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McCormick (NYSE:MKC)
Q4 2019 Earnings Call
Jan 28, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Kasey Jenkins

Good morning. This is Kasey Jenkins, vice president of McCormick Investor Relations. Thank you for joining today's fourth-quarter earnings call. To accompany this call, we posted a set of slides at ir.mccormick.com.

[Operator instructions] 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 information in constant currency, as well as adjusted operating income, adjusted income tax rate and adjusted earnings per share that exclude the impact of special charges, as well as the net nonrecurring income tax benefit associated with the December 2017 U.S. tax reform legislation, and for 2018, transaction and integration expenses related to the acquisition of our Frank's and French's brands.

Reconciliations 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. In addition, 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 2, 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. Starting on Slide 4.

Our fourth-quarter results completed a year of solid financial performance. We drove solid sales, adjusted operating income and adjusted EPS growth, as well as operating margin expansion while continuing to make targeted investments and fuel future growth. We delivered substantial cost savings at our eighth consecutive year of record cash flow. Our sales growth and focus on profit realization drove strong financial results across both our consumer and flavor solutions segments and reflects the successful execution of our strategies and the engagement of our employees around the world.

We have a broad and advantaged global flavor portfolio, as seen on Slide 5, which continues to position us to meet the demand for flavor around the world and grow our business. This morning, you will hear about our 2019 accomplishments which were driven by successes across the portfolio. Our investments in new products, brand marketing, capabilities and infrastructure continue to drive growth. The breadth and reach of our portfolio across segments, geographies, channels, customers and product offerings creates a balanced portfolio to drive consistency in our performance in a volatile environment.

Our highlights for the year include, in our consumer segment, strong U.S. branded growth and double-digit e-commerce growth across all regions. And in our flavor solutions segment, we continue to win with customers, driving base business and new product growth with Europe, Middle East and Africa, our EMEA region, driving particularly strong performance. Overall, we're confident that our -- 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.

Heading into 2020, I'm confident our operating momentum will continue. This morning, I'll begin with our fourth-quarter results, reflect on our 2019 achievements and then share with you some of our 2020 business momentum and plans. After that, I'll turn it over to Mike, who will go in more depth on the quarter-end results and the details of our 2020 guidance. Let's start with our fourth-quarter results on Slide 6.

Starting with our top line, versus the year-ago period, we grew sales 1% for the total company including a 1% unfavorable impact from currency. In constant currency, we grew sales 2%, with both segments contributing to the increase. In addition to our top-line growth, we grew adjusted operating income and expanded our adjusted operating margin. Higher sales, cost savings led by our comprehensive continuous improvement program, or CCI, drove the growth, which was partially offset by higher brand marketing expense.

At the bottom line, our fourth-quarter adjusted earnings per share of $1.61 was lower than $1.67 in the prior period or a decline of 4%. This decline includes a 7% headwind from a higher adjusted tax rate. Our adjusted operating income growth was more than offset by this tax headwind. Turning to our fourth-quarter segment business performance.

In our consumer segment, we grew our constant-currency sales 2% in the fourth quarter driven by the Americas and Asia Pacific regions. The Americas, we grew constant-currency sales 2%, attributable to higher volume and product mix driven by both our base business and new products. Our strong U.S. branded performance was partially offset by declines in private label products, as well as soft Canada sales performance.

Overall, our U.S. shipments were aligned with strong consumer consumption across our portfolio. Our category management initiatives, effective marketing support and merchandising execution, expanded distribution and new products all contributed to driving growth in the fourth quarter. Our IRI data indicates U.S.

McCormick branded spices and seasoning scanner sales grew in line with the category, and we again had double-digit growth in unmeasured channels. And our McCormick branded dry recipe mixes continued their momentum of consumption and share growth. Consumption in spices and seasonings and dry recipe mixes accelerated through the fourth quarter both for the categories and McCormick branded products, with particularly strong results in November. Our brand marketing and our strong merchandising execution drove strong holiday results.

Our new products, including ONE DISH and Street Taco dry recipe mixes, continued to gain momentum and contribute to growth. As we accelerate our condiment leadership, French's mustard and Stubb's barbecue continued to grow consumption and share. Frank's hot sauce had strong performance again this quarter. And over the entire Frank's portfolio, including frozen wings, seasoning blends and dry recipe mixes, we drove double-digit consumption growth as we are making further progress in our opportunities to expand this brand.

Now in the EMEA region, we're focused on driving brand growth and our success with new products and strong promotional programs has continued, particularly in the U.K. Growth was tempered in other parts of the region for the quarter and the full year by declines in private label. We remain selective where we participate, aligning our strategy to optimize the profitability of our portfolio. In the Asia Pacific region, our sales growth was driven by pricing actions with volume growth, as I have mentioned, partially impacted by macroeconomic pressures in China.

Our fundamentals across the region are strong and we've driven strong growth for the full year in 2019. Let me take a moment now to mention the rapidly evolving events in China, which we are following very closely to, first and foremost, ensure the health and safety of our employees. All of our Wuhan facility activity, from sourcing of materials to distribution of manufactured products, is contained within the Chinese market. And at this point, it is too soon to quantify any business impact.

Turning now to the flavor solutions segment. We grew sales 3% in constant currency in the fourth quarter, with all three regions benefiting from higher volume. In the Americas, we had strong flavor sales growth driven by snack seasonings attributable to robust base business growth and new products. Across both our restaurant and packaged food customers, new products continue to drive growth in the second half of the year following a particularly strong first half of innovation.

Our momentum also continued with strong branded foodservice growth. Now turning to EMEA. We drove strong constant-currency sales growth. We're winning with our customers through expanded distribution, promotional activities and new product.

In fact, during 2019, we were successful in this region in establishing a significant new product platform with a global customer and have achieved a 100% new product win rate with them. And finally, in the Asia Pacific region, our fourth-quarter sales growth was the best performance of the year and was partially driven by our customers' promotional activities, as well as new products. Moving from our fourth-quarter results, I'm pleased to share our full fiscal-year accomplishments, which not only highlight what we achieved during 2019, but fuel our confidence to drive another year of strong operating performance in 2020. Now starting with our 2019 financial results as seen on Slide 9.

We drove 3% constant-currency sales growth, driven by new products, brand marketing investments and expanded distribution. Our consumer segment grew sales 3% in constant currency, driven by the U.S. and China. In our flavor solutions segment, all three regions drove the constant-currency sales growth of 3% with particularly strong EMEA performance.

We grew constant-currency adjusted operating income 7%, driven by higher sales and a 60-basis-point gross margin expansion, driven primarily from CCI-led savings. This increase, combined with the lower interest expense and an increase in income from unconsolidated operations, drove an 8% increase in adjusted earnings per share to $5.35 for fiscal 2019, including an unfavorable impact of currency exchange rates versus last year. With higher sales and CCI, we increased our adjusted operating margin to 18.3%, which is an 80-basis-point expansion from last year. We expanded adjusted operating margin in both of our segments while also making investments to drive continued growth.

