Good morning. This is Joyce Brooks, Vice President of Investor Relations. Thank you for joining today's call for a discussion of McCormick's Q4 fiscal year 2015 financial results and our outlook for 2016. To accompany our call, we posted a set of slides at ir.mccormick.com. At this time, all participants are in a listen only mode.
Following our remarks, we will begin a question and answer session. With me this morning are Alan Wilson, Chairman and CEO Lawrence Kurzius, President and Chief Operating Officer Gordon Stetsz, Executive Vice President and CFO and Mike Smith, Senior Vice President, Corporate Finance. During our remarks, we will refer to non GAAP financial measures. These include adjusted operating income and adjusted earnings per share that exclude the impact of special charges as well as information in constant currency. Reconciliations to the GAAP results are included in this morning's press release and slides.
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 as a result 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 Alan.
Thank you, Joyce. Good morning, everyone, and thanks for joining us. As many of you know, we announced back in early December that effective February 1, I'll be transitioning to the role of Executive Chairman and Lawrence will be promoted to President and CEO. This is the next step in a well planned succession that we, together with our Board, take a lot of pride in at McCormick. I'm pleased to be transitioning from my role as CEO at this time.
One of my conditions in stepping down was to have the company in great shape with strong financial performance and forward momentum. With our 2015 results and accomplishments and a bullish outlook for 2016, I'm very excited about our prospects. Our success is being driven by a clear strategy for growth, a great board dedication, efforts achievements. On a personal note, I've enjoyed my many interactions with investors and analysts during my time as CEO at conferences and 1 on 1 meetings and other events. While the main focus of these discussions was your questions about McCormick, I've gotten just as much out of our time together, receiving feedback and gaining industry insights that help to shape our strategy and message.
I want to let you know how much I've appreciated your support and perspective. As I turn it over to Lawrence, I want to assure you that I'm confident in his knowledge, experience and ability to lead McCormick into the next period of growth as we continue to build shareholder value. Lawrence?
Thank you, Alan, for those remarks and for your confidence. On behalf of McCormick's shareholders and employees, I want to recognize Alan for his outstanding leadership as CEO of this great company. During your time as CEO, we've grown sales by $1,000,000,000 to $4,300,000,000 completed 11 acquisitions and expanded our geographic presence, taking our percentage of sales in emerging markets 17% from 7%. Since 2,007, we have doubled our brand marketing expense, invested in R and D and consumer analytics and created fuel for growth with nearly $450,000,000 in cost savings led by your comprehensive continuous improvement program that you and Gordon established. Cash flow from operations is now nearly $600,000,000 up from $225,000,000 in 2,000 and 7.
The stock price has more than doubled and our quarterly dividend is now $0.43 per share, up from $0.20 per share. This is an enviable track record. Congratulations and we look forward to your continued participation as Executive Chairman. In other leadership news, effective January 1, Malcolm Swift was named President, Global Industrial Segment and McCormick International adding responsibility for China to his role. Brendan Foley assumed responsibility for the strategic leadership of our consumer business for me and was named President Global Consumer Segment in North America.
In these roles reporting to me, Brendan and Malcolm will set the strategic and operational goals for our consumer and industrial businesses respectively, as well as assess performance of the segment leaders in each geographic region against these goals. In addition, Brendan will have In addition, Brendan will have geographic responsibility for our North American markets and
Malcolm
results for this quarter demonstrated that consumer demand for flavor is strong and on the rise and that McCormick has the strategies and the team to drive growth. We had great performance across both segments and we're particularly pleased with the progress in our U. S. Consumer business. The actions we have underway in 2014 2015 have led to improved results and we have good momentum heading into 2016.
For the total company, we reported 2% sales growth. In constant currency, we grew sales 8% with higher volume and product mix in our base business contributing half of this increase. We grew consumer segment sales 6% in constant currency with about half of the increase from our base business and half from our acquisitions of Drogaria and Alimentari and Stubbs. In the Americas, the constant currency sales increase was 3% with subs adding about a third of this growth. We were pleased with our results in this period and the further improvement in our U.
S. Business. In this market, year on year category growth for spices and seasonings remained robust at 5% in the quarter. At 4%, retail takeaway for the McCormick brand was close to the category increase. As seen on Slide 7, we have achieved a sequential increase from 2% growth in the 3rd quarter and 1% in the 2nd quarter.
We had a number of initiatives driving this performance. We launched our digital purity campaign this quarter with the message pure tastes better to emphasize to consumers the quality of our products and we continue to help consumers prepare flavorful healthy meals at www.occormick.com, which is now one of the top 50 most visited food and lifestyle sites. Across all of our U. S. Websites, we attracted a record 32,000,000 visitors in 2015, up 19% from 2014.
