McCormick & Company, Incorporated

Good morning. This is Kasey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today's first quarter earnings call. To accompany this call, we posted a set of slides at ir.mccormick.com. Currently, all participants are in listen-only mode. Following our remarks, we will begin a question and answer session. If you need to reach the operator at any time during the call, please press star zero. We'll begin with remarks from Lawrence Kurzias, Chairman, President, and CEO, and Mike Smith, Executive Vice President and CFO. During our remarks, we will refer to certain non-GAAP financial measures. These include information in constant currency as well as adjusted operating income, adjusted income tax rate, and adjusted earnings per share that exclude the impact of special charges. Reconciliations to the GAAP results are included in this morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. In addition, as a reminder, today's presentation contains projections and other forward looking statements, as 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. It is important to note these statements include expectations and assumptions which will be shared related to the impact of the COVID-19 pandemic. As seen on slide 2, our forward-looking statement also provides information on risk factors, including the impacts of COVID-19 that could affect our financial results. It is now my pleasure to turn the discussion over to Lawrence.

Thank you, Kasey. Good morning, everyone. Thanks for joining us. To start, I'd like to comment on the extraordinary and continually evolving global impact of COVID-19. On behalf of everyone at McCormick, I'd like to first express our deepest sympathies to all those who are affected by COVID-19 and thank those working to keep people safe through this crisis. McCormick is committed to maintaining critical food supply across all our markets and supporting our communities. We are working through the challenges of today while keeping our focus on the long-term goals, strategies, and values that have made us so successful. We have three priorities while navigating through this period of volatility and uncertainty. First, to ensure the health and safety of our employees and the quality and integrity of our products. Keep our brands and our customers' brands in supply and maintain the financial strength of our business. Our third priority is to ensure McCormick emerges strong from this event. It will come to an end and we will come out a better company by driving our long-term strategies, responding to changing consumer behavior, and capitalizing on opportunities from our relative strength. We're taking steps to safely operate our business and supply our customers. We continue to operate our supply chain without significant disruption. We have implemented contingency planning with most employees working remotely where possible. We have global and regional crisis teams in place continually monitoring the rapidly evolving situation and recommending risk mitigation actions. And we have implemented travel restrictions, visitor protocols, and social distancing practices as you would expect. We've also recently announced incentives to further recognize and support employees who work on-site in locations critical to keeping our operations running globally. We will increase hourly wages, further expand sick leave to support family members and maintain salaries if operations are suspended. It's essential that we show our appreciation to employees while doing our part for the betterment of public health and to support our communities. And moving to slide 5 to highlight a few points on the current conditions we're seeing and the potential impact. First, as we mentioned at Cagney, the significant disruption in China's consumption in the first quarter impacted our results. The events in China during the second half of the quarter were extraordinary. While total McCormick sales follow a seasonal pattern, with the first quarter generally the lightest, the first quarter is typically our peak season in China. Additionally, over half our China business relates to away from home consumption and Hubei province is one of our most highly developed regions due to the Dachao brand being founded and made in Wuhan. This made the China lockdown with an extended lockdown in Hubei coupled with no opportunity for consumers to stock their pantries to be a significant impact. We believe we cannot use the China results to extrapolate the overall impact for the rest of the company due to differences related to lockdown durations, pantry stocking opportunities, as well as the differing percentages of food service business and other dynamics in each region. The disruption in China resulted in a 3% reduction in total company first quarter sales and reduced our total consumer and flavor solutions segment sales 5% and 1% respectively. As a reminder, in China, our consumer segment includes the branded food service component because those food service products use the same packaging format and share a common distribution channel, particularly in traditional trade and in the smaller markets, as other consumer products in China. The lower operating income from China impacted the total company's growth in both adjusted operating income and adjusted earnings per share by 10%. Currently, during the early stages of recovery in China, we are seeing increased cooking at home and a surge in consumer retail demand. both in stores as well as through e-commerce and the start of a recovery in food service as most restaurants and caterers reopen and consumer confidence gradually builds. We expect China's results to be significantly impacted in the second quarter as well as the market begins to recover gradually. The lockdown in Hubei continues through March and as recently announced is expected to be lifted in April. For the year, we expect lower China sales from the COVID-19 impact will reduce our total net sales growth by 1% to 2%. And as I already mentioned, we currently believe COVID-19 impact in China cannot be extrapolated to the overall COVID-19 impact for the rest of the company. Turning to the current status of our major markets outside of China, our presence in China afforded us the insight of seeing how COVID-19 scenarios can unfold, as well as to take early action. Our supply chain business continuity plans have been in effect since January. We have assessed and implemented continuity plans to provide customers with continued supply. To date, there has been no material impact on supply for most of our sourced materials and for those impacted, continuity plans have been activated. We are partnering with our customers to monitor and respond to changes in consumer demand. We are seeing increased consumer consumption both through our scanner data and e-commerce as well as through customer orders including those from packaged food companies in our flavor solutions segment. While this increase is impacted by short-term pantry stocking, we expect some level of elevated demand for at-home cooking to continue. Schools are closed, people are staying at home, and that contributes to real incremental at-home consumption. We also know from our sales performance during recessionary periods, we benefit from consumers eating at home. Our constant currency total consumer segment for organic sales growth in 2001 and 2009 was 4% and 3%, respectively. On the other hand, in the away from home part of our flavor solution segment, which represents approximately 20% of our total company sales, we are now seeing reduced demand from our food service customers as COVID-19 measures have eliminated in the dining in services and limited restaurants to carry out or delivery only. We expect this will have a significant negative impact on our near-term performance, particularly in our EMEA region. As more people stay at home and away from home, options remain limited. To maximize flexibility during this uncertain time, we've decided to moderate the pace of our Enterprise Resource Planning, or ERP, replacement program. While we remain excited about and committed to our global transformation initiative, we believe that it is more prudent given current challenges posed by the COVID-19 situation to re-phase the timing of this initiative as we focus on the three priorities that I previously described. Now I'd like to focus on our first quarter results, highlights from our consumer and flavor solution segments, and finally our growth drivers in relation to the current environment. Starting on slide seven, in our first quarter, the lower operating results from the COVID-19 impact in China, I just mentioned, offset the otherwise solid sales, adjusted operating income, and Adjusted Earnings Per Share Growth we delivered driven by the successful execution of our strategies and engagement of employees. This while also making business transformation investments. We have a broad and advantaged global flavor portfolio which continues to position us to meet the demand for flavor around the world and grow our business. Across our portfolio, in our Americas and Europe, Middle East and Africa, or MAO region, We drove particularly strong flavor solution sales growth in the first quarter. In our Asia Pacific region, the China disruption significantly affected our first quarter sales growth across both of our segments, with a greater impact in consumer. Overall, we are confident that the breadth and reach of our portfolio will continue to be the foundation for sales growth, and while we may experience temporary disruptions in parts of our business, We're confident that underlying consumer demand will continue to underpin long-term growth. Now let me cover the highlights of our first quarter performance. Starting with our top line for the first quarter, versus the year-ago period, total sales declined 2%, including a 1% unfavorable impact from currency and a 3% unfavorable impact from China, partly offset by 2% growth contributed by the rest of the business, driven by higher volumes and product mix, as well as pricing. Adjusted operating income was down 2% with minimal impact from currency and included a 10% unfavorable impact from China results. Partly offsetting this impact was the sales growth across the rest of the business and savings led by our Comprehensive Continuous Improvement Program . During the quarter, we also had higher brand marketing and ERP replacement program investments compared to last year. At the bottom line, our first quarter adjusted earnings per share of $1.08 was lower than $1.12 in the prior period for a decline of 4%. This decline includes a 10% unfavorable operating impact from China and a 5% headwind due to a higher adjusted tax rate. As we said on a year-end earnings call in January and at Cagney in February, we have confidence in our strategies and notwithstanding the COVID-19 impact, our underlying foundation is strong and we remain committed to our long-term growth objectives. Now let me spend a few minutes on our business updates. Starting on slide eight with our consumer segment, constant currency sales declined 6% in the first quarter, including an unfavorable 5% China impact. In the America, constant currency sales declined 2%. We believe we substantially undershift consumer consumption due to normal seasonal trade inventory reductions versus building some inventory levels in the first quarter of 2019. We estimate this resulted in a negative 4% impact to the America's growth rate for the quarter. This is in line with our expected trade inventory impact in net sales for the year, which is also consistent with our historical performance. Today, it's hard to comprehend that there were retailers reducing inventory in the first quarter if the world has changed so much. In U.S. spices and seasonings, we are maintaining the share stabilization we achieved last year. Our IRI data indicates U.S. McCormick-branded spices and seasoning scanner sales grew aligned with the category and we had strong growth in unmeasured channels, particularly in e-commerce. We believe for the combined channels, McCormick-branded slightly outpaced the spices and seasonings category growth. In McCormick-branded dry recipe mixes, we continued our growth momentum, delivering share growth for the 10th straight quarter. Our first quarter performance included our sixth sequential quarter of accelerating consumption growth across our condiment portfolio. In total, we grew consumption 4%, as well as growing share in many of our product lines. Frank's Red Hot Sauce had strong performance again, partially driven by effective Super Bowl marketing and promotion programs. Stubb's BBQ and McCormick Mayonnaise grew double digits, and French's Mustard continued its consumption and share growth momentum. Our category management initiatives, effective marketing support, and