exiting some low-margin business there, we're trying to make sure we optimize our portfolio. We're focusing more on flavors globally for flavor solutions. A very clear example we talked about is Asia Pacific. We've walked away from very low-margin business and we want to use those resources to move up the value chain for other product lines. That's a consistent message across flavor solutions, but Asia Pacific is one we've specifically highlighted.

Adam Samuelson -- Godman Sachs -- Analyst

Okay. That's helpful. Then a question in consumer in EMEA -- I know the UK business has been challenged there for some time given a whole host of dynamics, but any update there? I didn't really hear any color on the UK business in the consumer discussion.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Actually, for the UK business, that business has stabilized. I know that for a great deal of last year, there was a drag on EMEA performance. We had slight growth in the UK this last quarter. We weren't -- it wasn't so spectacular that we were going to call it out, but it's no longer a drag on the business that it was. We're optimistic that we've got that business on track.

Adam Samuelson -- Godman Sachs -- Analyst

Okay. That's very helpful. I'll pass it on.

Operator

The next question is from the line of Brett Hundley with The Vertical Group. Please proceed with your question.

Brett Hundley -- The Vertical Group -- Analyst

Hey, good morning, guys. Thanks for taking my questions. I just have a two-part question on your flavor solutions business. The first part of it maybe for you, Mike -- we estimate EBITDA margins for that business somewhere near 14.5%. The previous management team was really loathe to kind of talk about where margins could go over time.

You guys don't have to give a number this morning, but have you guys updated your thoughts and beliefs on what type of margin structure might be possible for this business or rather if there is continued growth opportunities, just especially relative to what some of your ingredient peers are doing in the overall pursuit of 20% EBITDA margins over time? That's the first part of my question.

Then the second part of my question, there was a transaction announced yesterday where one of the largest flavor and fragrance producers is buying a natural-based ingredient company. The multiple paid was well over 20 times forward EBITDA and it really showcases just how much more established FNF companies are willing to pay for market positioning and elevated revenue growth prospects. Your industrial flavor solutions business is attractively positioned. It's also really interwoven in your consumer platform in many respects.

But I guess my question is are there select areas of your flavor solutions business, maybe the 50% that's more leveraged to food and beverage peers, but are there select areas of your flavor solutions business where McCormick might be willing to take advantage of heightened strategic demand from other ingredient entities and divest these assets into financial capital that could be used for debt paydown or consumer uses or anything like that? Thank you.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Hey, Brett. I know you directed this to Mike, but this is Lawrence. I'm going to start on this and I'm going to mention two things. I'm going to start on the second one and let Mike talk about the EBITDA margins.

Of course, we're aware of that transaction. We are currently out of the markets. This would have been a target that would have been on our list of possible targets as well, I would say, on the list of the usual suspects. As we said, we're not doing any transactions right now because we're going to pay down the debt from the one that we just did. We were certainly aware of the assets and the valuation that was paid for, I think, was 24 times and also see a bunch of deals being done since we bought RB Foods at higher multiples than we paid for that. But it just shows a demand in the market for assets that are growing.

We see our business as being a broad flavor business, both consumer and industrial. We've got a benefit of scale from both of those, from having both of those businesses. They are well-intertwined. At this time, we're into growing that flavor business with the intent of making an even bigger, stronger part of our business and not building something that we would be divesting.

We do constantly look at our portfolio for opportunities. Right now, really, we're thinking more in terms of pruning the low margin businesses rather than selling off the high-margin businesses.

Mike Smith -- Executive Vice President and Chief Financial Officer

As far as the EBITDA margin, I wouldn't say we're loathe to giving a target, but we're not giving a target. We've talked about this. Portions of the flavor solutions portfolio have really nice consumer-like margins. The flavor side of the business, the food service side, and you've seen with the RB Food assets how accretive that is. So, as we continue to migrate that portfolio, you should see continued to see increases there.

