McCormick & Company, Incorporated

Good morning. This is Casey Jenkins, Chief Growth Officer. Thank you for joining today's second quarter earnings call. To accompany this call, we have posted a set of slides at ir.mccormick.com. With me this morning are Lawrence Kurzias, Chairman and CEO, Brendan Foley, President and COO, and Mike Smith, Executive Vice President and CFO. I would also like to welcome Spad and Freya joining us on this call this morning. Fatin joined McCormick earlier this month as Vice President, Investor Relations. During this call, we will refer to certain non-GAAP financial measures. The nature of those non-GAAP financial measures and the related 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. 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. Please refer to our forward-looking statement on slide 2 for more information. I will now turn the discussion over to Lawrence.

Good morning, everyone. Thanks for joining us. To start, last night we announced that Brendan Foley will become McCormick's next Chief Executive Officer on September 1st. He is joining the board of directors immediately. I could not be more pleased with Brendan as my successor. I will continue to serve McCormick and all of its stakeholders as executive chairman of the board once Brendan becomes CEO. This is a transition that we have been planning internally as part of an orderly, multi-year succession plan, and it's exciting to finally share the news with all of you. As many of you know, Brendan is exceptionally well-qualified and prepared to lead McCormick. He deeply understands the importance of delivering continued strong growth while doing the right things for people, communities, and the planet. With our advantaged competitive positioning, supported by the growing demand for flavor, and with our tremendous depth of talent, I have utmost confidence that McCormick, under Brendan's leadership, will continue to drive differentiated growth and long-term shareholder value. Congratulations, Brendan. Now, on to our earnings update. First, I'll provide an overview of our second quarter results. Brendan will provide the business segment updates. Mike will provide details on our financial results and 2023 outlook. And after your questions, I will have some final comments. Starting with our second quarter results, we're pleased with our strong second quarter performance, which reflects sustained demand across our business and the effective execution of our strategies. We deliver double-digit constant currency sales growth. Our pricing actions are in place, and importantly, our volume performance improved. we continue to see top-line momentum in our business, positioning McCormick for sustained growth. Additionally, we drove meaningful year-over-year margin expansion in both segments, underscoring our focus on profit realization. Our global operating effectiveness, or GOE program, which includes the optimization of our supply chain cost structure, is yielding results. We grew adjusted earnings per share 25%, driven by significant adjusted operating income growth, and despite interest rate and tax headwinds. Year to date, cash flow from operations more than doubled driven by higher earnings I just mentioned and working capital improvements, notably we're reducing inventory levels as planned. Both segments in all regions contributed with strong growth. Our results benefited from our recovery in China, and while the timing and pace of recovery in our China business was less robust than anticipated, It was still strong, and we are confident in the contribution China will provide to our results as the year progresses. Overall, we are pleased with our execution and results during the first half of 2023. Our year-to-date results, combined with the strong demand we continue to expect across our portfolio and our diligent approach to optimizing our cost structure, bolster our confidence in our growth trajectory as we enter the second half of the year. As such, we're raising our adjusted operating income and earnings per share outlook for the full year. Turning to slide five, in the second quarter, we drove 8% sales growth or 10% in constant currency. Our constant currency sales growth reflected strong business performance with an 11% contribution from pricing and a 1% decline in volume and product mix. Netting in this volume decline, our net 1% volume increase from China recovery partially offset by our kitchen basics, divestiture, and the exit of our consumer business in Russia, and 1% decline attributable to pruning low-margin business. As examples, we exited direct store delivery, DSD, of our bagged Hispanic products in our America's consumer segment and a private label food service line in the EMBA. From a segment lens, both the consumer and flavor solution segments delivered strong sales growth in each region, In the consumer segment, we continued to have strong price realization and we drove a sequential improvement in volume performance. In flavor solutions, our exceptional performance continued with our ninth consecutive quarter of constant currency double-digit sales growth. Our sales performance demonstrates the strength of our broad global portfolio and positions us well for continued top-line growth for the balance of the year. I'd like to share a few highlights about our gross margin performance, which Mike will cover in more detail in a few moments. We drove significant gross margin improvement, reflecting the continued recovery of the cost inflation our pricing lagged last year, cost savings for our CCI and GOE programs, and the impact of strategic decisions we've made to optimize our portfolio with a focus on driving margin improvement as we continue to prune low margin businesses. Our gross margin expansion in the quarter was partially offset by higher SG&As as we build back incentive compensation as planned. Our adjusted operating income increased by 35% versus the second quarter of last year, or in constant currency, 36%. This growth drove an adjusted earnings per share increase of 25%, which also reflected higher interest and effective tax rates. We remain confident that we have the right plans in place and are taking the right actions. We are halfway through the year. Our year-to-date results speak for themselves. We expect to continue driving profitable growth for the balance of the year. Demand is strong. We're driving improvements in our margin profile and optimizing our cost structure effectively. I want to thank McCormick employees worldwide for their collective powers driving our success. I'm proud of the tremendous job the McCormick team has done navigating the dynamic environment over the last few years. I'd like to recognize their energy and excitement for the business, which is coming through in our results. Now, I'd like to ask Brendan to share the second quarter business updates for our segment. Thank you, Lawrence. Starting with our consumer segment, on slide 8, our underlying performance was strong, reflecting our price realization and continuing positive momentum in our consumption trends. we continue to see sequential improvement. Now, for some highlights by region, starting with the Americas. Our total U.S.-branded portfolio consumption, as indicated by our IRI consumption data and combined with unmeasured channels, grew 7%. The difference between our sales and consumption was attributable to the retail sell-through of discontinued items and listing fees for an increase in the new distribution of products. For example, our new Cholula and Stubbs items, and Tabitha Brown line extensions. As anticipated, our alignment between consumption and shipments is normalizing. As usual, we expect some business fluctuations from period to period. In spices and seasonings, both consumption dollars and units accelerated sequentially from the last several quarters, with unit strength in core products such as straight-fill spices and vanilla, as well as our seasoning blends which provide consumers both convenience and flavor exploration. Watch-to-date results of our Lorry's Everyday Spice range continue to be positive. We are seeing incremental sales and profit to the category, and like the first quarter, over half of the purchases are from new buyers to McCormick and overall incremental to the category. We also continue to see consumers trade off from private label. As our proprietary research indicates, consumers still prefer brands. even when under economic pressure. Our excitement and distribution for this product line continues to build. The renovation of our U.S. core Everyday Spice and Nerd portfolio is rolling out according to plan and is a seamless transition