Mccormick & Co Inc Q2 FY2020 Earnings Call

Good morning. This is Kasey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today's Second Quarter Earnings Call. To accompany this call, we posted a set of slides at ir.mccormick.com. Currently, all participants are in a listen-only mode. Following our remarks, we will begin a question-and-answer session. We will start with comments from Lawrence Kurzius, Chairman, President and CEO, and Mike Smith, Executive Vice President and CFO. During our remarks, we will refer to certain non-GAAP financial measures. These include information in constant currency, as well as adjusted operating income, adjusted income tax rate, and adjusted earnings per share that exclude the impact of special charges. Reconciliations to the GAAP results are included in this morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. In addition, as a reminder, today's presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or other factors. It is important to note that these statements include expectations and assumptions related to the impact of the COVID-19 pandemic. As seen on slide two, our forward-looking statement also provides information on risk factors, including the impacts of COVID-19 that could affect our financial results. It is now my pleasure to turn the discussion over to Lawrence.

Thank you, Kasey. Good morning, everyone. Thanks for joining us. The last few months have been an extraordinary period, and the global recovery from COVID-19 continues to evolve daily. McCormick's commitment to maintaining critical food supply across all of our markets and supporting our communities has been constant during these turbulent times. Across the globe, we've committed financial resources to many organizations to support frontline healthcare workers, emergency responders, and the restaurant and hospitality industries, including donating to food banks and causes in nearly 20 countries to ensure reliable access to food for those most vulnerable during this ongoing pandemic. We're working through the challenges of today while keeping our focus on the long-term goals, strategies, and values that have made us successful. We have three priorities, which we've spoken about since the first days of the crisis as we work through this period. The first is to ensure the health and safety of our employees and the quality and integrity of our products. The second is to keep our brand and our customers' brands in supply and maintain the financial strength of our business. And the third is to make sure we emerge stronger from this crisis. As a company, we've seen all phases of the pandemic, from lockdown starting in January to various stages of recovery today. Our businesses in China are fairly far along in recovery, with the exception of the Hubei province, one of our most highly developed regions in China, which is in the early stages of recovery as it was under an extended lockdown through April 8. Other businesses in Asia-Pacific as well as the EMEA are about two or three months behind China with variations by market, with some markets beginning early recovery late in the second quarter. In the Americas, which is also about two to three months behind China, restrictions began to loosen late in the second quarter, with recovery currently in its early stages. Turning to slide five. Let me highlight a few points on the current conditions we're seeing and our potential impact. Our consumer segment was positively impacted early in the quarter by some initial pantry stocking in the Americas and the EMEA region and pantry replenishment in China. While these behaviors elevated consumption for a period, as the quarter progressed, strong consumption continued steadily across all regions. Our consumer survey data shows that strength was real incremental consumption driven by increased cooking at home. We believe the shift in consumer consumption to eating at home will continue, partially driven by the status of the restaurant and food service industry, as well as consumer confidence with eating out and significantly influenced by an increased preference for cooking at home, which we believe will be longer lasting. We don't expect the same level of consumption to continue for the balance of the year that we experienced throughout the quarter, but we do expect consumption to remain at some elevated level driven by the shift in consumer preference. Additionally, we would expect to benefit from consumers eating at home if we were to enter a recessionary period consistent with our historical sales performance during past recessions. As our second half of the year begins, we continue to see elevated demand from our customers and through scanner data. Turning to our flavor solutions segment, let's start with our sales to packaged food companies, which historically represent roughly half of our flavor solutions portfolio. Early in the quarter, we experienced surges in demand, which tapered off throughout the quarter, and performance varied by customer. We expect overall demand to remain consistent with pre-COVID levels in our second half. For our restaurant and other food service customers, we began the quarter with reduced demand as COVID-19 restrictions in most markets eliminated dine-in services and limited restaurants to carry-out delivery only. As we expected, this had a significant negative impact on our second quarter performance, particularly in the EMEA region as most restaurants completely closed. Late in the quarter, we began to see and believe we will continue to see a gradual recovery, which again will vary by market. Quick service restaurants, or QSRs, are recovering quicker, while the rest of the food service building more slowly. In China, QSRs are largely open, and traffic has returned to fairly normal levels. Certain markets in the Americas and EMEA have begun to open indoor dine-in services on a limited basis, and outdoor dining options have reopened. In EMEA, QSRs' delivery and drive-thru options began to resume in June, and they are seeing initial surges in demand. As we begin our third quarter, we are seeing our away-from-home demand beginning to come back. Our restaurant and other food service customers have experienced significant disruption, are adapting their operating model, refining their menu offerings, focusing on core items, and exploring alternative ways to drive demand to offset dine-in decline. And