Q2 2020 McCormick & Company Inc Earnings Call

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Good morning, Katy 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 IR Dot Mccormick Dot com.

Currently all participants are in listen only mode. Following our remarks, we will begin a question and answer session. If you need to reach the operator at anytime during the call. Please press star Zero will begin with remarks, Lawrence Kurzius, Chairman, President and CEO and Mike Smith, Executive Vice President and CFO during our remarks we.

I'll 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. A reconciliation to the GAAP results are included in this mornings press release and fly in her comments certain percentages are rounded please refer to our presentation.

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

Include expectations, and assumptions, which will be shared related to the impact of the Cobiz 19 pandemic asking I'd like to our forward looking statement also provides information on risk factors, including the impact of cobot 19 that could affect our financial results.

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

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 my team continues to evolve daily.

Works commitment maintained a critical food supply across all markets. That's supporting our communities [laughter] are these turbulent card.

Across the globe, we've committed for natural resources for many organizations to support for health care worker emergency responders and the restaurant hospitality industry.

I didn't donating to food banks. It causes nearly 20 countries, which are reliable access the food to those most vulnerable burns is ongoing and Devon.

We're working through the child is up today, well keeping are 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.

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

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

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

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

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

Other businesses in Asia Pacific as well as the anyway 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 impacts.

Our consumer segment was positively impact earlier in the quarter, but some initial pantry stocking in the Americas, you give me a 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 in consumer consumption eating at home will continue partially driven by the status of the restaurant and food service industry.

Well as consumer confidence with eating out and significantly influenced greatly increased preference for cooking coal, which we believe will be longer lasting.

I don't expect the same level of consumption continue for the balance of the work that we experienced throughout the quarter or we do expect consumption remains 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 periods consists of weather historical sales performance during past recessions.

As our second half of the year begins 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 served as something that looks 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 food service customers, we began the quarter, we produced a man its 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 the 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 is our largely open the traffic has returned to fairly normal level.

Certain markets in the Americas and yeah, Yeah yeah.

Indoor died in service are beginning to open on a limited basis and outdoor dining options have reopened city and be a QSR its delivery and drive through options began to resume in June they're seeing initial circuits isn't it.

As we begin or third quarter, we're seeing our away from home demand if you need to come back a restaurant and other food service customers have experienced significant disruption or would that be their operating model refining their menu offerings focusing on core items.

Flooring alternative ways to drive demand offset I didn't decline.

We're collaborating with them on their recovery efforts.

Our global supply chain husband critical to our success during this period of volatility.

It is an area of strength for us and what are the reason we will come through this crisis strong.

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 different answers.

Well, 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 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 that increasing manufacturing capacity to optimize scheduling investments at partnerships 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 at our service levels are proving weekly we're positioning ourselves for continued success I'm 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 our 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 and consumer comfort with respect to eating away from home purchases 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 of the covert 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.

I'm incredibly proud of the way Mccormick has performed in these unprecedented times.

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 segment.

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

The breadth and reach of our portfolio across segments and geographies channel customers and product offering.

It's 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.

A substantial increase in our 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 the event from a restaurant and 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 the shift to more at home consumption varied by region due to different levels of away from home consumption 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 were finding comfort from the forensic trust and we are 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've responded to the significant disruption capitalizing or capabilities across the organization, particularly our supply chain salesforce and marketing team as well as through our collaboration partnerships, both internally and externally, we're 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 into 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 as rich authentic flavor healthy high quality ingredients when cooking Lord Hill, our ability to meet the increase consumer demand and navigate through sharp decline in.

The away from home products in our portfolio highlights our agility and 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 <unk>.

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

Starting with the top line second quarter sales increased 8% from a year ago periods in constant currency sales grew 10% mainly attributable to the higher volume and product mix in or consumer segments, partially offset by the sharp volume declines in our flavor solution 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 sales favorable mix and savings from our comprehensive continuous improvement program CCR.

Our second quarter adjusted earnings per share was $1.47, 27% hires a year ago period 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 and 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 a 2% unfavorable impact from currency.

Constant currency sales grew 28% significantly fueled by the cold with 19 crisis.

Pricing actions and growth plans for a place yielding results before the crisis and those plants have remained in place, although some adjusted and even strength it to execute this challenging times that help for consumers and customers navigate through well.

