Earnings Call Transcript - MKC Q3 2020

Kasey Jenkins, Vice President of Investor Relations

Good morning. This is Kasey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today's Third 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'll begin with remarks 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, and for 2019 the net non-recurring benefit associated with the U.S. Tax Act. 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 due to 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. Our forward-looking statement also provides information on risk factors including the effects of COVID-19 that could affect our financial results. It is now my pleasure to turn the discussion over to Lawrence.

Lawrence Kurzius, Chairman, President, and CEO

Thank you, Kasey. Good morning, everyone. Thanks for joining us. The last few months have been an extraordinary period, and the COVID-19 situation continues to evolve daily. I'm incredibly proud of the way McCormick performed in this unprecedented operating environment. Starting on Slide 4, let me highlight a few points on the current condition that we're seeing and their potential impacts. First, in our consumer segments around the world, we are experiencing strong sustained consumer demand, which has real incremental consumption and reflects the trend of consumers cooking more at home. In China, which is viewed as a leading indicator since their COVID-19 recovery is ahead of the rest of the world, the demand for food at home continues to be very strong. We see the same in Europe, and, of course, in the Americas. The significant shift to consumers eating more at home is persisting long enough that it has become a habit. Our proprietary consumer survey data supported by other research indicates a majority of consumers are cooking more from scratch, enjoying the cooking experience and adding flavor to their meal occasion. These new behaviors, coupled with some consumer discomfort for dining out, are driving an increased and sustained preference for cooking at home. We believe this will continue globally and thus further benefit our consumer segment. Turning to our flavor solutions segment, where we have a very diverse customer portfolio. We are seeing varying stages of recovery. Starting with the away from home portion of this segment, with our quick service restaurant customers or QSR, we are seeing strong signs of recovery. Their business models were already oriented to drive-through or carry-out, not dining in. In China, QSR traffic has returned to near normal levels, and the limited-time offers and promotions are driving demand. In the rest of the APZ region, as well as EMEA and the Americas, the focus has been on core menu items. So moving into the fourth quarter, we see limited-time offerings beginning to recover. Across the rest of the food service, while it has shown signs of recovery since our second quarter, the pace is much slower and varies by channel and market. As we have previously mentioned, we expect the recovery in this area of the business to be more gradual and take time, likely years, as restaurants and other food service venues such as stadiums and cafeterias continue to be largely closed or operating under capacity limitations. Consumers are reluctant to dine out, and the restaurant industry has experienced significant pain. From the food-at-home perspective, our flavor solutions growth varies by packaged food customer, but overall, we're returning to pre-COVID-19 levels as expected. New product opportunities, which had slowed during the crisis and had been more focused on expansion of the core, are beginning to gain increased momentum, and we’re excited about their contribution to growth next year. In summary, for our total flavor solutions segment, business is gradually rebounding though not yet back to 2019 levels. Moving to our global supply chain; coming into the crisis, there was more finished goods inventory in the system, both for us and our customers, which was depleted early in the crisis. The sustained elevated level of demand, coupled with our added employee safety measures, has challenged our manufacturing operations. Service has been stressed in some areas, and inventory replenishment will take some time. The real pressure has been on our U.S. manufacturing operations, which we've had to suspend or curtail production of some secondary products to meet demand for our top-selling products. While the rest of the world is also experiencing elevated consumer demand, they've not experienced the same level of manufacturing pressure, given the capacity and capabilities we've built outside of the Americas in the past few years. In EMEA, where our supply chain is very well-positioned to meet demand, we've gained distribution as other manufacturers have faced challenges. For the Americas, as we said on our earnings call in June, we're expanding our workforce and increasing manufacturing capacity through optimized scheduling and investment, particularly around blending capacity, as well as scaling up partnerships with a third-party manufacturer. To be clear, this added capacity is still ramping up. This capacity just started to come online in August and will continue to ramp up over the next few months, and it’s targeted to be completely in place by the end of the calendar year. By then, we will have added the equivalent of an additional plant for U.S. manufacturing capacity. Of course, with this rapid scale-up, there are extra costs and short-term inefficiency, but we're confident we're implementing an efficient long-term solution. The investments we're making are not just to meet the higher demand for the balance of 2020 but to strengthen our supply chain resiliency longer-term, and to support the Americas consumer growth we anticipate continuing into next year, driven by both sustained demand as well as retailer inventory replenishment. We're making good progress. Our service levels continued to improve, and we're confident in our capabilities and ability to meet demand, particularly during the holiday season. We're positioning ourselves for continued success. I want to thank our supply chain employees for their remarkable efforts, as well as our suppliers and customers for their partnership in this challenging environment. The positive fundamentals we have in place have enabled us to manage through this period of volatility. The investments we've made and the capabilities we’ve built, combined with our strong business models, have prepared us to execute from a position of strength. As the crisis subsides, we will emerge an even better company by driving our long-term strategy, responding to changing consumer behavior and capitalizing on opportunities from our relative strength. Now, I'd like to focus on our third quarter performance, business update on our consumer and flavor solutions segments and our 2-for-1 stock split announcement. As seen on Slide 6, we have a broad and advantageous global flavor portfolio that 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 third quarter results. During the third quarter, the shift in consumer behavior to cooking even more at home or at-home consumption drove a substantial increase in our consumer segments' demand, as well as increases with our packaged food company customers and our flavor solutions segment. On the other hand, we experienced a decline in demand from our restaurants 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's sales. The impact of this shift to more at-home consumption varied by region, due to the different levels of away-from-home consumption in each, as seen on Slide 6, as well as the pace of each region's COVID-19 recovery. Taken together, these impacts continue to demonstrate the strength and diversity of our offerings, but we may experience temporary disruptions in parts of our business; however, underlying consumer demand continues to underpin our growth. Now let me cover the highlights of our third quarter, which were broadly in line with the trends we discussed in our earnings call in June. Starting with our topline, third quarter sales increased 8% from the year-ago period. In constant currency, sales grew 9%, mainly attributable to significantly higher volume and product mix in our consumer segment, with a partial offset from a low single-digit decline in our flavor solutions segment. Adjusted operating income increased 5%, including a 1% unfavorable impact from currency. These results were driven by higher sales, favorable mix primarily driven by the sales mix between segments, and CCI-led cost savings partially offset by higher costs, including those related to COVID-19. Our third quarter adjusted earnings per share were $1.53, 5% higher than the year-ago period of $1.46, driven primarily by our strong operating performance. With one quarter left in