Within the spice and seasoning category is our premium gourmet line. Our 2015 re launch of this line has been a real success. Since the rollout of the packaging innovation and new varieties, retail sales are up 5%. And armed with greater category analytics and insights, we had workshop discussions with our top customers on ways to optimize product assortment, pricing and promotion for the spice and seasoning category. For customers that have already taken action based on these discussions, we grew our category share 60 basis points on average during Q4.
At some of these customers, category unit volume was up more than 5%. These are great results for our spice and seasoning business. Our investment in brand equity building, strong innovation and this customer interaction with more robust tools is the way forward for As we move into 2016, this work transitions from being a turnaround effort to our everyday approach in building value for customers and for McCormick. As for our next largest U. S.
Category, recipe mixes, November 20 15 capped off 26 consecutive months of share gains in this category. We are driving these gains with brand equity building and product innovation like gluten free items, skillet sauces and slow cooker sauces. Through these efforts, our branded sales accounted for more than 100% of the category growth in both 20142015. Our consumer business team in Europe, Middle East and Africa, EMEA, continues to post impressive results led by new distribution in Poland. France also contributed to this increase with higher advertising, including new product support.
In 2015, we launched a distinctive line of origin specific DUKORO brand black pepper that was just named New Product of the Year by the French Product Society. In constant currency, we grew sales in China 5% in the 4th quarter with some impact from distributors that held back on purchases in anticipation of Chinese New Year promotions in the Q1 of 2016. For the fiscal year, we grew China consumer sales 12% in constant currency. With nearly 2 months complete, our China consumer business is off to a strong start. And for the fiscal year, we expect to achieve constant currency sales growth in the high single digit to low double digit range.
We see opportunities for further growth of our consumer business in China, especially with the cross selling of McCormick brand and WAPC brand products. While we are certainly cautious given the current economic environment, keep in mind that our products are a staple in Chinese cooking and McCormick has a good penetration in traditional markets and other channels with modern trade accounting for about 20% of consumer sales in this market. Turning to the Industrial segment. Our sales growth was particularly strong in the Q4 from the year ago period, up 11% in constant currency. This increase was broad based with double digit growth in each of our 3 regions.
While the addition of brand aromatics contributed to this increase, we had exceptional growth in our base business with sales up 9%. Leading our industrial performance again this quarter with constant currency sales up 14% was our team in the EMEA. In this region, the greatest growth is with quick service restaurants through product expansion, distribution gains and their geographic expansion. In the Americas region, a double digit constant currency sales increase included 7% added by our base business. In the U.
S, our branded foodservice business had a good quarter and sales to quick service restaurants showed some improvement from prior periods. It's nearly 1 year since we acquired and we're pleased with the early results from this business. Mexico also contributed to the increase in this region with higher sales of snack seasonings. In Australia, we grew sales of new industrial products that are shipped from this region mainly to quick service restaurants in the region. In China, we have seen a turnaround from the year ago period for our industrial segment, but are also monitoring the macroeconomic impact on this part of our business heading into 2016.
In the Q4 of 2015, we had a strong finish to the year with constant currency sales up at a double digit rate, including some wins for limited time menu items to our quick service restaurant customers. Across both segments, we expected strong 4th quarter sales growth and our teams around the world delivered. 4th quarter profit results were generally in line with our outlook for the quarter. On a constant currency basis, we grew adjusted operating income 10%, and on a reported basis, operating income margin rose 70 basis points. The margin increase was led by the performance in our Industrial segment, which reached adjusted operating income margin of 11% this quarter, up 3 50 basis points from the year ago period.
We're making great progress from our work to shift the portfolio to more value added products largely through innovation and from the addition of brand aromatics. Also driving margin improvement are our cost savings efforts and the benefits of greater scale in our operations with higher production volume. Consumer segment adjusted operating income margin declined slightly from the Q4 of 2014. We increased brand marketing for this segment 11% this period to build momentum heading into 2016. This rate of increase was well ahead of our 1% reported sales growth for the segment and more than accounted for the lower margin with a 90 basis point impact.
This segment also benefited from our progress with cost savings. As you saw in this morning's press release and as we guided, adjusted earnings per share was up just slightly from the Q4 of 2014 due in part to unfavorable currency rates and a benefit in the year ago period from favorable discrete tax items. Overall, we're pleased with these 4th quarter results and a strong finish to the year. I'd like to comment next on fiscal year 2015 in total, starting with our top line increase of 6% in constant currency. In our consumer segment, we achieved a turnaround in our base sales in the U.
S. And strong performance in international markets. Industrial sales ended the year up 7% in constant currency and excluding acquisitions. In addition, we completed 3 great bolt on acquisitions that contributed about 1% to higher sales. China became our number 2 market with robust sales growth of 11% in constant currency.
New products launched in the last 3 years comprised 8% of sales this year. As in past years, this contribution from new products supports our long term sales growth algorithm, which has 1 third of our top line growth coming from innovation. Health and wellness continues to drive our innovation agenda. Addition to developing winning flavors for our industrial customers, globally approximately 40% of new product briefs also had some type of wellness attribute. In mid-twenty 15, the USDA first recommended spices and herbs as a way to reduce sodium in the diet and recommendations to school nutritionists and to adults over 65.