merchandising execution, expanded distribution, and new products are all contributing to driving our category leadership and our momentum. We're confident in our initiatives underway to continue our long-term growth trajectory. In March, we're seeing an unprecedented surge in demand from customers and consumers that dwarfs the single-digit changes we're discussing related to our first quarter results, and I'll say more about this in a moment. Now turning to the EMEA region, we had growth in UK and France driven partially by new products and brand marketing support. New dry recipe mix products, such as the launch of our One Pan line, contributed to us not only gaining share in the quarter, but also to have the leading UK recipe mix position. In the Asia Pacific region, our constant currency sales declined, driven by the significant impact in China, as I previously mentioned. and other parts of the region, we continued to gain momentum with effective brand marketing and promotions as well as through e-commerce. Our fundamentals in our consumer business remain strong. Turning to slide nine in our flavor solution segment, our performance was excellent with constant currency sales growth of 5% driven by the Americas and EMEA regions, partially offset for the decline in the Asia Pacific region. In Americas, we drove constant currency sales growth of 5%. We had broad-based growth across our portfolio, both from a product category and customer perspective. Strong growth to both packaged food companies and quick-service restaurants was driven by new products and base business growth. Our momentum in branded food service continued with robust growth driven by new products such as Old Bay Hot Sauce, promotional activity with operators, and expanded distribution. In addition to driving top-line growth, we also continued to migrate our portfolio to more value-added categories. Our sales growth in EMEA was outstanding, 9% in constant currency, as the strong momentum we have built in this region continued into the first quarter. We are winning with our customers, both quick service restaurants and packaged food companies, through new products, their promotional activities, and expanded distribution. In the Asia-Pacific region, our constant currency sales declined, driven by the significant impact of China. In other parts of the region, sales to quick service restaurants drove growth. Turn to slide 10 to talk about our growth drivers in the current environment. Just six weeks ago at Cagney, we shared with you our 2020 growth plans aligned to our strategies designed to build long-term value for our shareholders. We're now operating in a more dynamic and rapidly changing environment than we were at Cagney and possibly ever before and need to be agile in responding to the current dynamics and the changing consumer behaviors. Our overall growth plans have not changed although some have been adjusted and even strengthened to enable us to effectively execute in these challenging times and the balance of the year and to capitalize on the opportunity to help our consumers and our customers through this difficult time. First, across both segments, we are currently focused on keeping our brands and our customer brands in supply, feeding particularly strong demand for items in key categories, core spices and herbs, seasoning blends providing flavor solutions, Dry Recipe Mixes offering convenience, condiments, rice mixes, frozen products, stocks and broth, and snack seasonings. The continuity of meeting demand, including the quality and integrity of our products, is a critical priority. Turning specifically to our consumer segment, our 2020 plans include to further drive our undisputed leadership in spice and seasonings, accelerate our condiment global platform, and fuel our growth in emerging markets and channels as well as an on-trend, fast-growing platform. We're strengthening our connection with the consumer, especially with digital e-commerce and social media outreach, which is even more important today with consumers at home more and looking for solutions. Simply put, our consumer portfolio and plans are even more relevant today than they were before. We are seeing an incredible surge in demand from consumers stocking their pantries and cooking at home as are other consumer packaged companies. For example, for the weekend of March 15th, scanner sales for the total McCormick U.S. branded portfolio grew 65% with all major categories up double or triple digits. While we expect consumption will not continue at this extraordinary level, we do expect sustained growth from an increase in consumers cooking at home. Now taking a deeper look at our plans, brand marketing is a key driver of sales growth and we're increasing our investments in 2020 as planned. The speed and agility we gained with our marketing excellence organization has enabled us to quickly pivot and adjust our messaging in light of the COVID-19 developments. For instance, we've changed content to focus on at-home family times, which is more relevant than the current environment. A few weeks ago, we launched our new U.S. McCormick brand advertising campaign with the tagline, It's Gonna Be Great, which is the strongest scoring campaign in our consumer testing history. This TV and digital campaign is focused on consumer education on what to make, how to prepare, and build confidence in the kitchen, which is all the more relevant today as consumers cook more at home. Our plans to create even deeper connections with our consumers by bridging their physical and digital experiences have been underway since early this year. We continue to develop best-in-class content and opportunities for our consumers to connect with us and are strengthening our brands as an indispensable partner on their flavor journey. These opportunities have now increased and even go beyond their flavor journey. Consumer engagement with our McCormick properties, such as McCormick.com, YouTube, and our social channels, has increased high double digits in recent weeks, both in visits and time spent. And we have a steady stream of new real-time content that is focused on solutions to the questions consumers are asking. Here are some examples. How to occupy the kids at home. Of course, with kid-friendly recipes, from painted sugar cookies to scented slime or window planes. And we're seeing increased consumption in related products. U.S. scanner sales show vanilla is up 54%, for example, in the weekend of March 15th. What recipes and products help with health and wellness? Our content and recipes on turmeric and bone broth, as well as soup recipes, for example, have increased and we're continuing our work to promote the health benefits of spices and herbs. Our U.S. consumption growth on our stocks and broth was up 140% and turmeric up 22% during the same period. How to create flavorful meals with items that have been stockpiled. Canned tuna, eggs, and pasta are frequent searches, and we have and will continue to create content to add flavor to these items and more. Consumers want more convenient solutions to add flavor, as evident by recent 104% U.S. consumption growth in dry recipe mixes. and finally consumers can now use our newly added Ask McCormick feature on our social channels and we respond real time with tips, tricks, recipes and products. We are now there with whatever consumers need to help them through these times. The investments we've made in e-commerce have not only driven growth but positioned us well for acceleration which is what we're experiencing and for which we are prepared. Consumers shopping behavior is changing and the opportunities we're activating by making all touch points shoppable or paying off. In China, traffic to our direct-to-consumer platform has increased four times, driving sales growth up triple digits, increasing five-fold since the beginning of the year. In the U.S., we're seeing increased traffic in sales as well. Our pure-play and direct-to-consumer sales have tripled in recent weeks. This is also true in EMEA, with direct-to-consumer sales tripling as well. We're making our products even more discoverable to consumers with increased support. Our exciting first half new product launches align with consumers' demands for convenience, health, and transparency, as well as flavor exploration and experimentation. We continue to drive category leadership, and in the U.S. are enthusiastic and committed about our initiative underway to reinvent the in-store experience for spices and seasonings by introducing new merchandising elements. We have had strong favorable customer reactions and began the rollout earlier this year. As we partner with retailers to maintain stocked shelves and business continuity, we will have some delay in our rollout plan. With increased cooking at home expected to be a longer term trend, this initiative becomes even more exciting and relevant. Now, turning to our flavor solutions segment. Our immediate focus is on responding to the volatility we're seeing across the segment. As a reminder, in Flavor Solutions, we operate across a wide range of customers and channels, consumer manufacturers, restaurants, and distributors. Over 50% of our Flavor Solutions portfolio, our flavors and ingredient product categories, are primarily sold to packaged food companies. Demand from these customers is currently strong as they are experiencing the same increase in consumption as we are in our consumer segments. In contrast, our restaurant and distributor customers are experiencing significant short-term pain related to the reduction of people traveling, shopping, and dining out, with many restaurants and away-from-home eating locations closed. Consequently, we are expecting a sharp and negative impact on the demand for our products from these customers. While we expect this demand to return once the COVID-19 crisis passes, similar to the beginning stages of recovery we're seeing in China, the duration Our current flavor solutions priority is to work with all of our customers, those seeing demand surges as well as those under pressure, to manage through the coming months. We have confidence that the strong and differentiated partnerships we have built with our customers, which include the top 10 food and beverage companies as well as the top 10 food service restaurant chains, enables the robust collaboration needed to navigate through this situation as best as possible. Now I'd like to provide a few summary comments as seen on slide 12 before turning it over to Mike. At the foundation of our sales growth is the global and growing consumer demand for great taste and healthy eating as well as transparency around the source and quality of ingredients and the desire to buy brands from environmentally and socially responsible companies. Flavor continues to be an advantaged global category, and we inspire flavor exploration across all markets, through all channels, and are aligned with the consumer's demand for taste, convenience, health, and sustainably-minded business practices. Our alignment with these long-term trends, our breadth and reach, and our execution of effective strategies positions us well to meet increased consumer demand, both through our products and through our customers' products, and drive sales growth. No matter what, where, or when people are eating or drinking, it is likely flavored by McCormick. We believe these long-term behaviors will remain intact following the current crisis. We're continuing to drive long-term sales growth balanced with our focus on lowering costs to expand margins and sustainably realize long-term earnings growth. We have a solid foundation and in an environment that continues to be dynamic and fast-paced, We are ensuring we remain agile, relevant, and focused on long-term sustainable growth. Our experienced leaders and employees are executing on our strategies, which are designed to build long-term value for shareholders, are reacting to changes accordingly, and capitalizing on opportunities. Excluding the China COVID-19 impact, we delivered solid first quarter results, again proving our strategies are effective, and we're confident they will drive future growth. Well, we know the balance of the year will be impacted by an uncertain environment. We're confident our underlying foundation and performance remains strong. I want to recognize McCormick employees around the world for driving our momentum and success and thank them for their efforts, engagement, and for adapting to this new environment during this volatile time. As food and food products have been designated a critical industry, I want to particularly thank our many employees who are working hard every day to protect the food supply and are rallying to support McCormick and their community. Thank you for your attention and it is now my pleasure to turn it over to Mike.

