McCormick & Company, Incorporated

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, we've posted a set of slides at ir.mccormick.com. Currently, all participants are in a 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 Curzio, 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. 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. 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 two, 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. The last few months have been an extraordinary period, and the global recovery from COVID-19 continues to evolve daily. McCormick's commitment to maintaining critical food supply across all of our markets and supporting our communities has been constant during these turbulent times. Across the globe, we've committed financial resources to many organizations to support frontline healthcare workers, emergency responders and the restaurant and hospitality industries, including donating to food banks and causes in nearly 20 countries to ensure reliable access to food to those most vulnerable during this ongoing pandemic. We're working through the challenges of today While keeping our focus on the long-term goals, strategies, and values that have made us so successful, we have three priorities which we've spoken about since the first days of the crisis as we work through this period. The first is to ensure the health and safety of our employees and the quality and integrity of our products. The second is to keep our brands and our customers' brands in supply and maintain the financial strength of our business. And the third is to make sure we emerge stronger from this crisis. As a company, we've seen all phases of the pandemic, from lockdown starting in January to various stages of recovery today. Our businesses in China are fairly far along in recovery, with the exception of the Hubei province, one of our most highly developed regions in China, which is in the early stages of recovery, as it was under an extended lockdown through April 8th. Other businesses in Asia and Pacific, as well as the MEA, are about two or three months behind China with variations by market, with some markets beginning early recovery late in the second quarter. In the Americas, which is also about two to three months behind China, restrictions began to loosen late in the second quarter with recovery currently in its early stages. Now turning to slide five, let me highlight a few points on the current conditions we're seeing and their potential impact. Our consumer segment was positively impacted early in the quarter by some initial pantry stocking in the Americas and EMEA regions and Pantry Replenishment in China. While these behaviors elevated consumption for a period, as the quarter progressed, strong consumption continued steadily across all regions. Our consumer survey data shows that strength was real incremental consumption driven by increased cooking at home. We believe a shift in consumer consumption to eating at home will continue, partially driven by the status of the restaurant and food service industries, as well as consumer confidence with eating out and significantly influenced by an increased preference for cooking at home, which we believe will be longer lasting. We don't expect the same level of consumption to continue for the balance of the year that we experienced throughout the quarter, however, we do expect consumption to remain at some elevated level driven by the shift in consumer preference. Additionally, we would expect the benefit from consumers eating at home if we were to enter a recessionary period consistent with our historical sales performance during past recessions. As our second half of the year begins, we continue to see elevated demand from our customers and through scanner data. Turning to our flavor solutions segment, let's start with our sales to packaged food companies, which historically represents roughly half of our flavor solutions portfolio. Early in the quarter, we experienced surges in demand, which tapered off throughout the quarter and performance varied by customer. We expect overall demand consistent with pre-COVID levels in our second half. For our restaurant and other food service customers, we began the quarter with reduced demand as COVID-19 restrictions in most markets eliminated dine-in services and limited restaurants to carry out delivery only. As we expected, this had a significant negative impact on our second quarter performance, particularly in the EMEA region as most restaurants completely closed. Late in the quarter, we began to see, and believe we will continue to see, A gradual recovery, which again will vary by market. Quick service restaurants, or QSRs, are recovering quicker, but the rest of the food service building more slowly. In China, QSRs are largely open, and traffic has returned to fairly normal levels. In certain markets in the Americas and EMEA, indoor dine-in service are beginning to open on a limited basis, and outdoor dining options have reopened. In the EMEA, QSRs delivery and drive-thru options began to resume in June. They are seeing initial surges in demand. As we begin our third quarter, we are seeing our away-from-home demand beginning to come back. Our restaurant and other food service customers have experienced significant disruption by adapting their operating models, refining their menu offerings, focusing on core items, and exploring alternative ways to drive demand to offset dine-in declines. And we're collaborating with them on their recovery efforts. Our global supply chain has been critical to our success during this period of volatility. It is an area of strength for us and one of the reasons we will come through this crisis strong. Our global sourcing organization has been a real differentiator, quickly executing contingency plans and placing critical materials where needed since our early involvement in China and ahead of any demand surge. While we, of course, have experienced some raw material constraints, these have had minimal impact on our ability to meet demand. Coming into the crisis, there is more finished good inventory in the system, both for us and our retailers, than there is today. The sustained level of consumer demand, coupled with our added safety and flexibility measures, has put pressure on our manufacturing operations and services stressed in some areas. As we enter our typically largest quarters, we are expanding our workforce and increasing manufacturing capacity through optimized scheduling, investments, and partnerships. By the end of the year, we will have added the equivalent of an additional plant in U.S. manufacturing capacity. We have already passed the low points in our ability to meet demand, and our service levels are improving weekly. We're positioning ourselves for continued success and confident of our capabilities and our ability to meet demand. I want to thank our supply chain employees for their remarkable efforts, as well as our suppliers and customers for their partnerships in this challenging operating environment. Given this evolving operating environment, while we recognize we've had strong performance thus far in 2020, we are not providing guidance due to the high level of uncertainty driven by the COVID-19 crisis for the balance of the year, including the variation in consumer comfort with respect to eating away from home versus at home and its impact on consumption level, the pacing of restaurant and food service locations fully reopening in our various geographic markets, and finally, the possible impact of any resurgences We're focused on execution and remain confident in our ability to perform in this dynamic environment as we have thus far and continue on a growth trajectory. I'm incredibly proud of the way McCormick has performed in these unprecedented times, and as the crisis subsides, we will come out a better company for driving our long-term strategies, responding to changing consumer behavior, and capitalizing on opportunities from our relative strengths. Now I'd like to focus on our second quarter performance and business updates on consumer and flavor solution segments. We have a broad and advantaged global flavor portfolio, as seen on slide 7, which continues to position us to meet the demand for flavor around the world and grow our business. The breadth and reach of our portfolio across segments, geographies, channels, customers, and product offerings creates a balanced portfolio to drive consistency in our performance in a volatile environment. as evidenced by our second quarter results. During the second quarter, the shift in consumer behavior to cooking and eating more at home or at home consumption drove a substantial increase in our consumer segment demand as well as increases for the packaged food company customers in our flavor solutions segment. On the other hand, we've seen a sharp decline in demand from our restaurant and other food service customers for the away from home products in our portfolio. which historically has represented approximately 20% of our total annual company sales. The impact of this shift to more at-home consumption varied by region due to differing levels of away-from-home consumption in each. While we may experience temporary disruptions in parts of our business, underlying consumer demand continues to underpin our growth. We are confident that the breadth and reach of our portfolio will continue to differentiate McCormick and position us for continued growth. In addition to our advantage portfolio, several other key factors as seen on slide eight were underlying McCormick's strength in the second quarter. First and foremost, consumers were finding comfort in the brands they trust and we are here today for them as we have been for over 130 years. We've pivoted our messaging as needed and are connecting with our consumers to guide them and provide inspiration for their flavorful