And in early January, this recommendation made its way into the new 20 fifteen-twenty 20 dietary guidelines for Americans. This is consistent with the university research study sponsored by the McCormick Science Institute and great news for McCormick. We delivered record cost savings of $98,000,000 in 2015, up 42% from 2014. While this provided an important offset to higher material costs, we also increased our investment in brand marketing with a 6% increase. Digital marketing is one of our highest return investments in brand marketing.
And in 2015, we continued our shift of marketing spend in this direction, reaching approximately 40% of our advertising spend, up from 10% in 2010. We've established a leadership position in digital and e commerce and this was recently recognized by Amazon, which named McCormick's Supplier of the Year for grocery and by L2 with the number 5 ranking of McCormick brand in its Digital IQ Index, number 5 out of 114 U. S. Food brands. While adjusted earnings per share of $3.48 was a 3% increase from $3.37 in 2014, had an estimated 5% impact from unfavorable currency rates.
We also overcame significant profit pressure this year from mid single digit material inflation and higher retirement expense. The profit performance for our industrial segment was particularly impressive. In constant currency, adjusted operating income was up 24% due to 8% higher sales, cost savings and a shift toward more value including our brand Aromatics acquisition. Adjusted operating income margin ended the year at 9.5%, up from 8.3% in 2014. Our joint ventures achieved great results led by another year of strong performance from McCormick to Mexico.
Sales in local currency for this business rose 11% in 2015. In total, income from unconsolidated operations rose 25% and accounted for 9% of our net income this year. Cash flow from operations was also a record, reaching $590,000,000 a significant increase from the prior high of $504,000,000 in 2014 and driven mainly by working capital improvements. We had good balance on our uses of cash between investments in capital expenditures, acquisitions, share repurchases and dividends. In November, McCormick's Board approved our 30th consecutive annual increase in the quarterly dividend.
Heading into 2016, we have strong momentum, effective growth initiatives and a lot of excitement. I'll share our plans and outlook and Gordon will go into more in-depth in our financial guidance. We continue to see strong alignment between our business and today's consumers that are seeking bolder flavors, exploring ethnic cuisine, buying more fresh ingredients, focused on wellness and looking for convenience. Global category growth for our largest category, spices and seasonings, which accounts for about half of our consumer business sales, remained robust at 7% in 20 15 and Euromonitor projects annual sales growth of 5% globally through 2020. As the largest player in this category in our major markets McCormick is on the leading edge of these trends with our flavor forecast, our product innovation and our actions to renovate our core business, such as the 2016 rollout of non GMO labeling for 70% of our U.
S. Spices, seasonings and extracts and our transition to 80% organic products within our gourmet line. We expect another year of 4% to 6% constant currency sales growth with increases in our base business, incremental sales from new products and a carryover benefit from acquisitions completed in 2015. Our base business will be driven by the category growth of our consumer segment and increased demand for many of the products we flavor for our industrial customers such as snacks and beverages. We continue to support the regional expansion of these customers as well.
As an example, a new facility in Dubai will open later this year to establish a local source of supply in the Middle East. For our consumer segment, we're planning a further increase in brand marketing, approximately $20,000,000 in support of our business in EMEA, our purity message in the U. S. And globally our digital programs. Our brand marketing will also build awareness and trial of new products.
Early in 2016, we began the national U. S. Rollout of the herb grinders we discussed on our October call. We're getting great retail acceptance. Other product introductions in the first half of the year include new GrillMate items, including seasoning blends, marinade recipe mixes and a new line of liquid 30 minute marinades.
Playing off of our flavor forecast, launching 4 new gourmet healthy blends such as citrus, chili, chia. In fact, in 2016, we have a total of 56 new products globally that tie in with the flavor forecast trends that we've identified. And in addition to new Zatarain seasoned rice mix varieties, we're launching convenient portable rice cups. In international markets, we're rolling out Thai chili sauce in our squeezable pouch in China, new recipe mix varieties across Europe, great new baking decorations for our Wahgnay brand in France and in Canada, consumers will be seeing herb grinders and liquid LaGrill brand sauces on retail shelves. We're equally encouraged by a solid pipeline of innovation for our industrial business, much of it in support of large multinational customers.
We're also making inroads through new product wins with some rapidly expanding restaurant chains. Going back to the factors affecting 2016 sales growth, I want to also comment on pricing. In 2015, pricing added about 1% to sales. Together with our cost savings, this helped offset a mid single digit increase in material costs. In 20 16, we project low single digit material cost inflation and plan on pricing to be a primary offset at a 1% to 2% rate, but the rate varying by operating unit.