we're collaborating with them on their recovery efforts. Our global supply chain has been critical to our success during this period of volatility. It is an area of strength for us, and one of the reasons we will come through this crisis strong. Our global sourcing organization has been a real differentiator, quickly executing contingency plans of placing critical materials where needed since our early involvement in China and ahead of any demand surge. While we have, of course, experienced some raw material constraints, these have had minimal impact on our ability to meet demand. Coming into the crisis, there was more finished goods inventory in the system, both for us and our retailers, than there is today. The sustained level of consumer demand, coupled with our added safety and flexibility measures, has put pressure on our manufacturing operations and services in some areas. As we enter our typically largest quarters, we're expanding our workforce and increasing manufacturing capacity to optimize scheduling, investments, and partnerships. By the end of the year, we will have added the equivalent of an additional plant of US manufacturing capacity. We have already passed the low points in our ability to meet demand, and our service levels are improving weekly. We're positioning ourselves for continued success and confident in our capabilities and our ability to meet demand. I want to thank our supply chain employees for their remarkable effort, as well as our suppliers and customers for their partnership in this challenging operating environment. Given this evolving operating environment, while we recognize we've had strong performance thus far in 2020, we are not providing guidance due to the high level of uncertainty driven by the COVID-19 crisis for the balance of the year, including the variation in consumer comfort with respect to eating away from home versus at home and its impact on consumption levels, the pacing of restaurant and food service locations fully reopening in our various geographic markets, and finally, the possible impact of any resurgences of the COVID-19 virus. We're focused on execution and remain confident in our ability to perform in this dynamic environment, as we have thus far, and continue on our growth trajectory. I'm incredibly proud of the way McCormick has performed in these unprecedented times. And as the crisis subsides, we will come out a better company for driving our long-term strategies, responding to changing consumer behavior, and capitalizing on opportunities from our relative strength. Now, I'd like to focus on our second quarter performance and business update on consumer and flavor solutions segments. We have a broad and advantaged global flavor portfolio as seen on slide seven, which continues to position us to meet the demand for flavor around the world and grow our business. The breadth and reach of our portfolio across segments, geographies, channels, customers, and product offerings create a balanced portfolio to drive consistency in our performance in a volatile environment, as evidenced by our second quarter results. During the second quarter, the shift in consumer behavior to cooking and eating more at home, or at-home consumption, drove a substantial increase in our consumer segment demand, as well as increases for the packaged food company customers and our flavor solutions segment. On the other hand, we've seen a sharp decline in demand from restaurant and other food service customers for the away-from-home products in our portfolio, which historically has represented approximately 20% of our total annual company sales. The impact of this shift to more at-home consumption varied by region due to different levels of away-from-home consumption and age. While we may experience temporary disruptions in parts of our business, underlying consumer demand continues to underpin our growth. We're confident that the breadth and reach of our portfolio will continue to differentiate McCormick and position us for continued growth. In addition to our advantaged portfolio, several other key factors, as seen on slide eight, were underlying McCormick's strength in the second quarter. First and foremost, consumers are finding comfort in the brands they trust, and we are here today for them as we have been for over 130 years. We've pivoted our messaging as needed, and are connecting with our consumers to guide them and provide inspiration for their flavorful cooking. We've responded to the significant disruption and capitalized on our capabilities across the organization, particularly our supply chain, sales force, and marketing team, as well as through our collaboration partnerships, both internally and externally. We're all standing together to manage through this crisis. Let me cover the highlights of our second quarter results which speak to the value of our product and to our capabilities as a company. Our exceptional second quarter performance was driven by the substantial increase in demand for our consumer products as consumers sought great-tasting experiences with rich, authentic flavor, and healthy, high-quality ingredients, while cooking more at home. Our ability to meet the increased consumer demand and navigate through sharp declines in the away-from-home products in our portfolio highlights our agility in responding to the disruptions we've all experienced, while, importantly, keeping our employees safe. Our results reflect our strong foundation and the effectiveness of our strategies, as well as the engagement of our employees around the world. Together, we delivered considerable sales, operating income, and earnings per share growth, with each metric growing double digits in constant currency. Starting with the top line, second quarter sales increased 8% from the year-ago period, and constant currency sales grew 10%, mainly attributable to the higher volume of product mix in our consumer segment, partially offset by sharp volume declines in our flavor solutions segment. Adjusted operating income increased 21%, including a 2% unfavorable impact from currency, and adjusted operating margin expanded by 210 basis points. These results were driven by higher sales, favorable mix, and savings from our comprehensive continuous improvement program, or CCI. Our second quarter adjusted earnings per share was $1.47, 27% higher than the year-ago period of $1.16, driven