for our retail partners as it fits into existing shelf spots. At the end of the second quarter, we had about 30% of our SKUs on shelf. We will continue to roll out the product over the course of the year and our significant brand marketing campaign will be ramping up at the end of the third quarter. Our larger size Super Deal herbs and spices continue to benefit the category and McCormick with 11% consumption growth in the second quarter as consumers continue to cook more at home. Super Deal's purchase cycle is similar to that of smaller sizes, even though they are three times the volume. and household penetration remains greater, think pre-COVID. We kicked off the grilling season at the end of the second quarter, and early results are good. Frank's Red Hot and Cholula Hot Sauces, French's Mustard, Lowry's Marinades, and McCormick Minonesa all delivered double-digit growth in the second quarter, with Stubb's Barbecue Sauce, as well as Grillmate's Seasoning Blends and Recipe Mixes following close with high single-digit growth. We are expecting our new grilling products and strong promotions to heat up share performance. We've launched three new Grillmates on-trend flavors, including Smashburger and Garlic Butter, as well as Griller's Choice Marinades, which you can use as three different flavors. All have had strong retailer acceptance. We are really excited about our Stubb's Real Smoke Rubs, which capture real, authentic, hardwood smoke flavor and Stubbs jalapeno and honey barbecue sauce, which combines two trending flavor profiles, and the nuance of heat and flavor that our Frank's smoke and sweet barbecue wing sauce offers. We are fired up for the grilling season and expect the launch of our Fire Up brand marketing campaign in the third quarter to fire up consumer demand as well. Our expansion into the fast-growing Mexican aisle with Cholula taco recipe mixes and salsas based on authentic Mexican formulas is off to a great start following our Cinco de Mayo execution. During the third quarter, we are increasing our Cholula brand marketing investments to support our expanded portfolio. Our third quarter brand marketing will also include increasing our investments for our McCormick Gourmet product line with our Further for Flavor campaign, highlighting our commitment to sustainability from farm to table. With our supply issues of this product line resolved, we are excited to be able to support this premium product offering for the first time in two years. And importantly, as we enter the second half of the year, it is historically our most significant period. Finally, in the Americas, we continue to drive double-digit consumption growth in e-commerce led by spices and seasonings. We are realizing high returns on our investments, gaining new customers, and growing with new products, such as our new Franksville Pickle Hot Sauce on our direct-to-consumer platform, which sold out in less than a week. We will start to expand distribution in stores late this year. In EMEA, our second quarter was our strongest quarterly sales performance in two years. Our effective pricing accelerated to contribute double-digit growth, and our volume performance improved sequentially. And in fact, we grew volume in the UK and Eastern Europe. Consumption data continues to indicate the consumer is holding up well in our categories, and our share performance is solid. We are growing herbs, spices, and seasonings share in Eastern Europe and in Italy, and our growth plans in France are also yielding results with improved share performance. We are excited about celebrating the 60th anniversary of our Ducro brand this year. We are scaling up our grilling activation in France, and partnering with key retailers to celebrate the brand's anniversary and to spark another reason to celebrate around the grill. In the UK, we have also kicked off the grilling season and are building out our support in a discount channel featuring our Schwartz Grillmates products. In both France and the UK, we will be increasing our third quarter brand marketing investments to support grilling, as well as new products and to continue to emphasize our value messaging. Across the region, we are making meaningful progress in the fast-growing discount channel, expanding distribution and gaining share. Finally, we are gaining share of the UK hot sauce category. We continue to drive strong Frank's Red Hot performance and are accelerating our Cholula growth, with new distribution and e-commerce multi-packs contributing significantly to our hot sauce growth. Overall, our investments in brand marketing, merchandising, and new products are proving to be effective and are driving growth in EMEA. In the Asia-Pacific region, growth of the quarter reflected lapping the COVID-related disruptions in China. While our business is recovering and our second quarter growth was robust, it was lower than our expectations as the pace of reopening is proving to be more gradual, and consumer spending was pressured by broad-based economic pressures in the region. we remain optimistic for a more normal operating environment emerging as the year progresses and we enter into 2024, driving sustainable growth as we execute on our strategies. Outside of China, new products and brand marketing initiatives drove double-digit growth in other markets, with strength in branded spices and seasonings and Frank's Red Hot. Wrapping up the consumer update, We are fueling our growth with the power of our brands and increased innovation and brand marketing. The supply issues we experienced last year are resolved, and we are using our strength in category management to increase distribution and drive McCormick and category growth. Our year-to-date results bolster our confidence that we will continue to drive sales growth as we have in the past, before, during, and after the pandemic. We believe the execution of our growth plans will be a win for consumers, customers, our categories, and McCormick, differentiating us even more and strengthening our leadership in core categories. Now turning to flavor solutions on slide 10, we are continuing our outstanding sales growth momentum in this segment. As Lawrence already mentioned, the second quarter was our ninth consecutive quarter with double-digit constant currency sales growth. We have previously shared our commitment to restoring profitability in this segment, And the second quarter is marking an inflection point toward our objective to continuing to build our margin. Our growth was led by pricing actions in all three regions. We are priced to cover current year inflation and are continuing to recover the cost inflation our pricing lagged the last two years. Recovery in the second quarter was even greater than the first. Now for regional highlights. Our America's second quarter strong sales growth was led by our flavors product categories. Within flavors, seasonings growth was strong, including volume growth related to new products, which is outpacing last year's new product contribution, as well as our strength in our customers' iconic products. We are winning in seasonings with our heat platform. Flavors for performance nutrition beverages and health and market applications also contributed to our strong performance as we continue driving double-digit sales growth. We are winning with new products for existing and new customers. In branded food service, we continue to gain share in hot sauce, mustard, spices, and seasonings, with strength this quarter in grillmates and lauries. Our grilling portfolio is firing up in branded food service, just like in our consumer segment. Moving to EMEA, we continue to drive broad-based growth across the portfolio, led by higher sales to our quick-service restaurant customers in the second quarter. Overall, our price realization accelerated again from last quarter Notably, we grew sales constant currency 15% in the quarter despite an impact from pruning low margin business, as Lawrence mentioned earlier, and softness in some of our QSR and packaged food and beverage customers' volume within their own business. And in APZ, we also experienced recovery in China and are encouraged about the return to normal as growth was also driven by strong performance of our quick service restaurant customers' promotions. Outside of China, we deliver double-digit growth with effective price realization as well as solid volume growth driven by demand from QSRs. The strength of our flavor solutions portfolio and capabilities, including our differentiated customer engagement and culinary-inspired innovation, are driving our outstanding flavor solutions momentum. The power of McCormick and Fona