For example, in our consumer business in Canada, we executed a high single digit price percent high single digit percentage increase in October to recover both material cost increases and an unfavorable currency impact. In the U. S. Consumer business, we recently announced a 2016 price increase. We leveraged our category management tools with a more data driven approach to the buy item increases.
Across this business, the average sales impact is a low single digit percentage increase and we expect minimal volume impact. Across all of our operations around the world, we believe we have the right actions underway in 2016, innovation, brand building, pricing with the right tools and the right team to drive sales growth. Employees throughout McCormick are also working to improve productivity, our fuel for We have targeted another year of significant cost savings in 2016 with a goal to achieve at least $95,000,000 Work is well underway to deliver this amount, which we expect to lead to higher gross profit margin and higher operating income margin for the year. However, we operate in what is a still challenging environment for many of our customers, food retailers in our consumer business and for our industrial business, packaged food and beverage companies as well as restaurants. Also, we expect some further profit pressure from currency and as I indicated, material cost inflation.
Excluding the unfavorable impact of currency at the bottom line, we project a 9% to 11% increase in adjusted earnings per share from $3.48 in 20.15. Gordon will provide more details on our outlook. But before I turn it over to him, let me summarize. Our 2015 results, including the improvements in our U. S.
Consumer business, demonstrates the alignment of our business with today's consumer and the effectiveness of our strategies. We are excited about our plans and potential for even greater growth in 2016 with new products, incremental marketing, distribution expansion opportunities and tools for a better retail partnership. Our acquisition pipeline is strong and we have aggressive cost savings programs underway and a culture of participation and high performance. McCormick's focus on growth, performance and people is driving success. It's now my pleasure to turn it over
to Gordon. Gordon? Thanks, Lawrence, and good morning, everyone. I want to take a moment with McCormick's analysts and investors on the call to also recognize Alan for his strong leadership, his friendship and his accomplishments as CEO. It's been an honor and a privilege to be CFO during his tenure and to partner with Alan and the entire executive team, steering our strategy and organization and delivering high performance.
And Lawrence, I'm looking forward to working with you when you step into this role on February 1, and that's this Monday in case you needed a reminder. Lawrence shared some initial remarks on our Q4 results, and we provided some financial details in this morning's press release and our accompanying slides. Given this background, I'll move through my remarks on the quarter quickly, make a few additional points and then finish with the details of our 2016 outlook. On a constant currency basis, the underlying growth in sales was a step up from what we have seen year to date with an 8% increase that included 3% added by acquisitions. We had a full impact this quarter from Brand Aromatics, and Dragoria and Alimentari and from Stubs, which was completed toward the end of the quarter.
Slide 16 shows that the base business growth for both the consumer and industrial segments was driven mainly by volume, the result of our product innovation, increased brand marketing, expanded distribution and regional presence and other business building work with our customers. In the Consumer segment, we had 3% constant currency sales growth in the Americas with about a third of the increase from stubs. Base business sales growth in this region was led by higher U. S. Sales of spices and seasonings, including Grill Mates and our Lowery's brand as well as gourmet items and Hispanic products.
We had good retail sell through, as Lawrence described, and are encouraged with the trajectory of sales as we head into 20 16. In EMEA, we continue to achieve strong sales performance, up 18% in constant currency. This increase was driven by D and A, which added 11% to sales growth, expanded distribution in Poland and our performance in France with new products and brand marketing. In constant currency, we grew consumer segment sales in China 5% as Lawrence described, and Australia had a high single digit sales increase from new distribution and new products in that market. We indicated last quarter that we were exiting some lower margin product lines in our Cooey Noor portfolio in India.
In total, the constant currency sales decline in Cuyi Noor sales lowered our consumer business growth rate in the Asia Pacific region by 3 percentage points, more than accounting for the volume decline shown on Slide 19. For the Consumer segment in total, our 4th quarter adjusted operating income was down 2% from the year ago period. In constant currency, adjusted operating income rose 1% from the year ago period with the impact of sales growth and cost savings more than offsetting the unfavorable impact of material costs and benefit expense. Turning to our Industrial segment. We had excellent results this quarter in both sales and profit, even with unfavorable currency rates.
And as Lawrence indicated, this business reached an 11% adjusted operating income margin as the result of our CCI program, scale from higher sales and shift to more value added products, including the addition of brand aromatics. On Slide 22, sales of brand aromatics contributed 4% to our growth in the Americas. Higher base business volume and product mix this quarter versus the year ago period was led by U. S. Sales of branded foodservice products as well as customized flavor solutions.
Mexico also contributed to the increase with sales of seasonings largely for snack products. Our industrial business in EMEA capped off an impressive year with constant currency sales up 14% in the 4th quarter. We are a trusted and valued supplier, supporting the growth and geographic expansion of leading quick service restaurants and food manufacturers in this region. We grew Industrial segment sales in the Asia Pacific region 11% in constant currency. In China, we are benefiting from further recovery in demand from quick service restaurants.
