McCormick & Company, Incorporated

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 two for more information. I will now turn the discussion over to Brendan.

Good morning, everyone, and thank you for joining us. We are pleased with our second quarter performance and the progress we made year to date to continue to advance our leadership and differentiation. By focusing on the levers within our control, we are delivering profitable volume led growth by investing in our brands, expanding distribution, driving innovation, and increasing operational efficiencies. McCormick remains a growth-oriented company with robust plans that leverage the demand for flavor and the strength of our brands. As consumer preferences evolve, we continue to execute on our proven strategies in alignment with consumer trends and with speed and agility to capture the demand for flavor and value across all occasions and channels. Our results continue to demonstrate the success of our prioritized investments in the areas that we believe will continue to drive the most value and sustain our momentum for the remainder of 2025 and beyond. This morning, I will begin my remarks with an overview of our second quarter results, focusing mostly on top-line drivers. Next, I will review how McCormick is positioned relative to an evolving consumer landscape, including our view on tariffs. Then, I will highlight some areas of success and the areas we continue to work on, as well as our growth plans. Marcos will then go into more depth on the second quarter results, as well as review our 2025 outlook, including a discussion of our tariff exposure and mitigation plans. And finally, before your questions, I will have some closing comments. Turning now to our results on slide four. In the second quarter, total organic sales increased by 2%, primarily driven by volume growth, in line with our expectations. Volume growth of more than 3% in the consumer segment was partially offset by declines in flavor solutions, as expected. This was primarily driven by overall softness in customer volumes in packaged food and EMEA quick service restaurants, or QSRs. Although customer demand in parts of our flavor solutions business remains pressured, we are performing better than the trends as we continue to benefit from pockets of growth from emerging brands and health-driven categories. which are expected to continue to moderate these declines. In global consumer, organic sales growth was volume-led across all three regions, demonstrating continued momentum across key markets. This sustained volume growth is supported by investments across our core categories, including innovative brand marketing, accelerated innovation aligned with consumer trends, expanded distribution, and robust category management initiatives. In the Americas, we drove volume growth and share gains across core categories. In EMEA, our results reflect select pricing actions to cover rising commodity costs and continued solid volume momentum. In Asia Pacific, our business in China continues to gradually recover in line with our expectations. Let me now share our current view on the state of the consumer and provide our perspective on where tariffs currently stand. Although the environment remains challenged, consumers continue to show resilience across our key markets. They are adapting to economic pressures by adjusting how they shop, making more frequent trips with fewer units per basket, choosing larger pack sizes to stretch their budgets, and increasingly using leftovers. Importantly, they continue to spend and not compromise on flavor. What's most notable is the continued convergence of two enduring trends. value-seeking behavior, and a heightened focus on health and wellness. Consumers are cooking at home more. 86% of meal occasions are sourced at home, which remains above pre-pandemic levels. This shift supports demand for flavorful, fresh, and healthy meals that offer both value and health benefits. This is where McCormick plays a critical role. We're not competing for calories. We're flavoring them. Our portfolio helps consumers bring creativity and enjoyment to the meals they're already preparing and aligned with how people are eating today. Whether it's spices and seasonings, sauces or condiments, we enable better, more flavorful meals without adding complexity or cost. With our broad global reach, strong local brands, ongoing innovation and strategic pricing, We're confident that we are well-positioned to meet the needs of consumers and continue to deliver value through flavor. Before I discuss highlights for the quarter, I'd like to provide a high-level perspective on the current global trade environment and the actions we're taking to manage our business. The global trade environment is increasing the cost of agricultural ingredients we source from outside the United States, which is impacting our cost of sales. We have numerous