Q2 2021 McCormick & Company Inc Earnings Call

July 1, 2021

To accompany this call we've posted a set of slides at IR Dot Mccormick Dot com.

We'll begin with remarks from Lawrence <unk>, Chairman, President and CEO, and Mike Smith, Executive Vice President and CFO and will close with a question and answer session. During this call. We will refer to certain non-GAAP financial measures. These include information and constant currency as well as adjusted gross profit margin adjusted operating income.

Adjusted income tax rate adjusted income from unconsolidated operations and adjusted earnings per share that exclude the impact of special charges transaction and integration expenses related to the acquisition of Chula and phone and a gain realized upon the sale of our consolidated operations reconciliation to the GAAP.

<unk> are included in this morning's press release and slides and our comments certain percentages are rounded. Please refer to our presentation for complete information. In addition, as a reminder, today's presentation contains projections and other forward looking statements actual results could differ materially from those projected the company undertakes no obligation to us.

Date or revise publicly any forward looking statements, whether because of new information future events or other factors as seen on slide 2 our forward looking statement also provides information on risk factors that could affect our financial results I will now turn the discussion over to Lawrence.

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

Throughout the pandemic, we remain steadfast on our focus on our growth performance and people strategies.

And the health and safety of our employees and positioning and Mccormick to emerge stronger from the crisis.

We continue to execute from a position of strength with a combination of our business model. The strategic investments, we've made and capabilities. We've built those on organization abroad, and incentives global flavor portfolio and acceleration of consumer trends that our strategies to capitalize on and the effective execution of those strategies as well as our recent act.

Physicians are 2 fantastic businesses, and importantly engagement per employees have positioned us well to drive differentiated growth despite challenging comparisons as we lap very strong growth last year.

Our second quarter results were strong on top of our exceptional second quarter performance last year and also reflects a robust growth momentum on a 2 year basis as seen on slide 4 we.

We delivered significant double digit 2 year growth rates for sales adjusted operating income and adjusted earnings per share and expanded adjusted gross profit and adjusted operating margin.

Even considering increased COVID-19, and inflation costs as well as planned brand marketing investments, we are driving growth through executing on our long term strategy.

<unk> responded to changing consumer behavior, and capitalizing on new opportunities.

Our emerging stronger.

As we enter the second half of the year, we continue to be confident and the effectiveness of our strategies our growth trajectory and that we are well positioned to deliver another year of differentiated growth and 2021 with an even stronger outlook.

On slide 5 we have a broad and advantaged global flavor portfolio with compelling offerings for every retail and customer strategy across all channels.

Breadth and reach of our portfolio across segments geographies channels and customers and product offerings.

On a balanced and diversified portfolio to drive consistency and our performance on a volatile environment as evidenced again by our second quarter results.

During last year's second quarter, the onset of the pandemic drove a surge and consumers cooking and eating more at home.

And on consumption, resulting in a substantial increase and our consumer segment demand as well as increases with our packaged food customers food company customers and our flavor solutions segment last.

And last year, we also experienced a sharp decline and demand from our restaurants and other foodservice customers from the away from home products and our portfolio are.

Our second quarter results reflect the lapping of these year ago comparisons as well as the sustained shift to consumer at home consumption higher than pre pandemic level and the robust recovery from away from home customers.

Our second quarter results also included strong contributions from our <unk> and phone on acquisitions, which further extended the breadth and reach of our portfolio with new product offerings channels and customers.

Taken together these impacts continue to demonstrate the strength and diversity of our offering and were confident and our balanced portfolio and will continue to differentiate mccormick and sustainably position us for growth.

Let me cover the highlights of our second quarter results.

Turning to slide 6.

Total second quarter sales grew 11% from the year ago period, and constant currency sales grew 8% attributable to substantial growth and our flavor solutions segment, partially offset by a decline and our consumer segment, both impacted by the factors I mentioned a few moments ago.

The considerable shift and sales between segments resulted in an adjusted operating income declined 1% or 4% and constant currency.

Bottom line, our second quarter adjusted earnings per share was <unk> 69, compared to <unk> 74, and the year ago period, driven lower primarily by a higher tax rate.

As we stated in our March earnings call, we expect growth to vary by quarter and 2021, given 2000 twenty's level of demand volatility and the pace of COVID-19 recovery and importantly, though we started the first half of the year with outstanding performance year to date, we've grown sales and adjusted operating income and <unk>.

Gene percent and 14% per cent year over year, respectively. Both of which include 3% favorable impact from currency and we've grown adjusted earnings per share of 10%.

While Mike will provide more details on a few moments I'd like to comment on our outlook with our first half results and our robust operating momentum we are increasing from 2021 outlook for sales adjusted operating income and adjusted earnings per share.

We are operating and the dynamic cost environment, and we're certainly not unique and experiencing cost pressures, we're seeing broad based inflation across our various commodities packaging materials and transportation costs.

The offset rising costs, we are raising prices, where appropriate, but usually there that lag time associated with pricing, particularly with how quickly costs are escalating and therefore most of our actions won't go into effect until late 2021.

As pricing discussions are ongoing we can't provide further specifics.

Have a demonstrated history of managing through inflationary periods with a combination of pricing and cost savings.

Now, let's turn to our second quarter segment business performance, which will include comparisons to 2019 pre pandemic level as we believe these to be more meaningful and the comparisons to 2020, given the dramatic shifts in consumer consumption tweet at home and away from home experience and the year ago period.

Starting on slide 7 with our consumer segment comparing to the highly elevated demand levels and the second quarter of last year sales declined by 2% on constant currency, 5% on.

Our consumer segment organic sales momentum on a 2 year basis was up double digits, highlighting how sustained shifts and consumer consumption continues to drive increased demand for our products and importantly, outpaces pre pandemic levels.

Our Americas constant currency sales declined 7% and the second quarter with incremental sales from <unk> to Lula acquisition contributing 3% growth.

Our total Mccormick U S branded portfolio consumption as indicated and our IRI consumption data and combined with unmeasured channels declined 26% following a 55% consumption increase and the second quarter of 2020.

The difference between year over year shipment and consumption change is attributable to 2 factors first we under ship consumption and the second quarter of last year.

We continue to replenish retailer and consumer pantry inventories that were completed throughout last year.

And has remained high and we continue to realize the benefits of our U S manufacturing capacity expansion.

The router first half of the year, we restored products, which had been suspended at the end of last year and continued to see service levels improve and we're refilling the inventory pipeline as we have said previously inventory replenishment will progress throughout the year through.

And through working with our customers on improving shelf conditions, we estimate approximately 90% of the suspended products are now back on shelf.

We know and the categories, most impacted by supply constraints spices, and seasonings and dry recipe mix. There is a high correlation between our share performance and the shelf conditions, resulting from product suspension for allocation.

<unk> had strong supply and remained on shelf performed well and have suspended products are restocked on shelf. We're seeing improved performance. This improvement was somewhat masked due to the lapping of significant overall share gains from the second quarter of last year Importantly, we continue to anticipate regaining share as conditions continue to improve.

Focusing further on our U S branded portfolio, our IRI consumption data combined with unmeasured channels indicates consumption of the portfolio grew 18% versus the second quarter of 2019 led by significant growth and spices and seasonings and hot sauces and also includes triple digit pure.

<unk> growth and e-commerce with Mccormick branded consumption outpacing all major categories.

This is the third consecutive quarter, our U S branded portfolio consumption grew double digits and the mid to high teens versus the 2 year ago period, which reflects the continuation of consumers cooking and using flavor more at home and the strength of our categories.

Our key categories continued to outpace the center of store growth rates favorably impacting not only the mccormick brands, but smaller brands as well.

Household penetration and repeat buyer rates are also growth versus 2019, and when our consumers shop. They are buying more of our products and they were a prepaid debit.

And finally for the Americas, our initiative to reinvent the in store experiences for spices, and seasonings consumers with new merchandising elements to improve navigation and drive inspiration is yielding great. Early results were implemented the category and Mccormick branded growth is outpacing the rest of the market.

Plan to implement this and thousands of additional stores and the third quarter.

Now turning to EMEA, which has continued its outstanding momentum, we had strong market share performance and the second quarter versus last year, maintaining or gaining share and our core brands and markets. Following the strong gains and the second quarter last year.

Notably, both Schwartz, Andrew Crow, spices, and seasoning as well as Frank's Red Hot grew consumption during the second quarter against a strong comparison to double digit growth last year and not only are we retaining new households, we gained last year, but we are also continuing to increase household penetration for the fifth consecutive quarter.

Sure.

Our investments and brand marketing and EMEA, which significantly increased in the second quarter compared to last year are proven to be effective as evidenced by the metrics I just discussed as well as our achieving above benchmark rates for reach engagement and click through for instance, and our digital marketing. Additionally, the creativity.

And our robot and they have P birthday campaign received national media attention and France, as well as a prestigious award for its excellent and advertising and design on.

On a 2 year basis compared to the second quarter of 2019, we drove double digit consumption growth and market share gains and our core categories and markets, including total EMEA region, spices, and seasonings, phosphonate homemade desserts, and France, and both Schwartz recipe mixes and Frank spread hot and the U K.

Since the beginning of the pandemic, our EMEA supply chain has been very well positioned positioned to meet the elevated demand and has contributed to our ability to grow share across the region.

And the Asia Pacific region second quarter sales growth was strong.

During this time last year, China's Hubei Province, where our Wuhan operations are located remains and Lockdowns and part of the second quarter and our results reflect the recovery from that as well as the recovery of branded foodservice sales and China. China's foodservice is almost fully return to pre pandemic levels with restaurant home delivery incur.

<unk> and popularity.

Our consumer product demand declined due to lapping significant growth last year.

And Australia, we continue to see elevated consumption and share gains versus the second quarter of 2019, with French red Hot and subs consumption growing triple digits, and gaining share and gourmet garden, Mccormick and teens Spice and seasonings outpacing the category with double digit consumption growth.

Across all our regions, our new products continue to be integral to our growth and we're gaining significant momentum with our recent launches for instance, our grill mates all purpose seasoning and our Frank frozen appetizers are driving growth and the Americas as consumers have shifted their thinking about convenience from no cooking to cooking easily and and <unk>.

The rollout of our first choice glass bottle into the eastern European market is going very well, increasing our relevance with consumers and driving share gains as they perceive the glass bottle at a premium to <unk>.

Moving forward, while we know we will be lapping challenging year over year consumption comparisons and a second half of the year. We are confident that we continue to capture the momentum and our consumer segment, we have more consumers and pre pandemic if come into our brands are having a good experience and are buying our products again, we are excited about our growth.

Trajectory and expect continued and long lasting growth from a sustained shift and consumers cooking more at home fueled by our brand marketing new product and category management initiatives as well as growth from our Tallulah acquisition.

Turning to slide 8 our flavor solutions second quarter results include not only recovering from significant curtailment of away from home dining during last year's second quarter and also the growth momentum, we are gaining with our restaurants and other foodservice customers as well as the continued strong momentum with our packaged food and beverage customers.