And in Australia, our growth includes new product wins with these customers. Adjusted operating income for the Industrial segment rose 52% from the Q4 of 20 14. In constant currency, the growth was even greater at 62% with the factors I already mentioned as spelled out on Slide 25. Across both segments, adjusted operating income, which excludes special charges, rose 6%. If we also exclude the impact of unfavorable currency, we grew adjusted operating income by 10%.
In the turnaround from the 3 previous quarters, gross profit margin was up year on year in the 4th quarter with a 30 basis point increase. As we moved into the Q4, we had the full benefit of our cost savings and pricing actions along with the benefit of higher sales and higher throughput in our plants. These factors were offset in part by the significant sales increase this period by our Industrial segment, which has a lower gross profit margin than our Consumer segment. As a percentage of net sales, our selling, general and administrative expense was down 40 basis points as a result of our cost savings activity and leverage with higher sales. This includes a 13% 4th quarter increase in brand marketing from the year ago period.
Below the operating income line, the tax rate this quarter was 29.9%, a bit above our 29% guidance and a significant increase from 25.9% in the Q4 of 2014 when we had the benefit of discrete tax items. For the 2015 fiscal year, our tax rate was impacted by several favorable discrete items and ended the year at 26.5%. As we head into 2016, we anticipate a tax rate of approximately 28%. Despite an unfavorable currency impact for our joint venture in Mexico, income from unconsolidated operations rose slightly this quarter. However, underlying growth remained line, Q4 2015 adjusted earnings per share was $1.18 up $0.02 from the year ago period, mainly due to higher adjusted operating income, partly offset by the higher tax rate.
This result included an unfavorable impact from currency on both consolidated and unconsolidated income. Turning next to Slide 30. We've summarized highlights for cash flow and the quarter end balance sheet. As Lawrence shared, our year to date cash flow from operations was a record $590,000,000 compared to $504,000,000 in the year ago period, mainly due to working capital improvements. In 2015, we returned $351,000,000 of cash to shareholders through dividends and share repurchases.
While dividend payments were up 6%, share repurchases were down from 2014 because of our acquisition activity. Our share repurchases in 2015 contributed to a 1.4% reduction in diluted shares, and we have $567,000,000 remaining on our current $600,000,000 authorization. During the Q4, we completed a previous $400,000,000 share repurchase program authorized in April of 2013. In the absence of any acquisitions in 2016, we expect to lower our share count by approximately 2%. During the quarter, we were pleased to complete the issuance of $250,000,000 of 10 year notes at a 3.25% rate in anticipation of long term debt that was maturing.
At year end, our debt to adjusted EBITDA was slightly above our target range of 1.5 to 1.8 following the financing of our 3 acquisitions completed in 2015. Our balance sheet remains sound. We are generating strong cash flow, and we are well positioned to fund future investments to drive growth. Building on Laurence's remarks, I'll wrap up with our outlook for continued momentum in sales and profit growth in fiscal year 2016. We anticipate increases in sales, adjusted operating income and adjusted earnings per share that are at or above our long term objectives, excluding the impact of currency exchange rates.
Our current projections are based on prevailing rates. And given the level of currency volatility in the market, we will be updating this outlook for you each quarter. We expect to grow sales 4% to 6% in constant currency. This includes a carryover benefit of 1% to 2% from acquisitions completed in 2015 and higher pricing at 1% to 2%. Based on prevailing rates, we estimate an unfavorable impact from currency of about 4 percentage points, which will lower this range to 0% to 2% on a reported basis.
Excluding the impact of currency, our projected increase in adjusted operating income is 9% to 11% from adjusted operating income of $614,000,000 in 20.15. Currency is expected to lower this range by about 4 percentage points to 5% to 7%. We expect to drive this increase from higher sales and at least $95,000,000 in cost savings, savings that include our CCI program and some carryover benefit from previously announced organization and streamlining actions. Our guidance also includes plans for an increase in brand marketing of at least $20,000,000 and our projection for low single digit material cost inflation that we should more than offset with our pricing actions and cost reductions. Our guidance for adjusted earnings per share is $3.65 to $3.72 Excluding the estimated 4 percentage point impact of unfavorable currency rates, this is an increase of 9% to 11% from adjusted earnings per share of $3.48 in 2015.
This growth rate is in line with our long term objective. Some of the other puts and takes behind this projected growth rate are the favorable impacts of higher operating income and further reduction of shares outstanding in the absence of acquisition activity. Expected offsets include the unfavorable currency impact as well as a higher tax rate. Due to the unfavorable impact of currency rates and material cost inflation for our joint venture in Mexico, our 2016 income from unconsolidated operations is likely to impact on our earnings per share. First, we anticipate an impact from currency in the Q1 that could be above the annual estimate since we will not have yet lapped the larger increases in 2015.