The Americas, our high ROI data indicates our total Mccormick U.S. branded portfolio for 55% during the second quarter, which is substantial and reflects the strength of our categories as consumers co floor at all.

And then the data just released this past Tuesday for the week ended 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 country attributed to a few factors.

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

Next an increased level of pricing growth and the scanner data due to canceled 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 itself.

Focusing on the U.S. branded portfolio only that our consumption growth, but we also gainshare 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 and center of store growth rate 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 to categories consumers used to flavor 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 French red Hot fix sauces, introducing frakes flavor dipping a top communication.

Later this year will extend Franks, even further with the launch of frozen appetizers chicken bites and debts and earlier. This month, we relaunched our old day Hot sauce with expanded distribution just in time to feed up this summer.

But the retailer focused on keeping core items on retail shelves. There has done some slowdown in the sell one of our new product launches, but we're excited about the pipeline people 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 gain and a significant amount of trial from those households flows across multiple categories.

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

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

During the quarter, we launched our new U.S. Mccormick brand advertising you can't pay 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 brand 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 moment.

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 plants 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 it's too early 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 Cook with Us Instagram series, enabling one to one connection and putting a tru face to mccormicks.

Consumers are tagging Mccormick with post their user generated content and 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 workshops.

And finally, it is essential to Mccormick to support our communities, particularly at times about certain.

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 at together hosted a virtual Taco Tuesday night called hashtag 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 store and ongoing.

Nick.

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 are confident all the initiatives we have underway, we 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%.

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

Growth in our <unk> neighborhood to France excellent led by Vanilla baking products urban Spice consumption was strong in all markets driven by consumers cooking more at home to discovery they need our products are 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 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 that even obtaining incremental placement for our branded portfolio with some retailers as other manufacturers based 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 to 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 the Covidien 18 crisis.

The baking 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.

Lets health pricing, even further relevance we created cooking at home website sections of health and wellness landing pages, including healthy recipes blogger content combined with content from our Buzzfeed 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 drove over 20 million impressions each store in the 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 which had an extended locked down into early April the move on disruption negatively impacted the APV 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 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 profits a strong some products in our condiment portfolio doubling or tripling their sales for the second quarter of last year.

Convenient solutions are being soft by consumers driving growth several recipe mixes walk 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 pivoted from marketing plan its towards value scratch cooking.

Whether it be through our Frac spread hot tick tock fitness challenged 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 period. 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 as 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 cope with 19 restrictions for the partial offset from continue.

Good growth in sales to our packaged food cost or.

Notwithstanding the cobot 19 impacts 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 or sales declined 13% in constant currency.

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

Branded food service at a more significant impact as far away from home customer base in the Americas is skewed more to that channel and our quick service restaurant customers retain takeaway and delivery auctions, although the flippant limited Manny.

In flavor solutions were differentiates or customer engagement and while our plants always included strengthening our intimacy. This year they were accelerated with some pivots by the cope with 19 crisis.

Through our culinary and marketing support we've been helping our customers adapt to the changing environment and eventually the normal.

From a corner standpoint, we've developed virtual tools and are collaborating with our customers provide solutions such as modifying menus for Carryout reinventing 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 day 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 coke connecting pressures our sales were 31% floor at constant currency, the last year or away from home customer base. This region skewed more to QSR in late March most of those customers completely close of restaurants, but even drive.

Or carry out remained open.

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

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

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

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

Once the rest are 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 as 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 our robust collaboration to navigate through the second quarter, we will continue to do so.

We expect there will be a gradual recovery as I mentioned earlier, the QSR ups 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 for recovery of the away from home part of our business will vary from market to market.

<unk> fully committed to helping all of our customers resumed their operations and expected demand to return as a crisis pass was 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 have 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 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 resonates even more today than ever before.

Flavor 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 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 product and through our customers products to drive sales growth.

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, our trusted by consumers and customers worldwide.

We're continuing to drive sales growth Dallas for their focus a lowering costs to expand margins.

Sustainably realized earnings growth, we have a solid foundation and in an environment continues to be dynamic and 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 great disruption proving 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 year will be impacted by an uncertain environment and ongoing challenges, we're confident and the strength of our underlying foundation and performance.