cooking. We've responded to the significant disruption By capitalizing on our capabilities across the organization, particularly our supply chain, Salesforce, and marketing team, as well as through our collaboration and partnerships, both internally and externally, we're all standing together to manage through this crisis. Now let me cover the highlights of our second quarter results, which speak to the value of our product and to our capabilities as a company. Our exceptional second quarter performance was driven by the substantial increase in demand for our consumer products as consumers sought great tasting experiences with rich authentic flavor and healthy high quality ingredients when cooking more at home. Our ability to meet the increased consumer demand and navigate through sharp declines in the away from home products in our portfolio highlights our agility in responding to the disruption we have all experienced while importantly keeping our employees safe. Our results reflect our strong foundation and the effectiveness of our strategies As well as the engagement of our employees around the world. Together, we delivered considerable sales, operating income, and earnings per share growth. Each metric grew double digits in constant currency. Starting with the top line, second quarter sales increased 8% from the year-ago period. In constant currency, sales grew 10%, mainly attributable to the higher volume and product mix in our consumer segment, partially offset by the sharp volume declines in our flavor solution segment. Adjusted operating income increased 21%, including a 2% unfavorable impact from currency, and adjusted operating margin expanded by 210 basis points. These results were driven by higher sales, favorable mix, and savings from our Comprehensive Continuous Improvement Program, or CCI. Our second quarter adjusted earnings per share was $1.47, 27% higher than the year-ago period We have confidence in our strategies, our underlying foundation of SOLID, and we remain committed to our long-term growth objectives. Now let me spend a few minutes on our business updates. Starting on slide 10 with our consumer segment, sales rose 26%, including a 2% unfavorable impact from currency. Constant currency sales grew 28%, significantly fueled by the COVID-19 crisis. Our pricing actions and growth plans were in place, yielding results before the crisis and those plants have remained in place, although some adjusted and even strengthened to execute in this challenging time and help our consumers and customers navigate through it as well. In the Americas, our IRI data indicates our total McCormick U.S. branded portfolio for 55% during the second quarter, which is substantial and reflects the strength of our categories as consumers prefer at home. And in the data just released this past Tuesday, for the week ended June 13th. Scanner sales for total US McCormick branded portfolio continued to be strong, growing 32%. But we expect consumption will not continue at this highly elevated level of our second quarter. You can see it is still strong, and we expect continued growth from an increase in consumer cooking at home to last for a period of time. Turning to our shipments. In constant currency, the Americas sales grew 36% during the second quarter. The difference between the US IRI scanner sales growth and our shipments can be attributed to a few factors. First, the completion of inventories to meet the incredible surge in consumer demand. Next, an increased level of pricing growth in the scanner data due to canceled promotions and channel shifts. And lastly, while we had significant growth in Canada, Latin America, and private label sales, They paced behind the growth rate in U.S. branded sales. Focusing on the U.S. branded portfolio, not only did our consumption grow, but we also gained share in 9 out of 11 categories, including spices and seasonings, dry recipe mixes, hot sauce, and mustard. The growth rates in the majority of our categories are outpacing the total store and center of store growth rate. In fact, consumption in our portfolio during the second quarter grew twice the center of store rate. Our categories are not what consumers think about when stocking up. They're the categories consumers use to flavor the meals they cook at home. New and renovated products also contributed to our second quarter sales growth, such as our dry recipe mixes updated for instant pot preparation, offering an even more convenient solution, and our Frank's Red Hot Thick Sauces, introducing Frank's flavor to dipping and topping occasions. Later this year, we'll expand Frank's even further with the launch of frozen appetizers, Chicken Bites & Dips, and earlier this month we relaunched our Old Bay Hot Sauce with expanded distribution just in time to heat up the summer. With the retailer's focus on keeping core items on retail shelves, there has been some slowdown in the selling of our new product launches, but we're excited about the pipeline we will carry into next year, and those that we have launched have got an exceptional new trial. We're growing our household penetration across our portfolio. With a 16% increase compared to last year, which is millions of new households gained, and a significant amount of trial from those households was across multiple categories. Spices and seasonings, dry recipe mixes, and hot sauce had the biggest gain, but even smaller brands like Simply Asia grew significantly. And our rate of repeat buyers increased 11% during the quarter, which is notable given that our repeat rate was already very robust. During the quarter, we launched our new U.S. McCormick brand advertising campaign, It's Gonna Be Great, which is the strongest scoring campaign in our consumer testing history. This TV and digital campaign is focused on consumer education, what to make, how to prepare, and build confidence in the kitchen, which is all even more relevant now as consumers cook more at home. We continue to design targeted media messaging to focus on cooking at home and drive growth. We're planning to increase our brand marketing investment in the second half of this year. The speed and agility we gained with our marketing excellence organization has proved invaluable as we turn insight into action and can pivot to adjust our messaging even more efficiently and effectively to capture the moment. The team has rapidly generated insights, creating and deploying new videos and tutorials that range from easy weeknight meals using pantry staples This is critical to execute our plans to create deeper connections with our consumers by bridging their physical and digital experience, which is even more important today with consumers accelerating their online presence. Our consumers are looking for help and inspiration in the kitchen, and we are here for them, with one of the ways being our Flavor Maker app. Organic search visits to our McCormick.com site were up over 200% in the second quarter versus last year, with consumers 18 to 34 years old driving the largest increase, searching for recipes and to learn to cook. The younger generation continues to fuel the demand for flavor, and we're executing on creative ways to connect with them. We're personalizing our interactions with consumers. As we have been all home together, our McCormick chefs invited consumers into their home kitchens, through our new Cook With Us Instagram series, enabling one-to-one connection and putting a true face to McCormick. Consumers are tagging McCormick with posts of their user-generated content, and we're engaging with them, including incorporating some of their content into our own ads and providing users a chance to win a personal virtual cooking class with one of our chefs. And finally, it is essential to McCormick to support our communities, particularly at times of uncertainty. Our marketing excellence organization has had tremendous success with their creativity and applied it recently to not only connect with consumers but to make a difference in their lives. Today, we partnered with actress Drew Barrymore and together hosted a virtual Taco Tuesday night called Hashtag Tacos Together in the hopes of encouraging others to augment McCormick's $1 million donation and support the No Kid Hungry campaign. Thank you for joining us today. Our constant currency sales rose 26%, but broad-based growth across the region and market share gains in a majority of our categories in our significant markets. Growth in our Vahonay brand in France was excellent, led by vanilla and baking products. Urban spice consumption was strong in all markets, driven by consumers cooking more at home and discovering they need our products for great-tasting, healthy flavor solutions. The UK dry recipe mix category is attracting new shoppers and purchase frequency is increasing as consumers seek convenient solutions and our new products are driving the category growth with the Schwartz brand continuing to gain share and retaining the leading position we achieved last quarter. Our new product plans remain on track for the year across our EMEA portfolio and we continue to work closely with our customers to ensure that elevated consumer demand will be met. Even obtaining incremental placement for our branded portfolio with some retailers as other manufacturers faced supply challenges. Our strong brand marketing campaigns and digital connections with the consumer contributed to our second quarter growth and provided us with confidence for future growth. Early in the quarter, we quickly shifted to increase digital advertising search and social investments across key brands and markets using data-driven, real-time insights. For example, we created a social listening dashboard to understand the changing needs and topics most relevant to our consumers during the COVID-19 crisis. With baking being the highest trending topic during the crisis, we partnered with culinary