together continues to create exciting growth opportunities and a technically insulated and value-added part of our portfolio, especially with our recent wins in health and nutrition. And in branded food service, we expect new products, increased menu penetration, and culinary partnerships to drive continued growth. Our robust plans and flavor solutions bolster our confidence in continuing our growth trajectory and driving our flavor solutions leadership. Now, I'd like to turn it over to Mike to provide details on our financial performance. Thanks, Brendan, and good morning, everyone. Starting on slide 12, our top-line constant currency sales grew 10% compared to the second quarter of last year, reflecting 11% from pricing, partially offset with a 1% volume and mix decline. As Lawrence already mentioned, there were impacts to volume related to the China recovery, the kitchen basics to vestiture, the exit of our consumer business in Russia, and and strategic decisions we made related to optimizing the profitability of our portfolio. At the total company level, all these impacts netted out. In our consumer segment, constant currency sales increased 7%, reflecting a 9% increase from pricing actions, partially offset by a 2% volume decline. Including in this volume decline are a net 1% increase from the recovery in China, partially offset by the kitchen basics divestiture and our business exit in Russia, a 1% decline from exiting DSD, or direct store delivery, business for Hispanic bag products in the Americas. On slide 13, consumer sales in the Americas increased 4% in constant currency, with an 8% increase from pricing actions, partially offset by a 1% volume decline from the kitchen basics to vestiture, a 2% volume decline from the Hispanic product DSD exit, and 1% underlying volume and mix decline. Our strong underlying sales growth was driven by the products in our grilling portfolio Brendan mentioned earlier. In EMEA, constant currency consumer sales increased 9%, with a 12% increase from pricing actions partially offset by a 2% volume decline from exiting Russia and a 1% underlying volume and mix decline. Excluding Russia, sales growth was broad-based across all categories and markets. Constant currency consumer sales in the Asia-Pacific region increased 28%, driven by a 20% volume increase from China recovery and a 6% increase from pricing actions across the entire region, as well as 2% increase in all other volume and product mix. Turning to our flavor solutions segment and slide 16, we grew second quarter constant currency sales 13%, reflecting a 14% increase from pricing actions, partially offset by a 1% volume decline. Included in this volume decline are a net 1% increase from the recovery in China, offset by a 1% decline from discontinuing a private label food service product line in EMEA. In the Americas, flavor solutions' constant currency sales rose 11%. Pricing actions contributed to higher sales across the customer base. Volume and product mix declined in the quarter as strong volume growth in seasonings was more than fully offset by the impact of pruning of low-margin business. In EMEA, constant currency sales increased 15%, with pricing actions partially offset by lower volume and product mix, including a 2% impact from discontinuing the private label product line I mentioned earlier. EMEA's labor solutions' outstanding growth was driven by pricing and was broad-based across its portfolio, led by higher sales to QSR customers. Volume and mix, outside of the product discontinuation, declined due to softness in some of our customers' volume within their own businesses, mainly packaged food and beverage customers as well as QSRs. In the Asia-Pacific region, flavor solution sales grew 22% in constant currency, with a 13% volume benefit in China due to lapping the prior year COVID-related disruption, an 8% increase from pricing actions, and a 1% increase in all other volume of mix driven by Australia. As seen on slide 20, gross profit margin expanded 310 basis points in the second quarter versus the year-ago period, reflecting our unwavering focus on increasing profit realizations. Favorable drivers in the quarter were our CCI and GOE programs, the continued recovery of the cost inflation our pricing lagged over the last two years as we planned, and favorable product mix in both segments. We offset current year inflation in the second quarter with our pricing. Notably, in labor solutions, while we continue to incur some level of higher cost to meet high demand in certain parts of our business, we continue to make progress on reducing the level of these costs, and as we expected, the second quarter's dual running costs we experienced in the UK were comparable to last year. We are very pleased with our gross margin expansion for the quarter and expect to continue to drive margin improvement in the balance of the year. Now moving to slide 21, selling general and administrative expenses, or SG&A, increased relative to the second quarter of last year, as higher employee incentive compensation expenses and distribution costs were partially offset by CCI-led and GOE savings. Brand marketing increased compared to the second quarter of last year, and we are expecting an even more significant year-over-year increase in the third quarter. As a percentage of net sales, SG&A increased 20 basis points. Strong sales growth and gross margin expansion, partially offset by higher SG&A costs, resulted in a constant currency increase in adjusted operating income of 36% compared to the second quarter of 2022. In constant currency, the consumer segments adjusted operating income increased 24%, and the flavor solutions segment grew 66%. Turning to interest expense and income taxes on slide 22, our interest expense increased significantly over the second quarter of 2022, driven by the higher interest rate environment. Our second quarter adjusted effective tax rate was 22.3%, compared to 18.6% in the year-ago period. Both periods were favorably impacted by discrete tax items, with a more significant impact last year. At the bottom line, as shown on slide 23, second quarter 2023 adjusted earnings per share was $0.60, as compared to $0.48 for the year-ago period. The increase was driven by higher adjusted operating income, partially offset by higher interest expense and a higher effective tax rate. On slide 24, we've summarized highlights for cash flow in the quarter-end balance sheet. Our cash flow from operations due to date was strong. $394 million in 2023 compared to $154 million for the first half of 2022. The increase was primarily driven by higher net income and working capital improvements, including lower inventory as well as lower incentive compensation payments. We returned $209 million of cash to our shareholders through dividends and used $119 million for capital expenditures through the second quarter. We expect 2023 to be a year of strong cash flow driven by our profit and working capital initiatives. Our priority is to continue to have a balanced use of cash, funding investments to drive growth, returning a significant portion to our shareholders through dividends, and paying down debt. We remain committed to a strong investment grade rating, and we have a history of strong cash generation and profit realization. Now turning to our updated 2023 financial outlook on slide 25. Our 2023 outlook reflects our continued positive top-line growth momentum and, with the optimization of our cost structure, increased profit realization. We expect to drive margin expansion with strong sales and adjusted operating income growth that reflects the health of our underlying business performance, as well as the net favorable impact from several discrete drivers. We expect our adjusted operating profit growth will be partially offset below operating profit by higher interest expense and a higher projected effective tax rate. We also expect there will be a minimal impact from currency rates, although there will be a timing aspect as we realize an unfavorable impact in the first half of the year and project a favorable impact in the second half. For fiscal 2023, we are reaffirming our sales outlook, and as Lawrence mentioned, we are raising adjusted operating income and adjusted earnings per share, driven by our strong year-to-date performance, combined with the robust demand we continue to expect and our diligent approach to optimizing our cost structure. At the top line, we continue to expect 5% to 7% growth, driven primarily by the wrap of last year's pricing actions, combined with new pricing actions we have taken in 2023. We expect several factors to impact our volume and product