the year, we have resumed guidance and expect to deliver another year of strong profitable growth. Our results continue to be driven by the engagement of our employees and the successful execution of our strategy. We're confident in our 2020 outlook, which will be covered in detail in a few moments. Now, let me spend a few minutes on our business segment update. Starting on Slide 8, with our consumer segment, sales rose 15% with minimal impact from currency, fueled by the change in consumer behavior. Research and trend data show that not only are consumers cooking more at home, they're enjoying it, both from a flavor and family experience, and have even accelerated their use of spices, seasonings, and condiments as the pandemic has progressed. Additionally, as at-home consumption from restaurant carryout and delivery is increasing, many consumers are adding flavor with spices, sauces, or condiments they have at home. We believe these trends will last beyond the COVID-19 pandemic and drive continued growth. Our Americas constant currency sales growth was 17% in the third quarter. Our total McCormick U.S. branded portfolio, as indicated in our IRI consumption data, grew 28%, which is substantial and reflects the strength of our category, as consumers cook more at home. Our sales increase was lower than the U.S. IRI consumption growth attributable to a few factors. First, the service level pressures and product allocation from the supply chain challenges I mentioned previously. Next, the timing of the holiday program we offer retailers. We generally offer the program during our third quarter to encourage early in-store display and merchandising of holiday products. The impact of this program was included in our third quarter shipments in 2019. In 2020, though, with the elevated level of demand and focus on keeping core items on shelf, a portion of retailer purchases for this program has shifted to our fourth quarter. Notwithstanding this shift, we still expect another year of strong holiday execution. And lastly, an increased level of pricing growth in the scanner data, due to curtailed third-quarter promotions and channel shifts with grocery outpacing mass merchandisers and club stores. Focusing on the U.S. branded portfolio, consumption in all key categories grew at a double-digit rate in the third quarter, with the majority of our categories continuing to outpace the total store and centers for growth rates. In fact, consumption in our portfolio during the third quarter grew 2.5 times the center of store rate, which is an increase from the comparison in the second quarter. But we do not expect consumption to continue at the highly elevated levels of our third quarter. We expect continued and long-lasting growth from the increase in consumers cooking at home. The most recent IRI scanner sales data for the week ended September 13 shows McCormick's U.S. branded portfolio consumption still growing over 20%, with continued strength in spices and seasonings. We gained share in seven out of 11 categories during the third quarter, those which were less impacted by supply constraints, including hot sauces, stocks and broth, barbecue sauce, wet marinade, and Asian products. While there was noise in the third quarter share numbers for categories impacted by supply, such as spices and seasonings, dry recipe mixes, and mustard, on a year-to-date basis we were relatively flat or gaining share in those categories too. New products launched earlier in the year such as Frank's RedHot thick sauces, Old Bay hot sauce, and Stubb’s reduced sugar barbecue sauce have continued to get exceptional trial and contributed to the third-quarter growth. The sell-in of our second-half new product launches, however, has been slowed due to the focus on keeping core items on the retail shelves. These launches will now be further opportunities to fuel growth next year. The slow performance across household penetration and the rate of repeat buyers continued in the third quarter across our portfolio. Our household penetration rate increased 8% compared to last year, driving a significant amount of trial for millions of new households across multiple categories. Spices and seasonings, dry recipe mixes, and hot sauces showed the biggest gain, but even smaller brands like Simply Asia and Thai Kitchen grew significantly, and their rate of repeat buyers increased 7% during the quarter, with double-digit repeat rates in many categories. These metrics increasing significantly, both in our second quarter and third quarter indicates a high level of usage and speaks to the stickiness of our product. Consumers are coming into our brands, having a good experience and buying our products again. With our high level of effective brand marketing assessments, including planned increases in the fourth quarter, and our initiatives to deepen our digital connection with consumers, we're capitalizing on the opportunity to build long-term brand equity after trial and increase usage by existing consumers. We're continuing to design targeted media messaging focused on cooking at home, teaching consumers how to use our products and providing flavor inspiration. And as the younger generation continues to fuel the demand for flavor and everyone has accelerated their online presence, we're executing on creative ways to connect with them. For instance, one way we're connecting with consumers is by helping them discover new ways to enjoy time-honored traditions. Take tailgating, for example, with football season now in full swing, we partnered with former New York Giants Quarterback, Eli Manning, to create the largest virtual homegating experience, having the lucky fans interact with Eli to learn about his favorite Frank's RedHot flavor snacks. The recent event garnered over 750 million media impressions across digital media platforms. Moving from the football season to the holiday season, our fourth quarter is an important one from a seasonal standpoint. Our consumers' holiday dinner may be more important than ever this year, and we're excited about helping make them memorable flavor experiences. In terms of brand marketing, we're launching a holiday version of our 'It's Gonna Be Great' campaign, which recognizes that celebrations might be different this year, in addition to our normal holiday promotion activities. And from a supply chain standpoint, we're protecting our top-selling holiday products. We have confidence that we're well-positioned for a successful holiday season. Our portfolio and the plans we have in place are even more relevant today than they were before the crisis, as we expect the increase in at-home cooking to persist. We will continue to drive our category leadership and growth momentum through strong brand marketing, category management initiatives, and new product innovation. Now turning to EMEA, our constant currency sales rose 23% with broad-based growth across the region. Our largest markets drove double-digit total branded consumption growth with market share gains across the region in our key categories. Importantly, we gained total EMEA region share in spices and seasonings and dry recipe mixes. The spices and seasonings consumption was strong in all markets, driven by consumers cooking more at home and discovering they need our products for great tasting, healthy flavor solutions. Our brand marketing campaign highlighting our product superiority and culinary partnership, coupled with pivoting our digital messages based on real-time consumer insights, with the topics most relevant to consumers and formats that resonate the most, are driving spices and seasoning momentum. In the UK, our Schwartz brand's new dry recipe mixes, such as One Pan meal seasonings, offer convenient and natural herb and spice blends for vegetarian options, attracting younger consumers to the category and driving new distribution gains, as well as category growth. We achieved the leading UK market share position in dry recipe mixes at the beginning of the year, and we continue to gain significant market share in the third quarter. With the momentum in baking continuing, combined with successful new product launches, we again had exceptional consumption growth in our Vahiné brand in France, outpacing the homemade desserts category and gaining share. Notably, Frank's RedHot turned up the heat during the third quarter, with over 40% consumption growth driven partly by a successful digital marketing campaign as well as new distribution. We're gaining millions of new households and driving repeat purchases. Our household penetration increased significantly across our major brands and markets during the third quarter compared to last year, with double-digit growth percentages in both the UK and France spices and seasonings categories, as well as in the UK dry recipe mixes and France