websites and capitalized on over 600 pieces of user-generated baking at home social content to increase our interaction with consumers. With health pricing even further in relevance, We created cooking at home website sections of health and wellness landing pages, including healthy recipes and blogger content, combined with content from our BuzzFeed partnership, highlighting recipes and our product. For example, the 13 herbs and spices everyone should have in their cupboard. Our execution of these baking and health campaigns drove over 20 million impressions each during the quarter. Moving forward, we'll continue to capture the momentum we've gained and our relevance with EMEA consumers through activation of similar programs, marketing campaigns highlighting product superiority, culinary partnerships, and our new product launches. In the Asia-Pacific region, our constant currency sales declined 13%, driven by our China business in the Hubei province, where our Wuhan operation is located, which had an extended lockdown into early April. The Wuhan disruption negatively impacted the APZ consumer growth by 26 percentage points. Declines in branded food service products, which are included in our consumer segment in China, outside of Wuhan also contributed to the sales decrease. Excluding these impacts, sales for the region would have increased, reflecting the increase in consumer demand across the region related to the increase in cooking at home. In China, the consumer business outside of Hubei province is strong. Some products in our condiment portfolio doubling or tripping their sales from the second quarter of last year. Convenient solutions are being sought by consumers, driving growth of our recipe mixes, world flavor hot pot sauces, as well as herbs and spices. And we're leveraging our new product successes on our direct-to-consumer platform and accelerating our new product launches, such as launching our squeezable healthy oil salad dressings in retail during our third quarter. and other parts of the region which are lagging China from a recovery phase, we have broad base growth and are gaining share in many categories. Across the entire region, we're also meeting the consumer online that have pivoted our marketing plans toward value and scratch cooking. Whether it be through our Frank's Red Hot TikTok Fitness Challenge in China, our chefs providing inspiration and instruction on social media across the region, or through our Keep Calm and Curry On campaign in Australia for helping our consumers and augmenting the growth potential of the shift to cooking at home. In all regions, consumers' digital engagement has increased significantly during stay-at-home periods, and we've seen an acceleration of our e-commerce growth in all categories with second quarter triple-digit growth, whether it be pure play, click-and-collect, or our own direct-to-consumer properties in all of our major markets. We expect the shift to online shopping behavior to continue, and we're well positioned for it through the investments we've made and continue to make in this channel. Our consumer portfolio and the plans we have in place are even more relevant today than they were before the crisis, as we expect the increase in at-home cooking to continue, which further bolsters our confidence that we will drive future growth. Turning to slide 12 in our flavor solution segment, Constant currency sales for the second quarter were lowered by 16%, driven by the sharp declines in demand from restaurant and other food service customers as away-from-home dining was significantly curtailed due to the COVID-19 restrictions, with a partial offset from continued growth in sales to our packaged food customers. Notwithstanding the COVID-19 impact, our underlying foundation is solid, and we've delivered strong sales growth and margin expansion over the last few years Most recently, 5% sales growth in the first quarter of this year and believe we would have continued our positive momentum. In the Americas, our sales declined 13% in constant currency. But we experienced demand declines across both branded food service and restaurant customers. Branded food service had a more significant impact as our away-from-home customer base in the Americas is skewed more to that channel. and our quick service restaurant customers retain takeaway and delivery options, although with limited menus. And flavor solutions were differentiated by our customer engagement. And while our plans always included strengthening our intimacy this year, they were accelerated with some pivots by the COVID-19 crisis. Through our culinary and marketing support, we've been helping our customers adapt to the changing environment and eventually the new normal. From a culinary standpoint, We've developed virtual tools and are collaborating with our customers to provide solutions, such as modifying menus for carryout, reinventing menu offerings with limited inventory, and optimizing recipes for COVID-19 safety protocols. And from a marketing perspective, we're leveraging the power of our brands, like Frank's Red Hot and Old Bay, with strong promotional programs to help build menu excitement. Lastly, as many places will be moving away from tabletop condiments, We're pivoting to portion control packaging for dining and carryout. We're also exploring other options to expand our portion control offering further. In EMEA, where we had expected the most significant rate of decline from the COVID-19 measures, our sales were 31% lower in constant currency than last year. Our away-from-home customer base in this region skewed more to QSRs, and in late March, most of those customers completely closed their restaurants. Not even drive-thru or carry-out remained open. As I mentioned earlier, many of the QSRs adapted their models and reopened in June, offering limited menus for delivery and drive-thru while dining remained closed. They have established aggressive recovery plans, and we are demonstrating our speed and agility by scaling our operations back up and meeting customer demand on an accelerated timetable. In the Asia-Pacific region, Due to the COVID-19 lockdowns, closures, and curfews across the region, outside of China, our constant currency sales declined 6%. In China, QSRs are largely open, and we are seeing momentum gain, with one QSR even launching a limited-time offer, which added to our sales this quarter. Across the rest of the region, government COVID-19 measures varied, as well as customers' ability to adapt. Where QSRs remained open in some capacity, the focus was on core items. For the balance of the year, we expect a reduced level from last year for our customers' limited-time offers, which are an important growth driver in this region. Moving forward, we continue to work with all our customers to manage through the recovery phase as COVID-19 measures are lessened. The strong, differentiated partnerships we've built with our customers enabled our robust collaboration to navigate through the second quarter, and we will continue to do so. We expect there will be a gradual recovery, as I mentioned earlier. The QSRs will recover more rapidly, with the rest of food service building more slowly. Based on this, combined with our different mix of quick service restaurants and other food service customers between regions, we believe the pace of recovery of the away-from-home part of our business will vary from market to market. We are fully committed to helping all of our customers resume their operations and expect the demand to return as the crisis passes, similar to what we are seeing in China's recovery. The duration of this current period is uncertain. The slow and evolving recovery process is dependent on many factors, including restrictions being lifted, venues fully reopening, and possible resurgences. We have positive fundamentals in place to manage through this period of volatility, and with our confidence in the successful execution of our strategies, We will continue on our long-term growth trajectory in flavor solutions. Now I'd like to provide a few summary comments as seen on slide 13 before turning it over to Mike. At the foundation of our sales growth is the global and growing consumer demand for healthy, flavorful cooking, as well as transparency around the source and quality of ingredients and the desire to buy heritage brands. This resonates even more today than ever before. Flavor continues to be an advantaged global category as we inspire flavor exploration across all markets, through all channels, and are aligned with the consumer's demand for great taste, convenience, healthy options, and digital engagement. Our alignment with these long-term trends, our breadth and reach, and our execution of effective strategies position us well to meet increased consumer demand, both through our products and through our customers' products, and drive sales growth. These long-term behaviors have not only remained intact during the crisis, but have been accelerated to even greater importance. No matter what, where, or when people are eating and drinking, it is likely flavored by McCormick, and we are proud for McCormick brands are trusted by consumers and customers worldwide. We are continuing to drive sales growth balance with our focus on lowering costs to expand margins and sustainably realize 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 our shareholders while reacting to changes accordingly. We delivered exceptional second quarter results during a period of great disruption, proving the strength of our business model Our strategies are effective in reinforcing our confidence that they will continue to drive future growth. While we know the balance of the year will be impacted by an uncertain environment and ongoing challenges, we're confident in the strength of our underlying foundation and performance. 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.