mix over the course of the year, including price elasticity, consistent with 2022 at lower levels than we have historically experienced, but in line with the current environment. A 1% estimated benefit from last year's impact of COVID-related disruptions in China, although we expect the impact will vary from quarter to quarter given 2022's level of demand volatility. The divestiture of our kitchen basics business in August of last year and the exit of our consumer business in Russia during last year's second quarter. And finally, the continual pruning of lower margin business from our portfolio. We estimate the America's consumer segment DSD exit and the EMEA's labor solutions private label discontinuation to be approximately a 1% impact on the year, which began to impact us in the second quarter. As always, we plan to drive growth through the strength of our brands, as well as our category management, brand marketing, new products, and customer engagement plans. Our 2023 gross margin is projected to range between 50 to 100 basis points higher than 2022 compared to our prior guidance of 25 to 75 basis points. This gross margin expansion reflects a favorable impact from pricing, cost savings from our CCI-led and GOE programs, and portfolio optimization, partially offset by the anticipated impact of a low to mid-teens increase in cost inflation. We expect cost pressures to be more than offset by pricing during the year as we recover the cost inflation our pricing lagged the last two years. Moving to adjusted operating income, first let me walk through some discrete items items and their expected impact to our 2023 adjusted operating profit growth. First, the cost savings from our GOE program are expected to have an 800 basis point impact. The savings from this program are expected to scale up as the year progresses. Next, the benefit of lapping the impact of COVID-related disruptions in China is expected to have a 300 basis point favorable impact. The kitchen basics divestiture is expected to have an unfavorable 100 basis point impact. And finally, an 800 basis point unfavorable impact is expected as we build back incentive compensation. The net impact of these discrete items is a favorable 200 basis points. This favorable impact, combined with expected 8% to 10% underlying business growth, which is driven by our improved operating momentum, results in our adjusted operating income projection of 10% to 12% compared to our previous guidance of 9% to 11%. In addition to the adjusted gross margin impacts I just mentioned, this projection also includes a low single-digit increase in brand marketing investments and our CCI-led cost savings target of approximately $85 million. We continue to anticipate a meaningful step up in interest expense driven by the higher interest rate environment, which will impact our floating debt. We estimate that our interest expense will range from $200 to $210 million in 2023, spread evenly throughout the year. As a reminder, in 2022, we realized an $18 million favorable impact from optimizing our debt portfolio, which we will lap in the third quarter of 2023. The net impact of these interest-related items is expected to be an approximately 800 basis point headwind to our 2023 adjusted earnings per share growth. Our 2023 adjusted effective income tax rate is projected to be approximately 22% based upon our estimated mix of earnings by geography, as well as factoring in a level of discrete impacts. Versus our 2022 adjusted effective tax rate, we expect this outlook to be a 100 basis point headwind to our 2023 earnings growth. To summarize, our 2023 adjusted earnings per share expectations reflect strong underlying business growth of 10% to 12% and a 2% net favorable impact from the discrete items I just mentioned impacting profits. the GOE program, the China recovery, the kitchen basics to vestiture, and the employee benefit cost rebuild, partially offset by the combined interest and tax headwind of 9%. This resulted in an expected increase of 3% to 5% for a projected guidance range for adjusted earnings per share in 2023 of $2.60 to $2.65. Before turning it back to Brendan, I would like to recap the key takeaways as seen on slide 27. Our second quarter sales growth reflects sustained demand across our business and the effective execution of our strategies. Our pricing actions are in place and our volume of performance improved. We drove meaningful year-over-year margin expansion in both segments, underscoring our focus on profit realization. Our cost savings programs are yielding results in line with our expectations. Our year-to-date results combined with continued robust demand expectations and our actions to optimize our cost structure bolster our confidence in delivering the strong operating performance projected in our enhanced 2023 outlook. Thank you, Mike. Before we turn it over to Q&A, I would like to provide some additional comments. First, I would like to say I am truly honored and excited about the opportunity to lead this great company with its rich and very promising future. Global demand for flavor remains the foundation of our sales growth, and we have intentionally focused on great, fast-growing categories. Our alignment with long-term consumer trends, healthy and flavorful cooking, increased digital engagement, trusted brands, and purpose-minded practices continues to create a tailwind for growth. McCormick is uniquely positioned to capitalize on this demand for great flavor. With the breadth and reach of our strong global flavor portfolio, we are delivering flavor experiences for every meal occasion. We are the global leader in flavor from end to end for our consumers and our customers. As we look ahead to the back half of the year, we will continue to focus on capitalizing on strong demand, optimizing our cost structure, and positioning McCormick to deliver sustainable growth and long-term shareholder value. We have compelling growth plans in place, including building momentum with our new products and heat platform, and are delivering on our commitment to increasing our profit realization. we are confident with successful execution of our plans and concrete actions, we will realize the profitable growth reflected in our updated 2023 financial outlook. The strength of our business model, the value of our products and capabilities, and execution of our proven strategies further bolsters our confidence in our growth trajectory in both segments, particularly as the environment begins to normalize. Remaining relentless with our focus on growth, performance, and people combined with the compounding impact of our continued growth investments and alignment with consumer trends, underscores McCormick's position to deliver long-term differentiated growth. Our fundamentals remain strong, and we expect to continue to not only deliver strong sales growth, but also drive total shareholder return at an industry-leading pace. Importantly, I'd like to personally thank Lawrence for his mentorship and continued service to McCormick. On behalf of shareholders and employees, I want to recognize his outstanding leadership as CEO of this great company. Lawrence has been a transformational leader for McCormick, bringing our global flavor platform to life through his entrepreneurial spirit, innovative thinking, and growth-oriented vision for the company. During his time as CEO, we have grown sales over 50% and market capitalization more than doubled, creating significant shareholder value. We have prioritized investing to drive future growth, increased our profit realization, improved cash flow from operations, and have returned more than $2.5 billion to shareholders. Lawrence is widely credited with embedding purpose-led performance into McCormick's culture by championing the company's industry-leading sustainability efforts, driving a period of tremendous growth, performance, and expansion, including acquisitions of iconic brands like Frank's Red Hot, French's, Cholula, as well as Thona, and successfully leading McCormick through the unprecedented global pandemic. This is an enviable track record. Congratulations, and we look forward to your continued support as Executive Chairman. Now for your questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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 key. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Andrew Lazar Great. Thanks very much. First, just wanted to congratulate both of you, Lawrence and Brendan, on last evening's announcement. McCormick puts a tremendous amount of effort into succession planning, and I'm sure this transition will go every bit as smoothly as previous ones.