primarily by our strong operating performance. Our second quarter results were exceptional, driven by our successful execution and enabled by the positive fundamentals we have in place to manage through this period of volatility. The investments we've made and the capabilities we've built, along with our strong business model, prepare us to execute from a position of strength. We have confidence in our strategies; our underlying foundation is solid as we remain committed to our long-term growth objectives. Now let me spend a few minutes on our business updates, starting on slide 10 with our consumer segment. Sales rose 26%, including a 2% unfavorable impact from currency. Constant currency sales grew 28%, significantly fueled by the COVID-19 crisis. Our pricing actions and growth plans were in place, yielding results before the crisis, and those plans have remained in place, although some adjusted and even strengthened to execute in this challenging time that helps our consumers and customers navigate through it as well. In the Americas, our IRI data indicates our total McCormick US branded portfolio grew 55% during the second quarter, which is substantial and reflects the strength of our categories as consumers cooked more at home. And in the data just released this past Tuesday for the week ended June 13, scanner sales for the total US McCormick branded portfolio continued to be strong, growing 32%. While we expect consumption will not continue at this highly elevated level of our second quarter, you can see it is still strong, and we expect continued growth from an increase in consumer cooking at home to last for a period of time. Turning to our shipments, in constant currency, the Americas sales grew 36% during the second quarter. The difference between the US IRI scanner sales growth and our shipments can be attributed to a few factors. First, depletion of inventory to meet the incredible surge in consumer demand. Next, an increased level of pricing growth in the scanner data due to canceled promotions and channel shift. And lastly, while we had significant growth in Canada, Latin America, and private label sales, they paced behind the growth rate of US branded sales. Focusing on the US branded portfolio, not only did our consumption grow, but we also gained share in nine out of 11 categories, including spices and seasonings, dry recipe mixes, hot sauce, and mustard. The growth rates in the majority of our categories are outpacing the total store center-of-store growth rate. In fact, consumption in our portfolio during the second quarter grew twice the center of store rate. Our categories are not what consumers think about when stocking up. They are the categories consumers use to flavor the meals they cook at home. New and renovated products also contributed to our second quarter sales growth, such as our dry recipe mixes updated for instant pot preparation, offering an even more convenient solution, and our Frank's RedHot thick sauces, introducing Frank's flavor to dipping and topping occasions. Later this year, we'll expand Frank's even further with the launch of frozen appetizers, chicken bites, and dips. And earlier this month, we relaunched our Old Bay hot sauce with expanded distribution just in time to heat up the summer. With the retailer focused on keeping core items on retail shelves, there has been some slowdown in the sell-in of our new product launches, but we're excited about the pipeline we will carry into next year. And those that we have launched have gotten excellent trial. We're growing our household penetration across our portfolio, with a 16% increase compared to last year, which represents millions of new households gained, and a significant amount of trials from those households spanned across multiple categories. Spices and seasonings, dry recipe mixes, and hot sauce saw the biggest gain. Even smaller brands like Simply Asia grew significantly. And our rate of repeat buyers increased 11% during the quarter, which is notable given that our repeat rate was already very robust. During the quarter, we launched our new US McCormick brand advertising campaign – "It's Going to be Great" – which is the strongest scoring campaign in our consumer testing history. This TV and digital campaign is focused on consumer education of what to make, how to prepare, and building confidence in the kitchen, which is all even more relevant now as consumers cook more at home. We continued to design targeted media messaging to focus on cooking at home and drive-thru. We're planning to increase our brand marketing investment in the second half of this year. The speed and agility we gained with our marketing excellence organization has proven invaluable as we turn insight into action and can pivot to adjust our messaging even more efficiently and effectively to capture the moment. The team has rapidly generated insights, creating and deploying new videos and tutorials that range from easy weeknight meals using pantry staples, bread-making, and cocktails for virtual happy hour. This is critical to execute our plan to create deeper connections with our consumers by bridging their physical and digital experience, which is even more important today with consumers accelerating their online presence. Our consumers are looking for help and inspiration in the kitchen, and we're here for them, with one of the ways being our Flavor Maker app. Organic search visits to our McCormick.com site were up over 200% in the second quarter versus last year, with consumers aged 18 to 34 driving the largest increase, searching for recipes and to learn to cook. The younger generation continues to fuel the demand for flavor, and we're executing some creative ways to connect with them. We're personalizing our interactions with consumers. As we've all been home together, our McCormick chefs invited consumers into their home kitchen for a new Cook With Us Instagram series, enabling one-to-one connection and putting a true face to McCormick. Consumers are tagging McCormick with posts of their user-generated content, and we're engaging with them, including incorporating some of their content into our own ads, and providing users a chance to win a personal virtual cooking class with one of our chefs. Finally, it is essential to McCormick to support our communities, particularly at times of uncertainty. Our marketing and excellence organization has had