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 second quarter performance and then discuss some of our expectations for the balance of the year. Starting on slide 15, during the second quarter, sales rose 10% in constant currency. Sales growth was driven by substantially higher volume and mix in our consumer segment, offset by significant declines in our flavor solution segment. The consumer segment sales grew 28% in constant currency, led by the Americas and EMEA regions. The shift to at-home consumption and cooking more at home has driven substantial demand for our consumer products. Higher volume and mix primarily drove the increase with pricing to partially offset cost inflation also contributing. On slide 16, consumer segment sales in the Americas increased 36% in constant currency versus the second quarter of 2019. The increase was broad-based with significant growth across the McCormick branded portfolio both in measured channels and e-commerce, as well as in private label products. Additionally, the pricing actions we took late in the first quarter to offset increased costs also contributed to the growth. In EMEA, constant currency consumer sales grew 26% from a year ago, with higher volume and mix in all countries across the region. The most significant growth drivers were our Bahinais homemade dessert products in France, our Schwartz & Ducro branded spices and seasonings, and our Schwartz dry recipe mixes. Consumer sales in Asia Pacific declined 13% in constant currency, driven by the extended disruption in Wuhan, which as Lawrence mentioned, drove a decrease of 26 percentage points to the region's consumer sales. This decline was partially offset by increased consumer demand across the region, led by condiments in China and broad-based Australia growth. as well as strong e-commerce growth. Turning to our flavor solutions segment and slide 19, second quarter constant currency sales decreased 16% reflecting declines in the away from home products in our portfolio across all regions. In the Americas, flavor solutions constant currency sales declined 13% driven by significantly lower sales to branded through service customers in addition to quick service restaurants. Partially offsetting the decline or increased sales to packaged food companies and pricing to offset cost increases. In EMEA, constant currency sales declined 31%. The decline was driven by a significant reduction in sales to quick service restaurant customers in addition to lower branded food service sales. Partially offset by sales growth with packaged food companies and pricing to offset cost increases. In the Asia Pacific region, Flavor Solutions sales declined 6% in constant currency. The decline was primarily driven by the COVID-19-related lockdowns and closures in countries outside of China. As seen on slide 23, adjusted operating income, which excludes special charges, increased 21% in the second quarter versus the year-ago period. In constant currency, adjusted operating income grew by 23% and was driven by substantial growth in the consumer segment partially offset by a significant decline in the flavor solution segment. Adjusted operating income in the consumer segment grew 68% to $232 million. The increase in constant currency of 70% was driven by higher sales and CCI-led cost savings. In the flavor solution segment, adjusted operating income declined 63% to $29 million, or 61% in constant currency. The decrease was attributable to lower sales and an unfavorable impact to manufacturing costs resulting from lower production volume with a partial offset from CCI-led cost savings. First profit margin expanded 230 basis points in the second quarter versus the year-ago period driven primarily by favorable product mix resulting from the sales shift between segments and CCI-led cost savings with a partial offset from higher manufacturing costs. adjusted operating margin expanded by 210 basis points driven by the gross margin expansion. Turning to income taxes on slide 25, our second quarter adjusted effective income tax rate was 18% and was favorably impacted by discrete tax items primarily related to refinements to our entity structure. Our rate in the year-ago period was 18.9% and was also favorably impacted by discrete tax items principally stock option exercises. Income from unconsolidated operations was $10 million in the second quarter, a 7% increase from the second quarter of 2019. At the bottom line, as shown on slide 27, second quarter 2020 adjusted earnings per share was $1.47 as compared to $1.16 for the year-ago period. The increase was driven by a higher adjusted operating income performance and lower interest expense. This increase also includes an unfavorable impact from foreign currency exchange rates. On slide 28, we summarize highlights for cash flow and the quarter end balance sheet. Our cash flow provided from operations was $356 million through the second quarter of 2020, a 13% increase compared to $314 million in the first half of 2019 and was driven by higher net income. We continue to see improvements in our cash conversion cycle, finishing the second quarter at 36 days, down six days versus our 2019 fiscal year end. We are projecting another year of strong cash flow. We returned $165 million of cash to shareholders through dividends and used $87 million for capital expenditures this period. In April, we raised $500 million through the issuance of a 10-year bond with a 2.5% interest rate. We took the opportunity in a low interest rate environment to further bolster our liquidity position in a volatile marketplace. Our priority is to continue to have a balanced use of cash, making investments to drive growth, including through acquisitions, returning a significant portion to our shareholders through dividends, and to pay down debt. Let's now move to our outlook discussion and some of our expectations for the balance of the year, as seen on slide 29. As a reminder, we withdrew the guidance that we issued in January during our first quarter earnings call in late March, and we expected to resume guidance on this earnings call. While we recognize we have had strong performance thus far in 2020, we still have our typically largest quarters remaining. and there continues to be a high level of uncertainty around the pace and shape of the COVID-19 recovery and potential resurgences of the pandemic, as Lawrence mentioned. We have been running scenarios based on various assumptions and given the wide range of possible outcomes, we are not providing guidance at this time. I would like to, however, highlight some current expectations that provide assumptions to help with modeling for the balance of the year. We expect the shift in consumer consumption will continue and the increased preference for cooking at home will be sustained, although not at the same elevated level as the second quarter, favorably impacting our consumer segment. In the flavor solution segment, we expect the demand from our packaged food customers to return to the pre-COVID-19 levels, with continued variability by customer. We believe the away-from-home part of our flavor solutions portfolio is beginning to recover, We expect the performance to rebound gradually throughout the second half of the year, however not returning to the same level as last year. As discussed in our previous earnings call, we continue to project the COVID-19 impact in China will reduce our total global net sales growth by 1% to 2% for the year. We continue to expect mid-single-digit inflationary pressures, CCI savings of approximately $105 million, and a mid-single-digit increase in brand marketing investments. In the first half of the year, our gross margin was favorably impacted by a higher mix of consumer segment sales. We do expect this mixed shift to continue, but not to the same extent in the second half of the year. We realized incremental COVID-19 costs in the second quarter and expect them to continue in the second half of the year, more heavily weighted in the third quarter rather than the fourth quarter. We are anticipating a negative impact on our full year financial results from foreign exchange rates. And finally, our income from unconsolidated operations is expected to be significantly impacted by the unfavorable foreign currency rates. And as a result, we are projecting a high to mid single digit decline. As Lawrence mentioned, we are focused on execution and are ready to perform in this dynamic environment as we have done thus far, no matter what the scenario. We are confident that we will manage through this period of volatility and continue on our growth trajectory. I'd like to now turn it back to Lawrence for some additional remarks before we move to your questions.