Thank you, Andrew. That's very kind of you to say that. Andrew, thank you very much for that as well. I'm glad you mentioned that McCormick does this very well. McCormick prides herself on leadership development and succession planning, and the board and I have been very thoughtful and deliberate in multi-year process to get us to this point. Over the last few years, I've had a chance to partner with Brendan on many of our key initiatives and his disciplined approach to delivering growth, believing that the qualities have come to expect from McCormick make them an ideal CEO for this company going forward. With his appointment to president last year, we were signaling this, and we have given all of you on this call and off this call an opportunity to get to know Brendan and see his qualities firsthand.

Good stuff. I've got just two questions. The first one would be, McCormick essentially flowed through the second quarter EPS upside to the full year, but also did not flow through any of the more significant upside in 1Q to the year. So I'm trying to get a sense whether this is simply some conservatism or, you know, is there something in the back half of the year that's changed that requires either the need for more marketing or is really just McCormick being sort of opportunistic on the increased marketing in 3Q?

Well, I'll say that, first of all, we are confident in our outlook for the back half of the year. There's a lot that's exciting within the business. We're pleased with our execution so far this year. The biggest part of the year still is in front of us. We're in fourth quarter, our two largest quarters of the year. And so while we're optimistic, we also want to be prudent about what is still in front of us. There's some puts and takes in the business overall. Our recovery in China has been a bit slower than we expected, and we have factored that into our guidances. Whereas for the most part, everything else is moving in the right direction and we're quite positive. So we're not trying to signal anything. We did want to reflect the fact that we have had strong performance a year to date in the increase in our guidance and to reflect, you know, reflecting that strong performance. But we also didn't want to get ahead of our, get over the tips of our skis.

And then second, as we think about the back half of the year and McCormick starting to lap some of the pricing, would your expectation still be that volume would turn positive? And if so, what would be the key drivers that give you sort of the visibility to that?

I'm going to say a few words about that, and I'm going to let Brendan pick it up. But, you know, as we have been saying all along, we expect our volume performance to improve as we go through the year and to be stronger in the second half. versus the first half, and that outlook has not changed. Given that we have slightly softer volumes than China in our outlook, we have a little bit less contribution from that part of the business, but in the second half, overall, as a company, we're expecting volumes to be very close to flat. We call it plus or minus 1%. We're talking about numbers that are really not meaningful and well within the range of forecast error. Just to build on that from a regional perspective, Andrew, in the Americas, yes, we're performing pretty much as planned. I do think you have to look at volume and price together when you take a look at the profile. We're showing sequential improvement across the portfolio, and that's been fairly consistent sort of month to month and quarter to quarter so far. And we also need to recognize that in the second quarter result, it does include kind of the exit of this DSD business, which when you take that out, I think it kind of underscores the Lawrence's kind of broader view of what we think is going to kind of unfold in the back half. But it is broadly an improvement versus the first China, we think we're going to have a strong recovery. Also, we're pretty confident in that, although it's a little bit less than, it's kind of a more gradual recovery than what we initially had planned for. So that's probably a little bit different than what we had been thinking about previously, but nevertheless, it is still a strong recovery. I would say at EMEA, we're pretty pleased with the performance on volume. When you factor out the elements of... you know, Russia exit or, you know, overall. The underlying volume and mix, when you exclude that, was really actually pretty nice. So we're pleased to see that we have some volume growth despite those things in the EMEA region. You know, on to the whole idea of this, just to provide more color on this DSD exit. You know, I would say that, you know, this is a business that, you know, we've been trying to kind of improve over time. And what we see from it is that, you know, This is the DSD portion that we delivered to store. We also have a warehouse and distribution delivery that we would handle. And that was a business that just simply wasn't profitable, and we decided we needed to exit. But it was a meaningful chunk, I think, out of the second quarter, about two points. So as we transition away from that business, it'll probably be an impact for the rest of the year, but something that we had planned for.

Thanks so much, and congratulations again. Thanks, Andrew.

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

Hi, thank you, and please accept my sincere congratulations as well, Lawrence, Brendan, and Casey, too. Everyone's moving up in the world. It's great to see. I think I'm contractually obligated after yesterday to ask how you're feeling about, I guess, your customers' inventory levels in general. And if you're sensing, you know, maybe any risk of a retail safety stock deload or anything similar as your supply chain, you know, continues to normalize and get back to where it was.

Brendan, why don't you take that one?

You know, Ken, thanks for the question. We're not experiencing anything, you know, unusual or significant in trade inventory destocking. honestly, there's really not much drama in the quarter for us on this. The difference between our sales and consumption was more attributable to just the retail sell-through of the discontinued items. The point I just made regarding DSD is an example of that. But also, we have higher listing fees this quarter just due to the fact that we're launching more new products. And so I think you see that in a lot of our dialogue in terms of, you know, Cholula or, you know, Grillmates items for grilling or the Tap of the Brown Line. So we definitely had that. But as we anticipated, our alignment between consumption and shipment is normalizing. There's not really anything unusual going on in this quarter. And I'll underscore that our service levels have been pretty solid for quite a while now. So, you know, retailers have had plenty of time to adjust their stock level and so on. So it just actually seems like something that, you know, over the past year and a half has already occurred for us.

Got it. Thank you. And then just as a quick follow-up, I wanted to ask a little bit about the commentary about Europe and in the consumer side, you know, maybe some of the softness you're seeing with your, or sorry, the flavor solution side and just, you know, how you're seeing that progress as we go into the current quarter and, Is it still worsening? Just trying to get a sense for how some of your larger customers, whether it be food, beverage, or QSR, are performing as the year progresses.

Ken, on the flavor solution side of our business in EMEA, definitely it's been softer than what we would have expected, I think, mostly because we're just seeing a swarming of consumer demand from our customers. And that would be both sort of food and beverage and QSR. But I would say it's most coming through the quick-serve restaurant customer channel. And we think it's really more of a reflection of what we see happening and what's being reported, I think, in terms of overall inflationary impact in EMEA, specifically Europe. But definitely, as we kind of noted in the remarks leading into the call here, that is something that... you know, it's probably more affecting our overall volume rate in the EMEA region. I think, too, just to add a little color on the volume there, about a third of that decrease in volume is due to the exit of that private label food service line. So, again, another portfolio optimization. Yeah, and that was actually contemplated in our plans from the beginning of the year. Maybe for customer relations reasons, we couldn't be specific about that, but... That is not a surprise to us.

Great. Thanks so much.

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

Hey, guys. Good morning and congratulations again to Brendan and to Lawrence. Thank you. Thanks, Peter. Guys, thank you for the commentary, I guess, on the exit of DSD. I think it's helpful, particularly in the context of some questions we've been getting this morning around the consumer business. So appreciate that. I guess maybe what I wanted to pick up on in America's consumer specifically is some of your comments around grilling. You know, you do obviously have pretty easy compares from last year, just given where kind of protein prices were. So curious just kind of what you saw coming out of Memorial Day, what you're expecting over the course of the summer. Obviously, you have some specific things that you're working on, but anything you can help with us there.

Thanks for the question, Peter. We're off to a really good start on grilling for this summer season, and we definitely saw that as a good start in Q2. A lot of it's really driven by just, if you think about, we have a solid innovation plan, I think, for the grilling season. We're launching some new grilling items Plus, we're also in just really much healthier supply on mustard and Frank's Red Hot. And these are areas in large marinades where if we look at last year and before that, certainly we're coming on top of now a period of where we just have really full supply, assured supply for our customers. We're turning back on normal promotional activity on the business. So we feel like all of those things put together, innovation, supply, getting back to the way you'd want to run a season on grilling, we have a really good start to the year. And as we look at it kind of, you know, from a share standpoint, really probably performed quite well, you know, kicking off in the second quarter. So all those things come together, I think, for a great start to the summer season.

Great. No, that's helpful. And maybe just a question for Mike around kind of the gross margin guidance. just where you've covered in the first half of the year, kind of what it implies about the back half. Maybe there's some conservatism in there, but I did notice you kind of didn't change the inflation guide. Maybe just help us kind of think about that over the balance of the year.