From an ROIC perspective, actually, right now, it's pretty close to its consumer ROIC with a high working capital efficiency, but you should see improvements there going forward. We do have internal targets. I would say there was a long period of time, for those of you who have followed us for a long time, where there was a goal of getting us up to 10% margin. We have gotten well passed that -- I'm talking about operating profit margin -- we've gotten well past that. We haven't set a long-term target for it, we continue to see opportunities for that margin to improve.

Brett Hundley -- The Vertical Group -- Analyst

Thank you for the comments.

Operator

The next question comes from the line of Rob Dickerson with Deutsche Bank. Please proceed with your questions.

Rob Dickerson -- Deutsche Bank -- Analyst

Great. Thank you very much. Just one quick question then a couple follow-ups. The seasonality on the RB business -- I know you said before Q4 was obviously the most heavily weighted for the year. Can you give us any perspective as to what the break out would be Q1, Q2, Q3, just for sales?

Mike Smith -- Executive Vice President and Chief Financial Officer

This is Mike. Q1 is the lowest quarter. It's a little less than 20% of the total year, a little over 20%, in that range. But fourth quarter is the strongest. The second or third quarter, obviously with grilling season, they're roughly comparable after that. They'll increase from this space. It's not that different than our core business.

Rob Dickerson -- Deutsche Bank -- Analyst

Okay.

Mike Smith -- Executive Vice President and Chief Financial Officer

And for cash too, it's kind of the same trend.

Rob Dickerson -- Deutsche Bank -- Analyst

Okay. Cool. Perfect. And then in terms of tax rate on 19 -- I know 18 changes because of the one time we saw this quarter, so the 23 essentially implies you still get 24 for the remainder of the year and then what you put in the K, the 25 to 26 on 19. I'm assuming that's still whole.

Mike Smith -- Executive Vice President and Chief Financial Officer

I would go with that right now. We have so many moving parts. As the Department of Revenue goes into it and issues technical adjustments, we'll reassess it then.

Rob Dickerson -- Deutsche Bank -- Analyst

Okay. Perfect. Just the last question -- in terms of the implied organic for the year, the three to five -- correct me if I'm wrong, I know you did Q2 and Q1, the comp scale a little bit more difficult for the year, but it sounds like the inventory reductions are one time in nature. It's not like you wind up accelerating shipments and based on consumption, go forward. I'm just curious to kind of get to that 35 with more different comparison, but in Q2 in Q1, what drives the implied acceleration? Is it better innovation? It's volume-driven. It doesn't seem like there's a ton of pricing commenting. So, any color on that would be helpful. I'll pass it on.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

I'll start and I'll pass it to Mike. It pretty much follows the same pace as last year. Last year, we had a very modest growth in the first quarter and then accelerated as we went to the -- with solid, organic growth, I'd say that this year looks pretty much the same. In our look at the year, there's no extraordinary hockey stick or anything like that. It's pretty much sticking to consumption. New products generally launch, have an impact later in the year. Fourth quarter is the biggest quarter, as we talked about. So, having a 2% increase in the first quarter, which is our smallest quarter can easily be offset by having a strong 3rd and fourth. So, we're comfortable with the outlook.

Rob Dickerson -- Deutsche Bank -- Analyst

Fair enough. Thank you.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Thank you.

Operator

Our final question today is from the line of Akshay Jagdale with Jefferies. Please proceed with your question.

Akshay Jagdale -- Jefferies -- Analyst

Thanks. Thanks for the question. I wanted to also ask about the base business. You mentioned the conversion, but I wanted to ask about the promotional aspect. I know one or two large retailers that have specifically been reacting to the hard discounters with certain promotions that were expected to go away. Can you give us an update on that? Just relate it to the US business. I want to make sure I understand your commentary on inventory. So, yeah, inventories are coming down over time and that will continue.