And the second quarter, our sales rose, 39% or 34% and constant currency with double digit growth and all 3 regions and on a 2 year basis. Our sales also increased double digits and all 3 regions.

And the Americas, our phone and Tallulah acquisitions acquisitions, and a strong contribution to our significant growth and the second quarter and we are executing on our strategy to shift our portfolio to more value added and technically insulated products.

We continue to see strong growth on our consumer packaged food customers, while executing on our portfolio migration.

And through new products and base business strength compared to last year's second quarter snack seasonings grew double digits with strong growth and core iconic products as well as new products and the innovation pipeline continues to be robust.

Consumers rising global demand for hot and spicy flavors is driving growth for our customer snacks and for our seasonings that flavor, though.

And with the flavored hard seltzer trend accelerating we are winning new business and growing our flavor sales for beverages considerably up triple digits and the second quarter.

Demand from our Americas away from home customer base for branded foodservice and restaurant customers increased significantly due to the recovery I mentioned, a few moments ago.

Our away from home rebound in this region is at a slower pace as our customer base is more skewed to branded foodservice.

We anticipate our demand from this channel will strengthen as the year progresses and more dining options reopened.

And EMEA as we cycled a significant decline and last year's second quarter from region wide shutdowns. Our growth was substantial our sales to quick service restaurants, or <unk> more than doubled from the second quarter of last year and increased double digits from the same period and 2019.

<unk> strength and the UK.

Turning to our consumer packaged food and beverage customers. We had strong second quarter performance on top of last year's strong growth with growth and flavors for sweet beverages, and the hot and spicy trend fueling both base and new product growth and snack seasonings.

Our sales growth and the Asia Pacific region was partially due to the recovery from Lockdowns and closures and curfews and countries outside of China. During the second quarter of last year as well as continued momentum and Australia from <unk> customers and limited time offer. Additionally, China, where <unk> were opened and the second quarter of last year.

<unk> double digit growth due to significant momentum and limited time offers as well as strength and the core business.

Across all regions, we recognize a large part of our second quarter flavor solutions results were due to the comparison to abnormally low away from home demand last year.

Fortunately, though our growth also includes contributions from Kona and shall move on strong growth with packaged food and beverage customers. Both on the base business and and new product wins, driven by our differentiated customer engagement and continuing momentum on <unk>, partially from their limited time offers and promotional activities.

While we know a portion of our second half growth will still be impacted by recovery, our second quarter results and our effective growth strategies bolster our confidence and returning to our robust pre pandemic growth trajectory and our flavor solutions segment.

Now for a brief update on how we're driving growth with Janullah and phone on starting with Tallulah on slide 9.

And our consumer segment Tallulah continues to outpace category growth and gained share growing consumption and 54% since the second quarter of 2019.

Using our category management expertise to expand distribution points, including with the 2 ounce bottle size and expansion into new channel optimize shelf assortment and placement and gained momentum and E Commerce virtual Lula has been underpenetrated.

And our increasing awareness through brand partnerships, such as with Hello, fresh and door dash as well as through brand marketing investments and by leveraging promotional scale across Mccormick brand, including <unk> best ever Cinco de Mayo promotion with double the merchandising for 2019 and scale with Mccormick Taco seasoning on.

Our initiatives are yielding results, we have grown total distribution points, and 11% and household penetration and 5% since the second quarter of 2020, we recently launched <unk> wing sauces, and also relaunched the green pepper and Chipotle flavors with cleaner formulas.

And and our flavor solutions segment, we are using our culinary foundation and insights on menu trends and grow our back of house foodservice penetration by increasing <unk> net new participation since the beginning of the year, we've driven a 63% increase and U S national chain restaurant location activating a tallulah branded limited time on.

We are winning and foodservice.

Now moving to phone and we're excited by year to date double digit sales growth compared to last year beverages, with particular strength and the fast growing performance nutrition category continued to drive significant growth portfolio, 14% on a year to date basis.

We're driving growth with our global footprint for example by leveraging <unk> infrastructure, we are expanding flavors for our top phone a customer into the EMEA region, but the first order being manufactured this month.

We're also leveraging Mccormick sustainability leadership to create new opportunities with phone customers.

Combination of our capabilities has created new opportunities to bid on customer briefs and capitalize on our core strengths across Mccormick and phone app, including Mccormick culinary focus and bonus speed to market.

Bonus year to date, new product wins and its pipeline potential has hit record highs fueling future growth.

We have also identified longer term opportunities to optimize our combined assets and technologies across the network to expand our capacity and drive further solutions for our customers customer reaction has been extremely positive. They are impressed with the early collaborations and excitement about our increased customer value proposition continues to build.

Our enthusiasm for Tallulah and photo and our confidence we will deliver on our acquisition plans accelerate growth with these portfolios and drive shareholder value and continue to strengthen and in fact, we're now projecting the incremental sales contribution of these acquisitions to be at the high end of our 3.5% to 4% guidance range.

And.

And I would like to share some of our insight and long term consumer trends as seen on slides 11 and 12.

Global demand for flavor remains the foundation for our sales growth, we are capitalizing on the growing consumer interest and healthy flavorful cooking trusted brands as well as digital engagement and purpose minded practices.

These long term trends and the rising global demand for great taste are as relevant today as they have been in the past with the younger generation is continuing to fuel the demand for flavor and a greater rate.

As we've shared previously our proprietary consumer survey data supported by external research tells us that consumers are enjoying the cooking experience that provides a creative outlet fixed and feel adventurous reduces stress and connects the family and they feel home cooked meals are healthier.

And a recent consumer survey from 968% of U S. Consumer survey state they are cooking more today than pre pandemic and 78% claim day would maintain or increase their level of cooking at home.

Return to normal next week with no meaningful difference between those vaccinated and does not research indicates a continued increased level of cooking and other countries as well.

Consumers have formed new habits, and invested in new kitchen appliances, and we want to try new things.

Want to Cook vs have to cook, but the majority of food from restaurants being consumed at home and over 70% of U S. Consumers are adding their own spices, and seasonings and condiments and further flavor their takeaway or deliver food channels have become blurred and lunch is the new meal to prepare at home with hybrid workplace models more common Poe.

Pandemic, allowing employees to split time between the office and home research indicates at home lunch occasions, increasing up to 30%.

We believe consumer behavior, and sentiment driving accelerated and sustained preference for cooking at home will continue globally and persist beyond the pandemic and combined with the effective execution of our growth strategies will further drive consumer demand for our products and 2021 and beyond.

Moving to slide 13, we are making transformative investments, which will enable us to sustainably meet increasing demand both for our products and our customers' products, we're investing and our supply chain to expand our capacity and capabilities as well as increase our resiliency. For example, we are increasing our continent and seasoning.

<unk>, we plan to optimize our distribution network for their new northeast U S distribution center, our largest and the world and we are and the final stages of building a new UK flavor solutions manufacturing facility, which is on track to become Mccormick's first net zero carbon and building these investments will enable us to remain.

Agile and scalable and deliver the future growth that we expect.

Now for some summary comments.

First I'm pleased to share and important milestone from Mccormick with our overarching focus on growth and the successful execution of our strategies, we have consistently driven industry, leading revenue growth, resulting and Mccormick being named the latest Fortune 500 list of companies by Fortune magazine.

We're proud of our sustained performance and being included on this prestigious list.

We take pride in delivering our industry, leading financial performance, while doing the right thing with responsibility to the long term vitality of people communities and the planet we share and.

And may we renamed and diversity, Inc. Top 50 company for the fifth consecutive year. This recognition is a testament to our emphasis on embracing and leveraging diversity and inclusion globally as well as our broader ESG efforts.

In summary, our fundamentals momentum and growth outlook continues to be stronger than ever our alignment with long term consumer trends and the breadth and reach of our portfolio and a robust operating momentum combined with the successful execution of our strategies bolsters, our confidence and delivering another strong year of growth and performed.

And 2021.

Following an extraordinary year and 2020 or 2021 outlook reflects both our strong underlying base business performance and acquisitions driving significant sales growth as well as strong operating income growth, even considering extraordinary COVID-19 costs and our business transformation investments.

Our top tier long term growth objectives remain unchanged and we sit we are sustainably positioned for growth I would like to recognize and thank mccormick employees around the world for their dedicated efforts and engagement. They have done a tremendous job navigating this past year's volatile environment and ensuring we emerged stronger.

With their agility teamwork and passion for flavor and winning a drive our momentum and success now I will turn it over to Mike Mike.

Thanks, Lawrence and good morning, everyone for the reasons Lawrence mentioned my comments will also include comparisons to 2019.

Our second quarter performance was very strong starting with our top line growth as seen on slide 17.

We grew constant currency sales, 8% during the second quarter compared to last year with incremental sales from our chip Lula and <unk> acquisitions contributing 5% across both segments.

Volume and mix drove a 3% increase and organic sales with flavor solutions growth offsetting a decline and the consumer segment.

Versus the second quarter of 2019, we grew sales, 18% and constant currency.

During the second quarter, our consumer segment lapped exceptionally high demand for our products driven by the surge and consumers cooking more at home at the onset of the pandemic as.

As such versus last year, our second quarter consumer segment sales declined 5% and constant currency, which includes a 2% increase from the <unk> acquisition.

Compared to the second quarter of 2019 consumer segment sales grew 22% and constant currency.

On slide 18, consumer segment sales and the Americas lapping the demand surge and the year ago period declined, 7% and constant currency, including a 3% increase from the acquisition of <unk>.

Compared to the second quarter of 2019 sales increased 26% and constant currency with significant broad based growth across the Mccormick branded portfolio.

And in EMEA constant currency consumer sales declined 4% from a year ago also due to lapping the high demand across the region last year.

Notably this decline includes growth and our U K and eastern European markets on top of their significant growth last year, which was more than offset by declines in the regions other markets.

On a 2 year basis sales increased 21% and constant currency versus 2019 pre pandemic levels with double digit growth and all markets across the region.

Consumer sales on the Asia Pacific region increased 15% and constant currency due to the recovery of branded foodservice sales as well as recovery from the extended disruption and Wuhan last year with a partial offset from the decline and consumer demand as compared to the elevated levels and the year ago period.

Sales were comparable to the second quarter of 2019, including a sales decline and India, resulting from a slower COVID-19 recovery.

Turning to our flavor solutions segment on slide 21.

We grew second quarter constant currency sales, 34%, including a 9% increase from our <unk> and <unk> acquisitions per.

The year over year increase was primarily due to a higher sales of away from home products and our portfolio across all regions.

Compared to the second quarter of 2019 flavor solutions segment sales grew 13% and constant currency.

And the Americas flavor solutions constant currency sales grew 30% year over year with founder and chiller contributing 13%.

Volume and product mix increased driven by significantly higher sales to branded foodservice customers as well as growth to packaged food and beverage companies with particular strength and snack seasonings and beverages.