Yeah, I mean, for the year, Peter, as you know, we did raise our guidance on gross margin 25 to 75 basis points to 50 to 100. So we reflected some of the increased pricing realization we talked about in the call. There were really really doing well in our GOE program and realizing those savings and those ramp up in the second half. The thing about the second quarter, that 300 basis point improvement, second quarter last year was our worst performance of the year. You'll see improvements in the back half in basis points versus last year, but they won't be as big as the 300 we had in the second quarter. Got it, Mike. Sorry, go ahead. Go ahead. I'll finish this line up.

Sure. Yeah, Mike, maybe though, you know, understanding maybe not the same magnitude of year-over-year change, but sequentially, you know, margins tend to still improve in the back half of the year. So just curious kind of how you're thinking about that.

I mean, based on the mix of our business, generally the back half does have higher margins, especially the fourth quarter. Our implied guidance has a high of almost 90 basis points improvement, low is zero. So you're getting a little bit of a squeeze factor there, but If we continue to have success, and you can see that ramp up in the second half, China is going to have a really strong recovery in Q4. That's a positive for us. They have a scale over there and good margins.

I mean, we're quite optimistic with continued gross margin improvement and operating profit margin improvement as we go through the year and going forward.

Vegas Mars that everything's moving in the right direction. Got it, got it, got it. Peter, you know, I'm not sure that we, you know, I know that you've got some interest in the Mojave DSD exit, so I just want to spend a second with you and elaborate on that. You know, this is a range of very, you know, there are a lot of units, but they're very low value. These are cello bags, spices, and and dried peppers in several bags that largely moves through unscanned channels. And we've had a DSD business that we've banged our head against for a long time that we've chosen as part of optimizing our portfolio and improving our profit performance to exit that part of the business. We still sell those same brands through the warehouse to major customers where because the difference in the distribution channel. The margins are attractive and the business is worth staying in, but the DSD portion of it was just not a moneymaker. It's a lot of units, but not a lot of value.

Got it. Very helpful. Thank you, guys.

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

Good morning, everyone, and congratulations all around. Thank you so much for everything to all of you. Okay, first question. Regaining lost distribution in U.S. retail channels. It seems to me that there were a number of smaller retailers that you ended up losing distribution at during those supply chain disruptions. As you start to rebuild that distribution, what innings are we in and are you able to quantify how much of a tailwind that could be over the next year to 18 months?

Well, Alexia, thank you for the question on PDPs and overall distribution. First of all, I'd like to say we continue to make really good progress year to date. As we look at our performance and our trends and all the different metrics we might look at, we're We're happy to see that come through as a positive, especially in the second quarter. And we do expect to see continued progress as we go into the back half. We have some significant improvements that we know will start to come online just because as customers reset their shelves and those things start to happen, a lot of the wins that we get through category management and all of that are a really important effort we've put forth in terms of how we help the retailer guide the category. We know that there's going to be some some helpful improvements coming through on that as we go to the back half. We're likely to kind of quantify all that as we think about that into the back half of 23 and all the way into 24, but this is an effort, as we've said before, that we're going to continue to be working on over the course of not only this year, but also next year. And as we look at overall distribution, know that we're not going to get all of that back in terms of raw points because almost half of that was discontinuations originally. So we feel really good about our progress right now on overall distribution points and it should continue to improve as we go through 23 and also in 24. And Alexi, as I said on our last quarterly call, we have a tremendous amount of innovation and on top of that the restoration of our U.S. Everyday Spice line starting to hit the market in Q2 and building through the second half of the year. All of those hands on the shelf give us opportunities to get a more advantageous set and to get a greater amount of distribution on the shelf. We have a number of major customer wins that we talked about in the first quarter that are actually going on shelf in Q3. which should further build on TDP. So we're pretty confident we're going to continue to see improvement in this area as we go through the year. And then with our brand marketing, we're going to be mid-single-digit increase in the second half. A lot of that's going to go into the third quarter, really to support those plants.

Great. And as a follow-up, can you just give us an overview of the one-time costs that are going to be eliminated by 2024? I seem to remember you have two plants running in the U.K. as you transition there. There's co-manufacturing costs here in the U.S. Just a sort of idea of how much more there is to come out that's one time from recent events.

Okay, let me think about that. So you're referring to we have dual running costs in our EMBA region due to our new large facility over there. I think I'm pretty sure I said in the last call we're around $20 million for this year, which is about the same as last year. We're still going to have some costs next year because it's going to go into the first and second quarter, the transition, because these are large manufacturing facilities. So, you know, if I were winging it, I'd say half of that's going to go away, but I'm going to be off, depending on the exact timing. Great. And, of course, our GOE program continues next year. We'll see a nice wrap-in to 2024 from that.

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

Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Great. Good morning, and congratulations to everyone as well from me. Two questions both related to flavor solutions. The first one, in part, is a follow-up to the topic that Ken Goldman had raised just around inventory dynamics. We've heard, you know, various discussions of potential customer de-stocking from a flavor solutions perspective as well from different pockets of the industry. I was just curious to see if that's at all impacting you or if you expect it to impact the business over the second half of the year.

Steve, thanks for the question. As it relates to our flavor solutions business, when we look at overall our volume mix profile on it, it and taking into account sort of the exit discussions that we've already had and other impacts, we think our volume profile right now reflects kind of the categories that we choose to really focus in on, like performance, nutrition, and seasonings, and health and nutrition. These are areas that we still see a lot of healthy growth in, and those have been intentionally kind of a key area of growth and focus for us. And so I don't know that we're, and we won't be able to comment specifically on any particular customer activity, but we believe our volume profile kind of reflects more of that composition of our business. And I'm not sure that we're seeing any broad restocking discussions that we have with customers at this point in time. I'll also add that a lot of customer wins and believe we're gaining share in this space. And so that is a positive contributor for us as well. A lot of our growth in flavor solutions comes from innovation, too. And those are the things that really drive volume and margin in flavor solutions.

Okay, great. Great. And then my second question, actually, a good segue, is on the margin front. Just because you continue to trend well ahead of at least our expectations year-to-date on flavor solution margin recovery. And I guess if you think about that forward, maybe I was wondering if you could just frame for us, you know, how much or whether you expect further progress on that front in the second half. And then, you know, any updates as to how the progress you are making here year to date, you know, influences how you think about that build back to pre-pandemic levels or higher as you look out over the longer time, longer term.

Yeah, I mean, I'd say one, we're very pleased with our margin progress as we've said on the call. A lot of, I guess everything's moving in the right direction. The GOE program, portfolio optimization, things like that are helping both the consumer and flavor solution side. Like I said on the last call, pre-pandemic, you know, we were, you know, our flavor solutions margins were a little over 14%. We don't look at that as a ceiling, however, you know, longer term. With portfolio migration, we think we will go higher. Short-term-wise, we have a strong belief we'll get back to 14%. It's not going to be this year, but we're going to see sequential improvement. Quarter to quarter, there will be lumpiness based on run costs and dual running costs, things like that. But we had a really good second quarter. It was an easy comp compared to Q2 of last year, but we're pretty bullish on Flavor Solutions' recovery. And I will just add to that, just if I can step it up to the total company level, it is hard not to be excited about the 290 basis point expansion and operating margin that we've had this quarter. We're really moving in the right direction in both of our segments in a big way. And you've all seen that we raised OP guidance for the year. It's largely on the back of that margin improvement. And we're very pleased with our progress in this area.

