Q2 2020 McCormick & Company Inc Earnings Call

[music].

Good morning.

Checking vice President of Mccormick Investor Relations. Thank you for joining today's second quarter earnings call to accompany this call we posted its best buy at <unk> Dot Mccormick Dot com.

Currently all participants are in listen only mode. Following our remarks, we will begin a question answer session you need to reach the operator at anytime during the call. Please press Star Europe will begin with remarks markers, you Chairman President and CEO and Mike Smith, Executive Vice President and CFO during our remarks, we've always.

Hard to certain non-GAAP financial measure. 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. A reconciliation to the GAAP results are included in this mornings press release and fly in her comments certain percentage is around it please refer to our presentation.

Information. In addition, as a reminder, today's presentation contain projections and other forward looking statement actual results could differ materially from those projected the company undertakes no obligation to update or revise probably any forward looking statement, whether because of new information future events or other factors. It is important to note. These statements.

Glued expectations and assumptions, which will be shared related to the impact of the Coke 19 pandemic as seen on slide two are forward. Looking statement also provides information on risk factors, including the impact of cobot 19 that could affect our financial result.

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

Thank you faced a good morning, everyone. Thanks for joining us.

Well, let you must have been an extraordinary period and the global recovery for cope with my team continues to evolve daily.

Of course commitment maintained a critical food support across all of our markets. That's supporting our communities husband hopes that are these turbulent card.

The global committed for natural resources for many organizations to support or pure worker urgency responder and the restaurant hospitality industry, including donating to food banks. It causes nearly 20 countries, which are reliable access the food because those most vulnerable burns is ongoing and Devon.

We're working through the child as of today, well, keeping we're focused on the long term goals strategies values that it made a sort of successful.

We have three priorities, which we've spoken about since the first days of the crisis as we work through this period.

The first is to ensure the health and safety for our employees and the quality and integrity of our product.

Second is to keep our brand and our customers birds that supply and maintain the financial strength of our business.

And the third just to make sure we emerged stronger for this crisis.

As a company we've seen all phases of the pandemic locked down starting in January to various stages of recovery today.

Our business isn't trying there are fairly far along in recovery with exception of the who they probably one of our most highly developed regions of China, which is in the early stages of recovery because it was under an extended lock down through April eight.

Other businesses in Asia Pacific as well as the EMEA for about two or three months behind China variations by market with some markets beginning early recovery late in the second quarter.

The Americas, which is also about two to three months behind China restrictions began to loosen late in the second quarter with recovery currently and its early stage.

Turning to slide five let me highlight a few points on the current conditions were seeing and their potential impact.

Our consumer segment was positively impact early in the quarter, but some initial pantry stocking in the Americas, EMEA region, and pantry replenishment in China.

These behaviors elevated consumption for a period as the quarter progress strong consumption continues its definitely across all regions.

Our consumer survey data shows that strength was real incremental consumption driven by increased cooking at home.

We believe the shift of consumer consumption eating at home will continue partially driven by the status at the restaurant and food service industries, as well as consumer confidence with eating out and significantly influenced by the increased preference for cooking coal, which we believe will be longer lasting.

We don't expect the same level of consumption due for the balance of the work that we experienced throughout the quarter or we do expect consumption remain at some elevated level driven by the shift in consumer preference.

Additionally, we would expect the benefit from consumer eating at home, we were to enter a recessionary period consistent with historical sales performance during past recessions.

As our second half of the year begin we continued to see elevated demand from our customers and through scanner data.

Turning to our flavor solution segment, let's start with our sales to packaged food companies, which historically represents roughly half of our flavor solutions portfolio.

Early in the quarter, we experienced surges in demand, which tapered off throughout the quarter and performance varied by customer.

We expect overall demand consistent with creek cobot level or second half.

For a restaurant and other foodservice customers. We began the quarter was reduced demand as covert 19 restrictions in most markets eliminated dine in services unlimited restaurants to carry out delivery only.

As we expected this had a significant negative impact on our second quarter performance, particularly in EMEA region. That's most restaurants completely closed.

Late in the quarter, we began to see and believe we will continue to see a gradual recovery, which again will vary by market quick service restaurants for QSR are recovering quicker, but the rest of foodservice building more slowly.

No QSR as are largely opened a truck has returned to fairly normal level.

Certain markets in the Americas and yeah. Okay.

Indoor guidance service are beginning to open on a limited basis and outdoor dining options have reopened the D.A. QSR delivery and drive through options began to resume in June they're seeing initial circuits into that.

As we begin or third quarter, we're seeing our away from home demand beginning to come back a restaurant another foodservice customers have experienced significant disruption or adapting their operating model refining their menu offerings, focusing on core items and exploring alternative ways to drive finance offset I knew that decline.

We're collaborating with them on their recovery efforts.

Our global supply chain husband critical to our success. During this period of volatility is an area of strength for us and what are the results we will come through this crisis role.

Our global sourcing organization has been a real differentiator quickly executing contingency plans in place in critical materials, where needed sensor early involvement in China and ahead of any didnt answer.

Well, we of course of experienced some raw material constraints. These have had minimal impact on our ability to meet demand.

Coming into the crisis. There was more finished good inventory in the system both for US and are retailers then there is today.

The sustained level of consumer demand coupled with our at its safety and flexibility measure has put pressure on our manufacturing operations and services stress that sunbury.

As we enter are typically largest quarters, we're expanding our workforce and increasing manufacturing capacity.

Optimize scheduling investments at partnership.

By the end of the year, we will have added the equivalent of an additional plants of U.S. manufacturing capacity, we have already passed the low points and our ability to meet demand or service levels are proving weekly.

We're positioning ourselves for continued success confident of our capabilities and our ability to meet demand.

Well, thank our supply chain employees for their remarkable efforts as well as our suppliers and customers for their partnership in this challenging operating environment.

Given this evolving operating environment, while we recognize we've had strong performance. Thus far 2020, we're not providing guidance due to the high level of uncertainty driven by the cold with 19 crisis for the balance of.

Including the variation and consumer comfort with respect to eating away from home forces at home and its impact on consumption level, the pacing of restaurant and food service locations fully reopening in or various geographic markets.

And finally, the possible impact if any resurgence of.

It was 19 virus or.

We're focused on execution I remain confident in our ability to form of this dynamic environment as we have thus far and continue on our growth trajectory.

Im incredibly proud of the way Mccormick has performed in these unprecedented type.

As the crisis subsides, we will come out a better company for driving or long term strategies responding to changing consumer behavior and capitalizing on opportunities from a relative strength.

Now I'd like to focus on our second quarter performance business updates on consumer flavor solutions segments.

We have abroad, and advantaged global flavor portfolio as seen on slide seven which continues to position us to meet the demand for flavor around the world girl work with us.

The breadth and reach of our portfolio across segments geography channel customers and product offerings creates a belt portfolio to drive consistency in our performance in a volatile environment as evidenced by our second quarter results.

During the second quarter, the shift in consumer behavior to cooking and eating more at home or at home consumption.

A substantial increase in or consumer segment demand as well as increases for their packaged food company customers are flavor solutions segment.

On the other and we've seen a sharp decline in event from a restaurant at other food service customers for the away from home products in our portfolio, which historically has represented approximately 20% of our total annual company sales.

The impact of this shift to more at home consumption varied by region due to different levels of away from home consumption in age.

Well, we may experience temporary disruptions parts of our business underlying consumer demand continues to underpin our growth.

We're confident that the breadth and reach of our portfolio will continue to differentiate Mccormick and position us for continued growth.

In addition to our advantage portfolio several other key factors as seen on slide eight or underlying Mccormick strength in the second quarter.

First and foremost consumers for Friday comfort from the forensic trust and we are here today for them as we have been for over 130 year.

We pivoted our messaging as needed and are connecting with our consumers to guide them and provide inspiration for their flavorful cooking.

We have responded to the significant disruption capitalizing on our capabilities across the organization, particularly our supply chain Salesforce and marketing team as well as through our collaboration partnerships, both internally and externally for all selling together to manage through this crisis.

Now let me cover the highlights of our second quarter results, which speaks to the value of our products and to our capabilities as a company.

Our exceptional second quarter performance was driven by the substantial increase in demand for consumer products as consumers saw great tasting experiences with rich authentic flavor healthy high quality ingredients for cooking Lord Hill, our ability to meet the increased consumer demand and navigate to sharp decline in.

The away from home products in our portfolio highlights our agility and responding to the disruption we have all experienced all importantly, keeping our employees safe.

Our results reflect our strong foundation and the effectiveness of our strategies as well as being engagement of our employees around the world together, we delivered considerable sales operating income earnings per share growth each metric grew double digits in constant currency.

Starting with the topline second quarter sales increased 8% from the year ago period constant currency sales grew 10% mainly attributable to the higher volume and product mix in our consumer segments, partially offset by the sharp volume declines that are flavor solutions segment.

Adjusted operating income increased 21%, including a 2% unfavorable impact from currency and adjusted operating margin expanded by 210 basis points.

These results were driven by higher sale favorable mix and savings from our comprehensive continuous improvement program CCR.

Our second quarter adjusted earnings per share was $1.47, 27% hires at the year ago periods of $1.16 driven primarily by a strong operating performance.

Our second quarter results for exceptional driven by our successful execution and enabled by the positive fundamentals, we haven't place to manage through this period of volatility.

The investments we've made and the capabilities. We had built combined with our strong business model prepared us to execute from a position of strength.

We have confidence in our strategies, our underlying foundation of solid we remain committed to a long term growth objectives.

Now, let me spend a few minutes on our business updates.

Starting on slide 10, with our consumer segment sales rose, 26%, including it's 2% unfavorable impact from currency.

Constant currency sales grew 28% significantly fueled by the coordinating crisis.

Our pricing actions and growth plans for a place yielding results before the crisis.

Those plants have remained in place, although some adjusted and even strength it to execute this challenging time that help for consumers and customers navigate through well.

The Americas, our high ROI data indicates or totaled Mccormick U.S. branded portfolio for 55% or at the second quarter, which is substantial and reflects the strength of our categories as consumers kofler at home.

And then the data just released this past Tuesday for the weekend at June 13th scanner sales for total U.S. Mccormick branded portfolio continued to be strong growing 32%.

But we expect consumption will not continue at this highly elevated level of our second quarter. You can see it is still strong. We expect continued growth from an increase in consumer cooking at home to last for a period of time.

Turning to our shipments in constant currency the Americas sales grew 36% during the second quarter.

The difference between the U.S. IRA scanner sales growth and our shipments can be attributed to a few factors.

First depletion of inventory to meet the incredible surgeon consumer demand.

Next an increased level of pricing growth in the scanner data due to canceled promotions and channel shift.

Lastly, while we had significant growth in Canada, Latin America, and private label sales they paced behind the growth rate in U.S. spread itself.

Focusing on the U.S. branded portfolio only that our consumption growth, but we also gained share in nine out of 11 categories, including spices and seasonings try recipe mixes hot sauce and mustard.

The growth rates in the majority of our categories are outpacing the total store and center of store growth rates.

Consumption in our portfolio during the second quarter grew twice the center of store rates.

Our categories or not what consumers think about stocking up there to categories consumers used to flavor of the meals that cook at home.

Do and renovated products also contributed to our second quarter sales growth such as our dry recipe mixes updated for instant top preparation offer and even more convenient solution and our Franks red Hot fixed sauces, introducing Franks flavor dipping a top communication.

Later this year will extend Franks, even further with the launch of frozen appetizers chicken bites in depth.

Earlier this month, we relaunched our old Bay Hot sauce with expanded distribution just in time to speed up the summer.

But the retailer focused on keeping core items of retail shelves. There has been some slowdown in the selling of our new product launches, but we're excited about the pipeline will carry into next year and those that we have launched have gotten exceptional their trial.