homemade desserts categories. Our rate of repeat buyers in these markets and categories also grew by double digits. Our strong brand marketing and digital campaign, which we've increased in EMEA, provide us with confidence we will continue growing with our new consumers while welcoming our existing value consumers. Moving forward in EMEA, we’ll continue to capture the momentum we've gained and are excited with our growth trajectory, following challenging market conditions over the past few years. In the Asia Pacific region, our constant currency sales declined 6%, driven by declines in branded food service products, which are included in our consumer segment in China. Excluding those impacts, sales for the region would have increased, reflecting the increase in consumer demand across the region related to more cooking at home. In China, our consumer-to-business growth was strong, driven by consumers’ demand for convenient solutions, fueling our growth of recipe mixes, as well as world flavor and hot pot sauces. Continued momentum in condiments also contributed to growth. In other parts of the region, we have broad-based growth, led by Australia's strong consumption and share growth in branded spices and seasonings, particularly in Gourmet Garden, with high double-digit rates of new consumers and repeat buyers, and Frank’s RedHot with over 50% growth during the pandemic. Finally, in all regions, consumers' digital engagement has increased significantly, as we continue to experience accelerated e-commerce growth in all categories, whether it be pure play, click and collect, or our own direct-to-consumer property. The pace of growth has slowed from the second quarter, which was heavily impacted by more extensive stay-at-home periods. But we again drove triple-digit growth in the third quarter, as well as increasing our market share in several markets. We expect the shift to online shopping behavior to continue, and we're well-positioned for it through the investments we've made and continue to make in this channel. Our consumer growth plans based on our strategies have been in place since the beginning of the year, and we're yielding the results before the crisis. We've been able to leverage our initiatives to capitalize on the opportunity to help our consumers during this time and strengthen our category leadership positions, which further bolsters our confidence that we will drive future growth. Turning to Slide 10 in our flavor solution segment, our sales performance improved substantially from our second quarter constant currency decline of 16%. Our third quarter constant currency sales were 1% lower than last year, attributable to lower demand from restaurants and other food service customers, particularly in the Americas and EMEA region, driven by the decline in away-from-home consumption. Almost fully offsetting this lower demand was continued growth in sales for packaged food customers across all regions, as well as strong sales growth to quick-service restaurants in China. In the Americas, our sales declined 3% in constant currency, driven by demand declines across both branded food service and restaurant customers. The branded food service impact was more significant, as our away-from-home customer base in the Americas is skewed more to that channel. We're continuing to work with our customers impacted by away-from-home consumption declines to manage through their recovery efforts. With our customer intimacy approach, we're collaborating to provide solutions, such as menu simplification and optimization, branded portion-controlled packaging for dining in and carryout, and condiment dispensing solutions for food service operations. We're building menu excitement with strong promoters leveraging the power of our brand, driving wins for both our customers and us. We're excited about new distribution gains as well as upcoming menu participation and limited-time offers, as the recovery momentum continues. In EMEA, our sales grew 1% in constant currency, marking a significant rebound from a 31% decline in our second quarter. Our away-from-home customer base in this region is skewed more to QSR, and then in the third quarter, as they reopened with adapted operating models and resumed limited dine-in options, our demand from these customers rebounded, although it's still modestly below the third quarter of last year. The recovery with other food service customers also began in the third quarter as COVID-19 restrictions eased, although as expected, it was slower and not to the same extent as QSR. Turning to our at-home customer base, we had strong growth in our flavor sales to packaged food companies, similar to pre-COVID-19 levels, driven by the strength in their core iconic products, as well as the momentum from new products launched at the beginning of the year. We're advantaged by our differentiated customer engagement in this evolving environment, which has driven continued wins with our EMEA flavor solutions customer. Whether it'd be quickly scaling up to meet aggressive recovery plans, collaborating on opportunities, or managing through demand volatility, we're responding with speed and agility and further strengthening our customer relationships. In the Asia Pacific region, our constant currency sales grew 7%, driven by China and Australia's growth of QSR customers. During the third quarter, QSRs in these countries were largely open, and we're seeing momentum gaining in the core business and limited-time offer and our customers’ promotional activities. Government-imposed COVID-19 restrictions and reduced levels of limited-time offers continued to curtail growth in parts of the region. For the balance of the year, we expect a reduced level of our customers’ limited-time offers and promotional activities versus last year to impact growth. We continue across all regions to be fully committed to helping our customers manage through the COVID-19 recovery phase, of which the duration is still 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 navigate through this period of volatility. We remain confident in the successful execution of our strategies driving long-term growth trajectories in flavor solutions. Now before turning it over to Mike, and beginning on Slide 11, I'd like to mention the stock split we announced this morning and provide a few summary comments, including our 2020 outlook. I'm pleased with our announcement this morning of a 2-for-1 stock split, reflecting our sustained positive performance and outlook for continued growth. It has been 18 years since the last split of stock, which was in 2002, when the pre-split share price was $52.33. We believe this will provide greater liquidity and be appreciated by individual investors and employees. And now in summary, as the foundation of our sales growth is the global demand for flavor, we're capitalizing on the growing consumer interest in healthy, flavorful cooking, heritage brands, and digital engagement. These long-term trends have not only remained intact during the crisis; they have accelerated. Our alignment with them positions us well to meet increased consumer demand, both through our products and our customer products. We're driving sales growth balanced with our focus on lowering costs to expand margins and sustainably realize earnings growth. We have a solid foundation. In an environment that continues to be dynamic and fast-paced, we are ensuring we remain agile, relevant, and focused on long-term sustainable growth. We've delivered outstanding year-to-date results during a period of great disruption, proving the strength of our business model. Our strategies are effective and reinforcing our customers; they will continue to drive future growth. Our 2020 outlook, which Mike will discuss in detail in a few moments, reflects the strength of our year-to-date performance and momentum we're carrying into our fourth quarter and 2021. We are exceeding the objectives we had in place at the beginning of the year, delivering stronger sales and underlying operating performance, while importantly also ensuring the health and safety of our employees, investing in our supply chain resiliency to meet growth we expect in 2021, recognizing the exceptional performance of our people throughout the COVID-19 crisis and supporting our communities through relief efforts. Our growth expectation reflects our confidence in the sustainability of higher at-home consumption trends. As we look to our fiscal 2021, we expect constant currency organic sales growth in both of our segments on top of the outstanding consumer segment growth this year. I want to recognize McCormick employees around the world for driving our momentum and success, and thank them for their efforts, engagements, and for adapting to this new environment. It is now my pleasure to turn it over to Mike.