Thanks, Mike. Now that Mike has shared our financial results and 2020 expectations in more detail, I'd like to recap key takeaways as seen on slide 30. Our second quarter played out during an extraordinary period. and our results speak to the value of our products and to our capabilities as a company. Our ability to execute during the volatility of the quarter highlights our agility, strong foundation and engagement of our people. We will emerge a stronger company by focusing on our long-term strategies, responding to the changing consumer behavior and capitalizing on global and growing consumer trends which have further accelerated during the crisis. We're confident in our ability to perform in this dynamic environment and continue on our growth trajectory. Our commitment to our long-term financial objectives has not changed. We're sustainably positioned for growth and will continue to deliver differentiated results. Now, let's turn to your questions.

Thank you. At this time, we'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you, and our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Good morning, everybody. Hey, good morning, Andrew. Hi there. Thanks for the question. Outlook slide for the balance of the year. You talked about expecting elevated consumer segment demand for a period of time, and yet the sales to the packaged food players within your flavor solutions business to return to pre-COVID-19 levels. And on the face of it, those two would seem maybe a little contradictory, because if elevated demand in your branded business would think we'd see elevated demand to other packaged food customers as well. Is it something with your customer mix maybe in terms of those customers and flavor solutions, or is there potentially a little conservatism there if the broader sort of consumer packaged food landscape remains somewhat elevated on an ongoing basis, if you see what I'm getting at?

I do see exactly what you're getting at, Andrew. And by the way, for you and for all of the participants on the call. We're sitting here with face masks on, and so if we're a little bit muffled and hard to understand, please let us know and we'll try to speak up. The mix of customers within that sector is one of the factors, and there is a tremendous variability between our different customers, some of whom are still up and others of whom who are down. For each one of them, there's a story that goes along with that. For some, they are also impacted by sales to food service and convenience store channels that have been depressed and are not up to current performance. Some of them are beverage manufacturers who also have sales that cut across both the at-home and away-from-home channels. And many, if not all, have curtailed some of their innovation and have focused on a core group of items in order to meet the demand from the retail side of the business, which is also, in some cases, contributed to an impact on us. We did see an initial big surge from those customers during the stock-up period, and as they adjusted their supply chains, but we've seen that steadily settle as we've gone through the quarter. So we do expect that to gradually return to a more normal rate. Also, Andrew, one of the things that's different about McCormick versus the rest of the industry is that for most of our products, herbs, spices, seasonings, condiments like mustard and Frank's Red Hot, it doesn't matter whether the consumer cooked the product at home or if they purchased it at a restaurant through takeaway. Part of the new normal for food service broadly is going to be a greater proportion of it being for a drive-thru takeaway away from premise consumption. And Frank doesn't care if you bought it at home or if you cooked it at home.

Well, that Frank's Thick Buffalo Ranch sauce, I can tell you, is being consumed like it's water with my college-age son here at home. So I'll leave it with that.

We appreciate every package, you know. Great style address, too. Yeah, it's a great style address. The trial we've gotten on the new products we've launched has really been one of the long-term benefits that we've gotten from the crisis. Great. Thanks, everybody. Thank you, Andrew.

Our next question is from the line of Ken Goldman with J.P. Morgan. Pleased to see you with your questions.

Hi, good morning.

Thank you.

Hi, Ken. Two for me. One, you talked about, I think the phrase you said was canceled promotions. Many companies we talk to are talking about promotions being delayed to the back half of the year. You used the word canceled. It may just be semantics, but I was just curious if you feel those promotions will not necessarily come back in the back half of the year. So I just wanted to get your color on what you're seeing from the environment on the deal space. And then the second question for Mike. Mike, you talked about the tax rate benefiting from entity structure refinements in the slides. Can you just give us a little more color on what those are and how they might affect your tax rate going ahead? Thank you.

Hey Ken, I'll take the first part of that on the promotional activity and I will gladly... You sure you don't want the tax question? I want to make sure that we're really clear on this point. We're definitely leaning into our brands through this crisis. Our brand building activity through our engagement with consumers, our advertising, be it through traditional channels or through social and digital marketing, have not only not been curtailed, but we've ramped those up. Consumers are very interested in cooking right now, and we want to take advantage of that interest, get as much trial on our brands as possible, and it's part of us coming out of this as a stronger company. The promotional matters are a little bit different. With a huge surge in demand, we've had to try to manage that demand, and so curtailing Our promotions, and in some cases, canceling promotions, has been part of managing through that huge surge in demand. We have, in our U.S. business, had a sustained surge in pull and growth in demand. I don't really want to call it a surge because it's not pantry loading. It's consumption. Over 50% across the quarter, and there just wasn't that much slack in our supply chain. So we did working with our customers curtailed promotions, and in some cases they are genuinely canceled. I mean, we cannot go back and repeat the Memorial Day grilling promotions that we canceled. Those aren't going to happen. We are in a stronger, I'd say, supply position today, and we are reinstating our promotional activities, but through, I would say through May, we largely suspended trademark Promotion Activity.