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

Thank you for your attention and it does 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 segments offset by significant declines in our flavor solution 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 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 where are we talking a homemade dessert products in France.

Our schwartzman do CRO brand is spice and seasonings seasonings at our Schwartz drives recipe mixes.

Consumer sales in Asia Pacific declined to 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 and 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 to service customers. In addition to quick service restaurants.

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

In EMEA constant currency sales declined 31%.

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

Partially offset by sales growth with package food company 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 could 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 segments, partially offset by a significant decline in the flavor solutions segments.

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 a partial offsets MCC I'd like cost savings.

Gross profit margin expanded 230 basis points in the second quarter versus a year ago period.

Driven primarily by favorable product mix.

Resulting from the sale shift between segments and see I'd like 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 steps 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 and the quarter and balance sheet.

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

A 13% increase compared to $340 million in the first half of 2019 and 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 end.

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 the year I've seen on slide 29.

As a reminder, we move through 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 coke in 19 recovery.

And potential resurgence was other pandemic as Lawrence matches.

We have 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 a shift in consumer consumption will continue and the increase 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 up to could rebound to gradually throughout the second half of the year.

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

As discussed in our previous earnings call. We can you continue to project. The code at 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 and a mid single digit increase in brand marketing investments.

In the first half of the year, our gross margin was favorably impacted by 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.

Heavily weighted in the third quarter, rather than the fourth quarter.

We are anticipating a negative impact on our full year financial results for 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 I'll turn it back to bars for some additional remarks before we moved to your questions.

Thank you Mike now that Mike has shared a financial results and 2020 expectations more detail I'd like to recap key takeaways as seen on slide 30.

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 engagement of our 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 environment and continue on our growth trajectory.

Our commitment to our long term financial objectives has not changed their 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 want to ask your question. Please press star one from your telephone keypad and a confirmation tone indicate your line is in the question Q.

Give me a fresh start to see relates to move your question from the Q.

I'm, just instead of using speaker equipment, you 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 this Barclays. Please proceed with your question.

Good morning, everybody.

Hey, good morning editor Heather.

Thanks for the question.

On the.

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

And yet the the sales for the the.

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 if elevated demanding and your branded 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 ongoing basis.

If you see what I'm getting that I do see exactly what you're getting at Andrew and by the way of 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 it will try to speak up.

The.

The the the mix of customers within that.

[noise] sector.

The this is one of the factors and there is a tremendous.

Variability.

Cleans up the or different customers. Some of whom are are still up a solid double digits and others of whom clue store who are down.

There are a number for each one of them there the story that to 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 or have been depressed and are not up to occur.

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

Many assays up it's not all of that have curtailed some of their innovation in a 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 impact.

On a go on US with did see an initial big surge from those customers during the during the socket period and as they adjusted their supply chains.

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

You know herbs spices and seasonings.

And then ordinance 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 as part of the new normal for foodservice broadly is going to be a greater proportion of it being deferred for dry.

Through takeaway away from premise of consumption and frankly doesn't care. If you bought it that over a few UNFI Cook.

Cook, though.

Well that that Franks thick.

Buffalo Ranch sauce, I can tell you.

He is being consumed like its water with mycology, it's on here at home so well. They quickly. We appreciate every package you know our anytime a dry yeah, that's great salad dressing [laughter] the trial, we've gotten on the new products. We've launched its fairly been one of the a long term benefits that we've done.

The prices.

Thanks, everybody.

Thank you Andrew.

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.

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.

Deal 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 at all.

[laughter] He Oh you know.

I want to make sure that were really clear on on on this on this point.

We are 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 as as possible and it's part of us coming out of this as a stronger company.

Promotional matters are a little bit different now with a few surgeons to bad.

We've had to.

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

Today, we have in <unk> and our us business at a sustained.

Surgeon.

Poland growth in demand.

I don't know what I don't really want to call. It a surge because it's not 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 working with our customers.

Curtailed promotion and in some cases, they are genuinely cancel I mean, we cannot go back and repeat them Memorial day grilling promotions that we cancel those are those those aren't going to part going to happen. We are in a 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 to meet our underlying tax rate go away.

About 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.

Especially some of these legal restructurings, we do and we talked about earlier in January.

Even though its underlying 24 to 25, we said front year be around 22 because of some of the things. We're doing it has a global company, who is a lot of our global entities and we've been built through acquisitions and as you make acquisitions globally. There's tax strategies that happened later on to take advantage on.