tremendous success with their creativity and applied it recently to not only connect with consumers, but to make a difference in their lives. Today, we partnered with actress Drew Barrymore and hosted a virtual Taco Tuesday night called #TacosTogether in the hopes of encouraging others to augment McCormick's $1 million donation and support the No Kid Hungry campaign, working to ensure children have reliable access to food during this ongoing pandemic. #TacosTogether garnered over 800 million impressions across the media landscape, exceeding our expectations of our reach, and importantly, creating visibility for this vital cause. Overall, we're confident all the initiatives we have underway will continue our growth trajectory, both with our valued existing consumers and those we're welcoming to our brand. Now, turning to EMEA, our constant currency sales rose 26%, with broad-based growth across the region and market share gains in a majority of our categories in our significant markets. Growth in our Vahiné brand in France was excellent, led by vanilla and baking products. Urban spice consumption was strong in all markets, driven by consumers cooking more at home as they discovered they need our products for great-tasting, healthy flavor solutions. The UK dry mix recipe category is attracting new shoppers, and purchase frequency is increasing as consumers seek convenient solutions. Our new products are driving category growth, with the Schwartz brand continuing to gain share and retain the leading positions we achieved last quarter. Our new product plans remain on track for the year across our EMEA portfolio, and we continue to work closely with our customers to ensure that elevated consumer demand will be met, even obtaining incremental placement for our branded portfolio with some retailers as other manufacturers face supply challenges. Our strong brand marketing campaigns and digital connections with consumers contributed to our second quarter growth and provided us with confidence for future growth early in the quarter, which quickly shifted to increased digital advertising, search, and social investments across key brands and markets using data-driven, real-time insights. For example, we created a social listening dashboard to understand the changing needs and topics most relevant to our consumers during the COVID-19 crisis. With baking being the highest trending topic during the crisis, we partnered with culinary websites to capitalize on over 600 pieces of user-generated baking-at-home social content to increase our interaction with consumers. Additionally, we created cooking-at-home website sections with health and wellness landing pages, including healthy recipes, blogger content, combined with content from our BuzzFeed partnership highlighting recipes related to our products. For instance, the 13 herbs and spices everyone should have in their cupboard. Our execution of these baking and health campaigns drove over 20 million impressions each during the quarter. Moving forward, we'll continue to capture the momentum we've gained and our relevance with EMEA consumers through activation of similar programs, marketing campaigns highlighting product superiority, culinary partnerships, and our new product launches. In the Asia-Pacific region, our constant currency sales declined 13%, driven by our China business in the Hubei province where our Wuhan operation is located, which had an extended lockdown into early April. The Wuhan disruption negatively impacted the APZ consumer growth by 26 percentage points. Declines in branded food service products, which are included in our consumer segment in China, outside of Wuhan also contributed to the sales decrease. Excluding these impacts, sales for the region would have increased, reflecting the increase in consumer demand across the region related to an increase in cooking at home. In China, the consumer business outside of Hubei province is strong, with some products in our condiment portfolio doubling or tripling their sales for the second quarter of last year. Consumers are seeking convenient solutions, which are driving growth of our recipe mixes, World Flavor hot pot sauces, as well as herbs and spices. We're leveraging our new product successes on our direct-to-consumer platform and accelerating our new product launches, such as launching our squeezable healthy oil salad dressings, retailed during our third quarter. In other parts of the region which are lagging China from a recovery phase, we have broad-based growth and are gaining share in many categories. Across the entire region, we're also leading the consumer online and have pivoted our marketing plans for value and scratch cooking. Whether through our Frank's RedHot TikTok Fitness Challenge in China, our chefs providing inspiration and instruction on social media across the region, or through our Keep Calm and Curry On campaign in Australia, we're helping our consumers augment the growth potential of the shift to cooking at home. In all regions, consumer's digital engagement has significantly increased during stay-at-home periods, and we've seen an acceleration of our e-commerce growth in all categories, with second quarter triple-digit growth through pure-play, click-and-collect, or our direct-to-consumer properties in all of our major markets. We expect to see this shift to online shopping behavior continue, and we're well positioned for it through the investments we've made and continue to make in this channel. Our consumer portfolio and the plans we have in place are even more relevant today than they were before the crisis, if we expect the increase in at-home cooking to continue, which further bolsters our confidence that we will drive future growth. Turning to slide 12, in our flavor solutions segment, constant currency sales for the second quarter were lower by 16%, driven by the sharp declines in demand from restaurants and other food service customers, as away-from-home dining was significantly curtailed due to the COVID-19 restrictions, with a partial offset from continued growth in sales to our packaged food customers. Notwithstanding the COVID-19 impact, our underlying foundation is solid, and we've delivered strong sales growth margin expansion over the last few years, most recently 5% sales growth in the first quarter of this year, and we believe we would have continued our positive momentum. In