Great. Thanks for that and congratulations again.

Thank you. Our next question comes from the line of Max Gumper with BNP Paribas. Please proceed with your question.

Hey, thanks for the question and congrats everyone. I want to return to the gross margin question with regard to the second half. So it was nice to see the better than expected gross margin extension in the quarter and When I look at the updated guidance range, it would seem to imply that on a first pre-pandemic basis, whether that means fiscal year 18 or fiscal year 19, that we actually see some reversion in your progress towards gross market recovery. I'm trying to tie what's implied by that guidance range versus what we're hearing in terms of cost savings ramping up, pricing catching up to inflation, supply chain improving. all of which I would have thought could lead to gross margins continuing to move closer to pre-pandemic levels as we go through the year. And I do recognize, you know, 3Q and 4Q are big quarters for you, and there's probably some prudence embedded in this outlook, but I just wanted to get some clarity on that point. Thank you.

Yeah, I mean, what you have to remember, Max, is when you're pricing to cover costs over a multi-year time, you're going to have a large dilution impact just due to the math. And we said before, I mean, that has been a large headwind last year. I think we quantified in the 200 to 300 basis point range of the margin line. We haven't talked about it much this year, but we're still having some of that. We will get that back over time, as we said, through our CCI programs, more normal cost inflation in the future. So, you know, it's hard to compare the four years of gross margin at this point, but a lot of that is dilution. But we see an upward trajectory as we see in the second quarter. That's the important thing. What makes me really excited is even with, you know, we're catching up on the pricing we've under-recovered the last two years. Even with that, you know, that is a negative dilution impact. Even with that, we're showing gross margin impact of positive based on the GOE program, our CCI programs. So that really gives us confidence going forward.

Got it. Understood. And then turning to the recovery in your TDPs and U.S. spices and seasoning. So it's been nice to see that in the scanner data that we all track. And it does seem to be approaching sort of flat year-over-year performance. But we're not seeing the pickup in dollar share yet as significantly. And I would think there should be some natural lag because as you get the distribution points, maybe then you can start to advertise and bring back the brand building more fully as you've flagged today. Is that the right way to think about it? Should we start to see more full improvement in dollar share as we move through the year in terms of the trends?

Yeah, just like we've seen in our current trends, Max, you know, sequential sales, unit, and volume improvement. across the portfolio and even specifically within spices and extracts in the Americas, we do think that reflects those long-term tailwinds of our categories, but also our growth plan. We continue to invest in brand marketing, really focused category management and innovation. That allows us to kind of focus on those volumes and that sustainable growth and also get that compounding effect of those investments. So, yes, I do expect that profile to improve as we go through the back half. As you called out, reasonably, with the improvement in GDPs, we should also then start to see an improvement overall as we think about dollar share. And so that is a reasonable thing, I think, to look out for. What is driving our performance right now, and we think will as we continue moving forward, is increased distribution, brand marketing category management innovation, and we also see a similar trend on this in Europe. These are areas that we continue to put a lot of focus up against, and I would say our outlook is, as everyone has said so far this morning, I guess I'm going to say it too, everything is moving in the right direction. We feel that same way about our external performance off-shelf. And I don't want to miss it. There are big, as Bernie noted, but I don't want anyone to miss it. And we've got share gains in Europe. We've got share gains in, I don't know if you guys mentioned, in Australia and Asia. And we have share gains in our other categories, the spices and seasonings. In the U.S., it's certainly an important area of focus. and justifiably so. We're confident that we're going to get there. We're following the same playbook, as we said at Cagney, that we did for recipe mixes and believe that we're going to get to the same result.

Great. Thank you very much.

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

Yes, thank you. Good morning, everyone. Let me add my congratulations to Lawrence, Brendan, and the whole team. I guess just first making sure there's a lot of ground being covered today. If you think about some of the cadence of earnings and margins, just the headwinds on a year-on-year basis from incentive comp, how much of that has actually been realized in the first half as we think about layering that into the back half of the year. And then again, maybe coming back to this question on gross margins, the sequential cadence, I mean, historically, second half gross margins would be higher than the first, particularly in the fourth quarter, given that's your biggest volume quarter. It doesn't seem to imply, the guidance doesn't seem to imply much gross margin improvement in the in the second half from where you were in the second quarter, and I'm just trying to make that just mix between the different business units or just the conservatism. Is there something on price-cost and mix in there that we're missing? I'm just, usually there's a bigger step up. Certainly in the fourth quarter, it doesn't seem to be implied even at the high end of the guidance range.

Yeah, like we said last call on SG&A, I mean, on Senate billback, It's mostly in the second half, but if you remember back to the second quarter of last year, it was a really difficult quarter, as I mentioned before. So we were obviously making adjustments to incentive comp there. So some of that did come through in Q2, but the majority of it is second half back loaded. As far as gross margin, I think I just had a very high level. We've talked a lot about gross margin on this call. we're optimistic but prudent. I mean, we've got a lot of things that we're putting points on the board in the GOE program. Pricing, we did say pricing realization is going to be highest in the first quarter, and second quarter is going to ramp down. So that's a little bit of that. And we're still having low to mid-teen cost inflation that we haven't moved on. So that's coming down. But at the end of the day, from a gross margin perspective, we're going to show improvement. And again, we're being prudent. Yeah, and I want to be sure we're differentiating, because your question did actually add and confuse me a little bit. Our gross margin in our underlying business is always higher in third and fourth floor. That's the mix of the business, and that's the natural state. I think you're asking – it sounds like you might be asking about that. We're – We're expecting that relationship to still hold, and we are expecting to continue to have improvement versus prior year in both of those quarters as well.

Thank you, Lawrence. It was versus the 37.1 in the second quarter, and I appreciate that that gets you higher year on year versus where you were last year in the second half. And I guess 100 basis points for the consolidated company, kind of you do the back into the second half gross margin percentage, get you much above 37 for the second half of the year in total, and then quarters will mix a little bit. But usually you would think that the gross margin percent would be higher by 4Q. That's the spirit of the question.

The gross margin change in the first half, we were favorable at 113 basis points to last year. The second half guidance implies 40 to 50 basis point improvement at the midpoint, so we're showing improvement. Remember that second quarter last year, we had a really positive 300 and some basis points increase in Q2. So that's a bit of why it's over 100 basis points in the first half. But 50 basis point improvement, we're happy with that.

Okay. I'll leave it there and pass it on. Thank you. Yeah. Great. Thanks.