We reached a record $119 million of annual cost savings driven by our CCI program to fuel our growth. We realized $463 million in CCI-led cost savings over the last four years, exceeding our four-year $400 million goal. And there continues to be a long runway in 2020 and beyond to deliver additional cost savings. 2019 was an eighth consecutive year of record cash flow from operations, ending the year at $947 million, a 15% increase from last year.

We are making great progress with our working capital improvements and expect the programs we've put in place will continue the momentum in 2020. Our strong cash flow is enabling us to make great progress in paying down our acquisition debt, and we further reduced our net debt-to-adjusted EBITDA ratio, as Mike will discuss further in a few minutes. At year-end, our board of directors announced a 9% increase in the quarterly dividend, marking our 34th consecutive year of dividend increases. We have paid dividends every year since 1925 and are proud to be a dividend aristocrat.

Now I would like to comment on some of our 2019 achievements beyond our financial performance. New products remain integral to our sales growth with 8% of 2019 sales from product launches in the last three years. In our consumer segment, where new product innovation differentiates our brands and strengthens our relevance with our consumer, our robust 2019 launches across all regions accelerated our new product growth rate and we're excited about the momentum they are building. In our flavor solutions segment, we're capitalizing on our differentiated culinary foundation, customer collaboration and technology platform.

We realized particularly strong new product sales growth in 2019 with packaged food companies, while new product growth with quick service restaurants was tempered due to a stronger core item focus particularly in the APZ region, which we mentioned throughout the year. Brand marketing is a key driver of sales growth, and we've made significant investments supporting our brands over the last few years. In 2019, we continued to optimize our brand marketing spend, leveraging our scale and getting more value out of each marketing dollar, enabling us to maintain a comparable level of spend to last year while delivering an 11% increase in the Americas working media. Our marketing excellence organization drove greater speed, quality and effectiveness across our programs, notably in our digital marketing.

In 2019, our digital leadership was recognized again by Gartner L2 Research. McCormick is ranked No. 1 on their Digital IQ Index for food and the only food brand to earn the title of Genius, their top distinction. This marked our sixth consecutive year in the top five ranking of over 100 food and beverage brands on the effectiveness of our digital, website, social media, e-commerce and mobile platforms.

Our investments and resources across e-commerce are also paying off. We're delivering global growth and have positioned ourselves for future acceleration. We drove double-digit sales growth in all regions, resulting in global e-commerce growth of 44%, driven by both strong pure-play and omni-channel performance. We're making measurable progress toward our 2025 sustainability goals, and just last week, issued our most recent Purpose-led Performance report.

We're being recognized for our efforts. During 2019, we were recognized for the third consecutive year as a DiversityInc top 50 company. And at the recent 2020 Davos World Economic Forum, Corporate Knights ranked McCormick in their 2020 Global 100 Most Sustainable Corporations Index as No. 1 in the food products industry for the fourth consecutive year.

Just last week as well, we announced the election of Anne Bramman to our board of directors. Anne is currently the CFO of Nordstrom with extensive financial and leadership experience and brings an exciting new background to the board in digital, e-commerce and online retail shopping. Anne's history of driving growth and productivity for companies with leading brands, as well as her broad financial expertise makes her a great fit for McCormick. We look forward to Anne further strengthening the impressive group of leaders that comprise our board.

Mike will go over our 2020 guidance in a few moments, but I'd like to mention a few highlights related to our growth momentum and plan, a significant business transformation plan and provide some summary comments on Slide 11. At the foundation of our sales growth rate is the rising global consumer demand for great taste and healthy eating. Consumers have an increased interest in creating flavor experiences with bold, rich, authentic flavors while also demanding convenience. Additionally, consumers are focused on fresh, natural and recognizable ingredients with greater transparency around the sourcing and quality of food, and consumers want to know about the environmental and social impacts behind the brands they buy.

Flavor continues to be an advantaged global category, and our products inspire flavor exploration and are the essential complement to real, fresh food. We deliver flavor across all markets and through all channels and are aligned with consumers' demand for flavor, convenience, health and sustainably minded business practices. Our alignment with these long-term trends, our breadth and reach, combined with our execution of effective strategies positions us well to meet increased consumer demand, both through our product and through our customers' products and bolsters our confidence to drive sales growth across both segments. Across our consumer segment, our 2020 plans include: To further drive our undisputed leadership in spices and seasonings, accelerate our condiment global platform and fuel our growth in emerging markets and channels, as well as an on-trend, fast-growing platform.

With our investments in brand marketing, category management, analytical capabilities and new products, as well as our drive to strengthen our connection with the consumer, we expect to drive further sales growth. For our flavor solutions segment, the execution of our strategy to migrate our portfolio to more technically insulated and value-added categories will continue in 2020. With top-line opportunities gained from our global investments to expand our flavor scale, as well as further momentum in flavor categories, such as savory products and beverages and in branded food service, we expect to realize further results from this strategy. Driven by our best-in-class customer engagement, we also expect to continue our new product momentum.

Beyond our strategies to drive sales growth, we're also making business transformation investments to create capacity for continued growth. Turning now to Slide 12. We are implementing a global operating model across our entire organization to deliver globally aligned and simplified processes that will allow us to grow at scale through increased digitalization and automation. As technology is the backbone for this model, we've begun the process of replacing our existing disparate ERP systems with SAP HANA, a single global system.

Our last ERP implementation was in the early 2000s, and since then, we have more than doubled in size. This growth, as well as changes in technology and SAP's plan to discontinue support of the current platform, requires us to invest once again to modernize our ERP systems and transform our business processes. We want to be ahead of the curve in achieving an advanced, integrated platform which will allow us to realize the benefits of a scalable platform for growth sooner and enable growth in line with our aspirations. This is a multiyear program, during which we will continually learn and adjust as we progress to a full global implementation.

We have recently completed milestones for our global template and have made updates to our implementation plan which we expect will drive greater benefits and lower risk at a higher estimated total program cost. With the completion of these milestones, we've broadened our program cost estimate to include estimates related to the go-live activities in our operations which we are now able to estimate. As such, we have added these expenses to our information system technology cost, the basis for our previously communicated range of $150 million to $200 million. We are now projecting the total cost of our ERP investment to range between $300 million and $350 million from 2019 through the anticipated completion of our global rollout in fiscal 2022, with an estimated split of 40% capital spending and 60% operating expense.

As such, the total operating expense impact for the entire program is estimated to be between $180 million and $210 million. In fiscal 2020, we are projecting our total operating expense impact to be approximately $80 million, which is an incremental $60 million over fiscal 2019. Notwithstanding the significant incremental investment in 2020, we expect growth in our underlying business to remain strong. And while the deployment activities will continue through 2022, we expect to return to our normal growth algorithm in 2021.

Mike will discuss the 2020 financial impact of the program further in his outlook remarks. I'd like to now share highlights of the updated plan. We've now included in our program cost, as I just mentioned, projected expenses related to go-live activities, such as inventory build and pre go-live operating expenses. The inclusion of these costs drives nearly half of the increase in our operating expense projection.