levers to manage this impact. which is enabling us to maintain our volume-led top line growth and operating profit outlook for 2025, inclusive of tariffs. First, it's important to recognize that we have a global manufacturing footprint designed so that products sold within a region are made locally within that region. Therefore, our tariff exposure is primarily through importing agricultural raw materials, many of which can't be grown or are not commercially available in the United States. our competitors are facing similar challenges. Earlier this year, we formed a cross-functional team dedicated to monitoring trade policy developments and implementing mitigating actions that position us well for both the short-term and long-term. As a result, we are executing on plans to offset these costs through sourcing plans supported by advanced analytics, including alternative sourcing locations for certain raw materials and cost savings and operational efficiencies across the P&L. Additionally, we are collaborating with our customers to implement surgical and strategic pricing while also maintaining our volume momentum. Overall, our manufacturing location strategy, resilient supply chain, global sourcing capabilities, collaborative efforts across the organization, and the strength of our brands continue to be a competitive advantage, enabling us to mitigate our costs and maintain our business momentum. Let's move to slide five. And let me highlight for the quarter some of the key areas of success. Across our global consumer segment, we continue to successfully execute on our plans and have driven share gains across our core categories in key markets for the last three quarters. Globally, McCormick branded unit consumption continues to outpace edible categories, center store, and perimeter growth in the U.S., as well as fast-moving consumer goods growth in EMEA and Asia-Pacific. let me provide some color on the categories globally. Starting with spices and seasonings, we drove strong volume growth across all regions, leading to volume share across the Americas and EMEA. In the U.S., volume growth continues to outpace private label for the fourth consecutive quarter. In Canada, we continue to grow overall share. And in Poland, share gains in spices and seasonings are contributing meaningfully to EMEA's gains. In recipe mixes, We continue to drive unit volume and dollar growth in the Americas. In Canada, with the strength of our local brands and continued investments, we drove dollar, unit, and volume share gains. We have plans in place to continue to drive category growth across all of our regions, most notably in the UK, as we continue to expand distribution. In mustard, we are pleased to see that our plans are continuing to drive great results. In the second quarter, similar to the first quarter, we drove dollar, unit, and volume share gains in the Americas. In EMEA, we drove unit and dollar share gains in mustard. In hot sauce, we are achieving strong results. In the U.S., we drove unit and volume share gains reflecting significant progress. Continued distribution gains as well as investments in differentiated brand marketing and innovation continue to fuel our performance. Outside of the U.S., we are building distribution in new markets within EMEA. We continue to make progress on total distribution points, or TDPs. In the Americas, we significantly expanded TDPs across spices and seasonings, recipe mixes, and hot sauce. In EMEA, we are gaining distribution in high-growth channels like e-commerce. In Asia Pacific, our business in China is recovering gradually relative to the prior year, As expected, we delivered strong performance. Growth in our categories, including spices and seasoning and condiments, continues to outpace the market. Moving to flavor solutions, we continue to see strength in our technically insulated, high-margin product category, flavors. In flavors, in the Americas, we remain focused on being the partner of choice across four taste competencies, savory, heat, naturally sweet, and citrus and fruit. As a result of this continued focus, we are winning new customers and gaining share. We outperform the industry across many end categories, including alcoholic beverages as well as salty snacks and bars. We continue to win business across beverage flavors and snack seasonings, and we are working through product reformulations with some of our customers to meet regulatory and consumer needs. QSR performance remains strong in both the Americas and Asia Pacific. In the Americas, performance was driven by innovation, customer growth, and continued share gains. In China and Southeast Asia, our customers' new products and promotions continue to drive strong volume growth. Let me now touch on some areas where we are seeing pressure. In the Americas and in EMEA, within flavors, some of our large CPG customers continue to experience softness and volumes within