We're growing our household penetration across our portfolio with a 16% increase compared to last year, which has millions of new households game and a significant amount of trial from those households was across multiple categories.

Spices, and seasonings dry recipe mixes and hot sauce had the biggest game, but even smaller brands like simply Asia grew significantly.

And our rate of repeat buyers increased 11% during the quarter, which is notable given that our repeat rate was already very robust.

During the quarter, we lost our new U.S. Mccormick brand advertising campaign, it's gonna be great, which is the strongest spring campaign or consumer testing history.

This TV and digital campaign is focused on consumer education, but what the Nick how to prepare and build confidence in the kitchen, which is all even more relevant now as consumers Cook more at home.

We continue to design targeted media messaging to focus on cooking at home and drive growth.

We're planning to increase our brands marketing investments and the second half of this year.

The speed and agility, we gained with our marketing excellence organization has proved invaluable as we turn insight into action and can pivot to adjust or messaging, even more efficiently and effectively to capture the normal.

The team is rapidly generated insights, creating and deploying new videos and tutorial arrangement easy week night meals, using pantry staples bread, making a cocktail sort of virtual happy hour.

This is critical to execute our plan is to create deeper connections with our consumers like bridging their physical and digital experience, which is even more important today with consumers accelerating their online presence.

Our consumers are looking for health and inspiration in the kitchen and we're here for them.

One of the ways being or flavor maker app.

Organic search because its tour Mccormick dotcom site for up over 200% than the second quarter versus last year with consumers 18 to 34 years old driving the largest increase searching for recipes and to learn to cook. The younger generations continues to fuel the demand for flavor and we're executing of creative ways to connect with them.

We are personalizing her interactions with consumers as we have been all home together, our Mccormick chefs invited consumers into their home kitchen through our new Cook with Us Instagram series, enabling one to one connection and putting a true faced the Mccormick.

Tumors are tagging Mccormick with post their user generated content, we're engaging with the including incorporating some of their content into our own Ed.

And providing users the chance to win a personal virtual cooking classes, we want to four shots.

And finally, it is essential to Mccormick to support our communities, particularly at times of uncertainty.

Our marketing excellence organization has had tremendous success with their creativity and applied it recently did not only connect with consumers, but to make a difference in their lives.

Today, we partnered with actress drew Barrymore and together hosted a virtual Taco Tuesday night called Ashtec tacos together in hopes of encouraging others to augment Mccormick and 1 million dollar donation and support the no Kid hungry campaign working to ensure children have reliable access to food during its ongoing.

Nick.

Tacos together garnered over 800 million impressions across the media landscape exceeding our own expectations are for reach and importantly, creating visibility to this vital cost.

Overall, we are confident all the initiatives we have underway will continue our growth trajectory, both with our valued existing consumers dose we are welcoming to our brands.

Now turning to EMEA, our constant currency sales rose 26%.

With broad based growth across the region and market share gains and the majority of our categories and our significant markets.

Growth in our bottom neighborhood to France excellent led by the millet baking products urban Spice consumption was strong in all markets driven by consumers cooking more at home to discovery, they need our products for great tasting healthy flavor solutions.

UK dry mess recipe mixes category is attracting new shopper and purchase frequency is increasing as consumers seek convenience solutions and our new products are driving the category growth with a schwartz brand continuing to gain share and retaining the leading positions we achieved last quarter.

Our new product plans remain on track for the year across our M&A portfolio and we continue to work closely with our customers to ensure that elevated consumer demand will be met even obtaining incremental placement for branded portfolio with some retailers as other manufacturers faced supply channels.

Our strong brand marketing campaigns and digital connections with the consumer contributed to our second quarter growth and provided us with confidence for future growth.

Early in the quarter, which quickly shifted the increased digital advertising search and social investments across key brands at markets using data driven real time insights.

Example, created a social listening dashboard understand the changing needs and topics most relevant to our consumers during the Covidien 18 crisis.

With baking being the highest trending topic during the crisis, we partner with culinary websites and capitalize on over 600 pieces of user generated baking at home social content to increase our interaction with consumers.

Lets health pricing, even further irrelevant.

Created cooking at home website sections, but health and wellness landing pages, putting healthy recipes blogger contest combined with content from our Buzzfeed partnership highlighting recipes and our products. For example, the 13 herbs and spices, everyone should have in their cover.

Our execution of these baking and help campaigns drove over 20 million impressions to keep story this quarter.

Moving forward will continue to capture the momentum we've gained and our relevance with EMEA consumers to activation of similar programs marketing campaigns, highlighting product superiority culinary partnerships and our new product launches.

In the Asia Pacific region, our constant currency sales declined 13% driven by our China business in the who they province for route on operation is located.

Each had an extended locked down into early April the groupon disruption negatively impacted the APC consumer growth by 26 percentage points.

Declines in branded foodservice products, which are included in our consumer segments in China outside of on also contributed to the sales decreased.

Excluding these impacts sales for the region would have increased reflecting the increase in consumer demand across the region related to the increase in cooking at home.

In China, the consumer business outside of who made province, a strong some products in our condiment portfolio doubling or tripling their sales from the second quarter of last year.

We need solutions are being soft by consumers driving growth ever recipe mixes wolf flavor hotspot sauces, as well as herbs and spices.

And we're leveraging our new product successes on our direct to consumer platform and accelerating or new product launches such as launching or squeezable healthy oil salad dressings retail during our third quarter.

In other parts of the region, which are lagging China from a recovery phase.

We have broad based growth and are gaining share many categories.

Across the entire region for also meeting the consumer online in the pivoted, our marketing plan its towards value scratch cooking.

Whether it be through our Frac spread hot tick tock fitness challenge in China, or chefs, providing inspiration instruction on social media across the region or through or keep common curry on campaign, and Australia for helping our consumers and augmenting the growth potential of the shift to cooking at home.

In all regions consumers digital engagement has increased significantly during stay at home periods. So we've seen an acceleration of our E commerce growth in all categories with second quarter triple digit growth, whether it be pure play click and collect for our own direct to consumer properties in all of our major markets.

We expect to shift to online shopping behavior to continue and we're well positioned for through the investments we've made and continue to make in this channel.

Our consumer portfolio and the plants, we haven't place or even more relevant today than they were before the crisis. If we expect the increase in at home cooking to continue which further bolsters our confidence that we will drive future growth.

Turning to slide 12, and our flavor solution segment constant currency sales for the second quarter were lower by 16% driven by the sharp declines in demand from restaurant and other foodservice customers because away from home dining was significantly curtailed due to the covert 19 restrictions, but a partial offset from continue.

Good growth in sales to our packaged food cost or.

Notwithstanding the cobot 19 impact our underlying foundation is solid and we've delivered strong sales growth and margin expansion over the last few years. Most recently, 5% sales growth in the first quarter of this year and believe we would have continued positive momentum.

In the Americas, our sales declined 13% at constant currency.

Well, we experienced demand declines across both branded foodservice and restaurant customers.

Branded food service at a more significant impact as our away from home customer base in the Americas is skewed more to that channel.

A quick service restaurant customers retain takeaway and delivery auctions, although the flip and limited med.

[noise] and flavor solutions were differentiate us or customer engagement and while our plant always included strengthening our intimacy. This year they were accelerated with some pivots by the Coke 19 crisis.

Youre Colin area and marketing support we've been helping our customers adapt to the changing environment and eventually the due to normal.

From a colin or standpoint, we've developed virtual tools and are collaborating with our customers provide solutions such as modifying menus for carrier reinventing many law offerings with limited inventory.

And optimizing recipes for covert 19th safety protocols.

And from a marketing perspective, we're leveraging the power of our brands that Franks Red Hot and old pay but strong promotional programs to help build menu excitement.

Lastly, as many places will be moving away from tabletop condiments, we're pivoting to portion control packaging for dining and carry out. We're also exploring other options to expand or portion control offering further.

In EMEA, where we had expected the most significant rate of decline from the coconut teachers are sales were 31% lower at constant currency from last year or away from home customer base. This region skewed more to QSR and that late March most of those customers completely close of restaurants that even drive.

Or carry out remain open.

As I mentioned earlier than any of the QSR as adapted their models and reopened in June offering limited menus for delivery and drive through bolt on it remained close.

They've established aggressive recovery plants, we're demonstrating our speed and agility scaling our operations backup and meeting customer demand on an accelerated timetable.

In the Asia Pacific region due to the cope with 19 locked down some closures at curfews across the region outside of China or constant currency sales declined 6%.

In China QSR is are largely open we're seeing momentum game.

Once the what's our either launching a limited time offer which adds to our sales this quarter.

Across the rest of the region government Cobiz 19 measures varied as well as customers ability to adapt.

For QSR has remained open at some capacity to focus was on core items.

For the balance of the year, we expect to reduce level from last year for our customers limited time offers which are an important growth driver in this region.

Moving forward, we continue to work with all our customers to manage through the recovery phase as Cobas 19 measures are less than the strong differentiated partnerships, we felt with our customers enabled her robust collaboration to navigate through the second quarter, we will continue to do so.

We expect there'll be a gradual recovery as I mentioned earlier, the QSR school recover more rapidly, but the rest of foodservice building more slowly.

Based on this combined with our different mix of quick service restaurants, and other foodservice customers between regions. We believe the pace of recovery of the away from home part of our business will vary from market to market.

Fully committed to helping all of our customers resumed their operations and expected demand to return as the crisis passes similar to what we're seeing in China's recovery.

The duration of this current period is uncertain the slow and evolving recovery process is dependent on many factors, including restrictions being lifted venues fully reopening and possible resurgence.

We had positive fundamentals in place to manage through this period of volatility.

And with our confidence in the successful execution of our strategies.

We will continue on our long term growth trajectory and flavor solutions.

Now I'd like to provide a few summary comments as seen on slide 13 before turning it over to Mike.

At the foundation of our sales growth as the global growing consumer demand for healthy flavorful cooking as well as transparency around the source of quality of ingredients and the desire to buy heritage brands.

This resonate even more today than ever before.

Labor continues to be an advantaged global category at the inspire flavor exploration across all markets through all channels and are aligned with the consumers demand for great taste convenience healthy option digital engagement.

Our alignment with these long term trends, our breadth and reach at our execution of effective strategies position us well to meet increased consumer demand both through our products and through our customers products and drive sales growth.

These long term behaviors have not only remains intact during the crisis, but have been accelerated to even greater report.

No matter, what where or when people are eating and drinking is likely flavored by Mccormick and we are proud for Mccormick brands are trusted by consumers and customers worldwide.

We're continuing to drive sales growth Dallas for their focus on lowering costs to expand margins and sustainably realized earnings growth. We have a solid foundation and in an environment continues to be dynamic in fast paced, we're ensuring we remain agile relevant and focused on long term sustainable growth.

Our experienced leaders and employees are executing our strategy, which are designed to build long term value for our shareholders, while reacting to changes accordingly.

We delivered exceptional second quarter results during a period of break disruption proving the strength of our business model, our strategies are effective and reinforcing our confidence that they will continue to drive future growth.

While we know the balance of the year will be impacted by an uncertain environment and ongoing challenges we're confident in the strength of our underlying foundation and performance.

Want to recognize Mccormick employees around the world for driving our momentum and success and thank them for their efforts cage with and for adapting to this new environment.

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

Thanks, Laura and good morning, everyone I'll begin now by providing some additional comments on our second quarter performance and then discuss some of our expectations for the balance of the year.

Starting on slide 15 during the second quarter sales rose, 10% in constant currency sales growth was driven by substantially higher volume and mix in our consumer segment offset by significant declines in our flavor solutions segment.

The consumer segment sales grew 28% in constant currency led by the Americas EMEA region.