Mike Smith, Executive Vice President and CFO

Thanks, Lawrence, and good morning, everyone. I'll begin now by providing some additional comments on our third quarter performance and then our financial outlook for the balance of the year. Starting on Slide 14, during the third quarter, sales were up 9% in constant currency. Sales growth was driven by substantially higher volume and mix in our consumer segment, partially offset by lower volume and mix in our flavor solution segment. Pricing to partially offset cost inflation also contributed favorably to both segments. Consumer segment sales grew 15% in constant currency, led by the Americas and EMEA regions. The shift to at-home consumption and cooking more at home, as well as consumers adding flavor at home to their restaurant carryout and delivery, has driven substantial demand for consumer products, driving higher volume and mix in these regions. On Slide 15, consumer segment sales in the Americas increased 17% in constant currency, versus the third quarter of 2019. The increase was driven by significant growth across our branded portfolio, including higher volume and product mix of McCormick spices and seasonings, as well as Simply Asia, Thai Kitchen, Gourmet Garden, Frank's RedHot, Zatarain's, Stubb's, Lawry's, and El Guapo products. Additionally, the pricing actions taken prior to COVID-19 in the first quarter to partially offset increased costs also contributed to the growth. In the EMEA, constant currency consumer sales grew 23% from a year ago, with double-digit volume and mix growth in all countries across the region. The most significant growth drivers were our Schwartz and Ducros brands in spices and seasonings, our Vahiné homemade dessert products, and our Schwartz dry recipe mixes. Consumer sales in Asia Pacific declined 6% in constant currency, driven by lower branded food service sales, as Lawrence mentioned. This decline was partially offset by increased consumer demand across the region, with growth led by China's recipe mixes, sauces, and condiments, as well as Australia's brand new spices, seasonings, and condiments. Turning to our flavor solutions segment on Slide 18, third-quarter constant currency sales decreased 1%, driven by declines in away-from-home products in the portfolios of our Americas and EMEA regions. In the Americas, flavor solutions constant currency sales declined 3%, driven by a significant decline in sales to branded food service customers, in addition to lower sales to quick service restaurants, partially offsetting these declines were increased sales of packaged food companies and pricing to offset cost increases. In EMEA, constant currency sales increased 1%, driven by pricing to cover cost increases and also partially by lower volume and product mix. Volume and product mix decline, driven by reductions in sales to branded food service customers, in addition to lower sales to quick service restaurant customers, partially offsetting these declines was sales growth with packaged food companies. In the Asia Pacific region, flavor solution sales rose 7% in constant currency, driven by higher sales to quick service restaurants in China and Australia, partially driven by our customers' limited-time offers and promotional activities. As shown on Slide 22, adjusted operating income, which excludes special charges, increased 5% in the third quarter versus the year-ago period. In constant currency, adjusted operating income grew by 6% and was driven by substantial growth in the consumer segment, partially offset by a significant decline in the flavor solutions segment. Adjusted operating income growth in the consumer segment was 18%, increasing to $209 million, or in constant currency was 19%, driven primarily by higher sales. In the flavor solution segment, adjusted operating income declined 24% to $64 million, or 22% in constant currency, driven partially by lower sales, unfavorable product mix due to declines in branded food service sales, and an unfavorable impact on manufacturing costs resulting from the lower volume. Both segments were also unfavorably impacted by COVID-19-related supply chain costs, including those related to additional compensation for our operations employees, safety and sanitation measures, and scaling up to meet increased demand, as well as higher incentive compensation, which were driven by our strong year-to-date sales and operating profit performance. These unfavorable impacts were partially offset by CCI-led cost savings. Gross profit margin expanded 70 basis points in the third quarter versus the year-ago period, driven primarily by favorable product mix, resulting from the sales shift between segments and CCI-led cost savings, with a partial offset from COVID-19-related costs. Adjusted operating margin compression of 60 basis points compared to the third quarter of last year was driven by the net impact of the factors I just mentioned, as well as higher distribution costs. Turning to income taxes on Slide 24, our third quarter adjusted effective income tax rate was 19.3% as compared to 17.6% in the year-ago period. Those years were favorably impacted by discrete tax items, principally stock option exercises. Income from unconsolidated operations was up $10 million in the third quarter was comparable to the year-ago period. At the bottom line, as shown on slide 26, the third quarter of 2020 adjusted earnings per share were $1.53, that's compared to $1.46 for the year-ago period. The increase was primarily driven by our higher adjusted operating income, with lower interest expenses offsetting the impact of a higher adjusted income tax rate. This increase also includes an unfavorable impact from foreign currency exchange rates. On Slide 27, we summarize highlights for cash flow in the quarter-end balance sheet. Our cash flow provided from operations was $627 million for the third quarter of 2020, a 27% increase compared to $495 million for the third quarter of 2019, and was driven by higher net income. We finished the third quarter with a cash conversion cycle at 36 days, down seven days versus our 2019 fiscal year-end. We returned $247 million of cash to shareholders through dividends and used $146 million for capital expenditures through the third quarter of 2020. Additionally, we were very happy that during the third quarter, we fully paid off the term notes related to the acquisition of the Frank’s and French’s brands, and ended the third quarter with a net debt to adjusted EBITDA ratio of 3.1 times. We continue to project another year of strong cash flow. 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 2020 financial outlook. As a reminder, we withdrew our 2020 guidance during our first quarter earnings call in late March. The operating environment over the past six months has continued to evolve, and while there still remains much uncertainty and many variables which can drive a range of possible outcomes, we recognize our year-to-date performance has been strong, and we are currently in the last quarter of our fiscal year. As such, we are resuming our 2020 guidance at this time based on the expectations Lawrence shared earlier this morning. Most notably, that the shift in consumer demand in at-home consumption versus away from home will continue for the balance of the year, and even beyond. We believe this shift will continue to favorably impact the consumer segment in our fourth quarter. While the away-from-home part of this flavor solutions portfolio has begun to recover, it will continue to be unfavorably impacted. We expect the impact in both segments will not be to the same extent as we have realized in the past six months. Starting with the topline, we expect to grow sales at the upper end of a 4% to 5% range, which in constant currency is a range of 5% to 6%. This increase is expected to be entirely organic and reflects growth driven by new products, expanded distribution, fair marketing, and pricing, which in conjunction with cost savings is expected to offset anticipated mid-single-digit inflationary pressures. It includes the net impact of the shift in demand due to COVID-19 and the consumers' sustained preference for cooking at home. Our 2020 gross profit margin is expected to be 75 basis points to 100 basis points higher than 2019, in part driven by our CCI-led cost savings and favorable product mix, partially offset by COVID-19-related costs. Our adjusted operating income growth rate reflects the expected strength of our constant currency sales performance and underlying profit realization, partially offset by higher expenses related to COVID-19 and incentive compensation. We're projected to grow adjusted operating income by 4% to 5%, or 5% to 6% in constant currency. This includes our cost savings targets of approximately $105 million, and an expected mid-single-digit increase of brand marketing investments. We are estimating our COVID-19 costs, which include expenses related to additional compensation for our frontline operations employees, safety and sanitation measures, and scaling up to meet increased demand, as well as donations to relief organizations, will be approximately $40 million to $50 million for fiscal year 2020, with the majority of this cost impacting gross profit. Our estimated increase in incentive compensation is driven by our projected strong fiscal year sales and operating profit performance and is consistent with our commitment to a pay-for-performance philosophy. Our 2020 adjusted effective income tax rate is projected to be approximately 20%. Based on our year-to-date performance, including the impact of favorable discrete items and the estimated mix of earnings by geography. This outlook compares to our 2019 adjusted effective tax rate of 19.5%. Our income from unconsolidated operations is also expected to be impacted by unfavorable currency rates, and as a result, we are projecting a mid-single-digit decline. Our guidance range for adjusted earnings per share in 2020 is $5.64 to $5.72. This compares to $5.35 of adjusted earnings per share in 2019 and represents a 5% to 7% increase, which in constant currency is a 6% to 8% increase. In summary, we are projecting another strong year of underlying operating performance while doing what’s right by first protecting our employees and recognizing their contributions, second, by supporting our communities through relief efforts, and finally, by making supply chain and brand marketing investments to meet our expected growth into fiscal 2021. While we are not providing guidance for next year, I want to note that we do expect constant currency organic sales growth in both our segments in 2021, as Lawrence mentioned earlier. Additionally, I want to provide you a brief update on our ERP replacement program. We indicated in March that we will be rephasing the timing of this program to focus on the challenging environment during the pandemic. We have remained excited and committed to our global transformation initiative. While the environment is still challenging, we have continued to work on this program. The delay provides us an opportunity to do some replanning, and as SAP has improved their product, our ramp-up will be on a new version with a broader suite of applications, allowing us to save an upgrade cycle as well. We have not completed our planning yet, but we do not anticipate any major go-lives in 2021. We will provide further updates on our ERP program on our earnings call in January. Finally, I would also like to mention that yesterday our Board of Directors approved a 2-for-1 stock split, with one share of common stock, with common stock non-voting to be issued for each like outstanding share. The additional shares will be distributed on November 30, and trading is expected to begin on a split-adjusted basis on December 1. The stock split reflects the confidence we have in our future, and we believe it will provide greater liquidity and allow the stock to be more accessible to a broad range of investors. I'd like to now turn it back to Lawrence for some closing remarks before we move to your questions.