On a 2 year basis sales increased 12% and constant currency versus 2019 with higher sales from acquisitions and packaged food and beverage companies, partially offset by the exit of some lower margin business and EMEA constant currency sales grew 65% compared to last year due to increased sales to <unk> and branded food <unk>.

And this customers as well as continued growth momentum with packaged food and beverage companies.

Constant currency sales increased 16% versus the second quarter of 2019, driven by strong sales growth with packaged food companies and <unk> customers.

And the Asia Pacific region flavor solutions sales rose, 23% and constant currency versus last year led by growth for <unk>, and China and Australia.

Due to new products and our customers' limited time offers and promotional activities as well as the recovery from COVID-19, Lockdowns in countries outside of China, and the year ago period.

Sales grew 15% and constant currency versus the second quarter of 2019.

As seen on slide 25, adjusted operating income, which excludes transaction and integration costs related to the Lula and <unk> acquisitions as well as special charges declined 1% core and constant currency, 4% and the second quarter versus the year ago period.

Adjusted operating income and the consumer segment declined 24% to $177 million or.

Or and constant currency, 26% driven by primarily by lower sales.

And the flavor solutions segment, adjusted operating income rose, 183% to $81 million.

Our 175% and constant currency.

Driven primarily by higher sales.

Both segments were favorably impacted by product mix and CCI led cost savings with a partial offset from cost inflation, including transportation costs.

COVID-19 related costs were comparable to the year ago period and.

Additionally, and the consumer segment brand marketing expenses increased 15% from the second quarter of last year.

As seen on slide 26, our selling general and administrative expense as a percentage of sales increased 10 basis points with the increase in brand marketing, partially offset by leverage from sales growth.

Adjusted gross profit margin declined 190 basis points and adjusted operating margin declined by 200 basis points and.

In addition to the factors I just mentioned the sales shift between segments unfavorably impacted both margins.

And importantly versus the second quarter of 2019, we expanded adjusted gross profit margin 40 basis points and adjusted operating margin 10 basis points, even considering incremental COVID-19 costs cost inflation and higher brand marketing investments.

Turning to income taxes, our second quarter, adjusted effective tax rate of 22, 2% compared to 18% and the year ago period.

Both periods were favorably impacted by discrete tax items with a more significant impact last year, 2 weighted discrete tax item related to the refinement of our entity structure.

Adjusted income from unconsolidated operations declined 2% and the second quarter of 2021.

At the end of March we completed the sale of our minority stake and eastern economies.

1 of our joint ventures and the idea.

For 2021, we now expect a low single digit decline and our adjusted income from unconsolidated operations, partially due to the elimination of ongoing income from Easter.

Previously we were projecting a low single digit increase.

At the bottom line as shown on slide 29 second quarter 2021 adjusted earnings per share was <unk> 69.

Compared to <unk> 74 per the year ago period.

The decline was primarily driven by a higher adjusted income tax rate.

As compared to the second quarter of 2019, our sales growth drove a 19% increase and adjusted earnings per share.

On slide 30, we've summarized highlights for cash flow and the quarter and balance sheet.

Our cash flow from operations was $229 million to the second quarter of 2021.

Compared to $355 million from the second quarter of 2020.

This change primarily resulted from a lower level of cash generated from working capital associated with increased sales and higher incentive compensation payments and the payment of transit action and integration cost related to our recent acquisitions and.

We returned $182 million and this cash to our shareholders through dividends and used $113 million per capital expenditures through the second quarter.

We expect 2021 to be another year of strong cash flow driven by profit and working capital initiatives and our priority is to continue to have a balanced use of cash funding investments and drive growth returning a significant portion to our shareholders through dividends and paying down debt now turning to our 2021 financial outlook on slides 31 and 32.

With our broad and advantaged flavor portfolio, a robust operating momentum and effective growth strategies, we are well positioned for another year of differentiated growth and performance for 2021, we're projecting top line and earnings growth from our strong base business and acquisition contribution with the earnings growth partially offset.

By incremental Covid, 19 costs, and ERP investment as well as per higher projected adjusted effective tax rate.

We expect there will be an estimated 3 percentage point favorable impact of currency rate on sales and increased from 2% previously and for.

For the adjusted operating income and adjusted earnings per share. We continue to estimate a 2 percentage point favorable impact of currency rates.

At the top line due to our strong year to date results and robust operating momentum we are increasing our expected constant currency sales growth to 8% to 10% compared to 6% to 8% previously.

This includes the incremental impact of the Cholewa and stone and acquisitions projected to be at the high end of the 3.5% to 4% range we.

We anticipate our organic growth will be led by higher volume and product mix driven by our category management brand marketing new products and our customer engagement growth plans.

<unk> taken to partially offset cost inflation is also expected to contribute to sales growth.

We are now projecting our 2021 adjusted gross profit margin to be 80 to 100 basis points lower than 2020.

Our previous projection was comparable to 2020.

We are increasing our inflation expectation for the year to a mid single digit increase as compared to a low single digit increase previously.

Overall, our projected adjusted gross margin compression reflects unfavorable impacts from sales mix between segments.

And 19 cost and cost inflation, partially offset by pricing as well as margin accretion from the chula and phone and acquisitions.

As a reminder, we price to offset cost increases we do not margin up.

Our estimate for COVID-19 cost remained unchanged at $60 million, and 2021 versus $50 million and 2020 and weighted to the first half of the year.

Reflecting the changes on our sales and gross profit margin outlooks, we are increasing our expected constant currency adjusted operating income growth.

Our adjusted operating income growth rate reflects expected strong underlying performance from our base business and acquisitions and <unk>.

<unk> to be 12% to 14% constant currency growth.

Partially offset by a 1% reduction from increased COVID-19 costs compared to 2020, and a 3% reduction from the estimated incremental ERP investment.

This results and a total projected adjusted operating income growth rate of 8% to 10% and constant currency.

This projection includes the inflationary pressure I, just mentioned as well as our CCI led cost savings target of approximately $110 million.

And it also includes an expected low single digit increase and brand marketing investments.

We also reaffirm our 2021 adjusted effective income tax rate projected to be approximately 23%.

This outlook versus our 2020 adjusted effective tax rate is expected to be a headwind to our 2021 adjusted earnings per share growth of approximately 4%.

We are also increasing our 2021 adjusted earnings per share expectations to 6% to 8% growth.

Which includes a favorable impact from currency.

This increase reflects our higher adjusted operating profit outlook and lower adjusted income from unconsolidated operations as I mentioned earlier.

Our guidance range for adjusted earnings per share and 2021 is now $3 to $3 <unk>.

Compared to $2.97 to $3 <unk> previously.

This compares to $2.83 of adjusted earnings per share and 2020.

This growth reflects strong base business and acquisition performance growth of 12% to 14% and constant currency parse.

Partially offset by the impacts I just mentioned related to COVID-19 costs are incremental ERP investment and the tax headwinds.

I'll now turn it back to Lawrence.

Now that Mike has shared our financial results and outlook in more detail I would like to recap the key takeaways as seen on slide 33.

And the second quarter, we drove exceptional growth despite a challenging year over year comparison, we delivered significant double digit year to date and 2 year growth rates for sales and profit, reflecting a robust growth momentum.

We have a strong foundation and a balanced portfolio, which drives consistency and our and our performance we expect higher at home consumption will persist beyond the pandemic and we are well positioned to capitalize on long term consumer trends, which accelerated during the pandemic, while continuing the momentum we are gaining and away from home consumption.

Our enthusiasm for Tula and phone App and our confidence we will deliver on our plants has only strengthened.

Our 2021 outlook reflects another year of differentiated growth and performance while also investing for the future growth. We expect we are confident we will continue on a growth trajectory in 2021 and beyond and now let's turn to your questions.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad.

Confirmation tone will indicate your line is and the question Kim.

You May press star, 2 and if you'd like to remove your question from the queue.

For participants using speaker equipment and may be necessary to pick up your handset. Please for question Mr. Keith.

Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Good morning, everybody.

Hi, Andrew good morning.

And.

1 question to start off with I know that the last couple of quarters, you've talked about how and some markets that have recovered more fully so let's say China on Australia, you had still elevated consumption trends for the at home business, even as the away from home business has.

Essentially fully recovered.

And I just wanted to get a sense of do you still believe or do you believe that that represents a reasonably good gauge for how we should expect trends to play out here and the U S or maybe where there's some discrete differences between these markets in that regard that you would you would want to highlight and then I've just got a quick follow up yes.

Yes, sure Andrew well first of all we do continue to expect.

Consumer demand for at home cooking products to remain elevated.

Coming out of the out of the pandemic, we're certainly seeing that all over the world.

Our research and survey data with consumers that we commented on just a few minutes ago all points in that direction and the behavior.

Seems to be bearing it out and of course and this quarter.

And.

And then he developed markets, we're lapping the extraordinary consumption on.

Lockdowns were heavily.

And place for the first time.

But even.

And these margin.

At this time, if you look at.

Stacked 2 year you'd see consumption is still up very dramatically versus.

Versus then.

And just all indications are that that's going to be the case, we are seeing foodservice recover and and it is a bit of a paradox that consumer consumption at home seems to be remaining high and food services is recovering we don't believe that people are eating more but we do believe that they are cooking more and.

And that benefits our.

Korean based.

Labor products.

Thanks for that and then just focusing and I guess, specifically on the part of your flavor solutions segment that is that our sales to other CPG companies and I guess I'm curious if we think towards the back half of the year would you anticipate that part of your business to be up year over year, just based on the elevated.

Function levels that we're continuing to see for some other CPG names and packaged food and beverage space sure without trying to dissect flavor solutions too much.

Yes first of all that part of the business had.

<unk>.

Largely returned to its normal growth rate.

Towards the end of last year. It has been strong through this year.

Within our portfolio you can't Miss.

The fact that we've done a big acquisition.

And that flavor solutions space that we're seeing.

Mix of products as well.

Tremendous growth on beverages and innovation around us.

<unk> and <unk>.

And things like that.

With phone and in particular, we tapped into a whole new.

Festival market around nutrition and.

And health products.

And so.

On the portfolio migration is a big driver of our ongoing results and net part of the portfolio as well and that's really part of our long term strategy to migrate the flavor solutions portfolio and this high growth categories like beverages.

Alright, thank you.

Thank you. Our next question comes from the line of Ken Goldman with Jpmorgan. Please proceed with your question.

Hi, good morning.

I wanted to ask alright.

I wanted to ask about the status of inventories and U S. Consumer I think you talked about them being relatively high or low rather last quarter and the rest of the year there'll be a little bit of a build there I'm just curious where you think those inventories stand now the day.

And we build help a lot into Q I didn't necessarily hear you quantify that so I just wanted to a little bit of and update their possible.

Sure Ken and <unk>.

Glad to do that and ill try to quantify it as well and here and here in Q2 of them first of all this is on Americas consumer issue and.

We're shipping to consumption and have been.

And the rest of the world.

And our flavor solutions isn't visit and.

And impacted by this and in Americas consumer.