The ship to at home consumption and cooking more at home has driven substantial demand for our consumer products.

Higher volume and mix, primarily drove the increase the pricing to partially offset cost inflation also contributing.

On slide 16 consumer segment sales in the Americas increased 36% in constant currency versus the second quarter of 2019.

The increase was broad based with significant growth across the Mccormick branded portfolio, both in measured channels and E commerce as well as in private label products.

Additionally, the pricing actions, we took late in the first quarter two offset increased costs also contributed to the growth.

In EMEA constant currency consumer sales grew 26% from a year ago with higher volume and mix in all countries across the region.

The most significant growth drivers were are buying a homemade dessert products in France.

Our schwartzman to grow branded spices, and seasonings seasonings and our Schwartz drives recipe mixes.

Consumer sales in Asia Pacific declined 13% in constant currency driven by the extended disruption in hot which as Lawrence mentioned drove a decrease of 26 percentage points to the regions consumer sales.

This decline was partially offset by increased consumer demand across the region led by condiments in China and broad based Australia growth.

As well as strong E commerce growth.

Turning to our flavor solutions segment on slide 19.

Second quarter constant currency sales decreased 16%, reflecting declines in the away from home products in our portfolio across all regions.

In the Americas flavor solutions constant currency sales declined 13% driven by significantly lower sales to branded through service customers. In addition to quick service restaurants.

Partially offsetting the decline for increased sales to package food companies and pricing to offset cut cost increases.

In EMEA constant currency sales declined 31%.

Decline was driven by a significant reduction in sales to quick service restaurant customers. In addition to lower branded food service sales.

Partially offset by sales growth with packaged food companies and pricing to offset cost increases.

In the Asia Pacific region flavor solution sales declined 6% in constant currency.

The decline was primarily driven by the Coca 19 related lockdowns enclosures and countries outside of China.

As seen on slide 23, adjusted operating income, which excludes special charges increased 21% in the second quarter versus a year ago period.

In constant currency adjusted operating income grew by 23% and was driven by substantial growth in the consumer segment, partially offset by a significant decline in the flavor solutions segment.

Adjusted operating income in the consumer segment grew 68% to $232 million.

The increase in constant currency up 70% was driven by higher sales FCC I led cost savings.

In a flavor solutions segment, adjusted operating income declined 63% to $29 million or 61% in constant currency.

The decrease was attributable to lower sales and an unfavorable impacts manufacturing costs, resulting from lower production volumes with the partial offset some cc I led cost savings.

Gross profit margin expanded 230 basis points in the second quarter first at the Ergo period.

Driven primarily by favorable product mix.

Resulting from the sale shift between segments and CCRC about cost savings.

With a partial offset from higher manufacturing costs.

Adjusted operating margin expanded by 210 basis points driven by the gross margin expansion.

Turning to income taxes on slide 25, our second quarter adjusted effective income tax rate was 18% and was favorably impacted by discrete tax items, primarily related to refinements to our entity structure.

Our rate in the year ago period was 18.9%. There was also favorably impacted by discrete tax items, principally stock option exercises.

Income from unconsolidated operations was $10 million in the second quarter, a 7% increase from the second quarter of 2019.

At the bottom line as shown on slide 27 second quarter 2020, adjusted earnings per share was $1.47 cents as compared to $1.16 stats for the year ago period.

The increase was driven by a higher adjusted operating income performance and lower interest expense.

This increase also included unfavorable impact from foreign currency exchange rates.

On slide 28, we summarized highlights for cash flow and the quarter and balance sheet.

Our cash flow provided from operations was $356 million through the second quarter of 2020.

A 13% increase compared to $314 million in the first half of 2019.

That was driven by higher net income.

We continue to see improvements in our cash conversion cycle, finishing the second quarter at 36 days down six days versus our 2019 fiscal yearend.

We are projecting another year of strong cash flow.

We returned $165 million of cash to shareholders through dividends and use $87 million for capital expenditures this period.

In April we raised $500 million through the issuance of a 10 year bond with a 2.5% interest rate.

We took the opportunity in a low interest rate environment to further bolster our liquidity position in a volatile marketplace.

Our priority is to continue to have a balanced use of cash.

Making investments to drive growth, including through acquisitions.

Returning a significant portion to our shareholders through dividends and to pay down debt.

Let's now move to our outlook discussion as some of our expectations for the balance of year I've seen on slide 29.

As a reminder, we withdrew the guidance that we issued in January during our first quarter earnings call in late March.

And we expect it to resume guidance on this earnings call.

While we recognize we had have had strong performance. Thus far in 2020, we still have are typically largest quarters remaining and there continues to be a high level of uncertainty around the pace and shape of the Kogan 19 recovery.

And potential resurgence was or the pandemic as Lawrence matches.

We've been running scenarios based on various assumptions and giving a wide range of possible outcomes, we're not providing guidance at this time.

I would like to however, highlight some current expectations I provide assumptions to help with modeling for the balance of year.

First we expect the shifts in consumer consumption will continue and the increased preference for cooking at home will be sustained.

Although not at the same elevated level at the second quarter.

Favorably impacting our consumer segment.

In the flavor solutions segment, we expect the demand from our packaged food customers to return to the pre covert 19 levels with continued variability by customer.

We believe the away from home part of our flavor solutions portfolio is beginning to recover.

We expect the performance to could rebound to gradually throughout the second half of the year.

However, not returning to the same level at last year.

As discussed in our previous earnings call. We can you continue to projects. The coven 19 impact in China will reduce our total global net sales growth by 1% to 2% for the year.

We continue to expect mid single digit inflationary pressures CCIX savings of approximately $105 billion and a mid single digit increase in brand marketing investments.

In the first half of the year, our gross margin was favorably impacted by a higher mix of consumer segment sales.

We do expect this mix shift to continue but not to the same extent in the second half of the year.

We realized incremental cobot 19 costs in the second quarter expected to continue in the second half of the year.

Are heavily weighted in the third quarter, rather than the fourth quarter.

We are anticipating a negative impact on our full year financial results from foreign exchange rates.

And finally, our income from unconsolidated operations is expected to be significantly impacted by the unfavorable foreign currency rates and as a result, we are projecting a high to mid single digit decline.

As long as mentioned we are focused on execution and are ready to perform in this dynamic environment as we have done thus far no matter what the scenario.

We are confident that we will manage through this period of volatility and continue on our growth trajectory.

I'd like to now try effective warrants for some additional remarks before we move to your questions.

Thank you Mike now that Mike has shared our financial results and 2020 expectations more detail I'd like to recap key takeaways as seen on slide 13.

Our second quarter played out during an extraordinary period and our results speak to the value of our products into our capabilities as a company.

Our ability to execute during the volatility of the quarter highlights our agility strong foundation and engagements are for people.

We will emerge a stronger company by focusing on our long term strategies responding to the changing consumer behavior and capitalizing on a global and growing consumer trends, which are further accelerated during the crisis.

We're confident in our ability to perform in this dynamic impairment and continue on our growth trajectory.

Our commitment to our long term financial objectives has not changed your sustainably position for growth and we'll continue to deliver differentiated results.

Now, let's turn to your questions.

Thank you at this time will now be conducting a question and answer session.

As you might to asking questions. Please press star one from your telephone keypad and a confirmation tone indicate your line is in the question Q.

You mean fresh start to simulate you move your questions from the Q.

I'm, just instead of using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Thank you and your first question comes from the line of Andrew as is our with Barclays. Please she was your question.

Good morning, everybody.

Hey, good morning editor either.

Thanks for the question.

On the.

Outlook slide for the balance of the year, you talked about expecting elevated consumer segment demand for a period of time.

And yet the the sales for the.

To that to the package food players within your flavor solutions business to return to pre coded 19 levels.

And on the face of it those two would see maybe a little contradictory because of the fish elevated demand in in your branded you know business.

We would think we'd see elevated demand to other package would customers as well is it something with your customer mix, maybe in terms of the those customers and flavor solutions or is or potentially a little conservatism. There if the broader sort of consumer packaged food landscape remains somewhat elevated on an ongoing basis.

If you see what I'm getting that I do see exactly what you're getting at Andrew and by the way for you and for all of the participants on the call. We're sitting here with face masks on and so if we're a little bit muffled on hard to understand please let us know it will try to speak up the yeah. The up the the mix of customers within.

That.

[noise] sector.

This is one of the factors and there is a tremendous.

Variability.

Between the.

Or different customers some of whom are are still up a solid double digits.

There is a term who store who are dealt.

There are a number for each one of them there the story that that goes along with that for some of the says that they are also impacted by sales to foodservice and convenience store channel or that have been a hasn't depressed and are not up to the current performance.

Others or some of them are beverage manufacturers will also have a sales that cut across both the at home and away from home a channel and and as many as a it's up to sell all as.

That's curtailed some of their innovation and focused on a core group of the items in order to eat the.

Demand from the retail side of the business.

Which is also in some cases.

You know contributed to a two impacts.

On the you know on US we did see an initial big surge from those customers during the during the socket period and as they adjusted their supply chains, but but we've seen that steadily settle as we've gone through the quarter. So we do expect that to gradually return to a more normal right.

Also that Andrew that one of the things that's different about Mccormick versus the rest of the industry is that for most of our products.

Yes, herbs spices seasonings, Oh, my God events, like mustard, and and Red Hot fresh Red Hot.

It doesn't matter, whether the consumer cook the product at home or if they purchase sit at a restaurant through takeaway is part of the new normal for foodservice broadly is going to be a greater proportion of it being deferred for our drive to take away away from premise of consumption and frankly.

Doesn't care, if you bought it at all or a few UNFI cooked.

Cook, though.

Well that that Franks, FICC Buffalo Ranch sauce, I can tell you.

He is being consumed like its water with my college, it's on here at home so.

Thank you need to appreciate every package you know our final addressed it okay. That's great salad dressing [laughter] the trial, we've gotten on the new products. We've launched early been one of the a long term benefits that we've done but on the crisis.

Thanks, everybody.

Thank you Andrew.

[laughter].

Our next questions from the line as Ken Goldman JP Morgan. Please proceed with your question.

Hi, good morning, Thank you.

Hey, guys two for me.

One you talked about the frees you said were was cancelled promotions.

Many companies we talked to are are talking about promotions being delayed a it to the back half of the year use the word canceled it may just be semantics, but I was just curious.

If you feel those promotions will not necessarily come back in the back half of the year. So I just wanted to get your color on what you're seeing from the environment and the deal space.

Well go back space and then the second question for Mike, Mike You talked about the tax rate benefiting from a entity structure refinements in the slides can you just give us a little more color on what those are and how they might.

Affect your tax rate going ahead. Thank you.

Hey, Ken I'll take the first part of that on the promotional activity and I will gladly library.

[laughter] the so you know.

I want to make sure that were really clear on on on this on this point yeah, we were definitely leaning into our brands through this crisis, our brand building activity through our engagement with consumers are your advertising be it through traditional channels or through social and digital marketing.

Not only not been curtailed that we've ramped those those up consumers are very interested in cooking right now and we want to take advantage of that interest get as much trial on our brands as as possible and it's part of us coming out of this as a stronger company.

The promotional matters are a little bit different now with a huge surge in demand.

We've had to.

Try to manage that the med and and so curtailing their promotions and in some cases canceling promotions has been part of managing through that that's huge surge.

Today, we have enough in our us business had a a sustained a surgeon.

Poland growth in demand.

I don't know what I don't really want to call. It a surge because it's up pantry loading is consumption.

You know over 50% across the quarter and there just wasn't that much slack in our and our supply chain.

So we did yeah working with our customers.

Curtail promotions and in some cases they are genuinely cancel I mean, we cannot go back and repeat them Memorial day grilling promotions that we can't so those are those those aren't going to part going to happen we are.