We're also extending our deployment schedule and increasing training and support, all to further mitigate risk. This strengthens our change management plan and represents the second-biggest driver of our projected increase. Next, we plan to drive greater business transformation, including integrating certain other software applications within our global HANA solution. Finally, we've also identified additional opportunities to drive greater financial benefits after stabilization of each of our phased deployments.

These updates will drive greater benefits and lower risk. We are excited about this investment to enable us to transform our ways of working and realize the benefits of a scalable growth platform. Throughout 2020, we will periodically provide high-level updates on the progress of the program. Our overarching focus though will be to continue highlighting the strength of our operating performance.

Our achievements in 2019, our effective growth strategies, as well as our robust operating momentum all bolster our confidence in delivering another strong year of growth and performance in 2020. We're looking forward to sharing more details regarding our 2020 growth plans and our business transformation initiatives in just a few weeks at CAGNY. To summarize on Slide 13 before turning it over to Mike. We achieved solid financial results in 2019.

We're driving strong momentum in sales growth. We're continuing to drive sales growth balanced with our focus on lowering costs to expand margins and sustainably realize long-term earnings growth. We have a solid foundation, and in an environment that continues to be dynamic and fast-paced, we're ensuring we remain agile, relevant [Audio gap] long-term sustainable growth. Our fundamentals, momentum and growth outlook are stronger than ever.

Our experienced leaders and employees are executing on our strategies which are designed to build long-term value for our shareholders. With our 2019 results, they have again proved to be effective and we're confident they will prove effective again in 2020. In 2020, we continue to differentiate our brands, build capabilities and make investments for growth that will continue to move McCormick forward. Our top-tier, long-term growth objectives remain unchanged, and in our 2020 outlook, reflect the small -- strong underlying business performance and necessary significant investments in business transformation to achieve those long-term objectives.

Mike will discuss this more in a few moments. I want to recognize McCormick employees around the world and thank them for their dedicated efforts and engagement. The collective power of our people drives our momentum and our success. With this power and our effective strategy, we are well-positioned to achieve continued growth in 2020 while also driving transformation to fuel growth into the future.

Thank you for your attention. And it is now my pleasure to turn it over to Mike for additional remarks on our 2019 financial results and the details on our 2020 guidance.

Mike Smith -- Executive Vice President and Chief Financial Officer

Thanks, Lawrence, and good morning, everyone. I will now provide some additional comments on our fourth-quarter performance and full-year results, as well as detail on our 2020 outlook. Starting on Slide 15. During the fourth quarter, we grew sales 2% in constant currency, driven by both our consumer and flavor solutions segments.

The consumer segment grew sales 2% in constant currency. This growth was driven by the Americas and Asia Pacific regions. On Slide 16, consumer segment sales in the Americas rose 2% in constant currency versus the fourth quarter of 2018. This increase was driven by strong U.S.

branded growth, partially offset by declines in private label products and soft Canada sales performance. In EMEA, constant-currency consumer sales were down 1% from a year ago, primarily due to declines in private label products. We grew consumer sales in the Asia Pacific region, 3% in constant currency, driven by pricing and promotional activities. Sales growth in India was strong due to e-commerce and holiday promotional activity.

Turning to our flavor solutions segment in Slide 19. We grew fourth-quarter constant-currency sales 3%, driven by continued strength in our EMEA region. In the Americas, flavor solutions constant-currency sales increased 3%, driven by new products and base business growth with continued momentum in snack seasonings and branded foodservice. In EMEA, we grew flavor solutions sales 5% in constant currency.

Sales growth to quick service restaurants and packaged food companies was driven by new products, base business volume growth and pricing. In the Asia Pacific region, flavor solutions sales grew 2% in constant currency as higher sales to quick service restaurants were partially driven by the timing of our promotional activity. As seen on Slide 23, fourth-quarter adjusted operating income, which excludes special charges, increased 3%, or 4% in constant currency, versus the year-ago period. Adjusted operating income in the consumer segment rose to $227 million, a 1% increase, which was the same in constant currency.

In the flavor solutions segment, adjusted operating income rose 11% to $76 million, which in constant currency was a 12% increase. Growth in both segments was primarily driven by higher sales, CCI-led cost savings and a one-time 2019 global benefit plan alignment with some offset from incentive compensation. Incentive compensation was partially due to and offset by favorable results realized below operating income, such as interest expense and income from unconsolidated operations. In the consumer segment, a 7% increase in brand marketing versus the fourth quarter of last year unfavorably impacted the consumer adjusted operating income growth.

Flavor solutions growth was favorably impacted by product mix. For the fiscal year, the increase in adjusted operating income in constant currency was 7%, and we expanded adjusted operating income margin 80 basis points with both segments contributing to the growth. In constant currency, the consumer segment grew adjusted operating income 7%, while the flavor solutions segment grew adjusted operating income 5%. As seen on Slide 24, gross profit margin expanded 120 basis points in the fourth quarter versus the year-ago period, as we have planned.

And for the full year, expanded 60 basis points, driven by CCI-led cost savings. Our selling, general and administrative expense as a percentage of net sales increased by 80 basis points from the fourth quarter of 2018. Leverage from sales growth and CCI-led cost savings were more than offset by increases in both planned brand marketing and additional incentive compensation expense. Turning to income taxes on Slide 25.

Our fourth-quarter adjusted effective tax rate was 24.7% as compared to 19% in the year-ago period. Our fourth-quarter adjusted rate in the year-ago period was favorably impacted by discrete items, principally a higher level of stock option exercises. For the full year, our adjusted tax rate was 19.5%, which is comparable to 2018. Income from unconsolidated operations increased 7% in the fourth quarter of 2019 and 18% for the full year, with strong performance by our McCormick and Mexico joint venture driving both comparisons.

For 2020, we expect a mid- to high single-digit increase in our income from unconsolidated operations. At the bottom line, as shown on Slide 27, fourth-quarter 2019 adjusted earnings per share was $1.61 as compared to $1.67 for the year-ago period. The decline was mainly due to a higher adjusted income tax rate versus last year, with partial offsets from higher adjusted operating income and lower interest expense. And this comparison also includes an unfavorable impact of currency rates.

On Slide 28, we summarize highlights for cash flow and the year-end balance sheet. Our cash flow provided from operations ended the year at a record high of $947 million compared to $821 million in 2018. For the fiscal year, our cash conversion cycle was significantly better than the year-ago period, down 22% or 12 days, as we executed against programs to achieve working capital reductions. We returned a portion of this cash flow to our shareholders through dividends and paid down debt, reducing our acquisition debt during the fiscal year by $436 million.

Of our $1.5 billion in acquisition-related term notes, we have now paid down $1.25 billion and when we finished the year with a net debt-to-adjusted EBITDA ratio of 3.4 times. Our capital expenditures were $174 million in 2019 and included initial spending related to the transition of our ERP platform, as well as growth and optimization projects across the globe. In 2020, we expect our capital expenditures to be higher than 2019 to support our investments to drive growth, including our ERP business transformation investment. As of year-end, $32 million remained of a $600 million share repurchase program that was authorized by our board of directors in March 2015.