the Americas, our sales declined 13% in constant currency. While we experienced demand declines across both branded food service and restaurant customers, branded food service had a more significant impact as our away-from-home customer base in the Americas skews more to that channel and our quick service restaurant customers retain takeaway and delivery options, although with limited menus. In flavor solutions, we're differentiated by our customer engagement. Our plans always included strengthening our intimacy this year, and they were accelerated with some pivot from the COVID-19 crisis. Through our culinary and marketing support, we've been helping our customers adapt to the changing environment and eventually the new normal. From a culinary standpoint, we've developed virtual tools and are collaborating with our customers to provide solutions, such as modifying menus for carry-out, reinventing menu offerings with limited inventory, and optimizing recipes for COVID-19 safety protocols. From a marketing perspective, we're leveraging the power of our brands, such as Frank's RedHot and OLD BAY, with strong promotional programs to help build menu excitement. Lastly, as many places will be moving away from tabletop condiments, we're transitioning to portion control packaging for dining and carryout. We're also exploring other options to expand our portion control offering further. In EMEA, where we had expected the most significant rate of decline from the COVID-19 measures, our sales were 31% lower at constant currency than last year. Our away-from-home customer base in this region skewed more to QSR. In late March, most of those customers completely closed their restaurants, with not even drive-thru or carryout remaining open. As I mentioned earlier, many of the QSRs adapted their model to reopen in June, offering limited menus for delivery and drive-thru while dine-in remained closed. They've established aggressive recovery plans, and we're demonstrating our speed and agility, scaling our operations back up and meeting customer demand on an accelerated timetable. In the Asia-Pacific region, due to the COVID-19 lockdowns, closures, and curfews across the region outside of China, our constant currency sales declined 6%. Chinese QSRs are largely open, and we're seeing momentum gain, with one QSR even launching a limited time offer that contributed to our sales this quarter. Across the rest of the region, government COVID-19 measures varied, as well as customers' ability to adapt. Where QSRs remained open in some capacity, the focus was on core items. For the balance of the year, we expect a reduced level from last year for our customers' limited time offers, which are an important growth driver in this region. Moving forward, we'll continue to work with all our customers to manage through the recovery phase as COVID-19 measures are relaxed. The strong and differentiated partnerships we've built with our customers enabled our robust collaboration to navigate through the second quarter, and we will continue to do so. We expect there will be a gradual recovery. As I mentioned earlier, the QSRs will recover more rapidly, while the rest of food service will build more slowly. Based on this, combined with our different mix of quick service restaurants and other food service customers between the regions, we believe the pace of recovery of the away-from-home part of our business will vary from market to market. We're fully committed to helping all of our customers resume their operations and expect the demand to return as the crisis passes, much like what we're seeing in China's recovery. The duration of this current period is uncertain. The slow and evolving recovery process is dependent on many factors, including restrictions being lifted, venues fully reopening, and possible resurgences. We have positive fundamentals in place to manage through this period of volatility, and with our confidence in the successful execution of our strategies, we'll continue on our long-term growth trajectory in flavor solutions. Now, I'd like to provide a few summary comments, as seen on slide 13, before turning it over to Mike. At the foundation of our sales growth is the global and growing consumer demand for healthy, flavorful cooking, as well as transparency around the source and quality of ingredients and the desire to buy heritage brands. This resonates even more today than ever before. Flavor continues to be an advantaged global category, and we inspire flavor exploration across all markets through all channels that are aligned with consumers' demand for great taste, convenience, healthy options, and digital engagement. Our alignment with these long-term trends, our breadth and reach, and our execution of effective strategies position us well to meet increased consumer demand, both through our products and through our customers' products to drive sales growth. These long-term behaviors have not only remained intact during the crisis but have been accelerated to even greater importance. No matter what, where, or when people are eating and drinking, it is likely flavored by McCormick, and we are proud our McCormick brands are trusted by consumers and customers worldwide. We are continuing to drive sales growth, balanced with our focus on lowering costs to expand margin and sustainably realize earnings growth. We have a solid foundation, and in an environment that continues to be dynamic and fast-paced, we're ensuring we remain agile, relevant, and focused on long-term sustainable growth. Our experienced leaders and employees are executing on our strategies, which are designed to build long-term value for our shareholders while reacting to changes accordingly. We delivered exceptional second quarter results during a period of great disruption, proving the strength of our business model. Our strategies are effective, and we are reinforcing our confidence that they will continue to drive future growth. While we know the balance of the year will be impacted by an uncertain environment and ongoing challenges, we're confident in the strength of our underlying foundation and performance. I want to recognize McCormick employees around the world for driving our momentum and success, and thank them for their efforts, engagement, and for adapting to this new environment. Thank you for your attention. And it is now my pleasure to turn it over to Mike.