Thank you for that. From a tax perspective, and just to take you back, our underlying tax rate globally is about 24% to 25%. And it really goes up and down based on geographic mix. But we do give you, when we have visibility to discrete items, Such as some of these legal restructurings we do. And we talked about earlier in January, even though it's underlying 24 to 25, we said for the year be around 22 because of some of the things we're doing. As a global company, a lot of our global entities, we've been built through acquisitions. And as you make acquisitions globally, there's tax strategies that happen later on to take advantage of losses, gains around the world. So we have a great tax team that works on these things. You could probably teach a conference class on this stuff, but it's very complicated. But it's really taking advantage of some of the global infrastructure we have, and we give you insight when we know those things can happen.

Ken, before we... Yeah, sorry. Go ahead. Did you have any follow-up on the tax question? Because I want to come back to promotion for a second.

I hate to say I do, but I do. Just very quickly, Mike, I guess the implication is we should not be modeling anything necessarily unusual going ahead in terms of a reversal of that.

No, definitely not. No, 100% no.

Hey, Ken, just one more point on the promotion. So even with the lift that we're seeing in Nielsen and IRI and the share gains are coming in spite of the curtailment of promotions. I just wanted to put that point out there.

Yes. Very helpful. Thank you, gentlemen.

Our next question is from the mind of Robert Moscow with Credit Suisse. Please proceed with your questions.

Hey, good morning, Rob. Good morning. Thanks for the question. I was hoping you could zero in a little more on the inventory deloading that you saw in U.S. retail. You mentioned that as one of the factors explained the discrepancy between consumption growth and shipments. Do you have any sense of like how many weeks of inventory you're down versus normal? And what's the plan for the back half of the year? Are you going to try to reinstate inventory levels back to normal or is it just kind of like hand them out for a while?

Thanks. So I'm going to say that first of all, The production inventory is not a plan by the retailer. The supply chain has been challenged to keep up with the surge in demand. It's been a challenge for us primarily on manufacturing capacity in the Americas and it's been a challenging time for the retailers because of the surge in demand and their ability to actually receive product and for a good part of this quarter, they were prioritizing things like paper products and sanitation products, which are pretty bulky. And so all of their time and ability to receive has always allowed us to replenish inventories. But we're estimating at least there's a one-week delay between the purchase and the restock signal. So there's certainly at least a week that's been taken out of trade inventories. And retailers definitely are wanting to get in better supply. You can see it in scan data. The points of distribution are down. That's reflecting in out-of-stock situations. We want to get that replenished, and we're working towards that. Our ability to service this demand was really good in the initial weeks, but as it continued at a sustained rate, it really dipped as we went through May. We took a lot of steps to initially expand our logistics capabilities and capacity to meet the search and demand. and then as we de-bottlenecked that, our manufacturing capacity became the pressure point. So we've taken steps to add workforce, we've optimized the schedules and by the fourth quarter we'll either be 24-7 or 24-5 at all of our facilities, not just in the U.S. but around the world. We've made some short-term capital investments of our blending capacity. and we've brought on frankly some more co-manufacturers as strategic partners in order to meet the surge in demand. So we're really past the low point in our ability to service the customers which we hit right around the end of the quarter and our service has been improving week by week since then and we think we're going to be in a good position to meet the demand and this inventory will be restored to the system which will be a driver of some volume growth in the rest of the year. But the real key is just what happens with consumer demand and how strong that strong preference for cooking at home continues for the rest of the year.

And if I can ask a follow-up to that, is it The time of year right now where you start talking to retailers about merchandising for the holiday season and what will you normally tell them that would be different this time versus what you might have told them in the past?

Yeah, that conversation is ongoing right now because, of course, retailers are concerned about supply for the holiday season. Right now, we believe that we're going to be in a good position to meet A fourth quarter demand that is very strong, and that's what we're guiding our retailers to.

The good news, Rob, is our holiday items tend to be longer runs and more efficient for us to produce. It's a different set than being produced now, so that gives us some opportunity there.

Got it. Well, lots of cinnamon. All right. Thank you very much.

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

Good morning, everyone. Hi there. Okay, so two questions. Firstly, given that a consumer would only use a little out of a full spice jar to make a single meal, what gives you the confidence that we won't see a sharp slowdown in sales in consumer Once those shoppers have fully stocked up on the range of different spices that they need for their repertoire of recipes for kitchens and scratch, I guess I'm asking, could there be a temporary one-time cliff at some point? And then my second question is, more broadly, given Dr. Fauci's recent comments about how chronic health conditions have contributed to the disproportionate impact of COVID-19 on the African-American community in the U.S., How are you thinking about systemic issues like food deserts or food apartheid and the role that McCormick and the food system more broadly can play in addressing these problems of racial injustice? Thank you.