An additional $600 million share repurchase program was authorized by our board of directors in November 2019. We expect 2020 to be another year of strong cash flow, driven by profit and working capital initiatives. 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 2020 on Slides' 29 and 30.

We are well-positioned for another year of underlying solid performance with our broad and advantaged flavor portfolio, effective growth strategies and focus on profit realization. As Lawrence mentioned, in 2020, we expect adjusted operating income and adjusted earnings-per-share growth to reflect strong underlying business performance, offset by significant incremental investment associated with a business transformation, our ERP replacement program and a higher projected effective tax rate. We also expect there to be a minimal impact of currency rates. At the top line, we expect to grow sales 2% to 4%.

This increase is expected to be entirely organic growth as no incremental impact from acquisitions as planned, and will be driven primarily by higher volume and product mix from new products, expanded distribution and brand marketing, as well as the impact of pricing, which in conjunction with cost savings, is expected to offset anticipated mid-single-digit inflationary pressures. Our 2020 gross profit margin is expected to be 25 to 75 basis points higher than 2019, in part driven by our CCI-led cost savings. Our adjusted operating income growth rate, excluding the incremental business transformation impact, reflects expected strong underlying business performance driven by sales growth and is projected to be a 5% to 7% increase from $979 million. This includes our cost savings target of approximately $105 million and an expected mid single-digit increase in brand marketing investments, which will be heavier in the first half of the year.

As Lawrence mentioned earlier, we are projecting an incremental operating expense impact of $60 million versus 2019 related to our ERP replacement program. This impact lowers our adjusted operating growth rate by 600 basis points, resulting in our total expected adjusted operating income to be comparable to 2019, plus or minus 1%. We expect the ERP expenses to be higher in the second half of the year. Our 2020 adjusted effective income tax rate is projected to be approximately 22% based upon our estimated mix of earnings by geography, as well as factoring in a level of discrete impacts, the most significant of which occurred during the first quarter of 2020 related to a refinement to our entity structure.

For the remaining quarters, we estimate a tax rate of 23%, thus driving our full-year outlook of 22%. This outlook versus our 2019 adjusted effective tax rate is approximately a 300-basis-point headwind to our 2020 adjusted earnings-per-share growth. Our change in projected 2020 adjusted earnings per share from 2019 is expected to be driven by strong underlying business performance growth of 7% to 9%, the unfavorable tax headwind I just mentioned and an estimated unfavorable 700-basis-point impact from our incremental ERP investment. Our guidance range for the adjusted earnings per share in 2020 is $5.20 to $5.30 compared to $5.35 of adjusted earnings per share in 2019.

In summary, we are projecting strong underlying business performance in our 2020 outlook, offset by a significant incremental ERP investment associated with business transformation and a higher projected effective tax rate. Turning to Slide 31. I want to discuss our track record of achieving our constant-currency long-term financial objectives. As we have said, our long-term sales growth objective is 4% to 6%, with base business, new products and acquisitions each contributing a third.

Additionally, our long-term objective is to grow adjusted operating income 7% to 9%. This, coupled with our approach to capital allocation, results in a long-term adjusted earnings-per-share growth objective of 9% to 11%. Given there is variability in our business from year to year, especially related to transformational events, we evaluate our performance against these objectives over several years. With that said, a review of our five-year compounded annual growth rates, which includes our 2020 guidance, projects that our five-year compounded annual sales and adjusted operating income growth rates are expected to exceed our long-term objectives.

Additionally, our adjusted earnings per share performance is also in line with our long-term objective. On a final note, while we have a significant transformational investment in 2020, we expect to return to our normal growth algorithm in 2021. As Lawrence mentioned, our foundation is strong, our strategy is effective and we are generating results in line with our objectives. I'd like to now turn it back to Lawrence for some additional remarks before we move to your questions.

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

Thank you, Mike. Now that Mike has shared our financial results and outlook in more detail, I'd like to recap the key takeaways as seen on Slide 32. We delivered solid organic sales, adjusted operating profit and adjusted earnings-per-share growth in 2019. We expanded adjusted operating profit margin and drove strong results in both segments.

Our 2020 outlook reflects strong operating performance, driven by our solid foundation, continued strong momentum and the successful execution of proven growth strategies. Our underlying business is robust with offsetting impacts from an incremental business transformation expense and a significant tax headwind. We're confident that 2020 will be another successful year and we will continue to build long-term value. Importantly, we are continuing to deliver differentiated results, while significantly investing for growth to build the McCormick of the future.

We'll share more about these transformation investments at CAGNY in a few weeks. Now let's turn to your questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] And our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Andrew Lazar -- Barclays Capital -- Analyst

Good morning, everybody.

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

Good morning, Andrew.

Andrew Lazar -- Barclays Capital -- Analyst

Hi there. Just one quick one on ERP and then just one on private label. With ERP, I guess, on the operating expense piece, I think as you mentioned, the cost is now expected to be about, I think, $195 million at the midpoint versus the $60 million to $80 million before, given the go-live piece that you mentioned. So as we think ahead to fiscal '21, assume like there's likely still another incremental step-up on operating expense, where previously maybe fiscal '20 was expected to be the bulk of the investment.

So in your comment around getting back to the algorithm in '21, is it that a big chunk of one-time expense from '20 goes away and then you've got an incremental expense in '21? Or -- I'm trying to get a sense of what the offset is to that incremental cost in '21.

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

Hey, Andrew, let me start, and then I'll also let Mike comment on that. So I'd say that's a great question and a great thing to clarify. So it is still our expectation that 2020 is the peak in the ramp up of the expenses from business transformation and ERP. We don't get -- we don't have a real roll-off of those expenses in '21, they continue at a high expense level.

And so that's -- but the ramp-up is done, and so we expect to be back to algorithm in 2021, really all in. And then those expenses start to ramp -- those expenses ramp down in 2022. So that -- I hope that's clarified. Mike, did I --

Mike Smith -- Executive Vice President and Chief Financial Officer

Yeah. In 2020, we'll have expenses for the pilot, as we mentioned. And also, it's our heavy investment year. We really -- 2022 and 2023 is when we get the wind-down and the benefits really kick in for us.

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

In 2020, we have to build -- we've got to build the whole global template and stand it up. And when we go live in our pilots, we actually have to start depreciating and realize all the expense for that.

Andrew Lazar -- Barclays Capital -- Analyst

Gotcha. And does the ERP -- by the way, I don't think this is the case. But will an implementation of a plan, a program like this, impact sort of ability to integrate acquisitions at all? Or is that really a separate aspect?

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

I think that's a separate aspect. Our priority, of course, is growth. And so if we had an attractive asset that we wanted to buy, we would adjust our ERP plans in order to accommodate it. So we've had a -- we've been thoughtful about that internally, and we don't believe that it would interfere with our ability to do an acquisition of the right asset, whether it be a bolt-on or a large one.

Andrew Lazar -- Barclays Capital -- Analyst

Great. And then just quickly on private label. You talked about some of the weakness in private label in consumer Americas. And I guess I'm just trying to get a little more perspective or color around that, whether it was a one-off, like particular retailer thing? Was it McCormick losing private label share? Or overall private label slowing? I'm trying to get a sense of just, is this something we think about as you move through into 2020, or somewhere more of a one-off? Not that it's a bad thing for margins, of course.