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

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

Thank you. Our first question comes from Andrew Lazar with Barclays. Please go ahead with your questions.

Good morning, everybody.

Hey, good morning, Andrew.

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

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

Well, that Frank's thick buffalo ranch sauce, I can tell you, is being consumed like it's water with my college-age son here at home.

Thank you. We appreciate every package.

Great salad dressing too.

The trial we've gotten on the new products we've launched has really been one of the long-term benefits that we've received from the crisis.

Great. Thanks, everybody.

Thanks, Andrew.

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

Hi, good morning. Thank you.

Hi, Ken.

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

Hi, Ken. I'll take the first part of that on the promotional activity, and I will gladly let Mike go over the tax question. I want to make sure that we're really clear on this point. We're definitely leaning into our brands through this crisis. Our brand building activity through our engagement with consumers, our advertising through traditional channels or via social and digital marketing has not only not been curtailed, but we've ramped those up. Consumers are very interested in cooking right now, and we want to take advantage of that interest, get as much trial of our brands as possible, and it's part of us coming out of this as a stronger company. The promotional matters are a little bit different. With a huge surge in demand, we've had to manage that demand. Therefore, curtailing our promotions, and in some cases canceling promotions, has been part of managing through that huge surge in demand. We have, in our US business, seen sustained growth in demand. I don't want to call it a surge because it's not pantry loading; it's consumption – over 50% growth across the quarter. There just wasn't that much slack in our supply chain. So, working with our customers, we curtailed promotions, and in some cases, they are genuinely canceled. We cannot go back and repeat the Memorial Day grilling promotions; we just can't. We're in a stronger supply position today, and we are reinstating our promotional activities. I would say that through May, we largely suspended trade promotion activity.

Thank you for that.

From a tax perspective, Ken, just to take you back, our underlying tax rate globally is about 24% to 25%. It really goes up and down based on geographic mix. We do give you insights when we have visibility to discrete items, such as those legal restructurings we discussed earlier in January. Even though it's underlying 24% to 25%, we stated for the year to be around 22% due to these items. As a global company, through our global entities, we've expanded through acquisitions. As you make acquisitions globally, there are tax strategies that follow to leverage losses/gains around the world. Our great tax team works on these strategies, and we provide insights when we know these occurrences.

Ken, before we…

Yeah, sorry. I guess the implication is we should not be modeling anything necessarily unusual going ahead in terms of a reversal on that.

No, definitely not. 100% no.

Hey, Ken. Just one more point on the promotion. The lift we're seeing in Nielsen and IRI and the share gains are coming in spite of our promotions being curtailed. I just want to put that point out there.

Yes. Very helpful. Thank you, gentlemen.

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

Hey, good morning, Rob.

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

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

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

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

The good news, Rob, is our holiday items tend to have longer runs and operate more efficiently for us to produce. It’s a different set than what is being produced now. So, that gives us some opportunity there.

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

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

Good morning, everyone.

Good morning.