Walks in the gains around the world. So we've been brain 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 there's things can happen.

Hey, Ken before we.

Yeah, 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 versus what that that's no definitely not no 100%, though right.

You can just one more point on the promotion. So you know even what sets I mean, 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.

Great 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.

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 is one of the factors.

Explain the discrepancy between consumer growth consumption growth and shipments I do you have any sense of like how many weeks of inventory a year down versus normal 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.

Kind of like hand them out for a while back I think yeah. So I'm going to say that first of all this.

Is that into the tour is not a as a planned by the retailer.

No.

Supply chain has been challenged to keep up with the surge in demand it's been a challenge for us primarily on manufacturing capacity in the Americas.

And it's been a challenging time for the retailers because of the certain demand in their ability to actually receive a product and the and 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 that.

There are times, an ability to receive.

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

But.

But yeah, we were estimate.

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

Definitely.

You know our are wanting to get in better supply in our if you can see it and scale scanned data because at that.

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

Our ability to services demand was built really good on the initial weeks, but as it continued at a at a sustained rate.

It really depth as we went through May and 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 shifted the and then as we de bottleneck that our manufacturing capacity became the pressure point. So we've taken steps to at workforce, we optimize the schedules.

By the really does fourth quarter will either be 24, seven or 24, five that at all of our facility not just in the U.S., 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 the strategic partners in order to meet the surge in demand. So I will really pass the low point in our ability to service the customers, which.

Right around the end of it ended the quarter in 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 inventory will be restored to the to the system much.

There'll be no driver some volume growth than the the rest of year, but the real she is just what happens with consumer demand.

And the at how strong that 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 time of year 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 pulled him 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 ER and as that.

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

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

The.

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

Opportunity there.

Got it out lots of sentiment alright, Thank you back [laughter].

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

Good morning, everyone ornish by that.

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

What gives you confidence that we won't see a sharp slowdown in sales team consumer.

Since then shopping trip fully stocked up on the range of different spiky they need for that repertoire recipes cooking from scratch I guess I'm off in could that be a temporary onetime place at some point and then my second question is more broadly I didn't DOCSIS out sheets recent comments about how chronic health conditions.

Disproportionately impacted pelvic 19 on the African American community in the U.S.. How are you thinking about systemic issues like does it feel food apartheid enrolled in the Puma and the food and more broadly can play in addressing these problem differential in jacek.

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

Yeah. Many of our products are single use I mean, there's a big part of the surge in demand that we're seeing that's from our dry recipe mixes for example, which would be a single use product or what marinates or or or single use.

And ER and just this year level of increasing and cooking says that consumers are going through there are spice supply I mean, it's not it's we've had a very high level of repeat purchase during the even during the second quarter. So no so consumers.

We're getting certainly new 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, yes, yes, you know how that works usually when your penetration goes up you repeat rate goes down for a period attempted to bring in lighter users. Yeah. This is that I mean, there's there's a high level of of usage and to and we don't see any evidence that all that consumers have built inventories in their petrie's.

Yeah, it's just not to stock up category, where usage category, you don't luxury bottom right and people are worried that they're going to run out of sediment and for the by three bottles that way that might buy three times royalty for and so we believe that consumers are buying for their immediate use and consumption and Oh, we do not believe that.

But theres going to be any kind of consumer.

Need to de stock.

And and I'll go even further out on that that that our own survey data because what we're doing weekly tracker with consumers. So that most consumers only have a week or two of food on had until they are there enough stocked up on.

So.

Sure good food.

Now on the question of food deserts and helpful eating and.

Social Justice I want to like 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 the portfolio's generally advantage in terms of health wellness most of the product that we sell far inherently good for you in herbs and spices for example, and are either a low or no.

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

It's bill.

How access.

Food delivery corrected for their calls.

And the fact, an economically hard times also we tend to outperform or just shows that that's better products or or the value.

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

As we've gone through this crisis, we we supported the food banks in at about 20 countries and we introduced restaurant relief fund some 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, there's a much broader issue of social justice.

Then if racism.

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

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

Oh offer great full opportunities for professional fulfill but within the company I.

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

Fuel employees.

And 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 well in North African and a at Latina. So.