But --

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

Exactly. So well, that's actually part of the answer. So the private label was one of the factors. In Q4, that was down.

When we talked about it in Q3, it was up. And I would just -- I would think that's -- this is just the kind of a normal ebb and flow of this business. Private label is not strong as it was a year ago. And you can see that through the consumption data and that's reflected in our performance as well.

I think this is more of a -- kind of a normal ebb and flow in that part of the business. We are selective about where we participate and so there are always a level of wins and losses. We want to participate in private label where it's a strategic value to us and also where it's -- frankly, it's profitable. I think you can see that as you look at our fourth quarter in the Americas in particular, brand came in strong, private label was light, and that change in mix flows right through in the margin in [Inaudible].

Andrew Lazar -- Barclays Capital -- Analyst

Yeah. Great. Thanks very much. See you soon.

Operator

Our next question is from the line of Ken Goldman with JP Morgan. Please proceed with your question.

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

Hi. Good morning. And thank you.

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

Hi, Ken. Good morning.

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

Hi. I just wanted to ask, I know it's way too early to talk about the impact of coronavirus, but I wanted to make sure that maybe I had my facts straight on it. So can I ask a couple of questions on maybe exactly what the -- what your setup is there? I think you have one plant in Wuhan. I don't think it's two.

I think it's one. Is that correct?

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

That's correct.

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

And I guess the follow-up would be, is that plant operating today? And is there any way for us to sort of quantify how much that contributes to your sales or EBIT? And can the other plants maybe pick up some of the slack if that plant doesn't happen to be operating? I just wanted to kind of get some of the lay of the land there to how to think about that.

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

So I'll say a few words about this. Of course, we're -- our concern, first and foremost, is for the health and safety of our employees and around product safety. So I want to emphasize that a lot of our efforts and responses are directed to that. We don't disclose our China sales specifically, but we do talk about -- as you know, anything that's over 10%, we do have to spell out.

And so while China is a large country for us, it's our largest after the U.S., it's less than 10% of our sales and quite a bit less than 10% of our profitability, even though that is a profitable business. I think it's too early to really know what the impact is going to be on it. For the -- we've got three plants in China: one is in Shanghai, one in Guangzhou and one in Wuhan. Right now, all of them are closed.

It's the Chinese New Year holiday. They closed in the normal course of business actually before all the government restrictions were put in place. So this was a very orderly, planful shutdown for their regular holiday season. Normally, there's about a 10-day shutdown period for the Chinese New Year.

If everything was normal, they would have reopened for business on February 2, along with the rest of the country -- sorry, February 3, I think, is the Monday, for resumption of shipments. And that's actually the date that the government has put out for most of the country to reopen operations. The city of Shanghai has put in a special restriction saying companies can't reopen till February 10, but other than that, there's really no new news for us. And so far, it's not a business interruption.

I think it really remains to be seen how far this goes. Certainly, the reduction in people traveling, being able to go out to eat, being able to shop at the grocery stores, is not a positive for our business. We can't really quantify it right now. We certainly think that more facts will come out over the coming days, really, and we'll see -- we'll have -- we'll be better able to understand what the real business impact is.

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

OK. That's very helpful. I guess, a quick follow-up and then I'll let it go --

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

If there's one thing I would say -- if there's thing that gives us kind of caution around our first half of the year, it's this -- is the uncertainty around this.

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

No, that's exactly where I was going to go. Is it safe to say that your guidance includes a little bit of conservatism just because of the uncertainty? Or is it really just so uncertain that it's not worth even estimating at all in your numbers?

Mike Smith -- Executive Vice President and Chief Financial Officer

OK. I think it's for consideration. It's definitely something, in the last week or two, we've thought hard about. And yeah, I'd say so.

The other point I'd raise, too. This Wuhan manufacturing facility, we source from China and sell into China. There's really no external --

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

Very good point.

Mike Smith -- Executive Vice President and Chief Financial Officer

So it's really within country.

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

Great. Thank you so much.

Operator

Our next question is from the line of Steven Strycula with UBS. Please proceed with your questions.

Steven Strycula -- UBS --Analyst

Hi. Good morning. So first question would be more of an operational one. Just wanted to know, Lawrence, relative to internal plan, what, if anything, kind of deviated in the fourth-quarter trend? It sounds like, at a high level, it might have been private label.

And just to clarify a little bit more from Andrew Lazar's question is, is there any kind of read forward into 2020 about that state of the business? Or was there really just some lumpiness between Q3 and Q4?

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

Well, first of all, at the end of the -- on our Q3 call, we did got to the low end of our range for a variety of reasons. I talked about some unseasonable weather impact and a warehouse transition in our flavor solutions side on the Americas part. And those factors did spill into Q4, really, in the September time frame in particular. So we did come in a little light due to those factors rolling forward, especially in September, and some softness in private label in Canada that we mentioned in our prepared remarks.

And I would think that the Canada softness is nonrecurring related to the promotional activity that we didn't repeat, and we see that as a nonrecurring factor. The private label, probably I would expect that to carry into the early part of the year as well. So that might be the one carryforward item. So those were some of the negatives.

I will say on the positive side, the quarter started a little soft, as I had mentioned. We had unseasonable weather in September. In the Americas, we did have some hangover from the warehouse transition. But it got stronger as we went through the quarter and definitely finished on the strong side.

We got strong consumer consumption and strong branded growth, which as I mentioned on the -- in Andrew's question, you can see in our margins. The flavor solutions is really solid other than the warehouse issue early in the quarter. So I wouldn't think there's anything untoward there and really no reason to -- I don't really think of anything as being a negative there that would carry forward.

Steven Strycula -- UBS --Analyst

OK, that's very helpful. And then a quick follow-up for Mike. I know it's extremely early to even think about 2021. I just want to understand the cadence you did -- laid out for the ERP system.

So for 2021, would that imply that the residual leftover balance would be -- that runs through the P&L is roughly $80 million to $115 million? And then the tax rate this year is 22%, including discrete items. Is the normalized rate, given what we know about tax reform at this point, probably 24% for the company? How should we think about it?

Mike Smith -- Executive Vice President and Chief Financial Officer

I think if you look at the fourth-quarter tax rate, which was 24.7%, it's going to be in that range. We didn't -- hardly had any discrete items in the fourth quarter. So yeah, the underlying tax rate is in that range. Of course, we're always looking to optimize structure and things like that to help drive that.

From the ERP perspective, like we said, I mean, there's a lot of cost going into '20 and '21. '21 is when we really have the big deployments. So we have the pilot this year, and we're building up the global model in 2020. Then I think of it -- those are the big years.

We'll have some expenses out into '22 and '23 as we bring up some of the other regions, but they will fall off pretty rapidly.

Steven Strycula -- UBS --Analyst

OK. And is any of the $80 million this year included in the $0.05 charge that you're adjusting out of operating earnings?