Relative to consumption, though, over a long period of time, your consumption has mad shipments, right? There's no material gap there that is widening or even if there is a gap, right? Like over time, shouldn't shipments just match what you are, what people are consuming? I want to make sure there's no change there. If you could, just comment on the retailer promotions on some of the private label items and where that's trending. Thank you.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Sure, Akshay. First of all, regarding the retail promotion you're talking about, it only highlighted one customer. The non-grocery customer, we don't like to say names of customers on calls, so I'm not going to say the name, but everyone probably knows who that is. This is the exact situation that we talked about on the January call. There was a control label product that we sold them. They concerted it to private label. We've already said -- I won't dwell on it again -- that was really financial neutral to it.

But then there were some heavy promotions that were run on that. To the extent that trade is brand down, that was the negative. The trade consumer is down from brands. That was a negative for us. And it was a financial negative for the retailers. They did this as part of an overall storewide program that included many other product categories to be price competitive while they proceeded as a strong threat from discount retailers who were entering the market. It was not specifically targeted at us or people at our category.

The customer is responsible for that category and its P&L. You've heard our category management story and understand what the impact of that decision was on category profitability and they ran it through in their own numbers as well. We told them what's going to happen beforehand. They went ahead anyway. They found out what the impact really was, what we said it would be. So, they're reconsidering how that moves ahead.

That promotion is really winding down, I would say. If you were to visit that customer's stores, you would find that special pricing and promotional display. It's very much the exception on a store by store basis for how to spend the rules. It's transitory. It might happen again. It goes to the customer strategy for their overall business and not the strategy on the spice category. We think we have that largely behind us.

Trade inventory -- it was the Americas inventory that we were talking about. There was and has been a reduction in customer inventory over time. It had a more pronounced impact on the last quarter. We had seen it in previous quarters. It just hasn't been worth talking about. In the customer's fourth quarter, they were driving probably the largest reduction. When that's up against our first quarter, which has our lowest volumes, it turns into a meaningful percentage. That's we felt it was worth commenting on on this call.

Mike, do you want to add anything to that?

Mike Smith -- Executive Vice President and Chief Financial Officer

The question about consumption of the times, we should be shipping the consumption of the times, generally.

Akshay Jagdale -- Jefferies -- Analyst

Okay. I'll pass it on. Thank you.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Hey, thanks, Akshay.

Operator

Thank you. I will now turn the floor to Lawrence Kurzius for closing remarks.

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Great. Well, thanks, everyone, for your questions and for participating on today's call. McCormick is a global leader in flavor and we're differentiated for the broad and advantaged portfolio which continues to drive growth. We are responding readily to changes in the industry with new ideas, with innovation, and with purpose. With a clear focus on growth, performance, and people, we continue to perform strong globally and build shareholder value. I'm pleased with our strong results to start the year and I'm confident in our continuing momentum for growth in 2018 and look forward to reporting to you on shareholder value we will continue to create.

Kasey Jenkins -- Vice President, Investor Relations

Thank you, Lawrence, and thanks to all for joining today's call. If you have any further questions regarding today's information, you can reach us at (410)771-7140. This concludes this morning's conference call.

Duration: 70 minutes

Call participants:

Kasey Jenkins -- Vice President, Investor Relations

Lawrence Kurzius -- Chairman, President, and Chief Executive Officer 

Mike Smith -- Executive Vice President and Chief Financial Officer

Robert Moskow -- Credit Suisse -- Analyst

Alexia Howard -- Bernstein & Co. -- Analyst

Ken Goldman -- J.P. Morgan -- Analyst

Jonathan Feeny -- Consumer Edge -- Analyst

Chris Growe -- Stifel Financial Corp. -- Analyst

Adam Samuelson -- Godman Sachs -- Analyst

Brett Hundley -- The Vertical Group -- Analyst

Rob Dickerson -- Deutsche Bank -- Analyst

Akshay Jagdale -- Jefferies -- Analyst

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