Lawrence Kurzius, Chairman, President, and CEO

Thank you, Mike. Now that Mike has shared our financial results and 2020 outlook in more detail, I'd like to recap the key takeaways as seen on Slide 29. We've delivered outstanding year-to-date results during a period of great disruption, proving the strength of our business model, the value of our product, and our capabilities as a company. Our foundation is solid and our strategies are effective. Our 2020 outlook reflects another year of strong operating performance while doing what is right for our employees and communities, as well as making investments for the growth we expect in both segments next year. We're confident in our ability to perform in this dynamic environment and to continue delivering differentiated results and build long-term value. And now I'd like to turn to your questions.

Operator, Operator

Thank you. We'll now move on to the question-and-answer session. Our first question comes from Andrew Lazar with Barclays. Please go ahead with your questions.

Andrew Lazar, Analyst

Good morning, everybody.

Lawrence Kurzius, Chairman, President, and CEO

Hi, Andrew. Good morning. Thanks for hanging in there for a very long script.

Andrew Lazar, Analyst

No worries, no worries. My pleasure. So two things would be, first off, thanks for your thoughts around your expectations for organic sales into next year. I'm curious as we think about EBIT for next year, obviously, we're not in a position to give any kind of guidance. But maybe you can just cover off on a couple of the discrete items, puts, and takes that we kind of know about? Meaning, I know you covered, Mike $40 million to $50 million of COVID-related costs this year. Is all of that expected to not repeat next year, or as a portion go into next year? And then is there any way you can break out what the incremental maybe incentive comp cost is expected to be this year? And just any other things that are discrete, that we kind of know now that we should take into account as we think about sort of profit growth next year? And then I've just got a follow-up. Thank you.

Mike Smith, Executive Vice President and CFO

Hey, Andrew, it's Mike. I'll take this question, and if Lawrence has anything to add, he can join in. You mentioned the COVID costs. This year, we talked about an additional $40 million to $50 million in costs related to COVID in 2020. We anticipate that some of these costs will persist, but others will not. For instance, we're ramping up production, onboarding new employees, and we have additional co-packers now, which we expect won't carry into next year. On the other hand, the expenses related to PPE and other employee protections are likely to continue. It's a combination of both. However, much will depend on the market conditions and any further outbreaks. Our January guidance will provide more details on this.

Lawrence Kurzius, Chairman, President, and CEO

In addition to what Mike mentioned, we incurred costs for temporary plant closures, such as extraordinary sanitation, which we do not expect to face again next year. The rapid addition of capacity has been somewhat inefficient in the short term, but we anticipate improvements in efficiency as we move into next year. Regarding incentive compensation, Mike touched on this earlier. I sincerely hope it won't be a tailwind next year, but if it is, it will be due to continued exceptional performance. We operate under a pay-for-performance philosophy, and our employees have performed exceptionally well this year, leading to incentive compensation across all levels of the organization being near the upper limit of our program range. It would require truly extraordinary performance to maintain that level. Therefore, it’s likely to pose a tailwind, but regardless, the strong results we achieved this year are not compensated for twice. Our plants support growth.