Mike Smith -- Executive Vice President and Chief Financial Officer

Special charges? No, no, no. None of this program is going through special charges. This is all just going -- falling right through the P&L, normal GAAP.

Steven Strycula -- UBS --Analyst

Very helpful. Thank you.

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

Thanks.

Operator

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

Alexia Howard -- AllianceBernstein -- Analyst

Good morning, everyone.

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

Hi, Alexia.

Alexia Howard -- AllianceBernstein -- Analyst

So I've just got two quick ones. The operating income trends between consumer and flavor solutions, it was up very modestly this quarter in consumer, but up double-digits in the flavor solutions side. Just wondering, will the brand marketing investment continue to pressure margins in the consumer side? And can the margins in the food -- flavor solutions side of things continue to expand like this so that they continue to converge over time? And then I have a follow-up. Thank you.

Mike Smith -- Executive Vice President and Chief Financial Officer

Yeah, Alexia, this is Mike. We saw in the second half of the year, our flavor solutions margins did improve. We had a tough comparison in the first half because of transactional FX rates. Those did ease in the second half, like we talked about earlier in the year.

So we do see those favorable trends continue. FX is really -- for 2020, is going to be a neutral impact versus negative 2-ish percent in 2019. So that's a favorable trend there. And we do see continued optimization of our portfolio, more value-added products in flavor solutions to help drive margins upward.

On the consumer side, I mean this year, we kind of took -- in 2018, our advertising increased about 18%. So in 2019, we basically have spent comparable. We've decided we're going to optimize our spend, formed a marketing excellence program. And even though our A&P spending was flat, our working media was up double digits.

So we really got the optimization there.

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

And we also changed -- we've skewed it. So if you recall, in the first half, we were below a year ago; in the second half, we were above. And that's what you're seeing in the fourth-quarter operating income coming through, is that kind of -- I won't say hoarded it, but we've skewed the A&P toward the fourth quarter where it, frankly. has the highest ROI.

Mike Smith -- Executive Vice President and Chief Financial Officer

And you'll see in the next year, as we said in the prepared remarks, we're going to up-spend A&P. The comparison is easier in the first half of the year, we'll have increases in A&P, a little above our total year guidance. So we get a very favorable return on it. We measure this.

It's really effective.

Alexia Howard -- AllianceBernstein -- Analyst

Great. And as a follow-up, acquisitions. I think in previous commentary, you'd said you were looking internationally and possibly at the flavor solutions side of things. Has that thinking changed as you think about the larger-scale deals that might be on your radar screen? Thank you.

And I'll pass it on.

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

I'd say that there hasn't been any -- there's no change in our thinking about acquisitions. If we were to do a bolt-on-sized acquisition that contributed to our international business to kind of balance out the skew that we've got toward the Americas right now, that would be a plus. Flavor solutions, we're certainly interested in assets in that flavor space. And there's -- so those -- that's -- those are certainly areas where we would be looking to fish.

And the same set of the larger assets that we have on our internal tracker, we're still out there in the market. There have been some large transactions in the space and they were not things that we were targeting.

Alexia Howard -- AllianceBernstein -- Analyst

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

Operator

Our next question is from the line of Faiza Alwy with Deutsche Bank. Please proceed with your questions.

Faiza Alwy -- Deutsche Bank -- Analyst

Hi. Good morning.

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

Good morning, Faiza.

Faiza Alwy -- Deutsche Bank -- Analyst

Morning. So two questions for me. One is just on -- is it possible for you to disaggregate, as you think about 2020 outlook, between the flavors business versus the consumer business? Are you expecting more growth in one segment versus the other?

Mike Smith -- Executive Vice President and Chief Financial Officer

We expect the guidance for both of them in the 2% to 4% range, which is pretty consistent with our strategy for the time. We feel there's opportunities [Inaudible].

Faiza Alwy -- Deutsche Bank -- Analyst

OK. And then just wanted to talk about cash flow a little bit, especially as it relates to the deployment of ERP, and what that would mean for the cash conversion cycle in 2020 and beyond. And then relatedly, if you could discuss your capital allocation priorities because you have delevered quite a bit. You're getting closer to your three times target.

But then you've talked about a new share repurchase program and you just talked about acquisitions. So how should we think about sort of your priorities for cash in 2020?

Mike Smith -- Executive Vice President and Chief Financial Officer

Those are great question. On cash conversion cycle, yeah, we've -- we're down 44 days since 2016. So we really put a lot of effort into our program across all components of working capital. We do see there's a lot of runway to go here with extending terms in other programs.

We do, however, also realize that some time this year, we're going to start building inventory, which will eat into some of those gains. But I think the opportunities overall still do outweigh some of that inventory build. I don't want to give a cash conversion cycle forecast, I don't want to get into that much detail, but we still do think there's some opportunities. And the nice thing is once we get these go-lives behind us, we do think there's a lot of benefits from a working capital perspective from being on one global system.

So that's part of the return that we're expecting from our ERP investment, quite frankly. From a capital allocation perspective, you're right, we're down to 3.4 times debt to EBITDA. We're going to continue paying down debt this year in the absence of M&A targets as we promised. We did -- we authorized a $600 million of buyback.

We were down to $32 million. What we're using that, as stock options get exercised, we're neutralizing the impact there. So we -- in the near term, we'll continue to do that. We don't see any large stock purchase or anything like that.

M&A is obviously where we -- paying down debt and attractive M&A targets to drive growth are our two best uses of cash.

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

And we've looked at some targets. So we're actively considering assets that has -- that come available. We don't want to -- we feel that we're -- we have clear line of sight to getting down to our target. We don't think that we actually have to literally get there.

So we're not going to let a great asset get away.

Faiza Alwy -- Deutsche Bank -- Analyst

Great. Thank you.

Operator

The next question is coming from the line of Robert Moskow with Credit Suisse. Please proceed with your questions.

Robert Moskow -- Credit Suisse -- Analyst

Hi, thank you. I might have missed it, but the reason for the increase in the cost of the ERP system was to have a broader estimate, I guess, for the go-live activity. But I think you did have an estimate before for the go-live activity. So what changed between now and a few months ago to have it expand that much?

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

The estimate that we gave previously were literally the program costs around the IT or program itself, and did not -- they did not include the broader business impact and preparation of the business, which we're now giving quantification of and guiding to and really building -- all of the costs associated with building and holding inventory and business preparation, it's about 50% of the increase in the opex component that we're talking about here. And our concern here is really to make sure that we have a smooth go-live without any disruption to our customers and to mitigate risk around these go-lives. It would be our hope that they go smoothly. And we've got a lot of experience in go-live with SAP, so we're not neophytes to this.

We did just go -- brought up the all of the RB Foods business on our old version of SAP very smoothly, and we would hope that this goes smoothly. But we don't want to just hope. We want to make sure that we're really doing the things that it takes to mitigate that risk. That's a portion of it.

And then also, we haven't given any kind of window into some of the other expenses, as we have the software as a service and -- that we start to realize and the depreciation cost, which I'm probably better off letting Mike talk about. So I'm going to stop on that point right now, let you take over on that. But -- and then the second piece is just -- is also, again, around mitigating risk, is strengthening the change management program. So we've taken that a lot deeper as we've looked at this.