As we've done well recognize externally for this where one of the that but one of the diversity Inc.'s top 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 really taken some public sense that have.

Generated some are always favorable on response back to be personally, but Ah Ah, but we've taken public said, so both internal and external messages.

From the company and for me personally against racism discrimination and justice and explicitly in support of Black lives manner. So youve spoken out.

On the on this issue.

And beyond speaking.

It's important that 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 Black community.

I hope, that's a fulsome answer and I'd be happy to follow up with you.

I appreciate it. Thank you very much in that have to catch up saying thank you.

Excellent.

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

Good morning.

Hi, just follow up on the supply chain I think you had mentioned in your prepared remarks.

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 let's 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.

That said that that.

Sourcing might be a pressure point because of our operations and we'll hardwood. 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 killen or on our on a year rent.

Call and in 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 on our services as we picked up here.

Very much advantaged in this area Yeah, you want to try and sometimes we talked in the past fuel source over 14000 about 14000 raw materials and packaging I know globally, so and as Mark said, we really have not had any significant shortages and sales due to that scale is an advantage and that's where really the only outside.

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 the pharmacies.

Cereals, especially the most important ones.

And that is proving invaluable as we've been able to work locally with local suppliers in.

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 you see headlines like when the coding in Indiana shutting down the country will be our global supply chain. They want to work with its people to get our product out some.

Great job.

Okay, Great and then just in new 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 demand.

You know outside of just whats happening, but colvin right now and the next day are I mean, do you think you're creating sort of a new generation of people, who enjoy cooking or haven't he's gotten comfortable with that.

Just just your perspective around long term demand would be yeah sure well on the supply chain side I'll take that part first week, we did not anticipate that we would have as much growth and demand this year.

And so you know these yes as the things that we're doing in our.

Yes. This is particularly in our U.S. manufacturing a two to create additional capacity or are all new things that we're doing in response to a credible.

The situation.

We do have a long term capital plan.

You actually have.

Spoken externally, we talk exactly about it operating that spiking on the 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 at the beginning this year, we're pivoting back to a western Europe, Andy you lesson, specifically et cetera, we do have us up a number of big project underway and this will only.

Accelerate our thinking in that space as far as the demand creation. Those you know right now are we.

I 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.

As it further the new normal for restaurants is going to involve more takeout consumption at home as a as I mentioned it.

Earlier question, that's also going to be constructive for our consumer brands of herbs, and spices, and seasonings and and ER and condiments <unk>. 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's been cooking at home or and found that to be easy fund and economical.

Perfect. Thank you so much.

[laughter].

Thank you Denise questions from the line of Chris growing it with Stifel. 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 second question was just the Tobin related costs in the quarter and I think you'd indicated they're gonna be peaking in the third quarter.

Just one is I mean, they're higher than the second quarter in Q3, and then kind of how to think about what's the if you can what level of cost overall.

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

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

In order to maximize our our ore throughput and service to the to the customer which is not that theres a group of of a coal in the secondary skews.

We have.

[noise], then either to where we view the suspended production or have.

[noise] have good just I just have curtain curtail production to a more as as available basis that we needed to do that could give us longer loans 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 is that that's that but that's.

Yes, SKU rationalization does bring some benefit.

In terms of efficiency and reduction of complexity and so I think that that coming out of this there's somebody excuse me will probably not ever put back.

To a service and many retailers are also taking a look at their assortment that will probably carry a lower or assortment going forward. I think there also that's just evaluate new skews there, but we're evaluating the France.

So that they carry 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 complexity adjusted playing our work that I think that's contributing to the share gain but let's see I think this is going to give us a lot more traction in second half.

We are particularly with our category management initiatives.

The I'll reinvention program that we set for herbs and spices.

I don't think they have no. Thank Chris on that on the kind of it costs. We estimate we're going to spend $30 million range from a cost of goods sold perspective for the year.

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

How long could last but I would just take the second and third quarter would be the biggest spends for things like the central came had for our central workers in the plan. Some dcs paid leave a PD 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 to 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 you're going to kind of still higher but the lower in Q3.

A roughly the same.

Yes.

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

Thank you.

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

Okay.

Hey, good morning. Thanks, Thanks for thanks for taking the question just one for me.