their own businesses. We continue to work on offsetting these trends through innovation and collaboration with our customers and by winning new customers. While our food-away-from-home performance continues to outpace the industry, we are seeing flat performance in branded food service in the Americas, as some of our customers are seeing softness in their volumes due to continued slowdown in foot traffic. QSR traffic remains soft in the NBA. We have seen this pressure impact our results for several quarters, and it is difficult to predict QSR traffic, particularly as some of our customers were impacted by geopolitical boycotts related to the conflict in the Middle East. We continue to collaborate with customers as they focus on improving their volumes through innovation and value and align with consumer trends. As outlined on slide six, Our growth plans remain consistent to drive growth through category management, brand marketing, new products, proprietary technologies, and our differentiated customer engagement. Our growth levers are supported and enhanced through data and analytics as we continue to accelerate our digital transformation. Our base business is strengthening across major markets and core categories. And we have a number of initiatives in flight that will continue to support our differentiated performance for the second half of the year. In the consumer segment, our investments to drive volume growth remain in place, including increased brand marketing, innovation, and revenue management initiatives. They have driven our strong and differentiated performance over the last five quarters. While we are starting to lap this performance, we continue to see strong consumption trends and expect continued volume growth. In the back half of the year, we expect our distribution growth, accelerated innovation and renovation across the portfolio to drive increased purchase interest and velocity and support our strong volume performance. Let me provide a couple of examples. This quarter, we started to roll out our preferred consumer packaging across our grilling portfolio in time for the grilling season. We are energized for the grilling season and expect our newly launched Flavor is Calling marketing campaign to drive incremental consumer demand. Later this fiscal year, in alignment with consumer preferences, we are relaunching the gourmet line with countertop-worthy new packaging, including a vibrant gold cap that seals in freshness, provides a modern look, and highlights that we only use the best raw materials. In terms of new products, we are expanding our Cholula line into cremosas, chamoy, and cooking sauces. We are launching new limited-time offer finishing salts this summer and new finishing sugars for the holiday season, which build on last year's successful finishing sugars offer. In EMEA, we are expanding across multiple markets with our air fryer seasonings, which continue to be successful in the UK by addressing consumers' increased appetite for air fryer-focused seasonings. In addition, in EMEA, we are launching our new all-rounder seasonings This innovation addresses the desire from younger consumers for enhanced flavor without being specific to one type of meal. Moving now to our flavor solution segment, starting with branded food service, where we leverage the equity of our iconic brands that consumers love in the away from home channel. We continue to fuel growth with operator relevant and on trend innovation. For example, we are beginning to see on menus the 2025 flavor of the year, aji amarillo seasoning. In addition, we continue to focus on reaching consumers and operators through increased branded menu placements and with our new online shop called McCormick for Chefs, which launched early this quarter. Shifting to flavors, we are leveraging our culinary heritage and deep expertise in natural flavors and ingredients to support innovation with existing customers to ensure their products meet regulatory changes and preferences of health conscious consumers. And we are winning new high growth customers, which will help offset the softness we are seeing from center store CPG customers. We are collaborating with large and emerging brands to flavor energy, hydration, protein based beverages, and zero sugar drinks. In addition, We are leveraging our expertise in functional ingredients and our technologies to help customers mask off notes or enhance flavors as they add protein across categories, like protein-based snacks. Our win rate with health and wellness related briefs is strong across our regions, and we continue to dedicate resources to where we have the right to win. To wrap up our growth plans and specifically our view on the second half, we remain confident in the long-term health of our business, our fundamentals, and in delivering on our plans to continue to drive industry-leading differentiated performance. Now, over to Marcus.