We just have really been thoughtful about identifying areas where there might be -- a business might be at risk or if something doesn't go right, or where -- we're not taking for granted, people working in the plants, looking at new screens are going to get it quickly. So we've really doubled down on the change management program, the number of super users that are embedded in the business. And we've extended the deployment schedule just a little bit following the pilots to make sure that we've got time to adjust if we, if anything, does surprise us in the pilots. Which again, we don't have any reason to believe it will, but we're trying to be thoughtful and mitigate the risk as much as we can.

Mike, do you want to --

Mike Smith -- Executive Vice President and Chief Financial Officer

No, I think --

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

Go ahead, Rob. Go ahead.

Robert Moskow -- Credit Suisse -- Analyst

I guess -- OK. I guess, if you've given us a conservative estimate here, it's now in the organic kind of EBIT growth algorithm. So if there is improvement versus that cost, will you kind of give us an update and tell us to the extent to which it's kind of upside to your -- to any given year?

Mike Smith -- Executive Vice President and Chief Financial Officer

Obviously, we will, Rob. But we realize this is a multiyear program, though. But we will definitely be very transparent with this.

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

I'll just say, these programs are expensive. They are multiyear, they are major, broad, enterprisewide programs. And it's a lot of money, but we believe the price tag's in line with the experience that others have had when you consider the all-in cost.

Robert Moskow -- Credit Suisse -- Analyst

Right, OK. Thank you.

Operator

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

Adam Samuelson -- Goldman Sachs -- Analyst

Yeah, thanks. Good morning, everyone. I was hoping to just get a little bit more color on the inflation guidance that you've given for the mid-single digits and the ability on part to offset that with pricing. Just, a, where, just, categories of buy where you're seeing kind of inflation at or above those kinds of levels, like what's really driving it? And second, on the pricing side, I mean, would seem to imply about 100 basis points of pricing in the revenue growth guidance.

And just any specific categories or geographies where that might be an outsized benefit.

Mike Smith -- Executive Vice President and Chief Financial Officer

Yeah, Adam, this is Mike. From a cost perspective, we're seeing a pretty broad-based increase across a lot of items. I mean, some are declining, some like garlic are going up, but pretty much every category is seeing inflation higher than the last couple of years, whether it's packaging, the shipments from overseas or some new regulations there that are causing some increases. So I wouldn't pin it on one thing.

But from a pricing perspective, we've obviously built that into our plans.

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

Yeah. But I'd say it's -- I don't think we want to break out that pricing portion of the guidance separately. But the pricing we are planning, a, contributes to the confidence we have in our outlook for 2020, that's for sure. And I will say that when we do take pricing, we know there's some elasticity impact as well, so we're considering that as well.

But just because we're taking pricing doesn't mean it's literally additive to the results that we realize in the absence of pricing. You have to consider pricing and volume together. I'll also add that we've got -- there's always some commercial tension in the discussions about pricing. So I don't want to get overly specific about where we are.

I can say that in the Americas, we've really completed our pricing negotiations and have that resolved, and those pricing changes are going into effect as scheduled. In other parts of the world, that varies somewhat by market because -- sometimes because of statutory reasons. But we'd expect to have it all in place by the end of the first half.

Mike Smith -- Executive Vice President and Chief Financial Officer

So you'll see a ramp-up in pricing most likely during the year.

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

Our results.

Adam Samuelson -- Goldman Sachs -- Analyst

OK. That's helpful color. And then just quickly for me, a follow-up. If we would go back 12 months last year, in November, you had a challenging Thanksgiving in the U.S.

And just want to make sure that as we look at kind of the sales performance this quarter in the Americas, there was -- that returned back to normal. And mix was -- seems to be favorable, given the private label decline, but as it relates to some of the premium Thanksgiving ingredients that you sell, that all -- that there was nothing --

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

Yeah, we had a recovery of that business [Inaudible]. Our spices and seasonings business shipped -- as I mentioned, consumption was strong. We shipped well ahead of consumption as we lapped that dip on those branded items. And that's definitely a contributor to the strong gross margin in the quarter.

That's really where you see that through. And there's an offset, so it's less visible on the top line, as we said, that soft -- I would say the lower private label sales and some softness in Canada.

Adam Samuelson -- Goldman Sachs -- Analyst

OK, I appreciate the color. I'll pass it on. Thanks.

Operator

Our next question is 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

Hi, Chris.

Chris Growe -- Stifel Financial Corp. -- Analyst

Hi. I just wanted to kind of follow-on the last question, a point you made, just to be clear on the private label side. Is that -- so you talked about weakness in the category, or have you lost some private label business, perhaps even intentionally? Just to understand the magnitude of the decline in the fourth quarter. It seems like it was larger than I expected.

Is that because of just the category? Or --

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

Well, certainly, the category trends on private label are nowhere near what they were a year ago or two years ago. So you've seen that flatten out. But really, it's just -- I don't want to overbake it here. We had a -- third-quarter private label was unusually strong.

It was a little soft in the fourth quarter. And I'd say that this is just kind of normal ebb and flow in that business.

Chris Growe -- Stifel Financial Corp. -- Analyst

OK. And just a second question, if I could, around -- and you talked about it before. You have some cost inflation built in for the year, mid-single digits. You've got some pricing you've noted, and we don't really get into the timing and the amount of that.

I guess what I'm trying to understand is, when I add in the cost savings, I guess I'll call them CCI cost savings, $105 million. Why is that not sufficient then to offset the ERP spending? Is it because it has to offset some inflation? Or were those savings getting kind of eaten up to where they can't offset this incremental expense in ERP spending?

Mike Smith -- Executive Vice President and Chief Financial Officer

Chris, this is Mike. I mean, there's a $60 million incremental investment we're making this year that we wouldn't have in a normal year, so I wouldn't expect CCI to offset that. I mean, CCI, what it does is it drops through the P&L. It covers things like increased advertising as we make more investments on things, increased SG&A costs for salary.

There's things that -- and actually, if you look at our guidance for next year, we have about a 50-basis-point adjusted operating profit increase, which is our long-term algorithm. So I think the value is we can't expect, when you have a $60 million incremental item, to cover that. And frankly, we hit $119 million this year on CCI, we're guiding to $105 million. Some of these resources we use to drive CCI are really supporting the ERP program.

So we just want to be aware of that, too. We can't just turn on CCI and make it go up $60 million.

Chris Growe -- Stifel Financial Corp. -- Analyst

OK. Is the -- I guess we'll call it CCI program. Is there a multiyear program behind this? Or is it just a year at a time from here on out as you think about your cost-saving opportunity?

Mike Smith -- Executive Vice President and Chief Financial Officer

Yeah, when we did -- four years ago, when we start -- did the four-year program, and that was kind of a different time in the food industry, and we wanted to really show how our -- how we were different from a cost perspective and really planful and thoughtful about this and not doing ZBB and all that sort of stuff. At this point, it's a year-by-year process, but it has a -- there's a long-term plan to it.