Andrew Lazar, Analyst

Yes, it makes sense. And you mentioned capacity, and I want to dig into that a little bit. I'm curious if there's a way to sort of spread out a little bit; how much of the upcoming capacity that's coming online is sort of internal versus stepped-up use of third parties? And really, the reason I ask is that I'd assume that McCormick would not be adding its own sort of internal capacity in any significant way unless it thought that some of these recently elevated trends were likely to persist somewhat longer-term, not at current levels necessarily. But longer-term in a way that you kind of felt like you needed internal capacity, as opposed to just accessing the flexibility of third-party manufacturing.

Lawrence Kurzius, Chairman, President, and CEO

So, Andrew, it's actually a mix. Some of the capacity we've gained has come from adding personnel and adjusting our shift patterns to operate more of our facilities on a continuous schedule, not just on select lines but in some cases on all lines. That’s one method we’ve used to increase capacity. We have also made some short-term investments in internal blending capacity. Additionally, we have acquired a significant amount of third-party co-packing capacity, which incurs incremental costs that we aim to integrate into our own facilities over the next year.

Mike Smith, Executive Vice President and CFO

And that's primarily with a strategic partner that we already did co-packing with also. So we're not creating a quality risk out there at all.

Andrew Lazar, Analyst

Got it. Great. Thank you very much.

Ken Goldman, Analyst

Hi, thank you. One clarification and then I have a broader question and just building on Andrew's question. You talked about no major go-live for ERP in 2021. Is it fair for us to assume that obviously, the costs will be delayed maybe until 2022 as well from that, or there are some costs that you'll incur in advance? Just curious on that first.

Mike Smith, Executive Vice President and CFO

Yes. We are continuing to incur costs this year, even though we mentioned earlier the delay of the ERP. Our spending in 2020 is expected to be roughly in line with what we spent in 2019. Therefore, you can expect that our replanning will involve costs in the following year. At this moment, we're not ready to discuss the specific level of those costs, but we want to emphasize that significant go-lives, which involve major expenses, are not anticipated until 2022. We will provide more updates regarding our ERP program during our earnings call in January.

Ken Goldman, Analyst

Okay, that's helpful. I wanted to ask about your comments on organic growth in the consumer segment for next year. Currently, the market is anticipating low-single-digit declines, so your outlook appears to be more optimistic. You have a strong first quarter ahead since you won't be comparing against COVID-19 impacts. However, there are some high benchmarks to meet afterward. I'm curious how your confidence in topline growth next year is influenced by the increase in capacity and the potential carryover of trade from this year to next. I'm asking because we should continue to see positive food-at-home trends next year. It would be helpful if your guidance is based on more than just the expectation of demand growth. Hopefully, that makes sense.

Lawrence Kurzius, Chairman, President, and CEO

No, Ken, that makes a lot of sense. And that is a great question, because I think you've written about this. I think that the analyst community as a group, the consensus that's out there right now under calls, but we think the growth potential is, and that's why we have commented on 2021 at this early stage, when we normally would really be focused completely on 2020. Even before COVID-19 hit, consumers were cooking more at home; they were using more spices and seasonings and sauces to prepare fresher, healthier meals. They were moving to trusted heritage brands, we talked about this. The pandemic accelerated these trends. Other trends like e-commerce have already underpinned our strategies, and that we were already capitalizing on. Consumers haven't been doing anything that is contrary to what they have been trending to do already; they're just doing more of it. The data that we've gotten, that we talked about in our prepared remarks show that most consumers are cooking more, they're enjoying it, they intend to cook more. Our brands have gained penetration in millions of households with a high level of repeat that shows strong satisfaction with the experiences that they're having. We're not testing it in the U.S.; we're seeing this play out globally. We've continued to invest behind our brands and driving through the entirety of the crisis. We've got a robust pipeline of innovation that includes some backlog from this year, but also launches in 2021 too. We've added a lot of resilience and capacity in the supply chain. And the market, frankly, has taken all of it. We're still ramping up for more just to meet the existing demand for consumption. As you noted, we have store shelves to restock, retailer inventory to replenish, and a broad range of suspended SKUs to restart. So yes, we think that there's going to be some moderation; there are going to be a couple of periods and areas where there are tough comparisons. But we absolutely expect growth in our consumer segment next year for a very good reason.

Mike Smith, Executive Vice President and CFO

I want to emphasize that we are increasing our brand marketing spending in the fourth quarter. We have indicated a mid-single digit growth for the year, which suggests a 12% to 18% increase in the fourth quarter. This advertising investment will support our growth in the first and second quarters. We are truly committed to investing in our brand during this opportunity.

Ken Goldman, Analyst

Very clear. Thank you.

Operator, Operator

Our next question is from the line of Alexia Howard with AllianceBernstein. Please proceed with your questions.

Alexia Howard, Analyst

Good morning, everyone.

Lawrence Kurzius, Chairman, President, and CEO

Hi, Alexia.

Mike Smith, Executive Vice President and CFO

Good morning.

Alexia Howard, Analyst

Hi there. Can we discuss the reduction in promotional activity due to supply constraints on the consumer side in recent months? Looking ahead, are retailers starting to increase their spending? I understand that spices and seasonings typically aren’t heavily promoted, but I’m curious about the retailer dynamics and whether we can expect increased spending towards the end of this year and into 2021.

Lawrence Kurzius, Chairman, President, and CEO

Sure. All of our actions have been taken in collaboration with retailers. Throughout much of the third quarter and into the fourth, our promotional plans are set. However, what's different this time is that many products are on allocation, which limits the quantity retailers can feature in promotions. Additionally, we adjusted the timing of our holiday program. Typically, we begin deliveries in August to set up displays and manage the holiday surge, but we’ve deferred about half of that to the fourth quarter this year. This has created a timing difference. Overall, our promotional plans are mostly back on track, particularly in the U.S. and Canada. In other regions, where we aren't facing supply constraints, promotional activities have proceeded as usual.

Alexia Howard, Analyst

Great. And as a follow-up. As you've managed to deleverage to a little over 3 times net debt to EBITDA. How does that adjust your thinking on acquisitions? Obviously, there's a lot that you've got on your plates just operating within this environment. But in the past, you've been particularly bullish on the idea of doing further deals. I'm just wondering how rich that set of opportunities looks right now, and how actively you might be pursuing that and in which parts of the business?