Stronger I'd say supply position today, and we are reinstating our promotional activities that but through.

I would say through May we largely suspended.

Trade promotion activity.

Thank you for that.

From a tax perspective, and having and just to take you back I mean, our underlying tax rate go away in.

24% to 25% and it really.

Goes up and down based on geographic mix. So we do give you when we have visibility into discreet items.

So some of these legal restructurings, we do and we talked about earlier in January we go even though its underlying 24 to 25, we set for the year would be around 22, because some of the things are doing you know the global company, who is a lot of our global entity, we didn't build through acquisitions and as you make acquisitions globally, there's tax strategies that happened later on.

To take advantage on a lawsuit gains around the world. So we have a grain tax team that works on these things and its a.

If you could probably teach a common platform and stuff and it's very complicated, but it's really taking advantage of some of the global infrastructure we hired.

And we give you insight when we know there things.

What happened.

Ken before we.

Yes, sorry.

Did you have any follow up on the tax question, because I want to come back to promotion for a second.

I hate to say I do but I do it just really quickly Mike I guess the implication is we should not be modeling anything necessarily unusual going ahead in terms of or someone that that's it's no definitely not no 100% now.

Hey, you can just one more point on the promotion. So you know either what sets that meet the the the lifts that we're seeing in Nielsen and IRI.

And the share gains are coming in spite of curtailment of promotion.

Just wanted to put that point up there yes.

Very helpful. Thank you gentlemen.

Our next questions from the line of Robert Moskow with Credit Suisse. Please proceed with your questions.

Hey, good morning, Rob.

Hi, good morning, Thanks for the question.

I was hoping you could zero and a little more on the inventory de loading that you saw in U.S. retail Hi, you mentioned that as one of the factors a explained the discrepancy between consumer growth consumption growth in shipments I do you have any sense of like how many weeks of inventory a you're down versus normal at.

And what's the plan for the back half a year or are you going to try to reinstate inventory levels back to normal or is it just kinda by hand them out for a while back I think yeah. So I'm going to say that first of all this.

[laughter] the tour is not a as a planned by the retailer.

You know.

Its supply chain has been challenged to keep up with the surge in demand. It's been the challenge for us So primarily on manufacturing capacity in the Americas.

And it's been a challenging times for the retailers because of the surgeon demand and their ability to actually received a product and a in for a good part of this quarter. They were prioritizing things like a paper products and that and sanitation products.

<unk>, which are pretty bulky into all of their.

There are times, an ability to receive.

A a isn't always a as always allowed us to replenish inventories.

But.

But yeah, we were estimate.

At least there's a one week delay between purchase and the restock signal. So there's certainly at least a week's that's been taken out of the of trade inventories and retailers.

Definitely.

You know our of wanting to get in better supply in our if you can see it and you know scale scan data because of it.

Points of distribution or or or down that's reflecting an out of stocks out of stock situations that we want to if we want to get to get that replenished and we're working towards that.

Our ability to service. This demand was built really good on the initial lease but as it continued at a at a sustained rate.

It really depth as we went through may.

And.

We took a lot of steps to initially.

Extend our just ER logistics capabilities and capacity to meet the a certain demand and then shipped the and then as we de bottleneck that or manufacturing capacity became to pressure point. So we've taken steps to add workforce, we optimize the schedules.

By the really does fourth quarter will either be 24, seven or 24, five that at all of our facilities not just in the us but around the world.

We've made some.

Short term capital investments of that blending capacity and we brought on frankly, some more co pack.

Yeah co manufacturer.

So as those strategic partners in order to meet the surge in demand. So we're really pass the low point in our ability to service the customers, which.

Right around the end of it ended the quarter and their service has been improving week by week. Since then and we think we're going to be in it and they were going to be in good position to meet that demand and a and this inventories will be restored to the to the system much.

There will be a driver some volume growth than the.

The rest of the year, but the real key is just what happens with consumer demand.

And at how strong.

With that that that's strong preference for cooking at home the continued for the rest of here.

And I can ask a follow up to that.

Is it the timing here right now where you start talking to retailers about merchandising for the holiday season, and and what what will you normally tell them that would be different this time versus what you might have told them in the past yeah that conversation is ongoing right now because of course retailers are concerned about.

Supply for the for that for the holiday season and.

Does that.

Right right now we believe that we're going to be in good position to meet.

A fourth quarter demand that is that said is that is very strong.

The.

That's what that's what we're guiding our retail which did you have the good news Rob as our holiday I was tend to be longer runs at more efficient foster produces a different set them being produced now so that gives us.

Oh opportunity there.

Got it off lots of sentiment alright, Thank you very [laughter].

Our next question is coming from the line of Alexia Howard with Bernstein. She was your question.

Good morning, everyone.

Hi, Dan.

Okay. Thank you question I'm, especially given that consumer would only use nicole out of it full spice job to make a single more.

What gives you confidence that we won't see a sharp slowdown in sales team consumer once then shopping fully stocked up on the range of different spiky they need for that repertoire recipes and switching from scratch I guess I'm often could that be a temporary onetime place at some point.

And then my second question is more broadly I didn't talk just how cheap recent comments about how chronic health conditions have contributed to the disproportionately impacted topic 19 on the African American TTM U.S.. How are you thinking about systemic issues like does it feel food apartheid enrolled in the pull me.

Just one more broadly can play in addressing these problem differential in Jacek.

Thank you know this one or two very different questions and last question. Yes, a has a number that facets to it so I'm going to try to tackle both of those first of all.

Yeah. Many of our products are single use I mean, there's a big part of the search.

Demand, we're seeing as from our dry recipe mixes for example, which would be a single use product or what marinates or or or single use.

And and just the sheer level of increasing and cooking.

Says that consumers are going through their their space supply I mean, it's not.

Yeah, we've had a very high level of repeat purchase during the <unk>, even during the second quarter. So no. So consumers, we're getting certainly do trial, but but we've had an 11% increase and repeat buyers at the same time that we've had a 16% increase in household penetration.

Yes, you know how that works usually underpenetration goes up you repeat rate goes down for a period attempted to bring in lighter users. Yeah. This is that I mean, there's a high level of of usage and to and we don't see any evidence that all set consumers have built inventories in their patricks and it's just not a saw.

Cup category, where usage category, you don't pottery barn, right and people are worried that they're going to run out of sentiment and put it by three bottles away that might but three times loyalty for and so we believe that consumers are buying for their immediate use and consumption and Oh, we do not believe that that there's going to be any kind of.

Consumer.

Need to destock.

And and I'll go even further out on that that that our own survey data because.

Doing weekly tracker, what's the tumor does that most consumers only have a week or two of food on had until they are there enough stocked up on Oh.

Area food.

So now and the question of food deserts and helpful eating and.

Social Justice Oh, all that I could make a speech on this I actually have quite a few times. So I'll try not to make too big of speech out of it but first of all our portfolio's generally advantage in terms of health wellness. Most of the product that we sell are inherently good for you in herbs and spices for example, and are either a low or no.

<unk> things like Salt severance that and then they are available at a whole range of price points that we sell it all channels, but we're really widely accessible to people and whatever their income level or wherever there are located and even where they can't get to us or or or E. Commerce.

It's bill.

Oh, if you'll allow access you know a suit deliberate directly to their fault.

And the fact that economically hard times also we tend to outperform or just shows that that's set or products or or.

<unk>.

But as we've gone through this crisis, we have always supported food banks.

As we've gone through this crisis, we we supported so.

Thanks, Dan and about 20 countries and we introduced restaurant relief funds in cities like Baltimore, and New Orleans, where we have significant operations ourselves and where those industries are meaningful employers and.

I don't really hurt.

Suffering.

And our total support of food related charities. During this crisis has been about $2 million that made a billion dollar pledge early on but that's what we've substantially exceeded that but.

Now, let's say it is a much broader issue of social justice to send if racism.

And and then the perfect I believe is one of the good guys on on this issue one of our foundational principle as a company our people and that was founded on a principle of.

But for the individual longstanding programs to make sure that under represented groups.

Full upward rate full opportunities for professional fulfillment or within the company.

I think we said, yes first the internally and example, with women and minorities LGBT.

[music] employees.

In other underrepresented groups to make sure that they are represented in Mccormick leadership.

All the way up to a very diverse set a very diverse board of directors, which includes four women to blacks North African and Latina. So.

And we've been well recognize externally for this where one of the one that diversity inc.'s.

<unk> 50 in terms of Ah employment opportunities for a minority.

Women at other underrepresented groups.

The second thing is that we've spoken out publicly and as really taken some public sense as.

Generated from the always favorable a response back to be personally but.

We've taken public said, so both internal and external messages.

The company and for me personally.

Against racism discrimination and justice and explicitly in support of Black lives matter and so you had spoken out.

On the on this issue.

And beyond speaking.

It's important had action.

We have strong development programs for women and especially in the U.S. minorities and we've committed incremental funding to combat racial justice provide food and health care back to your original question and other a central services business to the Black community. So I hope that's a fulsome answer and are you happy to follow.

With you.

I appreciate it thank you very much and hope to catch up thing. Thank you.

Thanks Alexia.

Your next question is from the line of change that Hollaway with Deutsche Bank. Please proceed with your question.

Good morning.

I wanted.

Just a follow up on the supply chain I think you had mentioned in your prepared remarks that there were some raw materials, where you're seeing some pressure. So just wanted to give more color on that.

And then alcohol.

Great well I'll be glad to say that first of all I don't want to create a missed perception or so I'm really glad you asked that question I think that global sourcing has actually been one of the bright spot for us. It has been a real differentiator that has enabled us.

To win through this through this situation you know we had very thoroughly insight into.

Yeah, that's the.

Sourcing might be a pressure point because of our operations in Wuhan, which so we saw this crisis coming right at the beginning.

And we began developing contingency plans and alternative sourcing all the way back in January and I think we spoke about this telenor on our on a year rent.

Call and some subsequent media the first week of February. So so this has been a real win for us any US you know supply chain in any industry would have the challenge going through this and so there have been a rolling series of.

Challenges, but I will say that that our ability to source raw materials and packaging has that had a material impact on or on our but our service and we think that we're very.

Very much advantaged in this area Yeah, you want to try and as we've talked in the past fuel source over 14000 about 14000 raw materials and packaging heights globally. So.

Smartly, we really have not had any significant shortages in the sales due to that scale is an advantage and thus we are really.

Only of level I would say only company with the scale.

To be able to have the resources on the ground tenure in the actual sourcing areas for some of these walnuts.

Cereals, especially the most important ones.

And that is proving invaluable as we've been able to work locally with local suppliers in Ah you know in in emerging markets, where there are many of our raw materials come from work with us and local suppliers local logistics of local authorities to keep our raw material flow and when do you see.

Headlines like when the Copenhagen in Indiana, shutting down the country global supply chain, they want to work with its people to get our product out some they've done a great job.

Okay, Great and then just didn't you U.S. capacity addition that you had talked about I'm curious if this is something that you had planned on doing that do you were able to accelerate into this here and I guess a real underlying question as you know how are you thinking about long term.

Oh, you know outside of just whats happening, but colvin right now and the next day are I mean, do you think creating kind of a new generation of people, who enjoy cooking gravities gotten comfortable with that I'm. Just just your perspective around long term demand would be yeah sure well on the supply chain side I'll take that part.

This week, we did not anticipate that we would have as much growth in demand this year.

And so you know these yes as the things that we're doing and are you.

This is particularly in our U.S. manufacturing.

To to create additional capacity or are all new things that we're doing in response to a credible.

And.

Situation, we do have a long term capital plan I'm really we do actually have.

Spoken externally, we talk exactly about it.

So in spite of future exactly that and that and that for the past three years our real.