And we werent able to keep up with the sustained demand and so trade inventories and I think consumer pantry system completed.

And.

And so there has been and needs to do a rebuild you all saw on the shelf.

Especially as we came through the end of <unk>.

Last year.

And the shelf look pretty rough.

Yes.

A number of you on the call and Ken I think maybe you also have written about the PDP and so on but.

We're about 90% of the way to restoring.

On the shelf.

Really.

And the suspensions, we still have a few products on allocation.

And and.

And demand has continued to be really strong zone.

And some.

On cases, very much and the mouth on.

And on some some products.

Good day as a product that we have.

A lot of blending capacity and so were bit hand to mouth on on that 1 believe it or not but.

But in terms of restocking the shelf honestly I wish we had done a little bit more than second quarter yellow I said, we're at 90%.

Hope that at all and all done and.

And there is still more work to do.

Because the demand has just continued to remain high through.

Through this through this period.

If you just do the math.

There's a lot of noise and a year ago numbers on Sofia.

If you take it back to 2000, and then the year ago consumption was up tremendously, but we couldnt ship for that.

Our shipments flagged it.

So.

Fair back to 'twenty.

And <unk>.

Our consumption is up and.

And second quarter, 18% versus versus 2019, our organic sales stripping out acquisitions are up 22% that would suggest there's about a 4% inventory rebuilding impact and.

And the second quarter on our Americas consumer business. So.

That was a factor it's not as big as I think a lot of people and their volume.

Perfect. Thank you for that.

And then I wanted to ask if that was up I wanted to ask on flavor solutions and <unk>.

Margin did improve nicely year on year it is still down.

Over 100 basis points versus 2019, even though your organic sales are up over that time I realize we're a little bit apples to oranges here you've added some businesses, but just curiously how are you thinking about I guess the drivers of the margin recovery from here and maybe the pace of margin recovery over the next couple of quarters.

Yes, I mean as you say Ken this is Mike I mean, we had a large recovery on the margin last year, but pretty much and last but we did and the second quarter of the prior year.

And I think the reality.

And this as some costs go up as we pass through pricing Youre going to have a natural compression and the flavor solutions business, which we've seen in the past.

Yes, we pass through Penny cost as.

As we said.

Covid costs, obviously hit us from the second quarter, although we were comparable to last year overall, but there were some segment mix there.

We do feel that within the flavor solutions category, though.

Volume was filling up.

A nice margin bump, but even within the product portfolio, we see some margin a positive as we migrate from the business. So as we grow sales more and get that get more leverage to the rest of the year. So we're lapping a pretty soft.

<unk> 6 last year.

And we're hopeful that will improve too.

Thanks, Mike.

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

Hi, Thanks for the question.

Hi.

I wanted to know.

And the Americas.

And we've heard.

And any industry that it's a little bit more difficult to negotiate with retailers on merchandising and pricing.

And if you've had continued supply.

Problems maybe.

Maybe your category is different and because of your leadership, it's different but.

What have the conversation has been and.

And regarding that and with your retailer customers hasn't and compromised you at all and getting done what you need to get done.

Well I don't want to get too specific about our conversations with customers from on pricing there is always.

Amount of commercial tension and.

And our pricing discussions, but really confident that we're going to be able to get through the pricing that we need and we take a long term perspective with our customers. They know that we are fair that we are transparent and and our cost there is broad based inflation that's recognized by everybody.

And it's not just us that's going up and isolation as the whole industry.

Moving and so.

And we're pretty confident that we're going to be able to take the pricing that we need and use all of the leverage levels that we have to address costs.

And our pricing certainly has to be part of this whole part of the solution and for cost savings and revenue management sector and to dealing with.

And with inflation issue.

And.

I think we have pretty strong confidence.

These discussions are going to be.

Positive I think too we're continuing to invest and our brand. We are most of the share of voice and the category, which our customers know that and you saw year to date were up nicely on A&P.

And again and the into the third quarter, so that is supporting their business too.

Okay and a follow up question, maybe just for modeling Mike.

Considered quarter profits.

Still be up year over year.

Because you mentioned that theres going to be a lag effect on inflation and I just wanted to make sure and we're getting the phasing right and then I would imagine and fourth quarter do you have a very easy comparison to a year ago because of the inventory because of the supply chain national engines a year ago.

You are overlapping.

Third quarter strong third quarter last year, we had about 8% total growth, 9% constant currency and yes.

The consumer business was stronger.

Comparative flavor last year, so from a segment mix perspective, a little bit of a headwind and the third quarter and and Youre right. The lagging of pricing does help the fourth quarter were also as I, just mentioned higher brand marketing and the third because if you remember last year and the fourth quarter. We had a I think it was around a 20% A&P increase which was continued in Q1 and Q2.

And have data easier fourth quarter comparison from and A&P perspective and.

A little bit from the sales of sales and the fourth quarter for the company growth.

Below that 9% constant currency I mentioned before but I think Mike is talking about kind of the shape associate and try to avoid giving too specific guidance about any particular quarter.

These are our biggest quarters of the year coming up.

And so.

Part of our.

Thinking as we as we set guidance for the year.

Okay, well thank you.

Okay.

Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Good morning, everyone Hello, Alexia good morning.

Hi, there and.

I guess picking up on some earlier questions on <unk>.

And just sort of quantify what your input cost inflation outlook looks like at the moment are we talking about mid single digit cogs inflation, perhaps including the freight component as well.

And get a sense of the order of magnitude there and then I have a follow up.

Sure Alexia, yes, our previous guidance was low single digits, we've moved that to mid single digit and.

And as we said on the call and maybe 3 components, obviously, the freight ocean and the ocean freight we've talked about which is hitting everyone.

Of course, a lot of our products from the Asia market. So there is rates are up but also packaging and due to resin costs and things like that going up and then thirdly commodities, but low single digit to mid single digit and outcome. This year.

Great and then I'm just curious about the market share trends that we're seeing MDI and the U S Nielsen data.

It looks and says it's a shallow capital on the core hubs and spices area on my writing match and that do you expect that to correct going forward or is it just because it's strange comparison from the year ago period at this point, it's a little bit of both and so.

So first yes.

Yes, we do expect that to.

And to turn positive.

And a year ago period, we had heavy supply heavy.

And through second quarter, we were a great stock position, we were building inventory or.

And the ERP pilot and so.

So we had unusually high stock levels.

Finished goods ourselves.

Calling you on that when the crisis hit which enabled us to have extraordinary supply and the early <unk>.

And the.

And then a couple say by the end of second quarter very different situations, but typically enter the quarter with strong and so are our shelf position was really advantaged and then of course, we went through a long period, where we weren't able to meet the demand and.

And our shelf position deteriorated, we had the spend items.

Put them on allocation soft promotion and so on and our and our total distribution points.

Declined.

As a result and and.

So we're comparing against the period of unusual strength at retail and.

And the year ago period ended this period.

And we've got a time when we are rebuilding at shelf position.

So pretty much everywhere, where our we've been able to have good supply.

And and.

And.

Good service to our customers our share has grown and decline that's the case across our markets in Europe versus the case in some categories here and the U S. The real pressure point has been herbs and spices and recipe mixes.

And we're just extraordinarily.

And demand ran down the shelf and as we restore it we're confident that our share position is going to improve.

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

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

Yes, thanks, and good morning, everyone.

Alright, thanks, Paul on that.

Taking a little bit longer term and some of that.

And kind of key takeaways and points, you've been highlighting on the call or talked about the increases and at home consumption.

And have some sticking pass and staying power and that uniquely benefits your portfolio and I'm wondering how if at all that makes you think about the long term organic sales potential of the business and you have a long term 4% to 6%.

Sales growth algorithm that encompasses a little bit of M&A over time so.

2.2.

4.2% to 5% organic and embedded in that.

Due to changes and consumption post pandemic make you think that that long term organic sales growth potential could be higher or and if not why.

I don't think we're going to have raised our long term guidance today.

But.

And our confidence and that long term guidance is.

Really reinforced by but what we're what we're seeing.

There's been a lot of talk about this.

Changes in consumer behavior, but really as an amplification of trends that were already in place that we believe are long term secular trends that underlie our.

Growth and that our strategies are designed to capitalize on and the global demand for flavor has been growing steadily.

I don't even know how long its tremendous amount euromonitor projects global flavor demand and growth of 6% rate going forward for the next 5.5 years and that is really the foundation for our sales growth and then if you just think about compared to 2019 underlying global demand for flavor and growing.

And the absence of a pandemic, 6% CAGR.

You would expect us to be up 12% so.

And I think that the performance that you're seeing is really more of a bleed through of what youre going to see and a post pandemic world.

And our consumers for cooking at home more before the pandemic and we believe that that was accelerated that and people a lot of lapsed Cook had the opportunity to cook everyone learned our grandma on her mother's secret recipes and <unk>.

To prepare on someone and every household has become a very proficient.

And it's been a positive experience for people.

It's been on outlet for creativity, it's brought families together and we think that this is a behavior.

Younger consumers in particular.

And towards healthy flavorful.

<unk> scratch cooking and in particular, among Gen Z and return to trusted brands and brands with some nostalgia.

We think that these are really long term demographic trends that are going to benefit us for a long time, so our confidence and.

And our.

Long term guidance.

Reinforced.

And what we're seeing happen right now thank you on it though.

I think to another testament to our broad based differentiator portfolio, but Adam to your question about our 4% to 6% constant currency long term growth of which a third of that is M&A bolt on M&A and you take that out. So we're high kind of highlighting a 2.5% to 4% is our long term guidance last year constant currency.

And the organic growth was 5% this year and midpoint of our guidance is around 5% too so and we're seeing and good.

Lawrence the acceleration of those trends is reinforcing our belief on that.

Ganic growth of our long term guidance.

Okay. That's helpful and then.

A follow up just a modeling question are you trying to rob's question on that differently.

And just remind us and the third year suddenly and ERP expenses.

And year on year, how much of Thats been.

And already incurred and the and.

And the first half of the year and $50 million of Covid related expenses that you expect in fiscal 'twenty..1 how much has been already incurred year to date and just thinking about the first half.

And the ERP and mostly going to be and that our second half headwind.

And at very low impact year on year and first half.

From a COVID-19 perspective.

We had guided to 60 for this year versus 50 last year and that.

Mostly been occurred and the first half.

Got it Okay. That's really helpful. Alright. Thank you.

Yeah.

Thank you. Our next question comes from the line of Peter Galbo with Bank of America. Please proceed with your question.

Hey, guys. Good morning. Thank you for taking the question good morning, Peter good.

Good morning.

Mike The gross margin just wanted to go back there that the commentary on the new guidance on and what kind of 80 to 100 bps lower.

It sounded like and your comments that actually mix sales mix moving back and flavor solutions might have been a bigger impact actually and cost inflation. So I wanted to clarify that comment and.

Yes.

And to break out those 2 kind of how they impact between mix and then on the cost inflation, yes.

Yes, really and the second quarter. It was mainly segment mix as we set and the costs have been rising, but we have taken us on pricing.