2nd, we have plans to kick off 2016 with an up spend in brand marketing to support our core business as well as new product launches. In addition, we expect a higher year on year tax rate. Recall that in the first quarter of 2015, the tax rate was 24.8% as the result of discrete tax items. As a result, EPS in the Q1 of 2016 is expected to be down slightly from $0.70 of adjusted EPS in the first quarter of 2015. For the fiscal year 2016, we expect another year of strong cash flow.
This will provide funding for share repurchases and the quarterly dividend increase from $0.40 to $0.43 approved by the Board in November. We also have plans for an increased level of capital expenditures in 2016 of $150,000,000 to $160,000,000 This is up slightly from our normal run rate of 3% of sales and includes a larger manufacturing plant in Shanghai, where we have out grown our current facility. That completes my remarks on our 2016 outlook. So let's open the line for questions.
Thank you. We will now be conducting a question and answer Our first question is from the line of Alexia Howard with Bernstein.
Question. Good morning, everyone. Good morning.
Good morning, Alexia.
Hello there. So can I ask on the U? S. Consumer business, those smaller brands that have those smaller brands that have been plaguing you for the last 18 months or so are kind of now, I guess, stabilizing or actually going back? I just want to hear about how things are going on a category management front.
Thank you.
Right. Thank you, Alexia. We think we're making great progress with the improvement actions that we started in the early part 2014 to build brand equity, accelerate innovation and to win at retail. We really think that we've gotten a good handle on this. We have worked with our leading customers with our new tools on both category management, assortment management and pricing management.
And we think that we've made a great deal of progress and really have some positive momentum building in this part of our business. And many of the sub components of the individual customers were gaining share as well. So we think we've turned the corner on the problem and are in a position to build from a base of strength that's been established by some of the heavy lifting done over the last 2 years.
Great. And then as a quick follow-up, it looked as though you had very good price net price realization on your U. S. Consumer business this time. I'm assuming that was a positive mix shift with less pressure from the Walmart 5th season brand this time around.
And yet the profits were only up modestly and gross margin didn't move too much. Were there other offsets in there that put pressure on the performance this time around? Thank you, and I'll pass it on.
Yes. I mean, there was no pricing again in the U. S. Business that we took this year. So part of it was mix, part of it was some of the noise in the data associated with some of the actions we took with the size of our the weighting of some of our products.
But generally, we're in a position, as Laurence said, to be able to execute pricing in that business, as we've mentioned in our conference call. We had some acquisition related costs in the U. S. Consumer side of things as it related to stubs. So some of the profit realization was impacted by that.
And in total, the gross margin improved. We are continuing to spend up against our brand. You saw the increase in brand marketing of $9,000,000 in the quarter. That's pretty substantial. So we think that's important as well to build the business for the future.
So that also was impactful on the quarter in terms of profit realization.
Great. Thank you very much and congratulations on the CEO transition. Looking forward to working with you and great working with you in the past, Alan.
Thank you. Thank you.
Our next question is from the line of Robert Moskow with Credit Suisse. Please go ahead with your question.
Hi, thank you.
It's really good to see the progress in North America. But you did say that you're going to initiate some pricing for 2016. I think you said very low single digit across. Can you give us a little more color on what parts of the business grocers, I think, are worried more about deflation and investors are worried about it too. You seem to still have inflation in your system.
How will these pricing actions be in relation to competition? And then also private label, do you expect your competition in private label to also increase by the same amount. Are they experiencing the same kind of inflation on packaging and materials that you're experiencing? Thanks.
Right. Sure, Rob. First of all, we have not taken any pricing action in the U. S. For the last 2 years while we address the some of the fundamental challenges in that part of our business.
But as we have worked with the price elasticity tools and have been able to model the category more robustly, We've identified many areas where there are opportunities for us to adjust our pricing. The price increase that we plan in our U. S. Business has really been worked through quite a granular level on an item by basis. Some items are moving down as well as some items moving up, but the net increase will be in the 1% to 2% range.
This has already been taken to our customers. So this is out in the field right now, and we've gotten really no meaningful pushback on it at all. Our basket of commodities is different than the basket of commodities than most of our peer companies and there's good cost justification for the increase that we're taking. It's really not around packaging. Packaging is actually kind of in a bit of a deflationary mode.
It's more around some of our more iconic raw materials. And we believe that the cost pressures around those iconic raw materials, if anything, we're better positioned than our direct competitors on those items due to our global sourcing capability. So they our competitors would be feeling that same pressure as well.
That's helpful.
Rob, this is
Mike Smith. We have seen our competitors take pricing already in some cases and we do think private label will move also.
Very helpful. Thank you, guys.
Thank you. Our next question is from the line of Akshay Jagdale with Jefferies. Please go ahead with your question.
Good morning and congratulations again, Alan, on the career and Lawrence, congrats on your appointment. Looking forward to it. So first question is just a follow-up on commodities. Can you specifically talk a little bit about pepper and what your expectation is overall commodity outlook as far as pepper goes?