Focus from a capital standpoint has been building our capacity capabilities in Asia and other emerging markets, but that's beginning this year, we're pivoting back to a western Europe, and the U.S. and specifically et cetera, we do have us up.

Number of big projects underway and this will only.

Accelerate our thinking that space as far as the demand creation goes.

You know right now are we.

Really believe that consumers are going to continue to cook at home more for an extended period of time.

Which is going to be constructive to our growth.

At further the new normal for restaurants, it's going to involve more takeout consumption at home with it as I mentioned it.

Earlier question, but that's also going to be constructive for our consumer brands of herbs, and spices, and seasonings and and ER and condiments. The gains that were getting share household household penetration, which by the way translates millions of new households.

And the increased repeat rate that were correct that we're seeing all say that consumers are trying their brands things like some enough to buy them again and there clearly having good experiences that for many of them are going to beat the new habit.

Everybody has been cooking at home or in found it to be easy fun and economical.

Perfect. Thank you so much.

[laughter].

Thank you Denise questions from the line of Chris growing Cecil. Please proceed with your question.

Hey, Chris.

Good morning. Thank you appreciate the time this morning, and all the color you've given.

I just want to ask first of all too I think pretty easy questions have you rationalize your rescue used during this time are you focusing more on those core items and then what does it done the shelf space was one of my questions and then the second question was just the Tobin related costs in the quarter and I think you'd indicated they're going to be peaking in the third quarter.

Just wondering is I mean are higher than the second quarter in Q3, and then kind of how to think about what's the if you can't what level of cost overall.

Well take the first part of that and the like speak to cope with the cost but that the.

In terms of skews, we have prioritized our top selling skews.

In order to maximize our AR or throughput and service to the to the customer which says that that Theres a group of of a of coal in the secondary skews.

We have.

[music].

[noise], then either where we've either suspended production or have.

Hi, Good just does have Curt curtail production to a more as as available basis that we needed to do that could give us longer runs on the on on the on the top seller again, we've done that in cooperation with retailers, we are as our capacity.

Grows we're adding those back but we did do some skew management now I'd say one of the learnings that we got going through this enrich our retailers have gotten as well as that Ah that's that but that.

SKU rationalization does bring some benefit.

In terms of efficiency and production of complexity and so I think that that coming out of this there's somebody excuse me will probably not ever put back into service and many retailers are also taking a look at that their assortment that will probably carry a lower assortment going forward I think there also.

Just evaluate new skews, they're evaluating the France.

That they care I think that retailers are going to want to simplify that business and they're finding that some of the small brands that they were carrying at unnecessary duplications at complexity adjusted playing our work that I think that's contributing to the share gain.

Hey, I think this is going to give us a lot more traction in second half of the year, particularly with our category management initiatives and the the I'll reinvention program that we set for herbs and spices.

I don't think they have not make Chris on that on the kind of it costs. We estimate we're going to step in the $30 million range from a cost of goods sold perspective for the year.

Yes, really split between the second and third quarter, we don't see a lot in the fourth quarter, all that's pretty uncertain, how depending on.

How long could last but I would just take the second and third quarter would be the biggest.

Stands for things like the central came had for our central workers and the plants in DC paid leave TV, even tied to buy some small inventory write offs, but.

Think about a second third quarter impact.

And just to be clear on that Mike. The there was a comment about three hugh being larger than Fourq, you would it doesn't necessarily mean that threeq was larger than twoq or is twoq use are the highest level the year in any kind of still higher but the lower in Q3.

Roughly the same.

Yes.

Great I appreciate all the color. Thanks, so much.

Thank you.

Our next questions from the line as Peter Yahoo from Bank of America.

Hey, good morning. Thanks, Thanks for thanks for taking the question just one for me you know Mike any a in the press release. This morning. There was there was quite a bit of discussion around just fixed cost leverage and de leverage associated with the higher and lower volumes in the two kind of parents segments.

I guess just.

One way to dimension for US you know how much of the margin improvement or the de leverage was due to that fixed cost leverage as we think about it going forward you know the volumes will obviously.

Still be up in consumer, but maybe not as much and as you know that could help us from a from a modeling perspective on the margins.

Okay, Peter I'll answer that Peter use I've read a book by Charles thinking that the tale of two cities. This is really the tale of two segments.

Yeah from a consumer perspective, obviously with this huge volume increases we got a lot of green fix elaborate on the other side flavor solution. We did not offer the company. It wasn't really not that positive overall, the what you're seeing at the gross margin line a good over half of that increases due to the segment segment mix that's going.

Tumor and consumer has higher margins than a flavor solutions.

Gross margin line and the operating margin line so.

I wouldn't.

It all depends on over the next six month, what happens with that consumer demand and flavor solution that demand but.

I wouldn't be was not as significant impact overall for the company from a fixed leverage perspective, especially if we had some of the additional manufacturing related coking costs.

Q2.

Got it now that's that's helpful. Thank you.

Thank you.

Final question today comes from the line of David Driscoll from de de research. This just use your question.

Great. Thank you appreciate you sneaking me in here before [noise].

Well.

Hi, good sitting in their data that's right there.

I see smell here, okay, I'll try to make it a good when I do want to follow up on the margins I want to say that the biggest Barry instead, I think that happened in my model versus versus your actuals and consensus for that matter with the differential on on margins, Mike. So I'm wondering I want to go back over in.

Sales up 8% operating income up 21% specifically in that consumer segment margins up 600 basis points, maybe little more Nat in volume up 25% I really liked this volume leverage point that was just brought up a second ago and I know you blended it with the whole company, but if we just stay focused on the consumer.

Segment for a moment.

Yeah, well is it fair that the consumer segment was benefited by substantial volume leverage I know when the volume leverage probably works. The other way any other segment, but I just like to talk about consumer for a moment would it be fair to say that that's the number one point driving the consumer margin improvement and then honestly the.

Could we just add 600 basis points to the consumer margin or is there some funny seasonal effects that would reduce those types of leverage I just get worried about the that the seasonal pattern on your margins and how we might think about these factors given and as such tremendous.

Packs in the current quarter, sorry for the long question data that generally no answer this one and damaris can add to without generally we build margins throughout the year. In this next I'll speak about consumer Damietta fourth quarter exactly our highest margin business due to this hot holiday items.

You know second quarter was pretty extraordinary there was a lot of leverage coming through the consumer generated a huge increases I mean double digits high to mid double digit meaning 50% in some cases of increases.

I'd be a little careful though because things like if you look at M.P. For example campaign for the company was up 1% and a couple more per separate consumer now that being said, we're going to have you have more in the second half but.

To get to that mid single digit guidance, we've given however, and even though we felt we didn't spend to shoot percentage here things like working media are up double digit globally. If some of our C.C.I. savings are coming through in hand piece. So we're actually really leaning into antique, but you'll see that and paint line increase in the second six so that will.

That will take that 600 basis points out by some number.

No we haven't really good product mix and the end of quarter as well segment mix within the consumer side, good product mix too.

I just didn't little careful about trying to take a second quarter and an expanded out to the here I also want to emphasize that we're not giving guidance because there's so much I certainly and I don't want us to fund away with Ah.

Say it too much about for gross margin here.

Because that that's getting us into an area of.

Maybe providing more guidance and we are.

Oh prepare to but but certainly the mix between the segments is.

So do you expect that there's more consumption Columbian unless away from home is gonna be.

Benefit to a margin and and correspondingly that we'll have leverage on the on the.

Or de leverage based on on those although so on those volume trends.

And then guys if I could just sneak one last one.

Sorry go ahead.

That's good go ahead.

Okay no. The other one just because this is I think it's reasonably important and hard to model in your EMEA business, you've talked about the impact of key west Taurus and that in Europe. You know he was just all much shut down in in this past quarter, where does it stand today in do we.

Is it reasonable to think that those quick service restaurants, or you're gonna be doing plenty of plenty of drives drew and take out and so that that business sees your business Jesus substantial improvement.

Because you're just not in total lock down like you were in this past quarter. So I feel like there is a big variance coming right there, but let me back if that's true.

I think we pointed to that a actually a a thought we've tried to get that clear and the remarks, but they know that the remarks were extraordinarily long and I apologize for that.

The the restaurant is the quick service restaurants and in Europe that are completely closed down at the end of March.

The I mean.

I'm not speaking at a school or are there are customers and so I don't want to get into guiding for their business, but but but all of their CEO said that out publicly saying they were close to that so that's that's out there. They are also all reopened in June.

Heavily towards a drive thru and and pick up but but then you have that's pretty much all three open in the month of June So I would that would expect to see that better in the they Ah Ah Ah the third our third quarter and I'll say the challenged yeah I'll just mention Hillary.

It's about supply chain. Yeah. This is one of those challenges that we said where we've had to really be.

Symbol and responsive because nobody should they shut down but a few days notice to us.

You know completely idling of that facility and then they literally started back up.

What about a weeks' notice to us so we had to that to get cranked up and so we've worked our way through it with that.

I really appreciate the comments great job on the quarter by the way. They know unsatisfied been results are stellar. Thank you great. Thank you very much.

Thank you at this time I'll hand, the call back to Lawrence Kurzius for closing comments right well. Thank you every month for your questions and full participating in today's call and they realized that it didn't go a bit long enough. Thank you for your patience. According to the global leader and flavor ever differentiated for the fraud and advantage portfolio, which continues to drive growth grow.

<unk> at profitable business for the palace portfolios that drives consistency in our performance in the volatility environment, which we currently operate the deliver flavored all markets and channel while responding readily to changes in industries in the world with new ideas innovation purpose.

One of the most significant risks to any companies being unprepared to respond with agility to a significant unexpected disruption for all experiencing that disruption now in Mccormick is well prepared to not only manage through it but to emerge from a stronger.

With a relentless focus on growth performance and people are confident our strategies will enable us to become even better positioned to drive future growth and build long term value for our shareholders.

Thank you Laurie and thanks to all for joining todays call. If you have any further questions regarding Canadian Commission. Please reach out to me. It concluded this morning's call. Thank you good day and I hope everyone is they have been thanks.

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Good morning. This it can't be Jenkins, Vice President of Mccormick Investor Relations. Thank you for joining today's second quarter earnings call to accompany this call we posted a satisfied at IR Dot Mccormick Dot com.

Currently all participants are in listen only mode. Following our remarks, we will begin a question and answer session you need to reach the operator at anytime during the call. Please press star.

Well begin with remark smart parenting, chairman, President and CEO, and Mike Smith, Executive Vice President and CFO. During our remarks, we will refer to certain non-GAAP financial measure. 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.

Reconciliations to GAAP results are included in this mornings press release implied in our common certain percentage is around me. Please refer to our presentation for complete information. In addition, as a reminder, today's presentation contains projections and other forward looking statements actual results could differ materially from those projecting the company.

Jason update or revise publicly any forward looking statement, whether it be kind of new information future events or other factors. It is important to note. These statements include expectations and assumptions, which we'll be sharing related to the impact at the koby 19 pandemic as seen on slide two are forward looking statement also provide information on risk factors include.

In the impacts of kind of in 19 that could affect our financial results.

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

Thank you Casey good morning, everyone. Thanks for joining us.

The last few months have been an extraordinary period and the global recovery from covert maintained continues to evolve daily.

Mccormicks commitment to maintaining critical food supply across all of our markets and supporting our communities has been constant during these turbulent times.

Across the globe, we've committed financial resources to many organizations to support frontline healthcare workers emergency responders, and the restaurant and hospitality industry, including donating to food banks and causes nearly 20 countries to ensure reliable access to food to those most vulnerable during this ongoing and Dennis.

We're working through the challenges of today, while keeping our focus on the long term goals strategies and values that have made us so successful.

We have three priorities, which we've spoken about since the first days of the crisis as we work through this period.

First is to ensure the health and safety of our employees and the quality and integrity of our product.