But it's.

It's really around segment mix it in Q2, it changes a little bit and the second fix as we guided.

Our gross.

Margin, probably between 90 and 120 basis points. If you do the squeeze on the gross margin in 2 thirds of that is really where you raise and sales due to some pricing.

And you have offsetting inflation and FX piece, it's not dropping through the profit. So that's about 2 thirds of that compression.

And as some of the lag and the pricing and costs are coming through and the third quarter, Yes, we've got pricing a little later, so it's a little bit of that but it's basically 2 thirds due to math and third due to kind of like the timing of the price.

Okay. Okay, no that's helpful and then.

And maybe just 2 more quick modeling question I didn't see and the guidance anything on on capital spend for the year on interest expense as well.

Yes, we don't.

Youll see and the Q coming out today capital Hasnt changed from last quarter.

And so we don't feel give interest guidance.

Okay. Thanks, so much cash.

Okay.

Thank you, ladies and gentlemen that concludes our question and answer session and I will turn the floor back to Mr. <unk> for any final comments.

Hey, Thanks, everyone for your questions and for participating on today's call Mccormick is differentiated by the breadth and reach of our balanced portfolio, which is sustainably positioned us for growth. We're very pleased with our outstanding year to date operating performance, which proves the strength of our business model the value of our products and our capabilities as a company we expect.

To drive even further growth as we continue to execute on our long term growth performance and people strategies actively respond to changing consumer behavior and capitalize on new opportunities our investments provide a new foundation for growth, while enhancing our agility and our relevance with our consumers and customers, which when combined with our dedicated and engaged employees.

<unk> positions us well for continued success and long term shareholder value creation.

And for everyone listening and the U S. I hope your fourth of July plans includes getting together around the growth with friends and family and enjoying some Montreal steak seasoning, french's mustard and Stubbs barbecue sauce.

Okay.

Thank you Lawrence and thank you everyone for joining today's call and for those of you that might be joining from Canada, and Canada day. Today. If you have any further questions regarding today's information. Please feel free to contact me. This concludes this morning's call. Thank you.

[music].

Good morning. This is Kasey Jenkins Vice President of Mccormick Investor Relations. Thank you for joining today's second quarter earnings call to accompany this call because of a set of slides at IR Mccormick Dotcom, we will begin with remarks from Lawrence Courteous, Chairman, President and CEO and Mike Smith Executive Vice President.

And CFO and will close with a question and answer session. During this call we will refer to certain non-GAAP financial measures. These include information and constant currency as well as adjusted gross profit margin adjusted operating income adjusted income tax rate adjusted income from unconsolidated operations and adjusted earnings per.

Sure that exclude the impact of special charges transaction and integration expenses related to the acquisition of chiller and pharma and a gain realized upon sale of our on consolidated operations reconciliation to the GAAP results are included in this morning's press release and slides and our comments certain percentages are rounded please.

Refer to our presentation for complete information. In addition, as a reminder, today's presentation contains projections and other forward looking statements actual results could differ materially from those projected the company undertakes no obligation to update or revise publicly any forward looking statements, whether because of new information future events or other factors.

And as seen on slide 2 our forward looking statement also provides information on risk factors that could affect our financial results I will now turn the discussion over to Lawrence.

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

The pandemic, we remain steadfast on our focus on our growth performance and people strategies, while ensuring the health and safety of our employees and positioning and Mccormick to emerge stronger from the crisis.

We continue to execute from a position of strength with a combination of our business model. The strategic investments, we've made and capabilities. We've built on as an organization, our broad and advantaged global flavor portfolio, the acceleration of consumer trends that our strategy to capitalize on and the effective execution of those strategies as well as our recent.

Acquisitions of 2 fantastic businesses, and importantly to engagements with our employees have positioned us well to drive differentiated growth despite challenging comparisons as we lap very strong growth last year.

Our second quarter results were strong on top of our exceptional second quarter performance last year and also reflect a robust growth momentum on a 2 year basis as seen on slide 4 we.

We delivered significant double digit 2 year growth rates for sales adjusted operating income and adjusted earnings per share and expanded adjusted gross profit and adjusted operating margin, even considering increased COVID-19, and in place and costs as well as planned brand marketing investments, we are driving growth through executing on.

And our long term strategies actively responding to changing consumer behavior and capitalizing on new opportunities we are emerging stronger.

As seen on slide 5 we have a broad and advantaged global flavor portfolio with compelling offerings for every retail and customer strategy across all channels.

And for each of our portfolio across segments geographies and channels customers and product offerings.

Balanced and diversified portfolio to drive consistency and our performance on a volatile environment as evidenced again by our second quarter results.

During last year's second quarter, the onset of the pandemic drove a surge and consumers cooking and eating more at home auto consumption, resulting in a substantial increase and our consumer segment demand as well as increases with our packaged food customers food company customers and our flavor solutions segment.

Last year, we also experienced a sharp decline and demand from our restaurants and other foodservice customers for the away from home products and our portfolio.

Our second quarter results reflect the lapping of these year ago comparisons as well as the sustained shift to consumer at home consumption higher than pre pandemic level and a robust recovery from away from home customers.

Our second quarter results also included strong contributions from our Tallulah and phone on acquisitions, which further extended the breadth and reach of our portfolio with new product offerings channels and customers.

Taken together these impacts continued to demonstrate the strength and diversity of our offerings and we are confident and our balanced portfolio that will continue to differentiate mccormick and sustainably position us for growth and.

Now, let me cover the highlights of our second quarter results.

Turning to slide 6.

And the considerable shift and sales between segments resulted in an adjusted operating income declined 1% or 4% and constant currency.

Bottom line, our second quarter adjusted earnings per share was <unk> 69, compared to <unk> 74, and the year ago period, driven lower primarily by a higher tax rate.

As we stated in our March earnings call, we expect growth to vary by quarter and 2021, given 2000 twenty's level of demand volatility and the pace of COVID-19 recovery importantly, though we have started the first half of the year with outstanding performance year to date, we've grown sales and adjusted operating income <unk>.

Per cent and 14% per cent year over year, respectively. Both of which include 3% favorable impact from currency and we've grown adjusted earnings per share 10%.

And while Mike will provide more details on a few moments I would like to comment on our outlook with our first half results and our robust operating momentum we are increasing our 2020 outlook for sales adjusted operating income and adjusted earnings per share.

Offsetting rising costs, we are raising prices, where appropriate but usually they are the lag time associated with pricing, particularly with how quickly costs are escalating and therefore most of our actions won't go into effect until late 2021.

As price and discussions are ongoing we cannot provide further specifics we have a demonstrated history of managing through inflationary periods with a combination of pricing and cost savings.

Now, let's turn to our second quarter segment business performance, which will include comparisons to 2019 pre pandemic level as we believe these to be more meaningful from the comparisons to 2020, given the dramatic shifts in consumer consumption tweet at home and away from home experienced and the year ago period.

Starting on slide 7 with our consumer segment comparing to the highly elevated demand levels and the second quarter of last year sales declined by 2% on constant currency, 5%.

Our consumer segment organic sales momentum on a 2 year basis was up double digits highlighted how sustained shift and consumer consumption continues to drive increased demand for our products and importantly, outpaces pre pandemic levels.

Our Americas constant currency sales declined 7% and the second quarter with incremental sales from our Tallulah acquisition contributing 3 percentage growth.

The difference between year over year shipment and consumption changes is attributable to 2 factors first we under ship consumption and the second quarter of last year.

We continue to replenish retailer and consumer pantry inventories that were completed throughout last year demand has remained high and we continue to realize the benefit of our U S manufacturing capacity expansion.

The router first half of the year, we restored products, which had been suspended at the end of last year and continued to see service levels improve and we're refilling the inventory pipeline as we have said previously inventory per Plenish Smith will progress throughout the year.

And through working with our customers on improving shelf conditions, we estimate approximately 90% of the suspended products are now back on shelf.

We know and the categories, most impacted by supply constraints, spices, and seasonings and dry recipe mix, there's a high correlation between our share performance and and the shelf conditions, resulting from product suspension or allocation.

<unk> had strong supply and remained on shelf performed well and and suspended products are restocked on shelf, we're seeing improved performance. This improvement and some are masked due to the lapping of significant overall share gains from the second quarter of last year Importantly, we continue to anticipate regaining share as conditions continue to improve.

<unk> growth and e-commerce with Mccormick branded consumption outpacing all major categories.

And as the third consecutive quarter, our U S branded portfolio consumption grew double digits and the mid to high teens versus the 2 year ago period, which reflects the continuation of consumers cooking and using flavor more at home and the strength of our categories.

Our key categories continued to outpace the center of store growth rates favorably impacting not only the mccormick brands, but smaller brands as well.

Household penetration and repeat buyer rates have also growth versus 2019, and when our consumers shop. They are buying more of our products and they were a prepaid debit and.

And to implement this and thousands of additional stores and the third quarter.

Notably, both Schwartz and new CRO, spices, and seasoning as well as Frank's Red Hot grew consumption during the second quarter against a strong comparison to double digit growth last year and not only are we retaining new households, we gained last year, but we are also continuing to increase household penetration for the fifth consecutive quarter.

Sure.

Our investments and brand marketing and EMEA, which significantly increased and the second quarter compared to last year are proven to be effective as evidenced by the metrics I just discussed as well as our achieving above benchmark rates for reach engagement and click through for instance, and our digital marketing.

Additionally, the creativity of our bottleneck has P berth day campaign received national media attention and France as well as the prestigious award for its excellent and advertising and design.

On a 2 year basis compared to the second quarter of 2019, we drove double digit consumption growth and market share gains and our core categories and markets, including total EMEA region, spices, and seasoning, phosphonate homemade desserts, and France, and both Schwartz recipe mixes and <unk> Red Hot and the U K.

Since the beginning of the pandemic, our EMEA supply chain has been very well positioned positioned to meet the elevated demand and has contributed to our ability to grow share across the region.

And the Asia Pacific region second quarter sales growth was strong.

And us foodservice is almost fully return to pre pandemic levels with restaurant and home delivery increasing in popularity.

Our consumer product demand declined due to lapping significant growth last year and it.

It's too early and we continue to see elevated consumption and share gains versus the second quarter of 2019, with French red Hot and subs consumption growing triple digits, and gaining share and gourmet garden, Mccormick and teens Spice and seasonings outpacing the category with double digit consumption growth.

Across all our regions, our new products continue to be integral to our growth and we're gaining significant momentum for their recent launches for instance, our grill mates all purpose seasoning and our French frozen appetizers are driving growth and the Americas as consumers have shifted their thinking about convenience from <unk>.

No.

Cooking easily.

And in EMEA, the rollout of our first choice glass bottle into the eastern European market is growing very well, increasing our relevance with consumers and driving share gains as they perceive the glass bottle and it's a premium and SaaS base.