Lawrence Kurzius, Chairman, President, and CEO

Our goal has been to reduce leverage to three times EBITDA by the end of 2020, and it appears we've achieved that, which is encouraging. Our acquisition strategy remains focused on supporting our growth objectives. We've indicated for some time that reaching precisely three times wouldn't necessarily prevent us from re-entering the market. Therefore, we are open to pursuing acquisitions.

Robert Moskow, Analyst

Hi, can you hear me? Sorry about that. Yes, that was me.

Lawrence Kurzius, Chairman, President, and CEO

That’s like the cliche of our time right now.

Robert Moskow, Analyst

Yes, that happens to many. Yes, I agree with you. But unfortunately, no dogs barking in the background. I did have just kind of a broader question about your margin structure. You're making investments in capacity this year that will dilute your margins in fourth quarter. And then you have this big ERP program that will probably dilute margins next year. Just big picture, would you say that these investments are setting you up to become a bigger company to service a bigger demand? And if so, when do you get back to a pattern of margin expansion and benefiting from all that scale that you've put out? I guess the second part is, do you get back to your normal pattern of market expansion that's in your long-term algo?

Mike Smith, Executive Vice President and CFO

Hey, that's a great question, Rob. And I'll start it. No, that's a great point. As we went into this year, obviously when we had planned a $60 million-ish investment in ERP, that was going to be dilutive to our margin. However, we need to become a bigger company, increase our scale. The ERP program drives efficiencies across the organization and really allows us to grow faster and make acquisitions faster. It's hard to pin it down to one year investment and then you get back right away. But over a three-or-four-year period where we look at our constant currency sales growth and our margins, we see that really as our long-term guidance. One year, you're going to have some short-term ups and downs on it. There are stake levers we can pull from an advertising perspective, spending more or less. CCI is a tool we've used in the past to lean into when we've had investments to make. In January you'll see a better picture for next year.

Lawrence Kurzius, Chairman, President, and CEO

But the investments that we've made in supply chain this year have really been extraordinary because of the extraordinary circumstances. We've had an unprecedented increase in demand that has been sustained over time that we have really had to work and almost throw money at in order to meet. It hasn't been done in the most efficient way. I think that, as we've commented on the first question from Andrew, we would expect that some of those costs would come out.

Robert Moskow, Analyst

Okay. And I actually do have a follow-up question. You said that Europe had already expanded capacity sufficiently to meet the 20% plus increase in demand, but the U.S. had not. Is there any reason that the capacity expanded in one region, but not the other?

Lawrence Kurzius, Chairman, President, and CEO

Well, sure. Over the last several years, we've been building our capacity and capabilities in Asia Pacific first and in Europe second, as an area of investment focus. We had just turned to the Americas. This year, we announced a big investment in a highly automated logistics center earlier this year, pre-COVID. Our investment cycle has turned to the Americas. It's not as we've ignored the Americas. We've had investments along the way, but it’s the same region for us right. Virtually all of our plants in Asia have been either new or renovated in the last several years. We've made a number of big investments in expansion and automation in EMEA, and we're just turning to the Americas. But even beyond that, it's just the scale of the surge of demand. I mean, the U.S. business is so big that even the same percentage growth turns into a massive amount of volume.

Chris Growe, Analyst

Hi, good morning.

Lawrence Kurzius, Chairman, President, and CEO

Good morning, Chris.

Chris Growe, Analyst

I have a question to clarify your earlier comments about delaying some new product launches and how they might be advantageous in 2021. Is this related to how retailers are accepting new products? Are you seeing any improvements in that area? Additionally, I’d like to understand how the production capacity aligns for these new products. Are they mostly produced by third parties, or has new production capacity been established to manufacture them? I’m trying to grasp how this will unfold in 2021.

Lawrence Kurzius, Chairman, President, and CEO

Well, with the surge in demand, both we and the retailers really wanted to focus on the core items. For us, it is a certain supply, and the retailers still have the challenge of bringing product in and just the logistics of the whole increase in consumer shopping in their total store. So there's been much more of a focus on core. The new items that we actually have launched early in the year got unprecedented trial. The items that we had planned for the second-half really have been deferred into 2021 and add to that pipeline. I don't think our experience in that area is much different than what others set up. We also had a big shelf initiative. We had a spice aisle reinvention program that we unveiled at Cagney and had a plan to get into thousands of stores. We have made that change in thousands of stores but nowhere near the magnitude that we expected. That’s also going to be part of the program for next year. On the flavor solution side of the business, also, our customers have tended to focus on their core items as well. Innovation in that area has also been curtailed.

Mike Smith, Executive Vice President and CFO

Quick service restaurants in APZ, in China and Australia are recovering faster. More LTOs are coming out now, as we talked about this quarter. So we see that continue hopefully into next year.

Operator, Operator

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

Adam Samuelson, Analyst

Yes. Thanks. Good morning, everyone.

Lawrence Kurzius, Chairman, President, and CEO

Good morning, Adam.

Adam Samuelson, Analyst

My first, it turns into a little bit of a question on the shifts on holiday sales into the fourth quarter in terms of the load in. But can you comment a little bit on retailer inventories and trade inventory in the U.S. right now, just given the surge in demand that we've seen? Just how do you think about that potentially being a tailwind into next year?

Lawrence Kurzius, Chairman, President, and CEO

Yes. It's evident that the cover is present when you visit a store. In the first quarter, U.S. demand saw scanner activity up by 55%, and in the second quarter, it was up 28%. Our latest IRI data indicates demand is still above 20%. We have faced challenges in keeping up with this demand, and our reported lower numbers reflect a significant inventory reduction. This means that shelf stocks are low, and backroom stocks are almost non-existent. There's a significant amount to replenish. As we head into the fourth quarter, we are increasing our capacity, but this is primarily to meet existing demand. The true rebuilding of shelf stock, the retailers' safety stock, and the overall normal inventory levels will take place next year and will take considerable time to restore.

Mike Smith, Executive Vice President and CFO

That's what gives us further confidence on growth next year on the consumer side.

Adam Samuelson, Analyst

Okay, now that's helpful. And then I guess my second question was more on the flavor solutions and especially thinking in the Americas with the volume mix that decline you reported. Maybe you can give a little bit more color by kind of your major categories branded food service, the flavors business, and condiments coating, just how the different parts of your business are performing relative to that negative 5%? And where that's trending and some potential number?