Akshay, it's Mike Smith again. As you know, the price of pepper has risen over the past 5 years from about $1 a pound to $5 a pound spot. But we've seen a lot more plantings the last couple of years and we see a stabilization in the price of pepper as we continue to work with farmers globally to increase acreage and increase yield. So those assumptions are built into our low single digit commodity price increase this year. So we think we've seen the peak.
Hopefully longer term, it's a downward trend.
Perfect. And then just on North America, you mentioned share gains in the customer accounts where they've implemented most of the changes you've suggested. What percentage of your sales do those customers account for roughly? And can you just help us understand sort of the dialogue that the pushback perhaps that you're getting there and maybe what your argument is when you do get that pushback. I mean, one of the arguments that we've heard is just generally there's more fragmentation of share across many categories and that's perhaps driven by consumers wanting more choice and more sort of smaller authentic brands.
But we'd love to know sort of what your category management analysis is telling you. And then if you could give us some sense of the customers that you are seeing success, how much of their portfolio of your portfolio they represent? That would be great. Thank you.
Sure, Akshay. I don't want to speak too specifically about any one customer. I will say that the basket of customers that we have approached now is roughly 50% of our account for roughly 50% of our volume. In the set of the recommendations that we make to those customers are quite extensive. As a group, some of there's quite a span of adoption.
So some of those customers have literally taken on our full recommendation, whereas
This is going to be an ongoing process, working
with these customers. This is going to be an ongoing process working with these customers to get the recommendations that we think are best for the category, which generally are also the best recommendation for us and as well accepted. And we continue to work with additional customers. This is this started as an extraordinary effort. It's really become our main way of working with in sales.
It's just a more fact based, analytic based approach to the customer that the more sophisticated customers in particular appreciate and they tend to be the larger and faster growing customers as well. You guys want to add anything to that?
Our next question comes from the line of Chris Growe with Stifel. Please go ahead with your questions.
Hi, good morning.
Good morning, Chris. I'd like
to add my well wishes to you, Alan, and I look forward as well, Lawrence, to working with you. So I just had two quick questions. If you look at the quarter I'm sorry, for the year, what sort of emerging market growth did you have? If you can give that maybe on an underlying basis. I was just curious how India and China and maybe perhaps this is more of a Q4 question really influenced that growth rate?
Paul, on
a go forward basis, we're still robust on China. We know there's a lot of discussion around China. We're obviously very aware of the economic discussion going on there. But our own business, we're anticipating that continues to do well. India, as you know, we've taken actions to focus more on the branded component of that business.
So as we look forward into 2016, we expect India actually to be a drag as we lap the anniversary of our exit of the broken and bulk rights. So you'll see noise in the Asia Pacific numbers as we progress through the year where we'll try and help you understand what's going on in the mix of that business. But again, we anticipate China being a good performer in India as we have rebased that business. That will be a negative on the sales line.
Chris, I want to just expand on China just a bit because it has grown to be such a large contributor to our total business. We had we're aware of the macroeconomic pressure around the China market, which does make us cautious, but we're also quite optimistic about our business in China. A great deal of the carnage that's happened around us has been more in the modern trade portion of the business. That part of our business is slow as well. But it only accounts for about 20% of our consumer business in China.
Much more of our business, in particular, thanks to the acquisition that we did a couple of years ago, is more directed to the interior to the smaller cities and through more traditional trades outlets. So So we have continued to experience quite robust growth for our consumer business in China. For the year, we were up, I think, 11 percent in China in 2015. It was a little bit slower in the Q4, but some of that was some anticipation of the Chinese New Year promotions that were coming beginning in December, which for us is fiscal 2016. I don't want to comment too much on 2016, but the opening of our year in China on the consumer side of our business has been really quite strong.
And I focus my remarks on the consumer side because for us China has really become predominantly a consumer business. Years ago China was more of an industrial business for us and that's how we got our foothold there. But with the continued growth of our consumer business and with the addition of the acquisition we did a couple of years ago, that business is now more than majority, it's about 2 thirds consumer.
Okay, that's very helpful. And maybe along the same lines, I just was curious about
I was just there with the China team last week and met with the management over there. Actually, Alan and I went over as part of our internal transition communication. And so it gives us an opportunity to meet firsthand with the China team and they continue to be quite optimistic.
That's great. Thank you for that color. Just a quick follow-up on the acquisition outlook and just get a sense of like the pipeline and really where you're focused today? Are you seeing any opportunities given some of the macroeconomic uncertainties in emerging markets? Just curious how the pipeline looks here today?
I'll say that we always have an active pipeline of acquisition projects and we're always in dialogue with some potential targets and that is the case today, but I really can't say too much more than that.
Okay. Thank you.
Our next question is from the line of Brett Hundley with BB and T. Please go ahead with your
questions. Hey, good morning, gentlemen. And Alan, Lawrence, congratulations to you both. I don't know what they're doing with all that mayonnaise in Mexico, but it's good to see. Gordon, I have a few questions for you around your cost savings program for 2016, your outlook there.