Moving forward, while we know we will be lapping challenging year over year consumption comparisons and a second half of the year. We are confident that we continue to capture the momentum and our consumer segment, we have more consumers and pre pandemic. They have come into our brands are having a good experience and are buying our products again, we're excited about.

Our growth trajectory and expect continued and long lasting and growth from the sustained shift to consumers cooking more at home fueled by our brand marketing new product and category management initiatives as well as growth from our Tallulah acquisition.

And the second quarter, our sales rose, 39% or 34% and constant currency with double digit growth and all 3 regions and on a 2 year basis. Our sales also increased double digits and all 3 regions.

And the Americas are bona and Tallulah acquisitions acquisitions made a strong contribution to our significant growth and the second quarter and we are executing on our strategy to shift our portfolio to more value added and technically insulated products. We continue to see strong growth on our consumer packaged food customers, while executing on our poor.

Fully on migration through new products and base business strength compared to last year's second quarter snack seasonings grew double digits with strong growth and core iconic products as well as new products and the innovation pipeline continues to be robust.

<unk> rising global demand for hot and spicy flavors is driving growth for our customers snacks and for our seasonings that flavor.

And with the flavored hard seltzer trend accelerating we are winning new business and growing our flavor sales for beverages considerably up triple digits and the second quarter.

Demand from our Americas away from home customer base, where branded foodservice and restaurant customers increased significantly due to the recovery I mentioned, a few moments ago, our away from home rebounds, and this region is at a slower pace as our customer base is more skewed to branded foodservice, we anticipate our demand from this channel with <unk>.

As the year progresses, and more dining options reopened.

And EMEA as we cycled a significant decline and last year's second quarter from region wide shutdowns, our growth was substantial and our sales to quick service restaurants, or <unk> more than doubled from the second quarter of last year and increased double digits from the same period and 2019, but particularly.

Our strength and the U K.

Turning to our consumer packaged food and beverage customers. We had strong second quarter performance on top of last year's strong growth with growth and flavors for sweet beverages, and the hot and spicy tread fueling both base and new product growth and snack seasonings.

Our sales growth and the Asia Pacific region was partially due to the recovery from Lockdowns closures and curfews and countries outside of China. During the second quarter of last year as well as continued momentum and Australia from <unk> customers and limited time offer. Additionally, China for <unk> were opened and the second quarter of last year.

Delivered double digit growth due to significant momentum and limited time offers as well as strength and the core business.

Across all regions, we recognize a large part of our second quarter flavor solutions results were due to the comparison to abnormally low away from home demand last year importantly, though our growth also includes contributions from phone and to Lula and strong growth with packaged food and beverage customers both on the base business.

And and new product wins, driven by our differentiated customer engagement and continuing momentum of <unk>, partially from their limited time offers and promotional activity.

While we know a portion of our second half growth will still be impacted by recovery, our second quarter results and our effective growth strategies and bolster our confidence and returning to our robust pre pandemic growth trajectory and our flavor solutions segment.

Now for a brief update on how we're driving growth with chiller and phone on starting with Tallulah on slide 9.

And our consumer segment Tallulah continues to outpace category growth and gained share growing consumption and 54% since the second quarter of 2019.

And we're using our category management expertise to expand distribution points, including with the 2 ounce bottle size and expansion into new channel optimize shelf assortment and placement and gained momentum and E Commerce virtual Lula has been underpenetrated.

We are increasing awareness through brand partnerships, such as with Hello, fresh and door dash as well as through brand marketing investments and by leveraging promotional scale across Mccormick brands, including 2 <unk> best ever Cinco de Mayo promotion with double the merchandising for 2019 and scaled with Mccormick Taco seasoning.

And our initiatives are yielding results, we have grown total distribution points to 11% and household penetration and 5% since the second quarter of 2020, we recently launched Tallulah Wink sauces, and also relaunched the green Pepper and Chipotle.

And we've flavors with cleaner formula.

We are winning and foodservice.

Now moving to <unk>.

We're excited by year to date double digit sales growth compared to last year beverages, with particular strength and the fast growing performance nutrition category continued to drive significant growth portfolio, 14% on a year to date basis.

Driving growth with our global footprint for example by leveraging <unk> infrastructure, we are expanding flavors for top zone of customer into the EMEA region, but the first order being manufactured this month.

We're also leveraging Mccormick sustainability leadership to create new opportunities with both new customers.

Combination of our capabilities has created new opportunities to bid on customer briefs and capitalize on our core strengths across Mccormick and filling up including Mccormick culinary focus and bonus speed to market.

<unk> year to date, new product wins, and its pipeline potential and hit record highs fueling future growth.

We have also identified longer term opportunities to optimize our combined assets and technologies across the network to expand our capacity and drive further solutions for our customers customer reaction has been extremely positive and are impressed with our early collaboration and excitement about our increased customer value proposition continues to build.

Our enthusiasm for Tallulah and phone and our confidence we will deliver on our acquisition plans accelerate growth with these portfolios and drive shareholder value and continue to strengthen and in fact, we're now projecting the incremental sales contribution of these acquisitions to be at the high end of our 3.5% to 4% guidance range.

And I would like to share some of her insight and long term consumer trends as seen on slides 11 and 12.

These long term trends and the rising global demand for great taste are as relevant today as they have been in the past with the younger generations continuing to fuel the demand for flavor and a greater rate is.

As we've shared previously our proprietary consumer survey data supported by external research tells us that consumers are enjoying the cooking experience.

It provides a creative outlet fixed and feel adventurous reduces stress and connects the satellite and they feel home cooked meals are healthier.

And a recent consumer survey from day, 68% of U S. Consumer survey state they are cooking more today than pre pandemic and 78% claimed day would maintain or increase their level of cooking at home if things return to normal next week with no meaningful difference between those vaccinated and those not reached.

Which indicates a continued increased level of cooking and other countries as well.

Consumers have formed new habits, they invested and new kitchen appliances and want to try and do things.

Want to Cook vs Africa, but the majority of food from restaurants being consumed at home and over 70% of U S. Consumers are adding their own spices, and seasonings and covenants further flavor their takeaway or deliver food channels have become blurred and lunch is the new meal to prepare at home with hybrid workplace models more common post.

Pandemic, allowing employees to split time between the office and home research indicate at home lunch occasions, increasing up to 30%.

We believe consumer behavior, and sentiment driving accelerated and sustained preference for cooking at home will continue and globally and persist beyond the pandemic and combined with the effective execution of our growth strategies will further drive consumer demand for our products and 2021 and beyond.

Moving to slide 13, we are making transformative investments, which will enable us to sustainably and meet increasing demand both for our products and our customers' product, we're investing and our supply chain to expand our capacity and capability as well as increase our resiliency. For example, we are increasing our continent and seasoning.

<unk>, we plan to optimize our distribution network for their new northeast U S distribution center, our largest and the world and we are and the final stages of building a new <unk>.

Flavor solutions manufacturing facility, which is on track to become Mccormick's first net zero carbon and building. These investments will enable us to remain agile and scalable and deliver the future growth that we expect.

Now for some summary comments.

First I am pleased to share and important milestone from Mccormick with our overarching focus on growth and the successful execution of our strategies, we have consistently driven industry, leading revenue growth, resulting and mccormick being named to the latest Fortune 500 list the company by Fortune magazine.

We're proud of our sustained performance and being included on this prestigious list.

We take pride in delivering our industry, leading financial performance, while doing the right thing with responsibility to the long term vitality of people communities and the planet, we share and <unk>.

Day, we renamed and Diversity, Inc. Top 50 company for the fifth consecutive year. This recognition is a testament to our emphasis on embracing and leveraging diversity and inclusion globally as well as our broader ESG efforts.

In summary, our fundamentals momentum and growth outlook continues to be stronger than ever our alignment with long term consumer trend and the breadth and reach of our portfolio and our robust operating momentum combined with the successful execution of our strategies bolsters, our confidence and delivering another strong year of growth and <unk>.

<unk> and 2021.

Following an extraordinary year on 2020, our 2021 outlook reflects both our strong underlying base business performance and acquisitions driving significant sales growth as well as strong operating income growth, even considering extraordinary COVID-19 costs and our business transformation investments are.

Top tier long term growth objectives remain unchanged and.

We are sustainably positioned for growth I would like to recognize and thank mccormick employees around the world for their dedicated efforts and engagement and they've done a tremendous job navigating this past year's volatile environment and ensure we emerge stronger with their agility teamwork and passion for flavor and winning a.

Drive our momentum and success now I'll turn it over to Mike Mike.

Thanks, Lawrence and good morning, everyone for the reasons Lawrence mentioned my comments will also include comparisons to 2019.

Our second quarter performance with very strong starting with our topline growth as seen on slide 17.

We grew constant currency sales, 8% during the second quarter compared to last year with incremental sales from our chiller and phone and acquisitions contributing 5% across both segments.

Higher volume and mix drove a 3% increase and organic sales with flavor solutions growth offsetting a decline and the consumer segment.

Versus the second quarter of 2019, we grew sales, 18% and constant currency.

During the second quarter, our consumer segment lapped exceptionally high demand for our products driven by the surge and consumers cooking more at home at the onset of the pandemic.

As such versus last year, our second quarter consumer segment sales declined 5% on constant currency, which includes a 2% increase from and attributable acquisition.

Compared to the second quarter of 2019 consumer segment sales grew 22% and constant currency.

On slide 18, consumer segment sales and the Americas lapping the demand surge and the year ago period declined, 7% and constant currency, including a 3% increase from the acquisition of Geneva.

Compared to the second quarter of 2019 sales increased 26% and constant currency with significant broad based growth across the Mccormick branded portfolio.

And EMEA constant currency consumer sales declined 4% from a year ago also due to lapping the high demand across the region last year.

Notably this decline includes growth and our U K and eastern European markets on top of their significant growth last year, which was more than offset by declines in the regions other markets.

On a 2 year basis sales increased 21% and constant currency versus 2019 pre pandemic levels with double digit growth and all markets across the region.

Sales were comparable to the second quarter of 2019, including a sales decline and India, resulting from a slower COVID-19 recovery.

Turning to our flavor solutions segment on Slide 21, we grew second quarter constant currency sales, 34%, including a 9% increase from our <unk> and <unk> acquisitions.

The year over year increase was primarily due to a higher sales of away from home products and our portfolio across all regions.

Compared to the second quarter of 2019 flavor solutions segment sales grew 13% and constant currency.

And the Americas flavor solutions constant currency sales grew 30% year over year.

With founder and chiller contributing 13% <unk>.

Volume and product mix increased driven by significantly higher sales to branded foodservice customers as well as growth to packaged food and beverage companies.

With particular strength and snack seasonings and beverages.

Constant currency sales grew 65% compared to last year due to increased sales to <unk> and branded foodservice customers as well as continued growth momentum with packaged food and beverage companies.

Constant currency sales increased 16% versus the second quarter of 2019, driven by strong sales growth with packaged food companies and <unk> customers.

And the Asia Pacific region flavor solutions sales rose, 23% and constant currency versus last year led by growth with <unk> and China and Australia.