Thanks Lawrence and good morning everyone. I'll begin now by providing some additional comments on our first quarter performance and then discuss some of our expectations for the balance of the year. Starting on slide 14, during the first quarter, sales declined 1% in constant currency driven primarily by the COVID-19 impact in China. which had a negative 3% constant currency effect on the total company. Excluding the impact of China, favorable volume of product mix from base business and new products, as well as pricing, drove sales growth. The consumer segment sales declined 6% in constant currency, primarily driven by the Asia Pacific region. On slide 15, consumer segment sales in the Americas declined 2% in constant currency versus the first quarter of 2019. As Lawrence described earlier, The decline was driven by trade inventory reductions, with a partial offset from pricing actions which were taken late during the first quarter. In EMEA, constant currency consumer sales were up 1% from a year ago, driven by pricing, primarily related to the timing of trade promotional activities. Consumer sales in Asia Pacific declined 28% in constant currency, driven by the China disruption. Growth was strong across the rest of the region. Turning to our flavor solutions segment on slide 18, We grew first quarter constant currency sales 5% due to strong growth in the Americas and EMEA regions. In the Americas, Flavor Solutions' constant currency sales increased 5%, driven by new products and base business volume growth, with particular strength in snack seasonings and branded food service. Additionally, pricing also contributed to growth across the portfolio. In EMEA, we grew Flavor Solutions' sales 9% in constant currency. Sales increased to both quick service restaurants and packaged food companies, driven by new products and volume growth on the base business as well as pricing. In the Asia-Pacific region, flavor solution sales declined 4% in constant currency, driven by the decline in China. Other parts of the region drove growth. Across both segments, I've seen on slide 22, adjusted operating income, which excludes special charges, declined 2% in the first quarter versus the year-ago period. with minimal impact from currency. Adjusted operating income in the consumer segment declined 12% to $120 million, which in constant currency was an 11% decline. In the flavor solution segment, adjusted operating income rose to $76 million, a 19% increase with minimal impact from currency. Both segments were negatively impacted by the China disruption, which was a 10% impact to the total company and was skewed more to the consumer segment. as well as incremental investments related to our ERP replacement program with partial offsets from CCI-led cost savings and lower incentive-based compensation. Additionally, the consumer segment's adjusted operating income was unfavorably impacted by an increase in brand marketing expenses, and Flavor Solutions was favorably impacted by product mix. Gross profit margin expanded 90 basis points in the first quarter versus the year-ago period, driven by CCI-led cost savings. We had adjusted operating margin compression of 10 basis points driven by the factors I just mentioned. Turning to income taxes on slide 24, our first quarter adjusted effective income tax rate was 18.4% as compared to 13.9% in the year-ago period. Both quarters adjusted rate was favorably impacted by discrete tax items primarily related to refinements to our entity structure, which had a more significant impact last year. income from unconsolidated operations was $10 million in the first quarter of both years. At the bottom line, as shown on slide 26, first quarter 2020 adjusted earnings per share was $1.08, as compared to $1.12 for the year-ago period. The decline was primarily driven by the China disruption impact and a higher adjusted income tax rate from last year, with partial offsets from higher adjusted operating income growth, excluding China, and lower interest expense. On slide 27, we summarize highlights for cash flow in the quarter end balance sheet. Our cash flow provided from operations was $45 million in the first quarter of 2020, compared to $104 million in the first quarter of 2019. This decrease was driven by timing associated with working capital, as well as employee incentive and benefit payments. We continue to see improvements in our cash conversion cycle, finishing the first quarter at 40 days, down three days versus our fiscal year end. We returned $82 million of cash to shareholders through dividends and used $39 million for capital expenditures this period. We believe that we have adequate liquidity to meet our operating, investing, and financial needs through our operating cash flows as well as our access to bank lines and commercial paper. We have been able to access commercial paper markets as needed during the recent period of market volatility and currently have unutilized capacity under our $1 billion corporate revolver. We have no material debt maturities until 2021 and we expect no material change to our capital allocation. We continue to evaluate the market to determine if there is an opportunity to further bolster our position given the low underlying interest rates. Let's now move to a discussion about our outlook and some of our expectations for the balance of the year as seen on slide 28. As a reminder, the guidance we issued in January and discussed at CAGNI does not include any impact from COVID-19. We are operating in a very fluid environment and our ability to assess the financial impact of COVID-19 on our business is affected by both the speed at which the situation is evolving as well as the high degree of uncertainty related to the duration and extent of the impact on consumer demand in all channels and the global economy. We are also still early in our fiscal year with three quarters remaining including those that are typically our largest ones. We therefore are withdrawing our previously issued 2020 Financial Outlook discussed on our January earnings call. I would like to, however, provide additional perspective to highlight some current expectations. First, as we have already mentioned, there was a significant COVID-19 impact from China to our first quarter results, and we project disruption in China continuing into the second quarter. We expect the lower sales from the COVID-19 impact in China will reduce our total global net sales growth by 1-2% for the year. We believe the China impact cannot be extrapolated to the overall impact for the rest of the company due to the reasons Lawrence already mentioned earlier. Differences related to lockdown durations and pantry stocking opportunities, as well as the differing percentages of food service, business, and other dynamics in each region. We expect the shift in consumer consumption will continue with our consumer segment positively impacted by initial pantry stocking, and followed by an increased preference for cooking at home. In our flavor solutions segment, we expect increased demand from our packaged food customers, similar to our consumer segment. However, in the away from home part of our flavor solutions portfolio, which represents approximately 20% of our total company sales, we expect sharp declines in demand from our restaurant and other food service customers. Given the current economic environment, we are closely following the movements in foreign exchange rates and are anticipating a negative impact on our full-year financial results. And finally, as Lawrence mentioned, we are moderating the pace of our ERP replacement program. As a result of this decision, we are projecting our program operating expenses in 2020 to be comparable to 2019. We continue to closely monitor the situation and expect to resume guidance during our second quarter earnings call at the end of June. but we should know more. We have managed through multiple business cycles for 130 years and have a consistent history of growth. We are well positioned given our financial strength, stable cash generation, access to liquidity, and have rapidly implemented appropriate mitigation plans. We are confident we will manage through this short-term period of volatility and continue on our long-term growth trajectory. I'd like to now turn it back to Lawrence for some additional remarks before we move to your questions.