Lawrence Kurzius, Chairman, President, and CEO

Quick service restaurants are performing well overall, showing signs of recovery that vary by location, with some experiencing significant growth while others have not fully bounced back. Their operational model has always favored off-premise consumption like drive-throughs, which helped them recover quickly, notably contributing to the improvement seen in our EMEA region. For example, in the second quarter, we experienced a 31% decline, but in the third quarter, we saw a 1% increase. However, traditional restaurants and food service customers are recovering more slowly, with many still closed or limited in capacity. According to our surveys, more than half of consumers plan to avoid dining inside restaurants this year, indicating a challenging recovery ahead. As the fall brings cooler weather, it may present additional challenges for these businesses. On the other hand, our consumer manufacturers have largely returned to normal operations, though this varies by customer; collectively, they are regaining a more standard trajectory. Additionally, branded food service represents a larger segment of our total flavor solutions in the Americas compared to other regions, which has a more pronounced impact here.

Adam Samuelson, Analyst

Okay, that's truly helpful color. I appreciate it. Thank you.

Peter Galbo, Analyst

Hey, guys. Good morning. Thanks for taking the question.

Mike Smith, Executive Vice President and CFO

Good morning.

Peter Galbo, Analyst

Mike, I just had a question around freight costs. We've been seeing a pretty sizable uptick both in the spot markets and just wondering if that's going to spill over into contract freight rates. Just can you give us a sense of either as percent of sales or COGS, what freight represents? And maybe just in history, a couple of years ago, when freight was moving up, kind of how you guys managed it through the business?

Mike Smith, Executive Vice President and CFO

Yes. I mean, it's a good question. Freight has spiked really recently; it's been up and down over the last 12 months. A couple of years ago, there was a huge shortage of containers or trade and the whole industry was really hurt by that. Through our CCI program, we really manage those costs. Within the last quarter, I can't tell you specifically what programs we have to be honest, but distribution is one of those SG&A things that has been up, primarily due to internal warehousing moves and things like that just shipping product, but freight is a relatively minor total component of our cost of goods sold.

Lawrence Kurzius, Chairman, President, and CEO

And definitely in the scheme of other products going on right now.

Mike Smith, Executive Vice President and CFO

I wouldn't think it's not a material impact in the quarter, but it does add a little bit of the headwinds. It's a good question.

Peter Galbo, Analyst

Got it. Okay, no, that's helpful. And maybe just as a cleanup, the tax rate that 20% you gave, I mean, on a longer-term basis, I know you guys tend to talk about mid-20s, but it's been running in that closer to 20%, just as the stock has performed well. Just kind of help us think about that on a longer-term basis?

Lawrence Kurzius, Chairman, President, and CEO

Yes, looking at the long term, I’d say what we mentioned earlier this year is still relevant, which is a tax rate of 24% to 25%. With the upcoming election, it's difficult to predict what will happen next year, so we'll have to wait and see. However, based on the current regulations, we anticipate that 24% to 25% range. From time to time, we engage in tax planning initiatives. Given the strong performance of our stock, we benefit from favorable stock options, which is reflected in our operating expenses. This does create some challenges, but overall, it positively impacts our tax situation.

Peter Galbo, Analyst

Great. Thanks very much, guys.

David Driscoll, Analyst

Great. Thank you, and good morning.

Lawrence Kurzius, Chairman, President, and CEO

Hey there, David.

David Driscoll, Analyst

I wanted to ask you one question on the fourth quarter, and then just one follow-up on your '21 commentary. On the fourth quarter, you appear to be implying within the full year guidance, a revenue slowdown versus the third quarter. I just wanted to hear your description as to what are the qualitative factors here? Do you expect the second wave of the virus to be impacting? Is that implied within the guidance? Or do you really just kind of take where we are today on viral impact and just extend that forward? Then are there any other key assumptions that go into that fourth quarter? And then on 2021, I'm curious about whether or not you see this as your growth comments? Are these in your control? Is it this inventory situation that's just so significant in '21, that it underpins your confidence to make these growth comments? Because, of course, nobody knows about the vaccine, how many people will take it, what that will do to consumer behavior. But I'm thinking that what you're trying to tell us today is that it doesn't really matter. There are so many underlying positives inherent to your business that are in your control that you can still say that there would be growth in '21 in that consumer segment. Thank you.

Lawrence Kurzius, Chairman, President, and CEO

I think for Q4, I'll start, and then I'll let Mike take it and let me come back to 2021 in a minute. For flavor solutions, we're pretty much looking at the status quo versus where we are right now because the QSRs have largely recovered. We see just a hard path forward for the rest of the restaurant side of the business. Given the uncertainty around resurgence, I mean, look what's happening in Europe right now, cold weather coming in. There's probably going to be some good news on a vaccine. But the fact is, that's probably not going to be widely available till sometime well into next year. There are a lot of uncertainties around that. For the consumer side, demand continues to be strong. We've had all these gains in penetration, trial consumers seem to be having a good experience cooking at home. Cooking-at-home behavior has really held up in a way that frankly, we've underestimated all year long. I mean, it's been stronger than we thought and every time we look at it, it's holding up stronger and longer than we thought. We're expecting some moderation next year, but we are also expecting quite a lot of it to stick. There are still a lot of uncertainties around 2021, which is why we don't give guidance this early. We did see a growing disconnect between the expectations for growth of the consumer that was out there that was going to be your so wide. We felt like we had to say something about it.

Mike Smith, Executive Vice President and CFO

Yes, and regarding the fourth quarter, I mean, we wanted to give some meaningful guidance but also wanted to be prudent in a really uncertain environment. There are variables to the high and low end. We think the demand is there, obviously, as we see in the scanner data, but our ability to supply especially in the U.S. is really challenged. We wanted to at least be proven from that perspective.

Lawrence Kurzius, Chairman, President, and CEO

Great.

Operator, Operator

Thank you. At this time, I'll turn the floor back to Lawrence Kurzius for closing comments.

Lawrence Kurzius, Chairman, President, and CEO

Great. Thank you everyone for your questions and for participating in today's call. McCormick is a global leader in flavor, differentiated with a broad and advantageous portfolio. In the volatile environment in which we currently operate, this balanced portfolio drives consistency in our performance. We have a growing and profitable business, delivering flavor to all markets and channels, while responding readily to changes in the industry and in the world, with new ideas, innovation, and purpose. One of the most significant risks that any company is being unprepared to respond with agility to a significant unexpected disruption. We've all been experiencing that disruption this year, and McCormick continued to be well prepared, and not only manage through it but emerge stronger. With a relentless focus on growth, performance, and people, we're confident our strategies continue to position us to drive future growth and build long-term value for our shareholders.

Operator, Operator

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