Mike any a in the press release. This morning, there was there was quite a bit a discussion around just fixed cost leverage and de leverage associated with the higher and lower volumes in the two kind of parents segment.

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.

The volumes will obviously.

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

Okay, Peter I'll answer that Peter you thought Brad to book by Charles thinking of a 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 X elaborate on the other side flavor solution, we did not.

The company it was 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 consumer 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 months, what happens with that consumer demand and flavor solution that demand but.

I would not as significant impact overall for the company from a fixed leverage perspective, especially if we had some additional manufacturing related coca costs in Q2.

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

Thank you.

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

Great. Thank you appreciate you sneaking me in here before it.

Right.

Hey, there David that's right [laughter], there like I say bell 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 very instead I think that happened in my model versus.

This is your actuals and consensus for that matter, which the differential on margins, Mike. So I'm wondering I want to go back over in the right 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 small.

The leverage point that which is brought up a second ago and I know you blended it with the whole company, but if we just staying focused on the consumer segment for a moment.

Ah, Yes 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 real point of all of this used to try to understand how to project forward. Your quarters have a lot of seasonality in terms of margins. If you weren't to get the same 25 point pop to volumes in Q3 in consumer that you got in Q2.

Could we just added 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 seasonal pattern on your margins in how we might think about these factors given is essential tremendous.

Patch in the current quarter, sorry for the long question data that generally no answer this independent dozens of ours.

Two without generally we built margins throughout the year in this next I'll think about consumer Damietta fourth quarter January our highest margin business due to this hot holiday items.

You know second quarter was pretty extraordinary are there was a lot of leverage coming through the consumer generated a huge increases I mean double digit 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, and team for the company was up 1% and a couple more per cent for consumer now that being said, we're gonna 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 thought we didn't spend a shooting for.

And as you know 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 AMTI, but you'll see that MPV line increase in the second to six so that will that will take that 600 basis points out by some number.

You know, we haven't really good product mix in the quarter as well as segment mix within the consumer side good product mix to.

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

Say it too much about 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 the except that there is 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 that are de leverage based on on those although stuff on those volume trends.

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

Sorry go ahead.

No that was 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 Qs ours 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 drive thru 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.

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

The the restaurant, it's a quick service restaurants in Europe did a completely closed down at the end of March I, you know 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.

All of their CEO said that out publicly saying that they were close to that so that's that's out there. They are also all reopened in June.

Ah heavily toward so drive through and the and pick up but.

Yes, that's pretty much all three opened in the month of June So a good I would expect to see that better in the they Ah Ah Ah the third our third quarter and Oh say the challenge Yeah I'll just mention yeah. When we talk about supply chain. This is one of the challenges that we've had and where we've had the.

It would be a nimble and respond to it because you know they shut downs what was a few days notice to us.

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

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

Yes.

Really appreciate the comments the great job on the quarter by the way I mean, no incentive plan then results are stellar thank you.

Thank you very much.

Thank you at the same I'll hand, the call back to Lawrence Kurzius for closing comments right well. Thank you every month for your questions and for participating in today's call and they realized that it did go up that long enough. Thank you for your patience. According to the global leader and flavor there were differentiated for the fraud and advantaged portfolio, which continues to drive growth.

Growing at profitable business with a balanced portfolio to address consistency in our performance in the volatility environment, which we currently operate the deliver flavor to all markets in channel, while responding readily to changes in industries in the world with new ideas innovation at 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 its 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 line and thanks to all for joining today's call. If youve any further questions regarding today's information. Please reach out to me. It concluded this morning's call. Thank you have a good day and I hope everyone stay healthy in thanks.

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Good morning. This is taking Jenkins Vice President at 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. If you need to reach the operator at anytime during the call. Please press star.

Well begin with remark smart turnkey, chairman, President and CEO, and Mike Smith, Executive Vice President and CFO. During our remarks, we will refer to certain non-GAAP financial measures. These include information in constant currency as well as adjusted operating income adjusted income tax rate and adjusted earnings per share that exclude the impact of special charges.

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

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 will be shared related to the impact at the koby 19 pandemic as seen on slide two are forward looking statement also provides information on risk factors, including.

In the impacts of Kevin 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 restaurants on 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 Devon.

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

The 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.

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 8th.

Businesses in Asia Pacific as well as the anyway or 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.

While 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 preference.