Thank you Mike. Now that Mike has shared our financial results and outlook in more detail, I'd like to recap the key takeaways as seen on slide 29. We delivered solid first quarter results excluding the COVID-19 impact on China and recognize the balance of the year will be impacted by a broader challenging environment. We're effectively executing our strategies and are confident in our underlying foundation. We are responding to COVID-19 developments with agility and working through the challenges of today while keeping our focus on the long-term goals, strategies, and values that have made us so successful. We have a consistent history of growth and very positive fundamentals in place to manage through this short-term period of volatility and continue on our long-term growth trajectory. Our commitment to our long-term financial objectives has not changed. We are sustainably positioned for growth and will continue to deliver differentiated results. Now let's turn to your questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question comes from the line of Ken Goldman with JP Morgan.

Hi, good morning everyone. Obviously, I hope everyone and your families are safe and sound. Crazy times.

All right. Thank you, Ken. You too, Ken.

I wanted to just quickly ask, one, can you give us a little more clarity on maybe the quarter-to-date performance in both of your segments, even if it's just on a rough basis? And two, obviously, you know, you do secure some of your products from areas of the world that are experiencing some challenges right now.

Can you just walk us through a little bit maybe What you're doing to sort of secure your inputs, maybe secure your supply chain a little bit beyond what you've told us so far. That would be helpful. Thank you.