Second is to keep our brands and our customers brands and supply and maintain the financial strength of our business and the third just to make sure we emerged stronger from this crisis.

As a company we've seen all phases of the pandemic from locked down starting in January to various stages of recovery today.

Our businesses in China are fairly far along in recovery with the exception of the who by province, one of our most highly developed regions in China, which is in early stages of recovery as it was under an extended locked down through April eight.

Other businesses in Asia Pacific as well as the EMEA for about two or three months behind China variations by market with some markets beginning early recovery late in the second quarter.

The Americas, which is also about two to three months behind China restrictions began to loosen late in the second quarter with recovery currently and its early stages.

Now turning to slide five let me highlight a few points on the current conditions, we are seeing and their potential impacts.

Our consumer segment was positively impact early in the quarter by some initial pantry stocking in the Americas, EMEA region, and pantry replenishment in China.

These behaviors elevated consumption for a period as the quarter progressed strong consumption continues steadily across all regions.

Our consumer survey data shows that strength was real incremental consumption driven by increased cooking at home.

We believe the shift in consumer consumption to eating at home will continue partially driven by the status of the restaurant and food service industries, as well as consumer confidence with eating out and significantly influenced by the increased preference for cooking at home, which we believe will be longer lasting.

We don't expect the same level of consumption continue for the balance of the year that we experienced throughout the quarter or we do expect consumption to remain at some elevated level driven by the shift in consumer preferences.

Additionally, we would expect to benefit from consumers eating at home. If we were to enter a recessionary period consistent whether historical sales performance during past recessions.

As our second half of the year begins we continue to see elevated demand from our customers and through scanner data.

Turning to our flavor solution segment, let's start with our sales to packaged food companies, which historically represents roughly half of our flavor solutions portfolio.

Early in the quarter, we experienced surges in demand, which tapered off throughout the quarter and performance varied by customer.

We expect overall demand consistent with creek cobot levels and our second half.

For a restaurant in other foodservice customers, we began the quarter, we've reduced demand as covert 19 restrictions in most markets eliminated dine in services and limited restaurants to carry out delivery only.

As we expected this had a significant negative impact on our second quarter performance, particularly in EMEA region as most restaurants completely closed.

Late in the quarter, we began to see and believe we will continue to see a gradual recovery, which again will vary by market quick service restaurants for QSR are recovering quicker, but the rest of foodservice building more slowly.

China QSR is are largely open and traffic has returned to fairly normal level.

Certain markets in the Americas, an M.P. Vijay.

Indoor Dine in service are beginning to open on a limited basis and outdoor dining options have reopened in EMEA QSR its delivery and drive through options began to resume in June they're seeing initial surges in demand.

As we begin our third quarter, we're seeing our away from home demand beginning to come back from restaurant and other foodservice customers have experienced significant disruption from adapting their operating model refining their menu offerings, focusing on core items and exploring alternative ways to drive demand to offset any declines.

So we're collaborating with them on their recovery efforts.

Our global supply chain has been critical to our success. During this period of volatility is an area of strength for us and what are the results we will come through this crisis strong.

Our global sourcing organization has been a real differentiator quickly executing contingency plans in place in critical materials when needed sensor early involvement in China and ahead of any demand surge.

What we of course of experienced some raw material constraints, he's had minimal impact on our ability to meet demand.

Coming into the crisis. There was more finished good inventory in the system, both for us and our retailers than there is today.

The sustained level of consumer demand, coupled with our added safety and flexibility measures to put pressure on our manufacturing operations and services stressed in some areas.

As we enter are typically largest quarters, we're expanding our workforce and increasing manufacturing capacity to optimize scheduling investments and partnerships by the end of the year. We will have added the equivalent of an additional plants at U.S. manufacturing capacity.

We have already passed the low points and our ability to meet demand and our service levels are proving weekly we're positioning ourselves for continued success.

<unk> of our capabilities and our ability to meet demand.

Well, thank our supply chain employees for their remarkable efforts as well as our suppliers and customers for their partnerships in this challenging operating environment.

Given this evolving operating environment, while we recognize we've had strong performance. Thus far 2020, we're not providing guidance due to the high level of uncertainty driven by the Covidien 18 crisis for the balance of.

Including the variation in consumer comfort with respect to eating away from home forces at home and its impact on consumption level, the pacing of restaurants in foodservice locations fully reopening in or various geographic markets and finally, the possible impact if any resurgence of of the covert 19 buyer.

We're focused on execution and remain confident in our ability to formal this dynamic environment as we have thus far and continue on our growth trajectory.

I'm incredibly proud of the way Mccormick has performed and these unprecedented time.

As the crisis subsides, we will come out a better company for driving or long term strategies responding to changing consumer behavior capitalizing on opportunities from a relative strength.

Now I'd like to focus on our second quarter performance business updates on consumer flavor solution segments.

We have abroad, and advantaged global flavor portfolio as seen on slide seven which continues to position us to meet the demand for flavor around the world and grow our business.

The breadth and reach of our portfolio across segments and geographies channel customers and product offerings creates a balanced portfolio to drive consistency in our performance in a volatile environment as evidenced by our second quarter results.

During the second quarter, the shift in consumer behavior cooking and eating more at home or at home construction drove a substantial increase in our consumer segment demand as well as increases for their packaged food company customers are flavor solution segment.

On the other and we've seen a sharp decline in the event from a restaurant and other foodservice customers for the away from home products in our portfolio, which historically has represented approximately 20% of our total annual company sales.

The impact of the shift to more at home consumption varied by region due to different levels of away from home consumption in age.

What we may experience temporary disruptions parts of our business underlying consumer demand continues to underpin our growth.

Confidence that the breadth and reach of our portfolio will continue to differentiate Mccormick and position us for continued growth.

In addition to our advantage portfolio several other key factors as seen on slide eight or underlying Mccormick strength in the second quarter first and foremost consumers were finding comfort in the forensic trust and we're here today for them as it has been for over 130 year.

We pivoted our messaging as needed and are connecting with our consumers to guide them and provide inspiration for their flavorful cooking.

We have responded to the significant disruption capitalizing on our capabilities across the organization, particularly our supply chain Salesforce and marketing team as well as through our collaboration partnerships, both internally and externally.

For all standing together to manage through this crisis.

Now, let me cover the highlights of our second quarter results, which speak to the value of our products and to our capabilities as a company.

Our exceptional second quarter performance was driven by the substantial increase in demand for consumer products as consumers saw great tasting experiences with rich authentic flavor healthy high quality ingredients when cooking Lord Hill, our ability to meet the increased consumer demand and navigate through sharp declines in.

The away from home products and our portfolio highlights our agility in responding to the disruptions we have all experienced all importantly, keeping our employees safe.

Our results reflect our strong foundation and the effectiveness of our strategies as well as being engagement of our employees around the world.

Together, we delivered considerable sales operating income earnings per share growth each metric grew double digits in constant currency.

Starting with the topline second quarter sales increased 8% from the year ago period in constant currency sales grew 10% mainly attributable to the higher volume and product mix and our consumer segments, partially offset by the sharp volume declines that are flavor solutions segment.

Adjusted operating income increased 21%, including a 2% unfavorable impact from currency and adjusted operating margin expanded by 210 basis points.

These results were driven by higher sale favorable mix and savings from our comprehensive continuous improvement program CCR.

Our second quarter adjusted earnings per share was $1.47, 27% higher than a year ago period of $1.16 driven primarily by our strong operating performance.

Our second quarter results for exceptional driven by our successful execution and enabled by the positive fundamentals, we haven't place to manage through this period of volatility.

The investments we've made and the capabilities. We have built combined with our strong business model prepared us execute from a position of strength.

We have confidence in our strategies, our underlying foundation of solid we remain committed to long term growth objectives.

Now, let me spend a few minutes on our business updates.

Starting on slide 10, with our consumer segment sales rose, 26%, including it's 2% unfavorable impact from currency.

Constant currency sales grew 28% significantly fueled by the colder than anything crisis.

Our pricing actions and growth plans for a place yielding results before the crisis.

Those plants have remained in place, although some adjusted and even strengthened to execute this challenging time and helper tumors and customers navigate through as well.

The Americas, our high ROI data indicates our total Mccormick view as branded portfolio grew 55% during the second quarter, which is substantial and reflects the strength of our categories as consumers before at all.

And in the data just released this past Tuesday for the weekend at June 13th scanner sales for total us Mccormick.

Branded portfolio continued to be strong growing 32%.

But we expect consumption will not continue at this highly elevated level of our second quarter. You can see is still strong and we expect continued growth from an increase in consumer cooking at home the last for a period of time.

Turning to our shipments in constant currency the Americas sales grew 36% during the second quarter.

Difference between the U.S. IRA scanner sales growth in our shipments can be attributed to a few factors.

First depletion of inventory to meet the incredible surgeon consumer demand.

It's an increased level of pricing growth and the scanner data due to cancel promotions and channel shifts and lastly, while we had significant growth in Canada, Latin America, and private label sales they paced behind the growth rate in U.S. spread sale.

Focusing on the U.S. branded portfolio not only that our consumption growth, but we also gaining share in nine out of 11 category, including spices and seasonings dry recipe mixes hot sauce and must or.

The growth rates in the majority of our categories are outpacing the total store center of store growth rates in fact consumption in our portfolio. During the second quarter grew twice the center of store rates.

Our categories or not what consumers think about stocking up there the categories consumers used to flavors of meals they cook at home.

Do and renovated products also contributed to our second quarter sales growth such as our dry recipe mixes updated for instant top preparation offering and even more convenient solution and our French red Hot topic sauces, introducing Franks flavor dipping a talking occasion.

Later this year will extend Franks, even further with the launch of frozen appetizers chicken bites in depth.

Earlier this month, we relaunched our old day Hot sauce with expanded distribution just in time to speed up the summer.

With the retailer focused on keeping core items on retail shelves. There has done some slowdown in the selling of our new product launches, but we're excited about the pipelines we will carry into next year and those that we have launched have gotten exceptional their trial.

We're growing our household penetration across our portfolio with a 16% increase compared to last year, which is millions of new households gain in a significant amount of trial from those households was across multiple categories.

Spices, and seasonings dry recipe mixes and hot sauce had the biggest game, but even smaller brands like simply Asia grew significantly in.

And our rate of repeat buyers increased 11% during the quarter, which is notable given that our repeat rate was already very robust.

During the quarter, we launched our new U.S. Mccormick brand advertising campaign, it's going to be great, which is the strongest spring campaign and our consumer testing history.

This TV and digital campaign is focused on consumer education, but what the make how to prepare and build confidence in the kitchen, which is all even more relevant now as consumers Cook more at home.

We continue to design targeted media messaging to focus on cooking at home and drive growth.

We're planning to increase our brands marketing investments in the second half of this year.

The speed and agility, we gained with our marketing excellence organization has proved invaluable as we turn insight into action and can pivot to adjust or messaging, even more efficiently and effectively to capture the moment.

The team is rapidly generated insights, creating and deploying new videos and tutorial that range for easy week night meals, using pantry staples bread, making cocktails for virtual happy hour.

This is critical to execute our plants create deeper connections with our consumers like bridging their physical and digital experience, which is even more important today's of consumers accelerating their online presence.

Our consumers are looking for helping inspiration in the kitchen and we are here for them.

One of the ways being or flavor maker app.

Organic search visits to our Mccormick dotcom site for up over 200% than the second quarter versus last year with consumers 18 to 34 years old driving the largest increase searching for recipes and to learn to cook. The younger generations continues to fuel the demand for flavor and we're executing on creative ways to connect with them.

The personalizing her interactions with consumers as we have been all home together, our Mccormick chefs invited consumers into their home kitchen through our new cope with us Instagram series, enabling them to one connection and putting a true faced the Mccormick.