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

Two very different questions. The last question has a number of different facets to it, so I'm going to attempt to tackle both of those. First of all, many of our products are single-use. A big part of the surge in demand that we're seeing is from our dry recipe mixes, for example, which would be a single-use product, or wet marinades, which are also single-use. The sheer level of increase in cooking indicates that consumers are going through their spice supplies. We've had a very high level of repeat purchase even during the second quarter. So, consumers are trying our brands and liking them enough to buy them again. We’re clearly having good experiences that for many of them will be new habits. Everyone's been cooking at home more and found it easy, fun, and economical. We do not believe there will be any kind of need for consumers to destock. Based on our survey data, most consumers only have a week or two of food on hand; they're not stocked up on non-perishable food. The question of food deserts and healthy eating and social justice is complicated. Our portfolio is generally advantaged in terms of health and wellness. Most of the products that we sell are inherently good for you, such as herbs and spices, and are low or without salt, sugar, and fat. They are reasonably priced and available in all channels, ensuring they're accessible to everyone. Even where they can't physically get to a store, our e-commerce and digital efforts allow access to delivery directly to their home. The fact that we tend to outperform in economically hard times shows that our products are valued. Throughout this crisis, we've supported food banks in about 20 countries and introduced restaurant relief funds in cities like Baltimore and New Orleans, where we have significant operations. Our total support of food-related charities during this crisis has been approximately $2 million. We've made a billion-dollar pledge early on, and we've potentially exceeded that pledge. There are broader issues of social justice and systemic racism. McCormick is one of the good guys on this issue. Our foundational principles as a company are to empower people, and we respect individuals. We have programs to ensure that underrepresented groups have full opportunities for professional fulfillment within the company. We've also taken public stances against racism, discrimination, and injustice, and I've explicitly supported Black Lives Matter. We have made commitments to combat racial injustice by providing food, healthcare, and other essential services to the Black community. I hope that answers your questions comprehensively, and I’d be happy to follow up separately.

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

Thank you, Alexia.

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

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

Great. I'll gladly address that. First of all, I don't want to create a misperception, which is why I'm glad you asked that question. Any supply chain in any industry would have been challenged due to this pandemic, which is not unique to us. However, our global sourcing has actually been one of the bright spots for us and has enabled us to win through this situation. We had very thorough insight into sourcing, anticipating it might be a pressure point due to our operations in Wuhan, so we began developing contingency plans and alternative sourcing back in January. We've spoken about this on our year-end call and in subsequent media interviews the first week of February. So, this has been a real win for us. Regarding manufacturing capacity, we've experienced a rolling series of challenges; however, our ability to source raw materials and packaging has not had a material impact on our service, and we feel we’re very equipped in this area.

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

Scale is an advantage in this. We’re the only company with the scale to be able to have the resources on the ground in actual sourcing areas for critical raw materials, especially crucial ones. This has proven invaluable, and we've been able to work locally with local suppliers in emerging markets where many of our raw materials come from, collaborating with local authorities to keep our raw materials flowing.

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

On the supply chain side, I'll take that part first. We did not anticipate we would have this much growth in demand this year. So, the things we're doing in our US manufacturing to create additional capacity are new initiatives in response to an incredible situation. We have spoken externally about our long-term capital plan. For the past three years, our focus has been on building capacity and capabilities in Asia and emerging markets. Starting this year, we are pivoting back to Western Europe and the US specifically. We have several significant projects underway, and this will only accelerate our thinking in that space. Regarding demand creation, we really believe consumers will continue to cook at home more for an extended period, which will be constructive for our growth. The new normal for restaurants will involve more takeout consumption, as I mentioned earlier. Gains in share of household penetration and the increased repeat rate show that consumers are trying and liking our brands enough to buy them again. This behavior is likely to be a new habit.

Perfect, thank you so much.

Thank you. Our next question is from the line of Chris Growe with Stifel. Please proceed with your question.

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

I'll take the first part and let Mike address the COVID costs. In terms of SKUs, we have prioritized our top-selling SKUs to maximize throughput and service to the customer, which has meant that a portion of secondary SKUs have been suspended or curtailed to a more available basis to give us longer runs on top sellers. We have managed SKUs in cooperation with retailers, and as our capacity grows, we're adding those back. Importantly, one of the learnings we've taken from this is that SKU rationalization does bring some benefits in terms of efficiency and complexity reduction. Therefore, coming out of this, some of those SKUs might not be replaced in service. I also think many retailers will re-examine their assortment going forward and carry a lower assortment. They are finding that some smaller brands they were carrying had unnecessary duplication, and justifying them isn't worth it. I think that will contribute to our share gain we're seeing. I believe this will provide us with more traction in the second half of the year, particularly with our category management initiatives and aisle reinvention program that we set for herbs and spices. Mike, would you like to take?

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

And just to be clear on that, Mike, there was a comment about Q3 being larger than Q4, but does that necessarily mean that Q3 is larger than Q2 or is Q2 sort of the highest level of the year and then they're kind of still higher, but lower in Q3?

I think they're roughly the same.