Sure, Ken. Great. Well, first of all, we're seeing all phases of the coronavirus crisis as a company, from the early phases of recovery in China through the new epicenters that we're all experiencing in the EMEA. and in the US. We are seeing the early stages of recovery in China. As we said in prepared remarks, we can pretty well quantify that and we see a path forward there and we've given some outlook on that. In the Americas and EMEA, we're seeing very strong sales of retail products. as are others, especially in the Americas that cuts across all channels of our retail and consumer-oriented product, especially strong in e-commerce. We just actually got in fresh scanner data this morning ourselves. I mentioned a moment ago that we were up about 65% as a total company. through the scanner for the most recent week that we had data for. We just got last week's information, and it's even stronger than that. It's nearly 90%, let's say. It's a little over 89% for total company in the U.S., total consumer there. So really strong performance on that side. driven by the consumer pantry stocking behavior. And I think that you all probably got Nielsen data that covers the same timeframe that would be roughly consistent with that. And typically our unmeasured channels are stronger than the measured channels and I would expect that to be, you should expect that to be the same again. In our flavor solutions portion of our business, The portion of the business that's over 50% that services the other CPG manufacturers is seeing an equally strong surge in demand as those customers are having the same retail offtake and we're part of their supply chain, so we're experiencing that. The food service portion of the business goes the other way, and we've tried to give some additional color on the size of our food service business in these remarks that we've given in the past, so I don't think we've previously really quantified how big our total away-from-home consumption exposure is. Between branded food service and the quick service restaurant industry, it's a little over 20%. Most of that runs through flavor solutions in China and India, That goes through the consumer segment because they share common distribution channels, common packs, and it's rolled up in that way. But in the food service, we're seeing a, you know, in food service and QSR, we're seeing a sharp slowdown. We came into the month strong, but as we've gone through the month, that has slowed significantly. I'll specifically say in EMEA, the QSR portion has come to a near halt. as most of our customers have completely closed their restaurants. The difference between Europe and the U.S. is that in the U.S. drive-thru and pick-up has remained open. That's not the case in most of the major countries in Europe. So that part of the business is going to have a strong impact. Oh, and you asked about supply chain. So let me take the second part of that. Our global sourcing organization has really been an advantage for us. The experience that we had in China allowed us to see pretty early that we were going to need to do contingency planning. We started that very early on. We have actual people on the ground in the countries that we sort from, which has really been helpful in working with local authorities, local closures and restrictions, and in particular working out transportation logistics. that source over 14,000 raw materials from over 85 countries in the world. We're really well prepared for this, and I'd say that this has been a real area of advantage for us. We're currently not constrained on any production due to raw material or packaging shortage. We've had some minor items. I mean, I could talk with you about a particular speck of ancho chile that is needed for our Hispanic business here in the U.S. It costs about $3,000 worth of product shorts. I mean, we're tracking it at that granular level, and I think that we're in really good shape from a supply chain standpoint.

Very comprehensive. Thank you very much.

Our next question is from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Morning, everybody. Morning, Andrew.

Hi there.

Just two quick ones for me, if I could. In listening, Lawrence, to your comments around the various portions of the business thus far sort of through the quarter, is it simply that it's still a bit too fluid and dynamic to sort of take those three big buckets, if you will, the consumer piece, the part of flavor solutions that goes to packaged food manufacturers, and then the pure food service side? I guess is it too early thinking through the quarter thus far to even suggest maybe how those things might balance out? I realize for the full year that's probably a much tougher exercise, but even in thinking through the second quarter, just given some of the magnitude of some of the numbers on both ends of the spectrum, even sort of directionally, is there a way to say that the two positives sort of outweigh the negative, or do we still just really not have that level of clarity? And then I've just got to follow up.

For the year, of course, there's so much uncertainty on how this is going to unfold. I know others have given some guidance. Those have tended to be companies that are in their fourth quarter already, so they're basically giving you guidance for the next six weeks. We've got a whole year ahead of us. This is just the end of our first quarter. We're one month into Q2, and the changes and shifts have been so dramatic over just the last couple of weeks that I think that we're not... We don't normally give quarterly guidance, and we'd be even less comfortable doing so right now. We really don't know the duration and the extent of the impact on the restaurant industry in particular. There are areas of the world that are still open for business. There are areas that are closed that could reopen. We think that there's too much uncertainty for us to give you credible guidance Thank you for that. And just quickly,

Just the ERP spend, I think you said about the same amount of incremental spend this year as last year. So I think initially it was going to be, if I'm not mistaken, an incremental $60 million of ERP spend this year, and I think there was $20 last year. So basically I was saying there's now an incremental $20 this year instead of $60? Thank you very much.

Hey Andrew, it's Mike. You're correct, we spent around 20 last year in 2019 and we're going to spend around 20 this year in 2020. So it's not incremental, it's comparable between the fiscal years.

I just want to elaborate on it. We are pausing the ERP program, but we are committed to our long-term success and as a company we take a long-term view of our program. We're investing behind our employees right now. We continue to invest in brand marketing. It's our intent to continue the ERP program. We do have a team that will continue to work on it through the year. We would expect that the go-lives that we were planning are going to slide out in 12 months or so. We'll be back. Right now, There are two drivers for a decision to postpone it. One is just the executional reality. One of our pilots was in Italy, for example, and it has become as an executional matter impossible to do that pilot. And the other pilot is also in an area where, because of travel restrictions, it just wasn't possible to do the training and work that it takes to actually bring the system up. With no pilots here, no go-lives, and so from an executional standpoint, just sheer practicality required us to push the program out. And then secondly, as we have prioritized keeping our brands and our customers' brands in supply and maintaining business continuity, the resources that were going into the program were better spent right now on the urgent needs and adapting to the rapidly changing supply requirements.

Thank you. Stay well, everybody. Thanks, Andrew.

The next question is from the line of Faiza Alawi with Deutsche Bank. Please proceed with your question.

Yes. Hi. Good morning. So I wanted to talk a little bit about, you know, your commercial initiatives in the consumer segment. You had talked about how there have been some changes. I know we were talking about shelf resets at Cagney. So just wanted to get more color around, you know, how those are changing, just given what's happening, you know, because of COVID, especially in the U.S. You bet.