Thank you, Brandon, and good morning, everyone. Let's start on slide eight. Total organic sales grew 2% for the quarter, driven by volume and mix. This reflects total volume-led growth for the last four quarters, and underscores our differentiation. Moving to our consumer segment on slide nine, organic sales increased 3% driven by volume and mix. Consumer organic sales in the Americas grew 3% with 4% volume growth partially offset by a 1% decrease in price related to targeted incremental promotions. The volume growth was strong across our core categories and was driven by our investments in brand marketing, innovation, and category management. In EMEA, we grew consumer organic sales 3%, driven by a 2% increase in volume and a 1% increase in price, related to targeted actions taken as a result of increased commodity costs. We're pleased with the strong sustained volume growth in EMEA. Consumer organic sales in the Asia-Pacific region increased by 4%, driven by volume. This growth reflects the gradual recovery we expected in China. We're pleased with our performance and expect these trends to continue in the second half of 2025. Turning to our flavor solution segment on slide 10, second quarter organic sales were flat with a 1% contribution from price offset by 1% decline in volume and mix. In the Americas, flavor solutions organic sales increased 1%, reflecting a 2% price contribution partially offset by a 1% decline in volume. Our results reflect a strong performance with faster growing flavor customers and continued QSR growth, offset by softness in CPG customers' volumes. The price contribution is primarily related to currency in Latin America. In EMEA, organic sales decreased by 7%, including a 5% impact of lower volume and a 2% decline from price. reflecting the impact of soft CPG and QSR customers volumes, which were impacted by geopolitical boycotts related to the Middle East conflict. In the Asia Pacific region, flavor solutions organic sales increased 3%, with volume growth of 5% driven by QSR customer promotions and limited time offers, partially offset by price of 2%. Moving to slide 11. Gross profit margin was flat in the second quarter versus the year-ago period, driven by costs to support increased capacity for future growth and higher commodity costs, partially offset by savings from our Comprehensive Continuous Improvement Program, or CCI. While we would have expected gross margins to improve relative to the prior year, we're seeing increased cost pressure caused primarily by the global trade uncertainty. Selling, general, and administrative expenses, or SG&A, decreased relative to the second quarter of last year, driven by the shifting timing of a stock-based compensation expense, as well as savings from CCI, including our SG&A streamlining initiatives. For the quarter, adjusted operating income increased by 10%. Excluding impact of currency, adjusted operating income increased by 11%. This increase was driven by CCI savings, including our SG&A streamlined initiatives, partially offset by gross margin, and increased investments to drive growth, most notably in digital, as well as our sustained investments in brand marketing. Our second quarter adjusted effective tax rate was 24%, compared to 14% in the year-ago period. Our tax rate in the prior year benefited from a higher level of favorable discrete tax items relative to the current year. Our income from unconsolidated operations in the second quarter increased 17%, primarily due to strong operational performance from our largest joint venture, McCormick in Mexico, partially offset by the strengthening of the US dollar against the Mexican peso. Turning to our segment operational results on slide 12, adjusted operating income in the consumer segment increased 10% with minimal impact from currency. The increase was primarily driven by improved SG&A expenses. In flavor solutions, adjusted operating income increased 10% or 13% in constant currency, driven by product mix, pricing, and improved SG&A expenses. We continue to make progress in expanding our operating margins in line with our objectives. At the bottom line, as shown in slide 13, second quarter 2025 adjusted earnings per share was 69 cents and comparable with the year-ago period. The benefits from operating profit and unconsolidated income growth were offset by lower gross margin and a less favorable tax rate relative to the prior year. On slide 14, we've summarized highlights for cash flow and balance sheet. Our cash flow from operations through the second quarter of 2025 was $161 million, compared to $302 billion in 2024. The decrease was driven by higher cash used due to the timing of working capital. We returned $242 million of cash to shareholders through dividends and used $85 million for capital expenditures. Note that the timing of capital expenditures fluctuates on a quarterly basis dependent on the phasing of initiatives. including projects to increase capacity and capabilities to meet growing demand, advance our digital transformation, and optimize our cost structure. Our priority remains to have a balanced use of cash. This means funding investments to drive growth, returning a significant portion of cash to our shareholders through dividend, and maintaining a strong balance sheet. We remain committed to strong investment grade rating and expect to continue to deliver strong cash flow in 2025, driven by profit and working capital initiatives. Before turning to our outlook, let me provide some details on our tariff exposure