So I'm curious on how the achievement of your cost savings in 2016 fits into your guidance range? Should we just think about that as kind of in the middle of the guidance range? And then as far as thinking about the net benefit to earnings, should I be thinking about something like a net $75,000,000 benefit to earnings just from taking the $20,000,000 add in spend that you might have on the marketing side and then you're going to have pricing mostly covering input cost inflation. Is that the right way to think about it?
Well, in terms of the program itself and the realization, I would say I'd put it this way. In 20 16, our anticipation of the use of those benefits is more in line with how we had hoped the program would run, which means we'd have a portion of it read through into reinvestment in the brand, which we indicated we're doing through the upspend of $20,000,000 plus. It will also blunt partially some of the pricing. And obviously, we have other costs in our system as well as it relates to salary increases, etcetera, that are built into our forecast. So I'd just say the combination of all those things end up feeding into the total outlook that we have.
I prefer not to parse about how much it's going to go to the bottom line, how much of it's used. But the net net is obviously an improvement in margin structure that we had hoped that this program generate both on the gross and operating income line.
And should we still think about a bigger piece of that pie coming from the gross margin line? Or would you see more cost benefits in the future coming from the SG and A line?
We're still more heavily weighed towards the cost of goods sold as a generator of these savings. But obviously, we continue to look at SG and A, and we took actions last year, and we're looking to leverage our SG and A structure as we grow.
Okay. And then just a final question for me on the industrial business. Really solid growth during the quarter, a really solid margin. And I wanted to ask a question surrounding either driving margins higher or sustaining some of the margin that you saw in Q4, just given the growth profile and potential of the top line there, if you can somewhat close the gap on your margins relative to your consumer business, I think it can really be a positive for you guys going forward. And I'm curious on how that margin sustainability or even growth from here works, whether it's something that's solely related to mix or if there is some production optimization in there as well.
And I think what I'm really trying to get out here is when you think about the ingredients industry and the move by a lot of food and beverage companies towards natural, I think it can really help you guys from a volume standpoint as more and more people use spices and herbs, whether it's for coloring, flavoring, etcetera. But if you can move up the value chain, say, from maybe a bulk spice and herb towards an extract or something like that, maybe you can benefit on the price side and the margin side as well. And so I wanted to ask a question about how the growth or sustainability and margin improvement within industrial goes going forward? Thank you.
Hey, Brett, this is Lawrence. I'll start and then I'm going pass this over to Gordon. Some parts of your question, it sounded like you're reading out of some of our internal strategy documents. Certainly improving the product mix and moving towards flavors and more value added technically differentiated product is part of the margin equation. And the overall trend in our industry towards more natural, less artificial is an important driver of volume for us because this is an area where we think that we've got particular expertise.
I think in our remarks, we indicated that about 40% of the briefs that we get from our customers include some wellness aspect. And this is an area that is that are higher margin than others and the that are higher margin than others and the flavor end and the more technically differentiated end is definitely where the best opportunities are. Gordon, you want to elaborate on that?
I would just add that, obviously, the CCI program for the industrial business is designed both to improve margin and to help us reinvest in R and D to help us drive the mix shift towards a higher margin. So that's part of the equation as well.
And I'm sorry, but I mean, just Lawrence, is 11% a high watermark in your opinion?
Well, we haven't this is Gordon jumping in. We haven't put a boundary on it candidly. For those of you who followed us for quite some time, 8% to 10% has been the goal. And as we went through periods of high inflation, that gets interrupted because we have pass through mechanisms that interrupt that margin improvement or at least mask the optics of it. But we're obviously close to that 10% where we landed years here.
So it's not as if we put a ceiling on this. It's something that we continue to evaluate and we'll look forward to improving that even still, but there hasn't been a specific target or ceiling that we've put out on that business.
Okay. I'll yield the floor.
Yes. I think, with another call coming up at 8:30, we probably ought to end our Q and A there. And, Lawrence, I know you had some remarks to share. I'll turn it over to you.
Great. First, I'd like to thank you all for your questions. And to everyone who was on the call today, both the questioners and the listeners, thank you for participating in today's call. Consumer demand for flavor is on the rise. It's driving growth for McCormick.
Our geographic presence and product portfolio are expanding and aligned with the move towards healthier eating, fresh ingredients, ethnic cuisine and bold taste. This is evident in 2015 results and along with our strategies gives us confidence in our 2016 outlook as we grow our business and build value for our shareholders. I hope all of you who are in the snow impacted areas this weekend cooked a lot of McCormick chili and a lot of Zatarain's gumbo. Thank you all for your participation on the call.
Thanks, Lawrence, and to everyone on the call. If anyone has additional questions regarding today's information, please give us a call at 410-771-7244. This concludes this morning's call.