So, Paisa, we've changed, well, first of all, we've continued to deliver the brand marketing that we had planned to, but some of the messaging and the vehicles that we're using have shifted. You know, this is part of the advantage of having our in-house customers Marketing Excellence Organization were able to produce new content and change the content very rapidly. And so we've made the messages a bit more relevant. I gave some examples in our prepared remarks, and I think that that has had good impact. We've resourced up an area where consumers can write in and get real-time answers to their questions. That's a somewhat people-intensive thing, but it's been very much appreciated. by consumers. The new products that we talked about at Cagney were already largely being launched. And so while retailers have focused more on core items as they have scrambled to keep their shelf stock, we had a lot of placement on those items and a lot of acceptance on those items already. And although we didn't talk about our second half new items at Cagney, Our R&D teams have continued to work on it. Our commercialization teams have continued to work on those. You should expect to see a reasonable pipeline of new products in the second half of the year as well. The shelf reset that we talked about also was already underway. The picture, for example, that I used at Cagney was in an actual store. It was not some kind of and a retail lab. That was an actual store installation. We have a number of them up. Right now, those installations have stopped because of the immediate demands at retail and everybody trying to minimize extra people in the store. Shelter-in-place rules and so on get lifted and things hopefully return to normal the second half of the year. We would expect that to remain. We didn't quantify how many stores we said we would have. I think I said at Cagney that we would have thousands of them, though. We still expect to have thousands, but fewer than we would have thought at Cagney.

Great. Thank you.

The next question is in the line of Alexia Howard with Bernstein. Please proceed with your question.

Good morning, everyone.

Hi, Alexia.

Good morning. Hi. Can I ask about the behavioral changes that you're seeing? You talked about people cooking from scratch more. Do you have any panel data to show how many more meals people are cooking at home versus eating out or what have you? And then similarly on the behavioral change on the e-commerce side, some obviously very impressive growth there. Do you have any data on how much of that list is driven by new sign-ups, people trying it for the first time versus existing consumers, and how profitable is that channel these days for you? And then I have a quick follow-up.

Okay, I'm not sure I've got the answers to the exact questions that you're asking, but I do know that the consumer behavioral changes that we're seeing are And rather than thinking of panel data, we're actually doing our own real-time consumer tracking. And so we have our own data that shows how behaviors are unfolding. There's definitely an interest in cooking at home more, more kind of around comfort foods, a little bit around some of the trends that we have talked about previously. are actually just magnified or accelerated. So, you know, shopping online, some more adventurous cooking. Mike, do you want to add?

Yeah, I think, you know, we're doing a lot of research, even with our employees. One of the comments we had back from employees, they're snacking a lot more at home because they're at home working and the snacks are right there. So we're seeing a huge lift in And then as a quick follow-up, on the flexibility of your manufacturing, can the food service production be retooled to make more on the consumer side of the business or is it going to be quite challenging

to maybe have a sustained period where the restaurant channel is down, the retail sales are up. Are you worried that sustaining this kind of level of growth, or maybe not this kind of level of growth, but after the pantry loading finishes, having that sort of switch, is that a challenge for you or is that fairly easy to manage? Thank you.

Yeah, Alexia, that's a great question. Most of our facilities make products for both segments of our business. and so we can move resources within those facilities. Some of the food service items are being repurposed to the club store channel right now as well and so we're able to do that and even beyond the manufacturing facilities we're able to move our people to focus in on the right areas. So we have a lot of flexibility on that. There are a couple of exceptions. We do have one manufacturing facility in Europe that is heavily dedicated to sauces for the QSR and food service industry. And demand is very, very slow there and it's difficult to repurpose that. But generally speaking, we've got 118 facilities around the world. We have 49 production plants. They're all able to operate and we're able to shift volume around to meet the current demand.

Great. Thank you very much and stay safe, everyone. Great talking to you. You too, Alexis.

The next question is from the line of Steve Strickula with UBS. Please proceed with your question.

Hi, good morning. And it's great to hear that McCormick's taken the long view here, not surprising, and taking care of its employees and stakeholders during these volatile times. So, much appreciated. So, I have a question, a two-part question. The first one would be a consumer behavioral question. Lawrence, you were keen to point out that right now we're going through phase one, maybe, where consumers are pantry loading, but ultimately, if people are behaviorally at home more, they should be cooking more. So, can you walk us through what you would expect you know oversimplified model as to how we maybe migrate through on the consumer piece over the next few months some investors are asking do we go through a big pantry load period that's followed by subsequent deload or just be the spike and then it moderates to a better baseline growth level if you could just help us understand that curve actually we lean towards the latter view the

This pantry stocking behavior obviously is a one-time surge that isn't sustainable, but there is real incremental consumption that's happening. The kids are staying in from school. People are trying to stay close to home, either voluntarily or by government order. And people, as a result, are getting used to the idea of cooking at home and are learning new cooking behaviors. Demand for recipes and how-to videos on our digital properties is absolutely through the roof. The kind of questions we're getting for our real-time response is all about cooking tips and how to prepare and what to prepare. We think that there is going to be a sustained shift for a period of time to more at-home cooking, which in the past has been a net benefit to us. The other thing I don't want to miss is that kind of the after, however the COVID-19 situation plays out, it's likely we're going to be followed by a recessionary period as well. Historically, we've performed well during a recessionary period. Consumers tend to do cook more at home. When they're cutting back in other areas, they tend to reward themselves a little bit with the foods that they consume at home. and our historical track record, just looking back at the 2001 and the 2008-9 time period, we've had strong growth in our consumer business that's been a positive force overall as a company.

I appreciate that. And as a Marylander, I'm rewarding myself with some Old Bay hot sauce, which is fantastic. One quick question for Mike and then I'll pass it along. To follow up with Andrew Lazar's question on the ERP spend, I appreciate giving the servicing rates to the customers right now as a priority and that might postpone the SAP implementation upgrade. But should we think about that $60 million of incrementality therefore kind of shifting into fiscal 21 and what was earmarked for fiscal 21 kind of shifts into fiscal 22? So basically the whole wave series goes over by a year. I know it's difficult to comment on right now, but any high level commenter would be appreciated. Thank you.

No, Steve, just like we're not giving second quarter guidance or 2020 guidance, we're not going to give 2021 or 22. I mean, there will be some type of shift. It's really too early. We need to replan this project, work around our manufacturing, busy seasons and things like that. So I'd hesitate, but I can't give really any guidance there.

And some expense and work has been done this year, which contributes to it also. So the shape of it will likely be different.

Understood. Thank you. The next question is from the line of Robert Moscow with Credit Suisse. Please proceed with your questions.

Hi, thanks for the question. A lot of people are trying to think through the cost to execute all of these increases in manufacturing capacity, the higher labor costs. I mean, if you'd asked me, though, you know, What's the net benefit here of producing SKUs that are really popular and long production runs? I would argue that that would offset higher costs for labor. Is there any way you can walk us through the pros and the nets and negatives of that or positives and negatives of that? And then secondly, promotional price discounts? I mean, does McCormick still need to have promotional discounts? price points at retail in this environment?