Thank you. Our next question comes from the line of Matt Smith with Stifel. Please proceed with your question.

Hi. Good morning. Congratulations. I wanted to ask a follow-up question on the consumer business in the Americas, or more specifically in the U.S. We've seen elasticities improve in recent periods in measured channel data, and now you're ramping up new product activity and marketing along with what sounds like some positive distribution tailwinds. So how should we think about elasticity in the second half? With consideration to the commentary in your outlook talking about elasticities overall in line with the prior year, which are a little softer than the trends we're currently seeing in the U.S.?

I think, first of all, it's important to call out that our base case has been for the consumer to be under pressure in 2023, and we expect that to kind of continue. Although, broadly speaking, the consumer has held up better than expected, yet there is still pressure out there. Having said that, though, as we look at our own price elasticities and performance off-shelf, It remains pretty consistent with what we saw in the first quarter and in the fourth quarter most recently. And so we're not seeing a big deviation from where we've been. And in fact, I would say we had a retail price increase come through in early April, and we still see very consistent trends with regard to price elasticity. We don't see any examples right now. of it yet or are planning to getting worse but then also I'm not sure that we're indicating so far that's getting measurably better but these are these are consistent trends that we're planning on for the rest of the year because we are we are still on our base case of a pressured consumer I would say though that it's a good solid sustained demand from the consumer and as you take that but the I think, really robust and compelling growth plans that we've got in the second half. We've got good reason to believe that we're going to continue to see volume improvement in our U.S. business specifically as we go through the year.

Okay, thank you for that. And if I could ask one more on a follow-up on the recovery you're seeing in China. It contributed to growth in the quarter, but you've talked about how it lagged your expectations and is progressing more slowly. But Could you talk about the momentum in the business exiting the quarter? Did you see sequential improvement through the quarter? And how does the current consumer environment compare to year-ago levels, which were more normal in the second quarter?

Well, I think in terms of did we see any sequential improvement or any sequential changes as we went through the quarter? No. I would say that largely as we observed kind of the performance of the quarter in China, The one thing that was obvious is they're dealing with higher unemployment and consumer spending isn't as robust as maybe many and all of us were planning on, yet still being a strong rebound. But we weren't seeing any sort of different performance throughout the quarter. I would say it was pretty much consistent. And our view, once we saw the quarter open up, it sort of held that way throughout the end of the second quarter. I think your question, though, in the back half of your question, maybe you meant sort of how we're thinking about the third quarter. And, you know, recall last year, though, that was a big rebound period in recovery within China in the third quarter. So we don't expect that same level of recovery in the third quarter this year just because we're comparing up against that. But we expect those same trends to kind of flow through into the third quarter. And then again, when we get to the fourth, it's going to be different yet again. So we're going to be comparing against a very challenging period with respect to, you know, COVID lockdowns, et cetera. And so that is likely to feel more like the second quarter. Yeah. So maybe in summary, Q3 is a tough comparison on China because of the strong recovery last year. Q4 is an easier comparison because they were locked down in the fourth quarter last year. And we just actually had our China management team here in the office a couple of days ago. And we spent quite a lot of time with them talking about the roller coaster ride that they have been on as the economy reopens, locks down, reopens, locks down, and reopens. And that creates a lot of noise in the year-to-year comparison. We all had questions about how robust the recovery in China was going to be. It's really strong. I don't want anyone on the call to think otherwise. Our question all along has been, is the recovery going to Is the growth going to start with a 2, a 3, or a 4? Right now it looks like a 3, not a 4. So we have actually tempered our, not just captured it in our results today, but we've also tempered our outlook a little bit for China. That is considered in our guidance on sale.

Okay, thank you for that. I'll leave it there and pass it on.

Thank you. Ladies and gentlemen, our final question comes from the line of Robert Moscow with TD Cowan. Please proceed with your question.

Hi. Thank you for getting me in. And Lawrence and Brendan, congratulations to both of you, especially you, Lawrence. It's really been a pleasure working with you all these years.

Thank you so much, Robert. And welcome back, by the way. Congratulations to you. Congratulations to you.

Yeah. Well, we're... I'm a little jealous of you. I've got to be honest. But I wanted to follow up on, Brendan, what you said about what your consumer research says about preferences for brands versus private label. I think you said that consumers prefer brands. The market share data shows that private label is growing and has been growing every year for the last couple of years, I think. And I want to know if your data is showing the same thing in terms of market share and how do you reconcile those two things together in the U.S.?

Well, I think we have to acknowledge that there has been some trade down the private label, especially more recently. But also, it is moderated, especially, I think, in our own categories as we see more pricing on shelf coming from private label markets. those gaps narrow, and so therefore, you know, sort of the unit growth and trends sort of decelerate, and we're seeing our own unit trends, you know, show sequential improvement. But, you know, going back to sort of the idea of research and what consumers are telling us and what we're, you know, we keep, you know, finding, and it keeps you reinforced with consumer feedback is they're looking for value, not necessarily the cheapest pack or smaller items. And we do see, you know, Consistently, consumers do prefer brands. And a lot of what we've been trying to do when we think about just the mix between private label and brand, recall, we're also in the private label business with our customers, so we see a role for private label in our categories. And so we are obviously supportive from a category management standpoint that both provide a range of offerings for the consumer. Right now, we are pushing a lot on value. We're really focused on the growth of our large sizes. We're seeing consumers shift there more and more as they look for that greater value, and it's definitely showing through in our trends, but it's not diluted to us or to the retailer. We're not seeing as many signs of trade-down right now as maybe we saw during sort of the height of this inflationary period that we've been going through. If I were to go back over several years, it's a little bit harder to comment on category by category, but we typically see this happen during inflationary or recessionary times with private label. It certainly appears to gain share, but then again, we're not hitting the highs that are different from what we've seen in previous periods. That's our perspective on it. But we are, you know, certainly kind of have a foot in both parts of the category.

Great. Thank you.

Thanks, Rob.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Curzius for any final comments.

Thank you. Well, before we end, I'd like to let all of you in the analyst and investor community know I have appreciated the opportunity to tell you about McCormick, our great company. and for the insights and the perspective you've provided me, which help shape our strategies and clarify our messaging. You have all really helped me be a better CEO. Whether you have a buy, a hold, or a sell on us, and whether or not you've even held our shares, our many interactions have been transparent, constructive, and always mutually respectful. I want to thank you all, and I'm confident McCormick is well-positioned for continued success with our alignment to consumer trends, the breadth and reach of our portfolio, as well as our strategic growth investments. We have a strong foundation for sustainable growth and remain committed to driving long-term values for our shareholders.

Thank you, Lawrence, and thank you to everyone for joining today's call. If you have any further questions, please feel free to contact me. And as we enter the summer season, and for some of you in the U.S., as Fourth of July and Canada have made Canada Day, fire up those grills with the McCormick products. This concludes this morning's conference call.