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 pre cobot levels and our second half.

For a restaurant and other foodservice customers, we began the quarter. We've reduced demand is 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 our 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 and they are seeing initial surges in demand.

As we begin our third quarter, we're seeing power away from home demand beginning to come back from restaurant and other food service 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 I didn't decline.

We're collaborating with them on their recovery efforts.

Our global supply chain has been a critical to our success. During this period of volatility is an area of strength for us and what are the reasons, 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, where needed sensor early involvement in China and ahead of any didnt answer.

Well, 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 then there is today.

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

As we enter our 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 in our ability to meet demand and our service levels are proving weekly we're positioning ourselves for continued success.

Confident of our capabilities and our ability to be Nat.

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 our 2020, you're not providing guidance due to the high level of uncertainty driven by the cold in 18 crisis for the balance of.

Including the variation and consumer comfort with respect to eating away from home person 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 code is 19 buyers.

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 in these unprecedented times and as the crisis subsides, we will come out a better company, but 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 from consumer flavor solutions segments.

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

The breadth and breach of our portfolio across segments 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 consumption drove a substantial increase in our 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 to demand from a restaurant and 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 the shift to more at home consumption varied by region due to different levels of away from home consumption 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've responded to the significant disruption by 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 sending 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.

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 <unk>.

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

Starting with the topline second quarter sales increased 8% from a year ago period in constant currency sales grew 10% mainly attributable to the higher volume and product mix and our consumer segment, partially offset by the sharp volume declines in our 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 sales 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 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 capabilities, we have 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 a 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 even strengthened to execute this challenging time and help for consumers and customers navigate through 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 co floor at home.

And in the data just released this past Tuesday for the week ended 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% or in the second quarter.

Difference between the U.S. high rise scanner sales growth in our shipments country 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. brand itself.

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

The growth rates in the majority of our categories are outpacing the total store and center of store growth rate 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 use to flavored the 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 top communication.

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

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

With the retailer focused on keeping core items.

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.

For growing our household penetration across our portfolio with a 16% increase compared to last year, which is millions of new households gain 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 launched our new U.S. Mccormick brand advertising campaign, it's going to be great, which is the strongest scoring 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 at messaging to focus on cooking at home and drive growth.

We're planning to increase our brand 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 grading and deploying new videos and tutorial arranged for easy week night meals, using pantry staples bread, making and 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 consumers accelerating their online presence.

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

One of the ways being or flavor maker app.

Organic search visits to our Mccormick Dotcom site grew 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 them 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 one to one connection and putting a true faced the Mccormick.

Tumors are tagging Mccormick with post, but their user generated content and 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 workshops.

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

Our marketing excellence 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 Ashtec tacos, together and the hopes of encouraging others to augment mccormick from $1 million donation and support the no Kid hungry campaign working to ensure children have reliable access to food during this ongoing Dennis.

Tacos together garnered over 800 million impressions across the media landscape exceeding our own expectations of a reach and importantly, creating visibility because it's 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%.

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

Both in our bottom neighborhood to 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 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 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 markets using data driven real time insights for example that created a social listening dashboard understand the changing needs and topics most relevant to our consumers during to cope with 19 crisis.

Baking being the highest trending topic during the crisis, we partnered with culinary websites to 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 relevance we created cooking at home website sections, but health and wellness landing pages, putting 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 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 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 rules on operations, located which had an extended locked down into early April the move on disruption negatively impacted the APV consumer growth by 26 percentage.

Ports.

Declines in 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 in our condiment portfolio doubling or tripling their sales for the second quarter of last year.

We need 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 challenged 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 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 period. 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 for our own direct to consumer property in all of our major markets.

We expect the shift to online shopping behavior to continue and we're well positioned for it to 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 'cause away from home dining was significantly curtailed due to the cobot 19 restrictions for the partial offset from continue.

Growth in sales through our packaged food cost or.

Notwithstanding the covert 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% 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 dispute more to that channel and our quick service restaurant customers retail takeaway and delivery auction, although the flippant limited men.

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

Sure Colin area, and marketing support fleets 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 to provide solutions such as modifying menus for Korea 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 offerings further.

In EMEA, where we had expected the most significant rate of decline from the Coke 19 pressures our sales were 31% floor at constant currency for 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 adapted their models and reopened in June offerings limited menus for delivery and drive through bolt on it remained close.