Part of that's hard to answer and goes to the uncertainty that makes us not want to give guidance at this time. There are puts and takes and they're changing so fast that I don't know that we can give that. We're not sure enough on how those balance out. Your point is well taken. That's a very efficient way to run our manufacturing facility. There are also a lot of extra costs related to expediting and overtime. We just announced that we are paying premium wages to the people who come to work. You know, we haven't talked about it, but we're doing temperature scans at the entrance system of facilities that has a cost. And so I'd say that right now there's some uncertainty about how those are going to balance out that we will sort through. You know, if we were maybe two more weeks into it, we'd have a better handle on it. But, you know, these are things that are literally changing day by day.

So things like transportation, I mean, fuel rates are down. You see that at the gas pump at Some shipping rates are up too, so we're just too early at this point.

Okay, as a follow-up, Easter, you typically have a lot of seasonals that go into market for Easter. Is that still going to happen, or are retailers shifting merchandising away from Easter?

Oh, you asked about promotions, and so this kind of goes to that. So we are running fewer promotions. I think we might have had that in our prepared comments. and that's really in collaboration with our customers who frankly are having a hard time executing against those. That's probably going to have some impact on Easter but I think that whatever impact there is on Easter is going to be lost in the shuffle because of the tremendous surge right now. We are seeing the right seasonal items doing strongly. Vanilla for baking is a Easter is a less important holiday for McCormick. We often talk about Easter because you've got to get the Easter displays down to get the grilling displays up. The real grilling season starts after Easter. That's the bigger factor for us. It's getting the grilling items out there. Honestly, with people staying at home more, we actually expect our grilling season to be really good. Great.

All right. Thank you.

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

Great. Thank you so much. Hope everyone's well. So, you know, look, I know you said that week ending March 15th, Vanilla was up. I think you said it was 50% plus. Obviously, you know, people at home, cooking more, need vanilla. You know, how do you think your first question is just about the stock potential, right? Because a lot of questions around is this a consumption shift or is there really a pantry load, just in general? And then secondly, just on the margin, I know there's no guidance, but, you know, with respect to Q1, the food, the flavor solutions segment actually had decent, you know, op margin. and then I think kind of going forward you hopefully would get some some volume leverage left but maybe given kind of that shift in flavor solutions on the on the food service side you know is there is there an offset or just kind of how like some structural framework how we can think about that that yeah maybe there could be some benefits on on the consumer side, but we're not sure and kind of the same goes for flavor solutions.

Thanks. On the pantry stocking, I think that there's real incremental consumption and that it's not going to be something that's going to have to be deloaded. We're talking about spices used to spices, seasonings, condiments used to cook meals at home and there is more food consumption happening at home. Consumers really are eating this stuff up. It's not like I think on your question about kind of the structural margin,

you're right we had a really great first quarter from a margin perspective at the gross margin line flavor solutions we continue the portfolio migration our CCI teams have done a great job and will continue to do a great job during this crisis we have a lot of volume favorabilities that the problem is going forward Rob if some of that volume drops off some of those go away from the overhead absorption perspective so you can't really count on those to continue but obviously we'll give you more guidance as we can

Okay, Superman, just a quick follow-up. I think I heard you say earlier that, you know, maybe the pressure so far from your perspective you see coming through March and that, you know, 20% of the business in food service restaurants and flavor solutions could be maybe, you know, a little bit more pronounced than, you know, consumer might be able to offset. So I just wanted to clarify that comment just given, you know, That piece is 20% and the other piece of the business is 80%.

Rob, I also want to remind you that China was largely on lockdown through most of the month of March, and so there's going to be a significant impact from China. They're in recovery now, but Hubei province is actually just reopening now. And so, you know, for example, so there's going to be an impact from that as well.

Okay, so it sounds like that 1% to 2%, you know, expected pressure on China for the year is, you know, really at this point more of a Q2 event.

I'd say it's mostly a first half event.

Yeah, okay, cool.

All right, thank you so much. Stay safe. Thanks, Robert.

Our next question is from the line of Adam Samuelson with Goldman Sachs. Pleased to see you with your question.

Thank you. I appreciate you guys squeezing me in today. First, coming back to an earlier question from a different light, just thinking about trade marketing in the current period. I know, Lawrence, you talked about promotions generally, but just trade spend generally. I mean, how does that evolve when It seems almost indiscriminate what the consumer is taking and if you have it on the shelf in the center of the store, it seems like people are buying it. How does that become part of the margin earnings equation over the balance of the year?

I wish it was that easy. Right now, trade marketing is really about customer support and working with our customers collaboratively to keep them in supply with the items that are selling the fastest. and so the reason that there's a reduction of promotion activity is frankly that the customers can't keep up with it and so we've stopped. So we shouldn't say we stopped, so we have curtailed some promotions. It's hard to see how that is going to play out. As we go through the year, I think that we're just going through an extraordinary period right now that will reach a new equilibrium and we'll be able to continue with the promotional activity that's meaningful to our customers.

And as more consumers really go online to digital, and we've been migrating our trade spend to digital for the last couple years, so you'll see more of that there.

Okay, that's helpful. And then a second question, just on the Pantry stock that's been happening, I mean, your portfolio, I mean, a pretty complex kind of assortment of SKUs that have kind of different kind of consumption patterns and kind of normal sales velocity. And just from the data that you've seen, have you been surprised at the sales velocity of things that normally wouldn't turn fast or just, I guess, some of your things I would think can stay in the pantry for some time. Are you seeing bigger uplifts in those items where if Could take longer to get that restock again in several months or the faster turning skews are turning even faster?

I think that the extent of the consumer pantry stocking and the suddenness with which it hit is a surprise to everyone. But in terms of when you tease it apart and you look at orders of magnitude, the items with the highest velocities are not a surprise. Recipe mixes are condiments of Frank's hot sauce, frankly. These items are not items that are stockpiled but that tend to be consumed pretty quickly and are the ones that are seeing some of the biggest increases.

Okay. I appreciate the call.

I hope everyone is healthy and safe. Thank you. Our next question is from the line of Chris Grohe with Stifel. Please proceed with your question.

Hi, good morning. Good morning. I'm glad you all are doing well and safe. Just two questions, if I could. The first would be, I want to understand, as we think about the restaurant business overall, the area that's being pressured the most, is that a higher margin business overall? In particular, I'm curious... In China, there's a larger profit effect from that, the softness in that business. I just want to get my head around the size of profitability there, even in general terms. And then I had a second question just on the U.S. I know you had a bit of an increase in inventory in the first quarter last year. Obviously, that compares to this year. Where do inventories stand now? Presumably, they're building in this environment. I just want to understand how that could play out going forward and how to expect that to influence your business. Thank you.