Due to new products and our customers' limited time offers and promotional activities as well as the recovery from COVID-19, Lockdowns in countries outside of China, and the year ago period.

Sales grew 15% and constant currency versus the second quarter of 2019.

As seen on slide 25, adjusted operating income, which excludes transaction and integration costs related to the Lula and <unk> acquisitions as well as special charges declined 1% foreign constant currency, 4% and the second quarter versus the year ago period.

Adjusted operating income and the consumer segment declined 24% to $177 million or and constant currency, 26% driven by primarily by lower sales.

And the flavor solutions segment, adjusted operating income rose, 183% to $81 million or 175% and constant currency.

Driven primarily by higher sales.

Both segments were favorably impacted by product mix and CCI led cost savings with a partial offset from cost inflation, including transportation costs.

COVID-19 related costs were comparable to the year ago period and.

Additionally, in our consumer segment brand marketing expenses increased 15% from the second quarter of last year.

Adjusted gross profit margin declined 190 basis points and adjusted operating margin declined by 200 basis points and.

In addition to the factors I just mentioned the sales shift between segments unfavorably impacted both margins and.

Importantly versus the second quarter of 2019, we expanded adjusted gross profit margin 40 basis points and adjusted operating margin 10 basis points, even considering incremental COVID-19 costs cost inflation and higher brand marketing investments.

Turning to income taxes, our second quarter, adjusted effective tax rate of 22, 2% compared to 18% and the year ago period.

Both periods were favorably impacted by discrete tax items with a more significant impact last year, 2 weighted discrete tax item related to the refinement of our entity structure.

Net income from unconsolidated operations declined 2% and the second quarter of 2021.

At the end of March we completed the sale of our minority stake and eastern economies and 1 of our joint ventures and the idea.

For 2021, we now expect a low single digit decline and our adjusted income from unconsolidated operations.

Due to the elimination of ongoing income from Easter.

Previously we were projecting a low single digit increase.

At the bottom line as shown on slide 29 second quarter 2021, adjusted earnings per share was <unk> 69, compared to 74 per the year ago period.

The decline was primarily driven by a higher adjusted income tax rate.

As compared to the second quarter of 2019, our sales growth drove a 19% increase and adjusted earnings per share.

On slide 30, we've summarized highlights for cash flow and the quarter and balance sheet.

Our cash flow from operations was $229 million to the second quarter of 2021.

Paired to $355 million from the second quarter of 2020.

We returned $182 million and this cash to our shareholders through dividends and used $113 million per capital expenditures during the second quarter.

By incremental Covid, 19 costs, and ERP investment as well as higher projected adjusted effective tax rate.

We expect there will be an estimated 3 percentage point favorable impact of currency rate on sales and increased from 2% previously and for the adjusted operating income and adjusted earnings per share. We continue to estimate a 2 percentage point favorable impact from currency rates.

At the top line due to our strong year to date results and robust operating momentum we are increasing our expected constant currency sales growth to 8% to 10% compared to 6% to 8% previously.

This includes the incremental impact of the Cholewa and phone and acquisitions projected to be at the high end of the 3.5% to 4% range we.

We anticipate our organic growth will be led by higher volume and product mix driven by our category management brand marketing new products, and our customer engagement and growth plans.

<unk> taken to partially offset cost inflation is also expected to contribute to sales growth.

We are now projecting our 2021 adjusted gross profit margin to be 80 to 100 basis points lower than 2020.

Our previous projection was comparable to 2020.

We are increasing our inflation expectation for the year to a mid single digit increase as compared to a low single digit increase previously.

Overall, our projected adjusted gross margin compression reflects unfavorable impacts from sales mix between segments.

And 19 costs and cost inflation, partially offset by pricing as well as margin accretion from the cooler and phone and acquisitions.

And as a reminder, we price to offset cost increases we do not margin.

Our estimate for COVID-19 costs remained unchanged at $60 million, and 2021 versus $50 million and 2020 and weighted to the first half of the year.

Reflecting the changes on our sales and gross profit margin outlooks, we are increasing our expected constant currency adjusted operating income growth.

Our adjusted operating income growth rate reflects expected strong underlying performance from our base business and acquisitions.

And to be 12% to 14% constant currency growth.

We offset by a 1% reduction from increased COVID-19 costs compared to 2020 and.

A 3% reduction from the estimated incremental ERP investment.

This result, and a total projected adjusted operating income growth rate of 8% to 10% and constant currency <unk>.

This projection includes the inflationary pressure I, just mentioned as well as our CCI led cost savings target of approximately $110 million.

And it also includes an expected low single digit increase and brand marketing investments.

We also reaffirm our 2021 adjusted effective income tax rate projected to be approximately 23%.

And this outlook versus our 2020 adjusted effective tax rate is expected to be a headwind to our 2021 adjusted earnings per share growth of approximately 4%.

We are also increasing our 2021 adjusted earnings per share expectations to 6% to 8% growth.

Which includes a favorable impact from currency.

This increase reflects our higher adjusted operating profit outlook and lower adjusted income from unconsolidated operations as I mentioned earlier.

Our guidance range for adjusted earnings per share and 2021 is now $3 to $3.5.

Compared to $2.97 to $3 <unk> previously.

This compares to $2.83 of adjusted earnings per share and 2020.

This growth reflects strong base business and acquisition performance growth of 12% to 14% and constant currency parsed.

Partially offset by the impacts I just mentioned related to COVID-19 costs are incremental ERP investment and the tax headwinds.

I'll now turn it back to Lawrence.

Now that Mike has shared our financial results and outlook in more detail I would like to recap the key takeaways as seen on slide 33.

Our enthusiasm for Tallulah and phone and our confidence we will deliver on our plants has only strengthened.

Our 2021 outlook reflects another year of differentiated growth and performance while also investing for the future growth. We expect we are confident we will continue on our growth trajectory in 2021 and beyond and now let's turn to your questions.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 Andrew Charles from Keybanc.

Confirmation tone will indicate your line is and the question Kim.

Press Star 2 if you'd like to remove your question from the queue.

For participants using speaker equipment and may be necessary to pick up your handset before question Mr. Keith.

First question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Good morning, everybody.

Hi, Andrew Good morning, good morning.

1 question to start off with I know that the last couple of quarters, you've talked about how and some markets that have recovered more fully so, let's say, China or and Australia, you've had still elevated consumption trends for the at home business, even as the away from home business has essentially fully recovered and.

I guess I wanted to get a sense of do you still believe or do you believe that that represents a reasonably good gauge for how we should expect trends to play out here and the U S or maybe where there's some discrete differences between these markets and in that regard that you would you would want to highlight and then I've just got a quick follow up.

Yes, sure Andrew well first of all we do continue to expect.

Consumer demand for at home cooking products to remain elevated.

Coming out of the out of the pandemic, we're certainly seeing that all over the world.

Our research and survey data with consumers that we commented on just a few minutes ago, all points in that direction and the behavior and it seem.

To be paring, it out and of course and this quarter.

And then he developed markets we're lapping.

And they are extraordinary consumption funds.

Lockdowns were heavily.

And place for the first time, but even.

And these smart and.

And this time, if you look at.

Stacked 2 year you'd see consumption is still up very dramatically versus.

Versus then.

And just all the indications are that that's going to be the case.

Are seeing foodservice recover and and it is a bit of a paradox the consumer consumption at home seems to be remaining high and food services is recovering we.

We don't believe that people are eating more but we do believe that they are cooking more.

And that benefits our.

Caribbean based.

Labor products.

Thanks for that and then just focusing in on I guess, specifically on the part of your flavor solutions segment that is that our sales to other CPG companies I guess I'm curious if we think towards the back half of the year would you anticipate that part of your business to be up year over year, just based on the elevated.

Function levels that we're continuing to see for some other CPG names and packaged food and beverage space sure without trying to dissect flavor solutions too much.

Yes first of all that part of the business had.

Largely returned to its normal growth rate.

And of last year. It has been strong through this year.

Within our portfolio you can't Miss.

The fact that we've done a big acquisition and.

And that flavor solutions space, we're seeing.

Mix of products as well.

Tremendous growth on beverages and innovation around that.

And hard Seltzer and.

And things like that.

Yes.

And in particular, we tapped.

<unk> tapped into a whole new addressable market around nutrition and.

Health products.

So.

The portfolio migration is a big driver of our ongoing results and that part of the portfolio as well and that's really part of our long term strategy to migrate the flavor solutions portfolio to this high growth categories like beverages.

Great. Thank you.

Thank you. Our next question comes from the line of Ken Goldman with Jpmorgan. Please proceed with your question.

Hi, good morning.

I wanted to ask alright.

I wanted to ask about the status of inventories and U S. Consumer I think you talked about them being relatively high and low rather last quarter and the rest of the year there'll be a little bit of a build there I'm just curious where you think those inventories stand now.

The rebuild help a lot into Q I didn't necessarily hear you quantify that so I just wanted to a little bit of and update there if possible.

Sure Ken and.

And I'm glad to do that and ill try to quantify it as well and here and here in Q2 of all first of all this is on Americas consumer issue.

And we're shipping to consumption and has been and.

And the rest of the world.

And our flavor solutions is a visit and impacted by this.

<unk> consumer.

And we werent able to keep up with the sustained demand and so trade inventories and so I think consumer entries have been depleted.

And and.

And so there has been and needs to do a rebuild you all saw on the shelf that especially as we came through the end of.

Last year the <unk>.

They'll flow pretty rough.

Yes.

Number of you on the.

Call and Ken I think maybe you also have written about the PDP and so on but.

We're about 90% of the way to restoring the shell.

Yes.

And.

And the suspensions, we still have a few products on allocation.

<unk>.

And.

And demand has continued to be really strong.

And.

Some cases very much and the mouth on.

Some some products or <unk> is a product that we have.

It requires a lot of blending capacity and so were bit hand to mouth on on that 1 believe it or not.

But in terms of restock in the shelf and honestly I wish we had done a little bit more than second quarter.

We're at 90%.

And hope to have it all.

<unk> done and there is still more work to do because the demand has just continued to remain high through.

Through this through this period.

If you adjusted the math.

And there's a lot of noise and a year ago numbers on Sofia.

If you take it back to 2000, and then the year ago consumption was up tremendously, but we couldn't ship to that.

Our shipments flagged it.

So if we could.

<unk> to 'twenty.

<unk>.

Our consumption is up and.

And second quarter, 18% versus versus 2019, our organic sales stripping out acquisitions are up 22% that would suggest there's about a 4% inventory.

Building impact and the second quarter on our Americas consumer business. So.

That was a factor it's not as big as I think a lot of people and their mines.

Perfect. Thank you for that.

And then I wanted to ask that will help I wanted to ask on flavor solutions and <unk>.

Margin did improve nicely year on year, but still down.

Yes, I mean as you say Ken this is Mike.

We had a large recovery on the margin last year, but pretty much and lap, but we did and the second quarter of the prior year.

The reality.