They have established aggressive recovery plant, we're demonstrating our speed and agility scaling our operations backup that meeting customer demand on an accelerated talks cable.

In the Asia Pacific region due to the cope with 19 Lockdowns 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.

With once the rest are 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 to remain to open in 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 important growth driver in this region.

Moving forward, we continued to work with all our customers to manage through the recovery phase as Covance 19 measures are lessen the strong differentiated partnerships. We built with our customers enabled are 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 ups 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.

I'm 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 have 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 of quality of ingredients and the desire to buy heritage brands.

This resonates even more today than ever before.

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

Our lined up 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 product and through our customers products drive sales growth.

These long term behaviors have not only remains intact during the crisis, but had 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, our trusted by consumers and customers worldwide.

We're continuing to drive sales growth Dallas for their focus on lowering cost to expand margins and sustainably realized earnings growth. We have a solid foundation and in an environment continues to be dynamic and 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 as reinforcing our confidence that they will continue to drive future growth.

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

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

Thank you for your attention and then as 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 segments offset by significant declines in our flavor solution segment.

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

The shift 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% and constant currency versus the second quarter of 2019.

The increase was broad based with significant growth across 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.

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 at <unk>, which as long as 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 have 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 to service customers. In addition to quick service restaurants.

Partially offsetting the decline for increased sales to packaged 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 package 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.

I've seen on slide 23, adjusted operating income, which exclude 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 offsets MCC I led 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 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 year at.

We are projecting another year of strong cash flow.

We returned $165 million, a 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 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 high level of uncertainty around the pace and shape of the coke 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 shifting consumer consumption will continue and the increase purpose 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 to perform at two could rebound to gradually throughout the second half of the year.

However, not returning to the same level as 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.

See I savings of approximately $105 million 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 expecting it to continue in the second half of year.

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 bars for some additional remarks before we move to your questions.

Thanks, 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 product 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 capitalizing on 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 see relate to move your questions from the Q.

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

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

Good morning, everybody.

Hey, good morning header 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 you know to that 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 it will try to speak up.

The.

The the the mix of customers within that.

[noise] 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.

Solid double digits.

Others of whom clue store, who are Dell.

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 or have been depressed and are not up to occur performance.

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

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

Contributed to a to an attack.

On a go on US with did see an initial to big surge from those customers during the during the socket period and as they adjusted their supply chains.

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 rate also that Andrew that one of the things that different about mccormick versus the rest of the industry is that for most of our product.

So herbs spices and seasonings.

And then ordinance like mustard, and and Red Hot fresh Red Hot.

It doesn't matter, whether the consumer cook the products 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 food takeaway away from premise consumption and Frank said.

Isn't care, if you bought it at all or a few or if we cook.

Correct.

Well that that Franks thick Buffalo ranch sauce, I can tell you.

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

Thank you do we appreciate every package you know our anytime a dry yeah, that's great salad dressing [laughter]. The trial, we've gotten on the new products. We've launched early than one of the a 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 you 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 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 and I will gladly sorry.

[laughter] He Oh you know.

Want to make sure that were really clear on on on this on this point yeah. We are 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.

That's not only not been curtailed that we flip 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 possible and it's part of us coming out of this as a stronger company the promotional matters or with a different with it.

Surge in demand.

We've had two.

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 such huge surge and today we have.

And our us business had a a sustained.

Surgeon.

Poland growth in demand.

No I don't really want to call. It a search 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 working with our customers or 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 cancel 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 a promotional activities that but through.

I would say through May we largely suspended.

Trade promotion activity.

Thank you for that right now.

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

About 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.

Even though its underlying 24 to 25, we set for the year would be around 22 because of some of the things. We're doing it has a global company, who 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.

Losses gains around the world. So we have a great tax team that works on these things and its a.

If you can 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 there's things can happen.

Hey, Ken before we.

Yes, sorry.

We'll have to do 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 reversal of that that's it's no definitely not no on everything about it.

Hey, you can just one more point on the promotion. So you know even 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 nothing 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.

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 <unk> you mentioned that is one of the factors.

Explained the discrepancy between consumer growth consumption growth and 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 or are you going to try to.

Reinstate inventory levels back to normal or is it just kind of like hand to mouth.