Tumors are tagging Mccormick with post their user generated content, we're engaging with the including incorporating some of their content into our own at.

And providing users the chance to win personal virtual cooking classes, we want to push us.

And finally, it is essential to Mccormick to support of communities, particularly at times of uncertain.

Our marketing excellent organization has had tremendous success with their creativity and applied it recently to not only connect with consumers, but to make a difference in their lives.

Hey, we partnered with actress drew Barrymore that together hosted a virtual Taco Tuesday night called hashtag tacos, together and the hopes of encouraging others to augment cormick from 1 million dollar donation and support the no Kid hungry campaign working to ensure children have reliable access to food during this ongoing.

Tacos together garnered over 800 million impressions across the media landscape exceeding our own expectations of a reach and importantly, creating visibility to this vital cost.

Overall, we're confident all the initiatives we have underway will continue our growth trajectory, both with our valued existing consumers dose for welcoming to our brands.

Now turning to EMEA, our constant currency sales rose 26%.

It's broad based growth across the region and market share gains and the majority of our categories and our significant markets.

Growth in our neighborhood in France is excellent led by vanilla baking products urban Spice consumption was strong in all markets driven by consumers cooking more at home to discovering they need our products for great tasting healthy flavor solutions.

UK dry mess recipe mix category is attracting new shopper and purchase frequency is increasing as consumers seek convenience solutions and our new products are driving the category growth, but the short sprint continuing to gain share and retaining the leading positions we achieved last quarter.

Our new product plans remain on track for the year across our EMEA portfolio and we continue to work closely with our customers to ensure that elevated consumer demands that even obtaining incremental placement for our branded portfolio with some retailers as other manufacturers they supply channels.

Our strong brand marketing campaigns and digital connections with the consumer contributed to our second quarter growth and provided us with confidence for future growth.

Early in the quarter, which quickly shifted increased digital advertising search and social investments across key brands and markets using data driven real time insights.

Example, created a social listening dashboard understand the changing needs and topics most relevant to our consumers during to cope with 19 crisis.

But they can't being the highest trending topic during the crisis, we partnered with culinary websites and capitalize on over 600 pieces of user generated baking at home social content to increase our interaction with consumers.

That's helpful. I think even further or elements, we created cooking at home websites sections, but health and wellness landing pages, including healthy recipes blogger content combined with content from our Busby partnership highlighting recipes and our products. For example, the 13 herbs and spices, everyone should have them they're covered.

Our execution of these baking and help campaigns for over 20 million impressions to keep story this quarter.

Moving forward will continue to capture the momentum we've gained and our relevance with M&A consumers activation of similar programs marketing campaigns, highlighting product superiority culinary partnerships and or new product launches.

In the Asia Pacific region, or constant currency sales declined 13% driven by our China business in the who they province for would on operation is located which had an extended locked down into early April.

Moving on disruption negatively impacted the HPV consumer growth by 26 percentage points.

Client and branded food service products, which are included in our consumer segments in China outside of who on also contributed to the sales decrease.

Excluding these impacts sales for the region would have increased reflected the increase in consumer demand across the region related to the increase in cooking at home.

In China, the consumer business outside of who made provinces strong some products and our condiment portfolio doubling or tripling their sales for the second quarter of last year.

Convenient solutions are being sought by consumers driving growth of a recipe mixes wolf flavor hotspot sauces, as well as herbs and spices and we're leveraging our new product successes on our direct to consumer platform and accelerating or new product launches such as launching or squeezable healthy oil salad dressings retail during our third.

Quarter.

In other parts of the region, which are lagging China from a recovery phase.

We have broad based growth and are gaining share many category.

Across the entire region for also meeting the consumer online and pivoted from marketing plants for value scratch cooking.

Whether it be through our Frac spread hot tick Tock fitness challenge in China, our chefs, providing inspiration instruction on social media across the region or through or keep common Curry on campaign, and Australia for helping our consumer and augmenting the growth potential of the shift to cooking at home.

In all regions consumers digital engagement has increased significantly during stay at home periods. So we've seen an acceleration of our ecommerce growth in all categories with second quarter triple digit growth, whether it be pure play click and collect or our own direct to consumer property and all of our major markets.

We expect the shift to online shopping behavior to continue and we're well positioned for through the investments we've made and continue to make in this channel.

Our consumer portfolio and the plants, we haven't place or even more relevant today than they were before the crisis. If we expect the increase in at home cooking to continue which further bolsters our confidence that we will drive future growth.

Turning to slide 12, and our flavor solution segment constant currency sales for the second quarter, the lower by 16% driven by the sharp declines in demand from restaurant and other foodservice customers as away from home dining with significantly curtailed due to the cope with 19 restrictions for the partial offset.

Good growth in sales through our packaged food costs or.

Notwithstanding the cobot 19 impact our underlying foundation is solid and we've delivered strong sales growth and margin expansion over the last few years. Most recently, 5% sales growth in the first quarter of this year and believe we would have continued positive momentum.

The Americas, our sales declined 13% in constant currency.

Well, we experienced demand declines across both branded food service and restaurant customers.

Branded food service at a more significant impact because our away from home customer base in the Americas skews more to that channel.

A quick service restaurant customers retained takeaway and delivery options, although the flippant limited men.

[noise] and flavor solutions were differentiated or customer engagement and while our plants always included strengthening your intimacy. This year they were accelerated with some pivots by the Coca 19 crisis.

Through our culinary and marketing support leaf and helping our customers adapt to the changing environment and eventually the normal.

From a cullen or standpoint, we've developed virtual tools and are collaborating with our customers provide solutions such as modifying menus for carry out reinvented many law offerings with limited inventory.

And optimizing recipes for covert 19 safety protocols.

And from a marketing perspective, we're leveraging the power of our brands that Franks Red Hot and old pay with strong promotional programs to help build menu excitement.

Lastly, as many places will be moving away from tabletop condiments, we're pivoting to portion control packaging for dining and carry out. We're also exploring other options to expand or portion control offering further.

In EMEA, where we had expected the most significant rate of decline from the coconut T shirt, our sales were 31% lower constant currency from last year or away from home customer base. This region skews more to QSR in late March most of those customers completely closed the restaurants, but even drive.

Or carry out remain open.

As I mentioned earlier many of the QSR as adaptive their models and reopened in June offering limited menus for delivery and drive through bolt on it remained close.

They have established aggressive recovery plants, we're demonstrating our speed and agility scaling our operations backup and meeting customer demand on an accelerated time table.

In the Asia Pacific region due to the cope with 19 locked down closures at curfews across the region outside of China for constant currency sales declined 6%.

China QSR is are largely open we're seeing momentum gain.

Once the was our either launching a limited time offer which adds to our sales this quarter.

Across the rest of the region government Cobiz 19 measures vary as well as customers ability to adapt.

For QSR has remained open and some capacity to focus was on core items.

For the balance of the year, we expect to reduce level from last year for our customers limited time offers which are an important growth driver in this region.

Moving forward, we continue to work with all our customers to manage through the recovery phase as Kogas 19 measures are less than the strong differentiated partnerships, we felt with our customers enabled in a robust collaboration to navigate through the second quarter, we will continue to do so.

We expect there'll be a gradual recovery as I mentioned earlier the QSR its will recover more rapidly, but the rest of foodservice building more slowly.

Based on this combined with our different mix of quick service restaurants, and other foodservice customers between regions. We believe the pace of recovery of the away from home part of our business will vary from market to market.

Our fully committed to helping all of our customers resumed their operations and expected demand to return as the crisis passes similar to what we're seeing in China's recovery.

A duration of this current period is uncertain the slow and evolving recovery process is dependent on many factors, including restrictions being lifted venues fully reopening and possible resurgence.

We had positive fundamentals in place to manage through this period of volatility.

And with our confidence in the successful execution of our strategies.

You will continue on our long term growth trajectory flavor solutions.

Now I'd like to provide a few summary comments as seen on slide 13 before turning it over to Mike.

At the foundation of our sales growth as the global growing consumer demand for healthy flavorful cooking as well as transparency around the source so quality of ingredients and the desire to buy heritage brands.

This resonate even more today than ever before.

Flavor continues to be an advantaged global category as we inspire flavor exploration across all markets through all channels are aligned with the consumers demand for great taste convenience healthy options digital engagement.

Our alignment with these long term trends, our breadth and reach and our execution of effective strategies position us well to meet increased consumer demand, both through our products and fewer customers products and drive sales growth.

These long term behaviors have not only remains intact during the crisis, but have been accelerated to even greater report.

No matter, what where or when people are eating and drinking is likely flavored by Mccormick, but we are proud for Mccormick brands are trusted by consumers and customers worldwide.

We're continuing to drive sales growth Dallas for their focus on lowering cost to expand margin and sustainably realized earnings growth. We have a solid foundation and in an environment continues to be dynamic in fast paced, we're ensuring we remain agile relevant and focused the long term sustainable growth.

Our experienced leaders and employees are executing strategies, which are designed to build long term value for our shareholders, while reacting to changes accordingly.

We delivered exceptional second quarter results during a period of freight disruption moving the strength of our business model, our strategies are effective and reinforcing our confidence that they will continue to drive future growth.

What we know the balance of the yield will be impacted by an uncertain environment and ongoing challenges we're confident in the strength of our underlying foundation and performance.

Now to recognize Mccormick employees around the world for driving our momentum and success and thank them for their efforts cage with transfer adapting to this new environment.

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

Thanks, Laura and good morning, everyone I'll begin now by providing some additional comments on our second quarter performance and then discuss some of our expectations for the balance of the year.

Starting on slide 15 during the second quarter sales rose, 10% in constant currency sales growth was driven by substantially higher volume and mix in our consumer segment offset by significant declines in our flavor solutions segment.

The consumer segment sales grew 28% in constant currency led by the Americas EMEA region.

The ship to at home consumption and cooking more at home has driven substantial demand for our consumer products.

Higher volume and mix, primarily drove the increase the pricing to partially offset cost inflation also contributing.

On slide 16 consumer segment sales in the Americas increased 36% in constant currency versus the second quarter of 2019.

The increase was broad based with significant growth across the Mccormick branded portfolio, both in measured channels and E commerce as well as in private label products.

Additionally, the pricing actions, we took late in the first quarter two offset increased costs also contributed to the growth.

In EMEA constant currency consumer sales grew 26% from a year ago with higher volume and mix in all countries across the region.

The most significant growth drivers were are buying a homemade dessert products in France, our schwartzman do CRO branded spices and seasonings seasonings at our Schwartz drives recipe mixes.

Consumer sales in Asia Pacific declined 13% in constant currency driven by the extended disruption in <unk>, which as Lawrence mentioned drove a decrease of 26 percentage points to the regions consumer sales.

This decline was partially offset by increased consumer demand across the region led by condiments in China and broad based Australia growth.

As well as strong E commerce growth.

Turning to our flavor solutions segment on slide 19.

Second quarter constant currency sales decreased 16%, reflecting declines in the away from home products in our portfolio across all regions.

In the Americas flavor solutions constant currency sales declined 13% driven by significantly lower sales to branded through service customers. In addition to quick service restaurants.

Partially offsetting the decline for increased sales to package food companies and pricing to offset cut cost increases.

In EMEA constant currency sales declined 31%.

The decline was driven by significant reduction in sales to quick service restaurant customers. In addition to lower branded food service sales.

Partially offset by sales growth with packaged food companies and pricing to offset cost increases.

In the Asia Pacific region flavor solution sales declined 6% in constant currency.

The decline was primarily driven by the Cook at 19 related Lockdowns enclosures and countries outside of China.

As seen on slide 23, adjusted operating income, which excludes special charges increased 21% in the second quarter versus a year ago period.