Hey Chris, this is Mike. If you remember the flavor wheel we showed, the flavor solutions breakout, where we have about 45% of our flavor solutions businesses in flavors. That's generally the higher margin business, and we talked about portfolio migration more to that. Custom condiments, coatings, ingredients, generally lower margin business. Now we have pockets of really good margin in there, so I don't want to characterize the whole group, but it's generally lower than the flavor size of the business. If you specifically talk about China, MeChina is a very developed market for us. We have scale there. We have large manufacturing facilities, lots of people. So the margins there are generally good across consumer and flavor solutions. So that's why you're seeing a pretty significant impact in Q1 from a profit perspective.

And going forward, that wheel that Mike was talking about, the branded food service component has margins that are comparable to our consumer business. There's a mix of margin structures within that. There's the branded food service with consumer-like margins, and there's the quick service restaurant piece, which is part of the business that we generally characterize as low margin. There was a second part to your question. Chris, what was it?

It was just on the inventory changes. Again, we knew they were up in the first quarter last year, therefore a tough count, but how to think about those going forward? It seems like they should grow from here, it would seem.

I think customers are trying to grow their inventories right now. I don't know if they're being successful. If you walk into any store, you're going to see they don't have stock on their shelves in a lot of areas. I don't know where that is going to stabilize. Right now, I don't think anyone on the retailer or customer side is thinking about inventory reduction. I think right now they're scrambling to stay in stock.

And to that point then, Lawrence, are you shipping ahead of consumption then? Just from a broad, I'm not trying to get an exact number, but understand the degree to which you're able to ship now. Can you ship ahead of consumption then?

Yeah, I can't really. I would really be speculating on that. I would say we are keeping up with the demand. It is challenging right now to keep up with that demand. And I would say that if we had not been You know as well prepared as we were on the supply chain side and also frankly filling some inventory in preparation for our ERP shift that which might Echoes down all the way through our supply chain.

Yeah, we would really we'd be even more stressed than we are right now My next question comes from the line of David Driscoll with DD Research. Please just use your question

Great, really appreciate you guys getting me in, and I understand the time here. So just some follow-ups, and I hope these are enhancing. The first question, I don't think you said what the magnitude of the decline in the food service business, the 20% of the company in March is, but can you? I appreciate the positive numbers on the consumer side, but just trying to get a sense of this 20% of food service business, do you have a sense of what the magnitude of the decline is in March?

No, in fact, we have definitely not said what it was. And we're not going to say more than it's significant. It is a fast-changing situation. Restaurant openings and closures are being announced almost daily. And I think that we're really not in a position to give You or your colleagues have meaningful, credible guidance in this area right now.

We can say it's different reasons with the world. Like we said before, EMEA has seen a significant downturn because of the government actions without shutting down everything.

Okay, and then just two other quick follow-ups. Mike, can you just talk about the CCAI program in an environment like this? Does it even unfold over the rest of the year as you originally thought it would? I mean, can you execute these programs or given the demand that you have going on, do you just retask your people to making sure that you got product going out the door? I don't really understand how to think through this. So any thoughts you give right there are a big help. And then last question I had for you guys was just new products versus the big SKUs. You've kind of talked around this a little bit, but just directly, are you reducing your focus on some of the new products? and increasing your focus on your big SKUs in terms of your manufacturing runs. That's it for me. Thanks guys.

Hey Dave, this is Mike. CCI, good question. CCI has been a long-term program for us since 2009. We have a really strong pipeline of projects coming into this year and it's ingrained in our culture. We have teams still working on CCI programs. You're right though, it puts a lot of stress on the organization's competing priorities. But that is not a factor in any withdrawal of our guidance. We still feel confident about our CCI program. Again, in the second quarter, we always say this too shall pass to some degree, and hopefully things get back to the new normal, but we still feel real confident in our CCI program and achieving those results.

Likewise on NPD, I've already commented on the first quarter, so I won't repeat the first half, and I won't repeat that. But again, as we take a long-term perspective on our business, our R&D teams and our marketing teams and commercialization teams are continuing to work on NPD. We have a good pipeline. Again, this will pass, and there's going to be an important place for new products, just as there always has been.

Thank you.

Thank you. Our final question today comes from the line of Peter Galbo, Bank of America. Please proceed with your questions.

Hey guys, good morning and thank you for fitting me in. Lawrence, I just wanted to ask about kind of squaring some of the math around China. Obviously a 3% hit kind of in the first quarter and then 1 to 2% kind of hit for the full year would sort of imply a similar trend 35 to 40 million dollar hit in the second quarter. I just want to make sure I'm thinking about that right. And I know you've also just given some early commentary, but anything you're hearing from your food service customers in China on the ground, maybe outside of the Hubei province, would be helpful.

Sure. So I think that your math is right. I wouldn't say that it's all second quarter, but we do see a ramping up of the business, but a strong impact in the second quarter. and you're in the right order of magnitude there in terms of the impact that we expect. Regarding the food service industry in China, most of our customers have publicly stated that their restaurants are open and they are and consumer traffic is slowly building. That opening has occurred over a period of weeks, but our teams would confirm that restaurants are open and that depending on the region, some of the areas where recovery is furthest along, like in Shanghai, they're seeing 30% or as much as 50%. Kasey Jenkins Pretty good pulse on what's actually happening on the ground there.

Got it. No, that's very helpful. You also gave some helpful commentary just around McCormick's broader performance during recessionary periods. I think one of the questions that we've been getting is just, in general, what kind of happens with private label in a recessionary period? So just anything you could speak to that, what you saw kind of in 2001 or maybe in 2009. in some of your categories with competition from Private Label.

Our experience is that we've done well during those recessionary times. I don't want you to forget that we're a supplier of Private Label. Private Label does well, so do our brands. We've had good growth. We, again, look back at the last two recessionary periods and our consumer business growth was I think we mentioned those numbers in the prepared remarks. I'd say that our U.S. consumer business was actually slightly stronger than the numbers that we quoted for Total Company.

Great. Thanks very much, guys.

Thank you. I'll turn the call back to Lawrence Gerzies for closing remarks.

Great. Thanks, everyone, for your questions and for participating on today's call. And thanks for your patience for staying over. We did want to take all of the questions and so we've run a little bit long. McCormick is a leader in flavor and we're differentiated by the broad and advantage portfolio which continues to drive growth. We have a growing and profitable business and operate in an environment that is changing at an ever faster pace. We deliver flavor to all markets and channels while responding readily to changes in the industry and the world with new ideas, innovation and purpose. One of the most significant risks to any company is being unprepared to respond with agility to a significant unexpected disruption We are all experiencing that disruption now and McCormick is well prepared not only to manage through it but to emerge stronger. With a relentless focus on growth, performance, and people, we are confident our strategies will enable us to become even better positioned to drive future growth and build long-term value for our shareholders.

Thank you, Lawrence, and thanks to everyone for joining today's call. If you have any further questions regarding today's information, please reach out to me. This concludes the call this morning. Have a good day and hope everyone stays healthy and safe.