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

[Inaudible]

Mike Smith -- Executive Vice President and Chief Financial Officer

There's a program, there's things like ERP, that will generate savings in '22, '23 that are built into our internal -- we have an internal program but we don't talk about that externally. We'll give you the yearly buckets as we get to guidance.

Chris Growe -- Stifel Financial Corp. -- Analyst

OK. Got it, thank you.

Operator

Our next question is from the line of Peter Galbo with Bank of America. Please proceed with your questions.

Peter Galbo -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, Lawrence and Mike. And thanks for taking the question. Just two really quick cleanup ones for me. Mike, I know you had said capex for 2020 to be up over '19.

I don't know if there's any way just to quantify that more. And then any -- go ahead.

Mike Smith -- Executive Vice President and Chief Financial Officer

Yeah, in the 10-K, it's $265 million. That's a round number.

Peter Galbo -- Bank of America Merrill Lynch -- Analyst

$265 million. OK, got it. And then anything you can do to help us out just with interest expense? I would expect it to be lower year over year.

Mike Smith -- Executive Vice President and Chief Financial Officer

Yeah, I think it will be lower. We have a nice decline this year. I think you model it based on our outstanding debt and continued cash conversion, I mean, you can -- it will be down, definitely.

Peter Galbo -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks.

Operator

Our final question is coming from the line of Rob Dickerson with Jefferies. Please proceed with your questions.

Rob Dickerson -- Jefferies -- Analyst

Great. Thank you very much. A couple of questions. I guess, just the first question, just to clarify on the transformation expenses over the next three years.

It sounds like what you're saying is, yeah, there's the ramp this fiscal year. And then just based off the math, it's probably like a similar expense in '21 and '22 as well, if we just cut it in half, what's remaining. But that might ramp down a little bit as we go through time, and then it's the benefits that offset. Because I guess where I just -- where there's a little confusion on my end was, if we have the numbers and we know what you're saying for this fiscal year, then why wouldn't we just take the remaining and just divide it by the next two fiscal years and say, oh, it's just kind of a standardized $60 million run rate per year.

It sounds like what you're saying is, oh, no. There are going to be all these benefits to offset that kind of run rate cost.

Mike Smith -- Executive Vice President and Chief Financial Officer

I think we'll start getting benefits in 2022. So you got to compartmentalize 2020 and 2021. It's a significant investment, increased expenses, around the same level of impact on the P&L between 2020 and 2021. And then 2022, there's lesser go-lives and then the benefits kick in, so you get a nice tailwind in 2022 and 2023, right?

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

So it's just like a $60 million run rate? That's -- I don't -- I'm not sure I'm following you on that one, Rob. I mean --

Rob Dickerson -- Jefferies -- Analyst

Sorry, it was just -- I just took the midpoint of the $300 million to $350 million, which is $325 million, and --

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

It's not an ongoing cost, right?

Rob Dickerson -- Jefferies -- Analyst

Right. OK.

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

It's like the proverbial pig in the python.

Rob Dickerson -- Jefferies -- Analyst

Yeah, OK. Fair, completely fair. And then the other question I had was just on private label profitability. Yeah, I think you said there was -- just given a little bit of a mix shift, branded-private label, in the quarter maybe early this year.

But some of that is -- can be margin-mix positive. But I swear I've heard you say, historically, at times, it might depend on what private label that is because a lot of your private label, it seems like overall is usually margin-mix neutral, it's more of a penny profit piece. So just any clarification as to basically, like, on average, is private label usually a little bit lower margin for you or not?

Mike Smith -- Executive Vice President and Chief Financial Officer

I mean, I think overall, I mean, you got to understand, with private label, we're pretty much focusing on large customers where we get the plant optimization, manufacturing optimizations and distribution optimization. And it's because we do this whole service for the customer. And from a total margin perspective, the other thing compared to brand, you don't have things like innovation, marketing, things like that below there. It's still not -- we'd much rather sell brand.

I mean, that is --

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

And from a gross margin standpoint, there's no doubt that private label is lower. I don't want there to be any misunderstanding about that. Was there like a return on investment, it's surprisingly close to brand because of these other expenses and it utilizes existing capacities and so on. But it is -- but private label certainly is lower gross margin.

Rob Dickerson -- Jefferies -- Analyst

OK. Makes complete sense. And then just lastly, in terms of the 2% to 4% on the top line, I know you said you don't really want to break out pricing relative to volumes, but in the prepared -- or in the press release, sort of you do say that you still expect to grow sales via increased distribution and brand marketing, etc. So I mean, just to be clear, you do expect volumes overall to still be up.

It's kind of basic, but that's it.

Mike Smith -- Executive Vice President and Chief Financial Officer

We're nodding our heads, but you can't see. But yeah, we certainly do. I mean, we've got a lot of reasons to believe in our growth plans for 2020. Certainly, there's -- pricing is an element of it.

But we have confidence that we're going to be able to continue to drive our undisputed leadership in spices and seasonings. We see continued growth opportunities in condiment and in global flavor and particularly in those areas where we have -- where we've got scale. Notwithstanding the issue in China, which we hope is short term, we think that emerging markets and channels and platforms are our continued growth opportunity. And with all of our programs and especially with all of the digital, e-commerce and social media outreach that we do, we're strengthening our consumer connection.

So we feel -- I mean, we have a lot of reasons to believe that our growth plans for 2020 are solid.

Rob Dickerson -- Jefferies -- Analyst

OK. Super. Thank you.

Operator

Thank you. I'll now turn the call over to Lawrence Kurzius for closing remarks.

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

Thanks, everyone, for your questions and for participating on today's call. McCormick is a global leader in flavor, and we're differentiated with a broad and advantaged portfolio which continues to drive growth. We have a growing and profitable business, and we operate in an environment that is changing at an ever-faster pace. We're responding readily to changes in the industry with new ideas, innovation and purpose.

With a relentless focus on growth, performance and people, we continue to perform strong globally and build long-term shareholder value. I'm proud, of our 2019 financial performance while doing what's right for people, our communities and the planet, as well as our positive momentum heading into 2020. I'm confident in delivering our 2020 outlook, another year of strong underlying business performance while making significant investment in business transformation to fuel our growth and build both the McCormick of the future and shareholder value. Thank you.

Kasey Jenkins

Thank you, Lawrence, and thanks to all for joining today's call. If you have any further questions regarding today's information, please feel free to contact me. This concludes this morning's call. Have a good day.

Duration: 78 minutes

Call participants:

Kasey Jenkins

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

Mike Smith -- Executive Vice President and Chief Financial Officer

Andrew Lazar -- Barclays Capital -- Analyst

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

Steven Strycula -- UBS --Analyst

Alexia Howard -- AllianceBernstein -- Analyst

Faiza Alwy -- Deutsche Bank -- Analyst

Robert Moskow -- Credit Suisse -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Chris Growe -- Stifel Financial Corp. -- Analyst

Peter Galbo -- Bank of America Merrill Lynch -- Analyst

Rob Dickerson -- Jefferies -- Analyst

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