Okay. Great. I appreciate all the color. Thanks so much.

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

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

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

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

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

Great. Thank you. Appreciate you sneaking me in here before it concludes.

Thank you for that information. We did see some effects on consumer demand, but these did not considerably affect the company’s overall fixed leverage, particularly when taking into account the additional manufacturing-related COVID expenses in Q2. I appreciate you accommodating my question before the call wraps up.

I do want to follow-up on the margins. The biggest variants I think that happened in my model versus your actuals and consensus for that matter was the differential on margins, Mike. Sales up 8%, operating income up 21%. Specifically, in that consumer segment, margins up 600 basis points, maybe a little more than that, and volume up 25%. I really like this volume leverage point that was just discussed. I know the volume leverage probably works the other way in the other segment, but I'd just like to focus on the consumer segment for a moment. Is it fair to say that the consumer segment benefited from substantial volume leverage? I know the volume leverage probably works the other way in the other segment, but I just want to talk about consumer for a moment. Would it be fair to say that is the primary point driving the consumer margin improvement? And the real point of all of this is to try to understand how to project forward. Your quarters have a lot of seasonality in terms of margins. If you received the same 25-point pop to volumes in Q3, in consumer that you had in Q2, could we just add 600 basis points to the consumer margin? Or are there some funny seasonal effects that would reduce those types of leverage? I worry about the seasonal pattern on your margins and how we might think about these factors given this extraordinary impact in the current quarter. Sorry for the long question.

I'll answer this, and Lawrence can add to it. Generally, we build margins throughout the year, and I'll speak about consumer now. The fourth quarter is typically our highest margin business due to holiday items. This past second quarter was quite extraordinary. The volume leverage coming through the consumer due to the huge increases mid double-digits, meaning 50% in some cases. I'd be a little careful, though, because things like – if you look at A&P for example, it was up 1%, a couple more percent for consumers. That being said, we're going to increase investment more in the second half to meet the mid-single-digit guidance we've given. However, even though we didn't spend a huge percentage, working media are up double digits globally if some of our CCI savings are coming through in A&P. So, we're leaning into A&P. You'll see the A&P line increase in the second six months. So that will take 600 basis points down some number. Good product mix contributed to the growth in the quarter. Just be cautious about trying to take the second quarter and expand it out to the year.

I want to emphasize that we're not giving guidance because there’s so much uncertainty. I don't want to provide too many predictions about gross margin for this reason. However, the mix between the segments, to the extent that there's more consumption at home and less away from home, will benefit our margin. Accordingly, that will have leverage or deleverage based on those volume trends.

And then, guys, if I could just sneak in one last one. Sorry, go ahead.

No, no. That was good. Go ahead.

Okay, the other one, just because this is – I think it's reasonably important and hard to model. In your EMEA business, you've talked about the impact of QSRs and that, in Europe, they were shutdown in this past quarter. Where does it stand today? Is it reasonable to think that those quick service restaurants are going to be doing plenty of drive-thru and takeouts, and so your business sees a substantial improvement since you're not in total lockdown like in the past quarter? There could be a large variance coming from that.

I'm not pulling you back. I think we've pointed to that. Our remarks were extraordinarily long, and I apologize for that. The restaurant – the quick service restaurants in Europe completely shut down at the end of March. I'm not speaking out of school; they are our customers. Their CEOs have been publicly stating that they completely shut. They all reopened in June, heavily focusing on drive-thru and pickups. Essentially, they reopened all in June. I would expect to see improvement in our third quarter. However, I want to mention that the challenge we've faced is that this was one of the challenges we encountered that we had to be nimble and responsive to because they shut down a few days' notice to us, completely idling our facilities, and they literally started back up with about a week's notice to us. We had to get cranked up, and we've worked our way through it alongside them.

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

Thank you very much.

Thank you, everyone, for your questions and for participating in today's call, and I realize that it did go a bit long and I thank you for your patience. McCormick is a global leader in flavor, differentiated by the broad and advantaged portfolio which continues to drive growth. It's a growing and profitable business with a balanced portfolio to drive consistency in our performance in the volatile environment which we currently operate to deliver flavor to all markets and channels while responding readily to changes in industry and the world with new ideas, innovation, and purpose. One of the most significant risks to any company is being unprepared to respond with agility to a significant unexpected disruption. We're all experiencing that disruption now, and McCormick is well prepared to not only manage through it but to emerge from it stronger. With a relentless focus on growth, performance, and people, we're confident our strategies will enable us to become even better positioned to drive future growth and build long-term value for our shareholders.