and mitigation plans on slide 15. First, it's important to reiterate that our views reflect tariffs as they currently stand. It is also worth calling out that we purchased over 17,000 unique materials from over 90 countries, and no single commodity has a disproportionate material impact on our cost of goods sold. Importantly, we have also focused over the last number of years on decreasing our reliance on any one geography. Across the U.S., Canada, China, and our largest markets in Europe, more than 85% of what we sell in those countries is made in those countries. Specifically in the U.S., it's more than 90%. As you can see on the slide, we expect to fully offset the impact of current tariff costs for 2025. In addition, our plans will not have a significant impact on our sales volume outlook for the year. Our total gross annualized tariff exposure is approximately $90 million, and in terms of 2025 in-year exposure, it's about $50 million. We are offsetting a significant portion of this impact with sourcing plans, supported by advanced analytics and CCI savings. The remainder will be offset through revenue management initiatives. As we said, we're taking a very targeted and surgical approach to pricing and leveraging robust analytics and planning tools to ensure we maintain volume momentum and continue to meet consumers' and customers' needs for both value and flavor. In addition to the direct costs from tariffs, we're seeing elevated pressure on costs of certain commodities due to the global trading environment. We have seen this impact our second quarter, and we expect it to continue for the remainder of the year. We plan to mitigate this impact primarily through SG&A savings. Now let's turn to our 2025 financial outlook on slide 16. We are maintaining our net sales, adjusted operating profit, and adjusted earnings per share guidance for the year. Our outlook continues to reflect our prioritized investments in key categories to strengthen volume trends and drive long-term profitable growth, while appreciating the current level of uncertainty in the consumer and macro environment. Overall, in terms of currency, our assumptions remain the same. At the top line, we continue to expect organic net sales growth to range between 1% and 3%. and for our growth to be volume-led and primarily driven by our consumer segments. Flavor Solutions volumes are now expected to be flat for the year. In terms of price, we expect a slightly higher contribution, primarily through the Flavor Solutions segment, and some tariff-related pricing will come through in the fourth quarter. For China, our outlook continues to assume a gradual recovery, and we expect China's consumer sales to improve slightly year over year. We saw this come through in the past two quarters, and we expect it to continue for the rest of the year. Our 2025 gross margin is now projected to range between flat to up 50 basis points for the year, compared to prior guidance of 50 to 100 basis points. This reflects elevated cost of certain commodities coming in higher than we had planned, as I mentioned earlier. As we look ahead to the second half, we expect year-over-year gross margin expansion to be weighted towards the fourth quarter driven by the timing of certain mitigation efforts. On SG&A, we expect CCI savings, inclusive of our streamlined initiatives, to be partially offset by investments in technology as well as brand marketing to drive volume growth. We continue to invest in brand marketing and we're driving more efficiencies through the use of technology as well as our CCI program. As a result, our adjusted operating income growth expectations remains 4 to 6% in constant currency. Year-to-date, our adjusted operating income grew 4% on a constant currency basis, in line with our expectations, and implies higher level of growth for the second half compared to the first half. We want to maintain a balanced outlook that gives us the flexibility to continue to invest in the business while expanding margins. In terms of tax, We expect our tax rate to be between 22% and 23% for the year, compared to 20.5% in 2024, where we benefited from a number of discrete tax items that are not expected to repeat in 2025. Our tax rate is slightly higher than our prior guide due to changes in the benefit from discrete tax items. We expect our income from unconsolidated operations to decline in the high single digit range in 2025, reflecting the strengthening of the dollar against the Mexican peso, which is impacting the strong operational results of our largest joint venture, McCormick de Mexico. The business continues to perform well and is contributing to our net income and operating cash flow results. In summary, our 2025 adjusted earnings per share projection of $3.03 to $3.08 on a reported dollar basis, reflects currency headwinds and impact of the increased tax rates relative to the prior year. On a constant currency basis, adjusted EPS is still expected to grow between 5% and 7%. In closing, the strength of our performance underscores that our plans are yielding results and sustaining our differentiation. We're pleased that we're maintaining our volume-led momentum. and expanding operating margins in 2025. There's certainly work ahead for 2026 to offset the continued headwinds and sustain our strong business momentum. We believe we have the right plans and capabilities in place, and we remain confident in the underlying fundamentals of our business and in delivering on our 2025 financial outlook and long-term objectives.