Those are two very different questions and that last question has a number of facets to it. So I'm going to try to tackle both of those. Many of our products are single-use. I mean, a big part of the surge in demand that we're seeing is from our dry recipe mixes, for example, which would be a single-use product or wet marinades are single-use. And just the sheer level of increase in cooking says that consumers are going through their spice supply. I mean, it's not We've had a very high level of repeat purchase during the second quarter. So consumers, we're getting certainly new trial, but we've had an 11% increase in repeat buyer rate at the same time that we've had a 16% increase in household penetration. You know how that works. Usually when your penetration goes up, your repeat rate goes down for a period of time because you're bringing in lighter users. There's a high level of usage and we don't see any evidence at all that consumers have built inventory in their pantries. It's just not a stock-up category. We're a usage category. People are worried that they're going to run out of cinnamon and so they buy three bottles the way they might buy three packs of toilet paper. We believe that consumers are buying for their immediate use and consumption And we do not believe that there's going to be any kind of consumer need to be stocked. And I'll go even further out on that, that our own survey data, because we're doing weekly tracker with consumers, shows that most consumers only have a week or two of food on hand. And so they are not stocked up on area food. Now, on the question of food deserts and healthful eating and social justice, I could make a speech on this, and I actually have quite a few times. I'll try not to make too big a speech out of it. But first of all, our portfolio is generally advantaged in terms of health and wellness. Most of the products that we sell are inherently good for you in herbs and spices, for example, and are either low or no in things like salt, sugar, and fat. and they're available at a full range of price points and we sell on all channels but we're really widely accessible to people whatever their income level or wherever they're located and even where they can't get to a store or e-commerce and digital efforts allow access to a delivery directly to their home. And in fact, in economically hard times also, we tend to outperform, which just shows that our products are valued. As we've gone through this crisis, we have always supported food banks. As we've gone through this crisis, we've supported food banks in about 20 countries. And we introduced restaurant relief funds in cities like Baltimore and New Orleans, where we have significant operations ourselves. and where those industries are meaningful employers and are really suffering. And our total support of food-related charities during this crisis has been about $2 million. We've made a million-dollar pledge early on, but we've substantially exceeded that pledge. Now, Alexia, there's a much broader issue of social justice, systemic racism, The firm, I believe, is one of the good guys on this issue. One of our foundational principles as a company is the power of people. We're founded on the principle of respect for the individual and have longstanding programs to make sure that underrepresented groups have full opportunities for professional fulfillment within the company. I think we set first internally an example with women and minorities and LGBTQ employees and other underrepresented groups to make sure that they are represented in McCormick's leadership all the way up to a very diverse board of directors which includes four women, two blacks, one North African, and a Latina. So we've been well-recognized externally for this. We're one of Diversity, Inc.'s top 50 in terms of employment opportunities for minority and women and other underrepresented groups. The second thing is that we've spoken out publicly and have really taken some public stands that have generated some not always favorable response back to me personally. But we've taken public stance of both internal and external messages from the company and from me personally against racism, discrimination, injustice, and explicitly in support of Black Lives Matter. So we have spoken out on this issue. And beyond speaking, it's important to have action. We have strong development programs for women, and especially in the US minorities and we've committed incremental funding to combat racial injustice, provide food and healthcare back to your original question and other essential services to the black community. I hope that's a fulsome answer and I'd be happy to follow up with you.

Appreciate it. Thank you very much and hope to catch up soon. Thank you.

Thanks, Alexia.

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

Yes, hi, good morning. So I wanted to first just follow up on the supply chain. I think you had mentioned in your prepared remarks that there were some raw materials where you're seeing some pressure. So just wanted to get more color on that. And then I have a follow up.

Great. Well, I'll be glad to say that, first of all, I don't want to create a misperception here, so I'm really glad you asked that question. I think that global sourcing has actually been one of the bright spots for us and has been a real differentiator that has enabled us to win through this situation. We have very thoroughly insight into that sourcing might be a pressure point because of our operations in Wuhan, so we saw this crisis coming right at the beginning. and we began developing contingency plans and alternative sourcing all the way back in January and I think we spoke about this on our year-end call and in some subsequent media the first week of February. So this has been a real win for us. Any supply chain in any industry would have been challenged going through this and so there have been a rolling series of challenges I will say that our ability to source raw materials and packaging has not had a material impact on our service and we think that we are very much advantaged in this area.

As we've talked in the past, we source over 14,000 raw materials and packaging items globally and as Mark said, we really have not had any significant shortages in sales due to that.

Scale is an advantage in this. We're really... I would say only company with the scale to be able to have the resources on the ground in the actual sourcing areas for some of these raw materials, especially the most important ones. And that has proven invaluable as we've been able to work locally with local suppliers in emerging markets where many of our raw materials come from. Work with the local suppliers, local logistics, and local authorities to keep our raw material flowing.

When you see headlines like when the COVID hit in India and they're shutting down the country, our global supply chain is able to work with those people to get our product out. So they've done a great job.

Okay, great. And then just the new U.S. capacity addition that you had talked about, I'm curious if this is something that you had planned on doing that you were able to accelerate into this year? And I guess the real underlying question is, you know, how are you thinking about long term demand? You know, outside of just what's happening with COVID right now and the lap next year? I mean, do you think you're creating sort of a new generation of people who enjoy cooking or have at least gotten comfortable with it? Just your perspective around long-term demand would be helpful.

On the supply chain side, I'll take that part first. We did not anticipate that we would have this much growth in demand this year. The things that we're doing, particularly in our U.S. manufacturing, to create additional capacity are all new things that we're doing in response to an incredible dynamic situation. We do have a long-term capital plan. We do actually have that spoken externally. We talked to Cagney about it, about building the supply chain of the future. Exactly. And that for the past three years, our real focus from a capital standpoint has been building our capacity and capabilities in Asia and other emerging markets. Beginning this year, we were pivoting back to Western Europe and the US specifically. We do have a number of big projects underway and this will only accelerate our thinking in that space. As far as the demand creation goes, right now we Really believe that consumers are going to continue to cook at home more for an extended period of time, which is going to be constructive to our growth. And further, the new normal for restaurants is going to involve more takeout consumption at home, as I mentioned in the earlier question. And that's also going to be constructive for our consumer brands of herbs, spices, seasonings, and condiments. The gains that we're getting in share, household and Household Penetration, which, by the way, translates to millions of new households. The increased repeat rate that we're seeing all say that consumers are trying their brands, they like them enough to buy them again, and they're clearly having good experiences that, for many of them, are going to be the new habit. Everybody has been cooking at home more and found it to be easy, fun, and economical.

Perfect. Thank you so much.

Thank you. The next question is from the line of Chris Grohe with Stifel. Please proceed with your questions.

Hey, Chris. Hello. Good morning. Thank you. Appreciate the time this morning and all the color you've given. I just want to ask first of all two, I think, pretty easy questions. Have you rationalized your SKUs during this time? Are you focusing more on those core items? What has that done to shelf space was one of my questions. The second question was just the COVID-related costs in the quarter. I think you had indicated they were going to be peaking in the third quarter. Does that mean they're higher than the second quarter in Q3? And then kind of how to think about, if you can, that level of cost overall.

I'll take the first part of that and let Mike speak to the COVID costs. But in terms of SKUs, we have prioritized our top-selling SKUs overall. In order to maximize our throughput and service to the customer, which has meant that there's a group of secondary SKUs that have been either suspended production or have curtailed production to a more as-available basis. We needed to do that to give us longer runs on the top sellers. Again, we've done that in cooperation with retailers. As our capacity grows, we're adding those back, but we did do some SKU management. Now, I'd say one of the learnings that we got going through this, and which our retailers have gotten as well, is that SKU rationalization does bring some benefits. in terms of efficiency and reduction of complexity. And so I think that coming out of this, some of these SKUs we'll probably not ever put back into service. And many retailers are also taking a look at their assortment. They will probably carry a lower assortment going forward. I think they're also not just evaluating their SKUs, they're evaluating the brand that they carry. I think that retailers are going to want to simplify that business, and they're finding that some of the small brands that they were carrying at unnecessary duplication and complexity and just plain aren't worth it. I think that's contributing to the share gain that we're seeing. I think this is going to give us a lot more traction in the second half of the year, particularly with our category management initiatives and the aisle reinvention program that we've got for Earth and Spices.