In constant currency adjusted operating income grew by 23% and was driven by substantial growth in the consumer segment, partially offset by a significant decline in the flavor solutions segment.

Adjusted operating income in the consumer segment grew 68% to $232 million.

The increase in constant currency up 70% was driven by higher sales FCC I'd like cost savings.

In a flavor solutions segment, adjusted operating income declined 63% to $29 million or 61% in constant currency.

The decrease was attributable to lower sales and an unfavorable impacts manufacturing costs, resulting from lower production volumes with the partial offset some cc I'd like cost savings.

Gross profit margin expanded 230 basis points in the second quarter first at the year ago period.

Driven primarily by favorable product mix.

Resulting from the sale shift between segments and CCR that cost stayed.

With a partial offset from higher manufacturing costs.

Adjusted operating margin expanded by 210 basis points driven by the gross margin expansion.

Turning to income taxes on slide 25, our second quarter adjusted effective income tax rate was 18% and was favorably impacted by discrete tax items, primarily related to refinements to our entity structure.

Our rate in the year ago period was 18.9%. There was also favorably impacted by discrete tax items, principally stock option exercises.

Income from unconsolidated operations was $10 million in the second quarter, a 7% increase from the second quarter of 2019.

At the bottom line as shown on slide 27 second quarter 2020, adjusted earnings per share was $1.47 cents as compared to $1.16 stats for the year ago period.

The increase was driven by a higher adjusted operating income performance and lower interest expense.

This increase also includes an unfavorable impact from foreign currency exchange rates.

On slide 28, we summarized highlights for cash flow in the quarter and balance sheet.

Our cash flow provided from operations was $356 million through the second quarter of 2020.

A 13% increase compared to $314 million in the first half of 2019.

That was driven by higher net income.

We continue to see improvements in our cash conversion cycle, finishing the second quarter at 36 days down six days versus our 2019 fiscal year at.

We are projecting another year of strong cash flow.

We returned $165 million, a cash to shareholders through dividends.

As you is $87 million for capital expenditures this period.

In April we raised $500 million through the issuance of a 10 year bond with a 2.5% interest rate.

We took the opportunity in a low interest rate environment to further bolster our liquidity position in a volatile marketplace.

Our priority is to continue to have a balanced use of cash.

Making investments to drive growth, including through acquisitions, returning a significant portion to our shareholders through dividends and to pay down debt.

Let's now move to our outlook discussion as some of our expectations for the balance of year I've seen on slide 29.

As a reminder, we've lived through the guidance that we issued in January during our first quarter earnings call in late March.

And we expected to resume guidance on this earnings call.

While we recognize we had have had strong performance. Thus far in 2020, we still have are typically largest quarters remaining and there continues to be a high level of uncertainty around the pace and shape of the coke and making recovery.

And potential Resurfaces other pandemic as Lawrence matches.

We've been running scenarios based on various assumptions and given a wide range of possible outcomes, we're not providing guidance at this time.

I would like to however, highlight some current expectations that provide assumptions to help with modeling for the balance of year.

First we expect the shifts in consumer consumption will continue and the increased preference for cooking at home will be sustained.

Although not at the same elevated level at the second quarter.

Favorably impacting our consumer segment.

In the flavor solutions segment, we expect the demand from our packaged food customers to return to the pre covert 19 levels with continued variability by customers.

We believe the away from home part of our flavor solutions portfolio is beginning to recover.

We expect to perform at two could rebound to gradually throughout the second half of the year.

However, not returning to the same level at last year.

As discussed in our previous earnings call. We can you continue to projects to covert 19 impacted China will reduce our total global net sales growth by 1% to 2% for the year.

We continue to expect mid single digit inflationary pressures cc I savings of approximately $105 billion any mid single digit increase in brand marketing investments.

In the first half of the year, our gross margin was favorably impacted by a higher mix of consumer segment sales.

We do expect this mix shift to continue but not to the same extent in the second half of the year.

We realized incremental code at 19 costs in the second quarter expect evident to continue in the second half of year.

Are heavily weighted in the third quarter, rather than the fourth quarter.

We are anticipating a negative impact on our full year financial results from foreign exchange rates.

And finally, our income from unconsolidated operations is expected to be significantly impacted by the unfavorable foreign currency rates and as a result, we're projecting a high to mid single digit decline.

As long as mentioned we are focused on execution and are ready to perform in this dynamic environment as we have done thus far no matter what the scenario.

We are confident we will manage through this period of volatility and continue on our growth trajectory.

I'd like to now try effective Morris for some additional remarks before we move to your questions.

Thank you Mike now that Mike has shared our financial results and 2020 expectations more detail I'd like to recap key takeaways as seen on slide 13.

Our second quarter played out during an extraordinary period and our results speak to the value of our products into our capabilities of the company.

Our ability to execute during the volatility of the quarter highlights our agility strong foundation engagements are for people.

We will emerge a stronger company by focusing on our long term strategies responding to the changing consumer behavior and capitalizing on a global and growing consumer trends, which are further accelerated during the crisis.

We're confident in our ability to perform to this dynamic environment and continue on our growth trajectory.

Our commitment to our long term financial objectives has not changed your sustainably position for growth and we'll continue to deliver differentiated results.

Now, let's turn to your questions.

Thank you at this time will now be conducting a question and answer session.

To asking questions. Please press star one from your telephone keypad and a confirmation tone indicate your line is in the question Q.

You mean fresh start to see relate to move your questions from the Q.

So just instead of using speaker equipment, you may be necessary to pick up your handset before pressing the star piece.

Thank you and your first question comes from the line as Andrew as is our with Barclays. Please she was your question.

Good morning, everybody.

Good morning under either.

Thanks for the question.

On the.

Outlook slide for the balance of the year, you talked about expecting elevated consumer segment demand for a period of time.

And yet the the sales for the the.

To the packaged food players within your flavor solutions business to return to pre coded 19 levels.

And on the face of it those two would see maybe a little contradictory because if elevated demand in in your branded you know business.

We would think we'd see elevated demand to other packaged food customers as well is it something with your customer mix, maybe in terms of the those customers and flavor solutions or is or potentially a little conservatism. There if the broader sort of consumer packaged goods landscape remains somewhat elevated on an ongoing basis.

If you see what I'm getting that I do see exactly what you're getting at Andrew and by the way for you and for all of the participants on the call. We're sitting here with face masks on that so if we're a little bit muffled on hard to understand please let us know, we'll try to speak up the yeah. The the the mix of customers with.

In that.

Sector.

That is one of the factors and there is a tremendous.

Variability.

Between the.

Or different customers some of whom are are still up a solid double digits.

There is a boom boom store who are Dell.

Yeah. There there are a number for each one of them. There's a story that that goes along with that for some of the says that they are also impacted by sales suits foodservice and convenience store channel.

That has been the hasn't depressed and are not up to a current performance.

Others or some of them are beverage manufacturers or will also have a sales that cut across both the element and away from home a channel and.

As many as it adds up to sell at all as.

That's curtailed some of their innovation and focus on a core group of the items in order to eat the.

Demand from the retail side of the business, which is also in some cases.

Contributed to a two intact.

On a go on US we did see an initial big surge from those customers during the third in the stock up here isn't as they adjusted their supply chains, but what we've seen that steadily settle as we've gone through the quarter. So we do expect that to gradually return to a more normal rate all.

So that Andrew that one of the things that's different about Mccormick versus the rest of the industry is that for most of our product.

No herbs spices, and seasonings, Oh, my God immense like mustard, and and Red Hot fresh Red Hot.

It doesn't matter, whether the consumer cook the product at home or if they purchased at a restaurant through takeaway as part of the new normal for foodservice broadly is going to be a greater proportion of it being deferred for it drives to take away away from premise consumption and Frank said.

Sun care, if you bought it at all or a few or if you cook.

Took though.

Well that that Franks, FICC Buffalo Ranch sauce, I can tell you.

Is being consumed like its water with my colleges fun here at home so well. They can do we appreciate every package you know all right I'll address yet okay. That's great salad dressings [laughter] the trial, we've gotten on the new products. We've launched that's probably been one of the long term benefits that we've done.

From the prices.

Great. Thanks, everybody.

Thank you Andrew.

[laughter].

Our next questions from the line as Ken Goldman JP Morgan. Please proceed with your question.

Hi, good morning, Thank you.

Hey, guys.

Two for me one you talked about.

The frees you said were was cancelled promotions.

Many companies we talked to are are talking about promotions being delayed a into the back half of the year use the word canceled I. It may just be semantics, but I was just curious.

If you feel those promotions will not necessarily come back in the back half of the year.

So I just wanted to get your color on what you're seeing from the environment on the deal space.

Well go back space and then the second question for Mike, Mike You talked about the tax rate benefiting from a entity structure refinements in the slides can you just give us a little more color on what those are and how they might.

Affect your tax rate going ahead. Thank you.

Hey, Ken I'll take the first part of that on the promotional activity that will gladly like carried all of the tax question [laughter]. He so you know.

Want to make sure that were really clear on on on this a on this point.

We were definitely leaning into our brands through this crisis, our brand building activity.

Through our engagement with consumers or advertising be it through traditional channels or through social and digital marketing.

Not only not been curtailed that we've ramped those those up consumers are very interested in cooking right now and we want to take advantage of that interest get as much trial.

On our brands.

Possible and it's part of us coming out of this as a stronger company.

The promotional matters are a little bit different with a huge surge in demand.

We've had to.

Try to manage that the med and if so curtailing their promotions that in some cases canceling promotions has been part of managing through that that's huge surge.

Today, we have enough in our U.S. business had a a sustained.

Surgeon.

Poland growth in demand.

No I don't really want to call. It a surge because it's up pantry loading is consumption.

Over 50% across the quarter and there just wasn't that much slack in our and our supply chain.

So we did yeah working with our customers.

Curtail promotion and in some cases, they are genuinely cancel I mean, we cannot go back and repeat them Memorial day grilling promotions that we can fulfill those those aren't going to part going to happen we are.

Stronger I'd say supply position today, and we are reinstating a promotional activities that but through.

I would say through May we largely suspended.

Trade promotion activity.

Thank you for that.

Okay from a tax perspective, and having and just to take you back I mean, our underlying tax rate go away in.

24% to 25% and it really.

Goes up and down based on geographic mix. So we do give you when we have visibility into discreet items.

So some of these legal restructurings, we do and we talked about earlier in January we go even though its underlying 24 to 25, except for the year would be around 22, because some of the things are doing you know the global company, who is a lot of our global entity, we've been built through acquisitions and as you make acquisitions globally, there's tax strategies that happened later on.

To take advantage on a lawsuit gains around the world. So we have a great tax team that works on these things and its a.

If you could probably teach a common platform and stuff and it's very complicated, but it's really taking advantage of some of the global infrastructure we have.

And we give you insight when we know those things.

Can happen.

Ken before we.

Yes, sorry.

Did you any follow up on the tax question, because I want to come back to production for a second.

I hate to say I do but I do it just really quickly Mike I guess the implication is we should not be modeling anything necessarily unusual going ahead in terms of a reverse and one that that's it's no definitely not no 100% about.

Hey, you can just one more point on the promotion. So you know either what sets I mean, the the the lift that we're seeing in Nielsen and IRI.

And the share gains are coming in spite of curtailment of promotions.

Just wanted to put that point up there yes.

Very helpful. Thank you gentlemen.

Our next questions from the line of Robert Moskow with Credit Suisse. Please proceed with your questions.

Good morning, Rob.

Good morning. Thanks for the question I was hoping you can zero and a little more on the inventory de loading that you saw in U.S. retail Hi, you mentioned that isn't one of the factors.

Explained the discrepancy between consumer growth consumption growth in shipments I do you have any sense of like how many weeks of inventory.

You're down versus normal and what's the plan for the back half a year.