And some cost go up as we pass through pricing youre going to have a natural compression and the flavor solutions business, which we've seen in the past.

Yes, we pass through cost.

We said.

Covid costs, obviously hit us from the second quarter, although we were comparable to last year overall, but there were some segment mix there.

We do feel that within the flavor solutions category, though.

And 1 with <unk>.

Our base margin bump, but even within the product portfolio, we see some margin positives as we migrate from the business. So as we grow sales more and get that get more leverage and the rest of the year. We are lapping a pretty soft second fixed last year.

We're hopeful that will improve too.

Thanks, Mike.

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

Hi, Thanks for the question.

Hi.

And I wanted to know and.

And the Americas.

And we've heard.

And the industry that.

It's a little bit more difficult and negotiate with retailers on merchandising and pricing.

<unk> had continued supply.

Problems.

And maybe your category is different and become stickier and leadership, it's different but.

What has the conversations been.

Regarding that and with your retailer customers Hasnt and compromised you at all and getting done what you need to get done.

Well I don't want to get too specific about our conversations with customers on.

On pricing there is always a.

On a commercial tension and.

And our pricing discussions, but really confident that we're going to be able to get through the pricing that we need we take a long term perspective with our customers. They know that we are there.

Our transparency and and our cost there is broad based inflation that's recognized by everybody.

And it's not just us that's going up and isolation of the whole industry.

Moving and so.

And we're pretty confident that we're going to be able to take the pricing that we need per event and use all of the leverage levels that we have to address costs.

And our pricing certainly has to be part of this part of the solution and for cost savings and revenue management and effector and dealing with.

And with the inflation issue.

I think we have pretty strong confidence.

These discussions are going to be.

Positive I think too, we're continuing to invest and our brand.

Most of the share of voice and the category, which our customers know that and you saw year to date were up nicely on A&P.

And again the into the third quarter, so that is supporting their business too.

Okay and a follow up question, maybe just for modeling Mike.

And third quarter profits.

They'll be up year over year.

You mentioned that theres going to be a lag effect on inflation and I just want to make sure. We're getting the phasing right and then I would imagine and fourth quarter do you have a very easy comparison to a year ago because of the inventory because of the supply chain shortages a year ago.

You're right we're lapping.

The third quarter strong third quarter last year, we had about 8% total growth, 9% constant currency and the <unk>.

<unk>.

Business was stronger.

Compared to flavor last year. So from a segment mix perspective is a little bit of a headwind and the third quarter and and you're right. The lagging of pricing does help the fourth quarter were also as I, just mentioned higher brand marketing and the therapy.

Remember last year and the fourth quarter, we had a I think it was around a 20% A&P increase which was continued in Q1 and Q2.

And at a better easier fourth quarter comparison from and A&P perspective.

A little bit from the sales of sales and the fourth quarter for the company growth.

Below that 9% constant currency I mentioned before but I think Mike is talking about kind of the shape associated try to avoid giving too specific guidance on at any particular quarter.

Our biggest quarters of the year coming up.

And so.

Part of our.

Thinking as we as we set guidance for the year.

Okay, well thank you.

Okay.

Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Good morning, everyone.

Alexia morning.

Hi, there and so I guess picking up on some earlier questions.

And we'll just sort of quantify what your input cost inflation outlook looks like at the moment are we talking about mid single digit Cogs inflation, perhaps including the freight component as well I just wanted to get a sense of the order of magnitude there and then I have a follow up.

Sure Alexia, yes, our previous guidance was low single digits, we've moved that to mid single digit and.

And as we said on the call and maybe 3 components, obviously, the freight ocean and the Ocean freight we've talked about which is hitting everyone. We source a lot of our products from the Asia market. So those rates are up but also packaging and due to resin costs and things like that going up and then thirdly commodities, but again low single digit to mid single digit and outfit. This.

Year.

Great and then I'm just curious about the market share trends that we're seeing and and the U S Nielsen data.

And it looks and says it some shallow happening on the core hubs and spices area and my writing margin do you expect that to correct going forward or is it just because it's strange comparisons from the year ago period at this point and so.

A little bit of both and so and so.

So first yes, we do expect that to.

And to turn positive.

And a year ago period, we had heavy supply heavy.

Through the second quarter, we were a great stock position.

We're building inventory or.

And the ERP pilot and so.

We had unusually high stock levels.

Finished goods ourselves.

And that when the crisis hit which enabled us to have extraordinary supply and the early.

Leaks.

And then a capable site by the end of second quarter very different situations, but going into the quarter was strong and so are our shelf position was really advantaged and then of course, we went through a long period, where we weren't able to meet the demand and.

And.

And our shelf position deteriorated, we had to spend items.

Put them on allocation stop promotion and so on and our and our total distribution points.

Declined.

As a result and and.

So we're comparing against a period of unusual strength at retail and.

And the year ago period ended this period.

And we've got a time when and.

We are rebuilding the shelf position.

So pretty much everywhere.

And we've been able to have good supply.

And and.

And.

Good service to our customers our share has grown decline that's the case across our markets in Europe, and Thats, the case and subcategories here and the U S. The real pressure point has been herbs and spices and.

Recipe mixes.

And were just extraordinary demand co brands on the shelf and as we restore it we're confident that our share position et cetera.

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

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

Yes, thanks, and good morning, everyone.

I'll ask my follow on on it and maybe thinking a little bit longer term and some of the kind of key takeaways and points you've been highlighting on the call talked about the increases and at home consumption.

Have some taking some staying power and.

Net uniquely benefits your portfolio and I'm wondering how if at all that makes you think about the long term organic sales potential of the business and you have a long term 4% to 6%.

Sales growth algorithm that encompasses a little bit of M&A over time so.

Q2.

4.2% to 5% organic and embedded in that.

Due to changes and consumption post pandemic make you.

Think that that long term organic sales growth potential could be higher or and if not why.

I don't think we're going to have raised our long term guidance today.

But.

And our confidence and that long term guidance is.

Really reinforced by but what we're what we're seeing.

Yes.

Theres been a lot of talk about this.

Changes in consumer behavior.

And he has an amplification of trends that were already in place that we believe are long term secular trends that underlie our.

Growth and that our strategies are designed to capitalize on being the global demand for flavor has been growing steadily.

I don't even know how long its tremendous amount euromonitor projects global flavor demand growth of 6% rate going forward for the next 5.5 years and that is really the foundation for our sales growth on and then if you just think about compared to 2019 and underlying global demand for flavor and growing.

And the absence of a pandemic, 6% CAGR.

And would expect us to be up 12% so.

And I think that the performance that you're seeing is really more of a bleed through what youre going to seed and a post pandemic world.

Consumers for cooking at home more before the pandemic, we believe that that was accelerated that people a lot of lapsed Cook had the opportunity to cook everyone learned our grandma on their mother's secret recipes and <unk>.

To prepare them somewhat and every household has become a very proficient.

And it's been a positive experience.

People.

It's been on outlet for creativity, it's brought families together and we think that this is a behavior.

Younger consumers in particular have leaned towards healthy flavorful.

<unk> scratch cooking and in particular, among Gen Z and return to trusted brands and brands with some nostalgia. We think that these are really long term demographic trends that are going to benefit us for a long time, so our confidence and our.

Long term guidance.

Reinforced.

And what we're seeing happen right now.

I think to another testament to our broad base differentiated portfolio, but Adam to your question about our 4% to 6% constant currency long term growth of which a third of that is M&A bolt on M&A and you take that out. So we're high kind of highlighting a 2.5% to 4% is our long term guidance last year constant care.

The organic growth was 5% this year and midpoint of our guidance is around 5% too so and we're seeing and galanis and the acceleration of those trends is reinforcing our belief on that.

Organic growth of our long term guidance.

Okay. That's helpful and then.

A follow up just a modeling question are you trying to rob's question on that differently.

And remind us the third year assembly and of ERP expenses and <unk>.

And year on year, how much of Thats been.

Already incurred and the and.

And the first half of the year and $50 million of Covid related expenses that you expect in fiscal 'twenty..1 how much has been already incurred year to date.

And with the first half.

Yes, the ERP and mostly going to be and that our second half headwind.

And they're very low impact year on year and first half.

From a COVID-19 perspective.

We had guided to 60 for this year versus 50 last year and Thats.

Mostly been occurred and the first half.

Got it Okay. That's really helpful. Alright. Thank you.

Thank you. Our next question comes from the line and Peter Galbo with Bank of America. Please proceed with your question.

Hey, guys. Good morning, Thank you for taking the question good morning, Peter.

Good morning.

Mike The gross margin just wanted to go back there that the commentary on the new guidance on kind of 80 to 100 bps lower.

It sounded like and your comments that actually mix sales mix moving back to flavor solutions might have been a bigger impact actually and cost inflation. So I wanted to clarify that comment and.

And then I have a way to break out those 2 kind of how they impact between mix and then on the cost inflation.

Yes, really and the second quarter. It was mainly segment mix as we said and the costs have been rising, but we have taken us on pricing.

But.

It's really around segment mix and in Q2, it changed a little bit and the second 6 as we have guided.

Our gross margin probably between 90 and 120 basis points. If you do the squeeze on the gross margin. If 2 thirds of that is really where youre raising sales due to some pricing.

Offsetting inflation and FX piece, it's not dropping through the profit. So that's about 2 thirds of that compression and the third is some of the lag and the pricing and costs are coming through and the third quarter. Yes, we've got pricing a little later, so it's a little bit of that but it's basically 2 thirds due to math and third due to kind of on timing at the price.

Okay. Okay.

That's helpful.

And then maybe just 2 more quick modeling question I didn't see and the guidance anything on on capital spend for the year on interest expense as well.

Yes, we don't.

And I think youll see and the Q coming out today capital Hasnt changed from last quarter.

And so we don't feel give interest guidance.

Okay. Thanks, very much guidance.

Yes.

Thank you, ladies and gentlemen that concludes our question and answer session and I will turn the floor back to Mr. <unk> for any final comments.

Thanks, everyone for your questions and for participating on today's call Mccormick is differentiated by the breadth and reach of our balanced portfolio, which is sustainably positioned us for growth. We're very pleased with our outstanding year to date operating performance, which proves the strength of our business model the value of our products and our capabilities as a company we expect to drive.

Even further growth as we continue to execute on our long term growth performance and people strategies actively respond to changing consumer behavior and capitalize on new opportunities our investments provide a new foundation for growth, while enhancing our agility and our relevance with our consumers and customers, which when combined with our dedicated and engaged employees.

Positions us well for continued success and long term shareholder value creation.

For everyone listening and the U S. I hope your fourth of July plans includes getting together around the grille with friends and family and enjoying some Montreal steak seasoning, french's mustard and Stubbs barbecue sauce.

Okay.

Thank you Lawrence and thank you everyone for joining today's call and for those of you that might be joining from Canada, Canada day to day. If you have any further questions regarding today's information. Please feel free to contact me. This concludes this morning's call. Thank you.

Q2 2021 McCormick & Company Inc Earnings Call

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