Hey Chris, on the COVID costs, we estimate we're going to spend in the $30 million range from a cost of goods sold perspective for the year. It really split between the second and third quarter. We don't see a lot in the fourth quarter. All that's pretty uncertain now depending on how long COVID lasts, but I would just think the second and third quarter would be the biggest spend for things like essential pay we've had for our essential workers in the plants and DCs, paid leaves, A lot of the PPE we've had to buy, some small inventory write-offs, but think about a second, third quarter impact.

And just to be clear on that, Mike, there was a comment about 3Q being larger than 4Q. Does that necessarily mean that 3Q is larger than 2Q? Or is 2Q sort of the highest level of the year and then the kind of still higher, but the lower in Q3?

I'd say they're roughly the same.

Okay. Great. I appreciate all that, Collin. Thanks so much.

Thank you. Our next question is from the line of Peter Galbo from Bank of America.

Hey, good morning. Thanks for taking the question.

Just one for me.

You know, Mike, in the press release this morning, there was quite a bit of discussion around just fixed cost leverage and deleverage associated with the higher and lower volumes in the two kind of parent segments. I guess just is there any way to dimension for us, you know, How much of the margin improvement or the deleverage was due to that fixed cost leverage as we think about it going forward? The volumes will obviously still be up in consumer, but maybe not as much. That could help us from a modeling perspective on the margins.

Okay, Peter, I'll answer this. Peter, you've read the book by Charles Dick in The Tale of Two Cities. This is really the tale of two segments. From a consumer perspective, obviously, with those huge volume increases, we've got a lot of great fixed leveraged On the other side, Flavor Solutions, we did not. For the company, it was really not that positive overall. What you're seeing at the gross margin line, a good over half of that increase is due to the segment mix. The consumer has higher margins than Flavor Solutions at the gross margin line and the operating margin line. It all depends on over the next six months what happens with that consumer demand and Flavor Solutions demand. It was not a significant impact overall for the company from a fixed leverage perspective, especially if we had some of the additional manufacturing-related COVID costs in Q2.

Got it. No, that's helpful. Thank you.

Thank you. Our final question today comes from the line of David Driscoll from DD Research. Please just use your question.

Great, thank you. I appreciate you sneaking me in here before it concludes. Okay, I'll try to make it a good one. I do want to follow up on the margins. I want to say that the biggest variance that I think that happened in my model versus your actuals and consensus for that matter was the differential on margins, Mike. So I want to go back over it. Sales up 8%, operating income up 21%, Specifically in that consumer segment, margins up 600 basis points, maybe a little more than that, and volume up 25%. So I really like this volume leverage point that was just brought up a second ago. And I know you blended it with the whole company, but if we just stay focused on the consumer segment for a moment, Is it fair that the consumer segment was benefited by substantial volume leverage? I know the volume leverage probably works the other way in the other segment, but I'd just like to talk about consumer for a moment. Would it be fair to say that that's the number one point driving the consumer margin improvement? And then honestly, the real point of all of this is to try to understand how to project forward. Your quarters have a lot of seasonality in terms of margins. If you were to get the same 25-point pop to volumes in Q3 in consumer that you got in Q2, could we just add 600 basis points to the consumer margin? Or is there some funny seasonal effects that would reduce those types of leverage? I just get worried about the seasonal pattern on your margins and how we might think about these factors. Thank you for your time today.

There was a lot of leverage coming through the consumer due to the huge increases in double-digit, high to mid-double-digit, meaning 50% in some cases of increases. I'd be a little careful, though, because if you look at AMP, for example, AMP for the company was up 1%, a couple more percent for consumer. Now, that being, and we're going to heavy up more in the second half, but to get to that mid-single-digit guidance we've given, However, even though we didn't spend a huge percentage, things like working media are up double-digit globally. Some of our CCI savings are coming through in AMP, so we're actually really leaning into AMP. But you'll see that AMP line increase in the second six, so that will take 600 basis points down by some number. We had a really good product mix in the quarter, as well as segment mix, but in the consumer side, good product mix, too. I'd just be a little careful about trying to take the second quarter and expand it out to the year.

I also want to emphasize that we're not giving guidance because there's so much uncertainty and I don't want to run away with saying too much about gross margin here because that's getting us into an area of maybe providing more guidance than we are prepared to. But certainly the mix between the segments is For the extent that there is more consumption at home and less away from home, it's going to be a benefit to a margin, and correspondingly, that we'll have leverage or deleverage based on those volume trends. And then, guys, if I could just make one last one.

Sorry, go ahead.

No, no, that was good. Go ahead.

Okay, the other one, just because this is, I think it's reasonably important and hard to model. In your EMEA business, you know, you've talked about the impact of QSRs and that in Europe, you know, it was just all but shut down in this past quarter. Where does it stand today? And do we, is it reasonable to think that those quick service restaurants are going to be doing plenty of drive-through and take-outs? and so that business sees, your business sees a substantial improvement because you're just not in total lockdown like you were in this past quarter. So I feel like there's a big variance coming right there but pull me back if that's too strong a statement.

I think we pointed to that and actually I thought we tried to get that clear in the remarks but the remarks were extraordinarily long and I apologize for that. The quick service restaurants in Europe did completely close down at the end of March. I'm not speaking out of school. There are customers, and so I don't want to get into guiding for their business, but all of their CEOs have been out publicly saying that they were closed, so that's out there. They also all reopened in June. I'll say the challenge, I'll just mention when we talk about supply chain, this is one of the challenges that we've had and where we've had that Thank you for joining us today.

Really appreciate the comments. Great job on the quarter, by the way. No one said it, but the results are stellar. Thank you. Thank you very much.

Thank you. At this time, I'll hand the call back to Lawrence Kerzius for closing comments.

Great. Well, thank you everyone for your questions and for participating in today's call. And I realize that it did go a bit long, and I thank you for your patience. McCormick is a global leader in flavor, and we're differentiated by the fraud and advantage portfolio, which continues to drive growth. We have a growing and profitable business with a balanced portfolio that drives consistency in our performance in the volatile environment which we currently operate. 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're all experiencing that disruption now, and McCormick is well prepared to not only manage through it, but to emerge from it stronger. With a relentless focus on growth, performance, and people, we're 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 all for joining today's call. If you have any further questions regarding today's information, please reach out to me. This concludes this morning's call. Thank you, have a good day, and I hope everyone stays healthy and safe.