McCormick & Company, Incorporated (NYSE:MKC) Q2 2024 Earnings Call Transcript

McCormick & Company, Incorporated (NYSE:MKC) Q2 2024 Earnings Call Transcript June 27, 2024

McCormick & Company, Incorporated beats earnings expectations. Reported EPS is $0.69, expectations were $0.586.

Faten Freiha: Good morning. This is Faten Freiha, VP of Investor Relations. Thank you for joining today’s Second Quarter Earnings Call. To accompany this call, we’ve posted a set of slides on our IR website, ir.mccormick.com. With me this morning are Brendan Foley, President and CEO; Mike Smith, Executive Vice President and CFO; and Marcos Gabriel, Senior Vice President, Global Finance and Capital Markets. During this call, we will refer to certain non-GAAP financial measures. The nature of those non-GAAP financial measures and the related reconciliations to the GAAP results are included in this morning’s press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information.

Today’s presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or other factors. Please refer to our forward-looking statement on Slide 2 for more information. I will now turn the discussion over to Brendan.

Brendan Foley: Good morning, everyone, and thank you for joining us. We are pleased with our second quarter performance, particularly as we continue to navigate a changing and complex consumer landscape. Our differentiated results demonstrate the success of our prioritized investments to accelerate volume trends and further capitalize on the underlying growth of our categories. McCormick remains a growth company, and 2024 continues to be an important investment year. As planned, as we have activated many of our initiatives and we are starting to see results that support our confidence in delivering on our long-term objectives. This morning, I will begin my remarks with an overview of our second quarter results focusing on the top-line drivers.

Next, I will provide perspective on industry trends, highlight some areas of success as well as areas we continue to work on, and review our growth plans with a focus on innovation. Mike will then go into more depth on the second quarter financial results and review our 2024 outlook. And finally, before your questions, I will have some closing comments. Turning now to our results on Slide 4. In the second quarter, sales declined by 1% in constant currency, reflecting flat pricing, and a 1% decline in volume and product mix. Volume growth in our Consumer segment was offset by declines in Flavor Solutions related to softness in some of our quick serve restaurant, or QSR, and packaged food customers volumes as well as the timing of customer activities, as expected.

Although certain parts of our Flavor Solutions business are pressured, given our collaboration and strong innovation pipeline with our customers, we expect volume trends to improve during the second half of the year. In our Consumer segment, volumes improved substantially from the first quarter across our major markets and delivered volume growth. In the Americas, we delivered solid sequential volume improvement for three consecutive quarters, and our pricing in the second quarter reflects the activation of our price gap management plans to support improved volumes in the second half, as planned. In EMEA, we drove positive volume growth across our major markets and core categories for the second consecutive quarter. We expanded distribution in the grocery, discounter and e-commerce channels, and realized benefits from new product innovation.

In Asia Pacific, outside of China, we delivered strong volume-led sales growth, as we executed the rollout of our new consumer preferred packaging for our core spices and seasonings portfolio and realized distribution gains. This performance was tempered by China as expected, although sequentially volume trends improved in China. Results in our Consumer business reflect continued focus on increased brand marketing investments, accelerating innovation in alignment with consumer trends, and expanding distribution. Let me now share our current view on the state of the consumer. Consumers continue to exhibit value seeking behavior. Financial anxiety remains elevated, particularly in the United States, and especially with mid- to low-income households due to the compounding impact of inflation.

In addition, inflation in the foodservice channel is leading to softness in food away-from-home consumption and impacting restaurant traffic, particularly with QSRs across many of our regions. Volumes on the retail side, particularly in the center of store, remained soft. Consumers continue to buy just for what they need and make more frequent trips to the store. On the other hand, they are increasingly shopping the perimeter and continuing to cook at home. Certain categories such as spices and seasonings as well as condiments and sauces are seeing a benefit amid these trends. As consumers are looking to stretch their budgets, our categories represent a fraction of the cost relative to proteins, produce, and carbs and drive the majority of the flavor.

In fact, in the second quarter, spices and seasonings was the top category in center store growth across measured channels. And McCormick is the leading branded player and driving category unit growth. What continues to differentiate McCormick is that we operate in great categories across all channels. We offer products at every price point, from premium to lower price points. We have a broad and diversified portfolio to meet evolving consumer demands. We are part of the solution for consumers. Importantly, we believe that we have the right plans in place that are continually informed by what matters most to our consumers and customers. Moving to Slide 5, let me highlight for the quarter some of the key areas of our success. For our global Consumer segment, including the Americas, our core categories delivered solid volume growth.

In spices and seasonings, we delivered volume growth across all of our major markets. In the US, our share performance improved, resulting in positive gains in unit share for the quarter. In addition, we drove dollar share gains in France and Eastern Europe. In recipe mixes, we continued to strengthen consumption trends in the Americas, particularly in our Mexican product lines, through our price gap management investments as well as distribution growth. In addition, in EMEA, recipe mixes were a significant driver of UK volume growth and we realized dollar market share gains for two consecutive quarters. In mustard, we are driving improved unit consumption and unit market share trends across our regions. In the Americas we expanded distribution and actioned our pricing investments.

In addition, innovation is yielding results. Our creamy dill fickle mustard performance is exceeding our expectations. In Poland, mustard consumption continues to grow and we are realizing dollar market share gains, which strengthened from the first quarter. In Flavor Solutions, we had pockets of strength this quarter. In our Americas Branded Foodservice business, despite softness in the overall market, we grew volumes. In our Americas Flavors business, our performance with high-growth innovator customers remained strong. We grew in non-alcoholic beverages and saw continued strength in performance nutrition. In Asia Pacific, including China, we drove strong volume growth as we benefited from new customer products and promotions. Let me now touch on some areas where we are seeing some pressure.

We continue to experience volume declines in the prepared food categories that we participate in, like frozen and Asian and Americas consumer. Importantly, these items represent a small part of our portfolio and the volume growth in our core categories is beginning to fully offset these declines. In hot sauce, we have underlying strength in our base business and strong consumer loyalty, and we continue to invest in our market-leading brands. In the Americas, consumption and share trends improved in the second quarter on top of our first quarter improvement. A couple of short-term items continue to impact our share. First, [as appears] (ph) that is lapping their own supply chain disruptions, and second, new price pack architecture in the form of trial sizes, which have been incremental to the category.

As we realize the benefit of our increased innovation, including Frank’s new Dip’n sauces and Squeeze bottles, as well as mini trial sizes, A&P investments and distribution expansion, we expect to drive improved hot sauce consumption trends in the second half of 2024. In Flavor Solutions, our volumes were impacted by slower QSR traffic in both EMEA and the Americas. We expect to improve these volume trends as we continue to execute on our growth plans in the second half of the year. Finally, some of our consumer packaged food customers experienced additional softness in volumes within their own business in both the Americas and EMEA. We are collaborating with our customers to support their innovation plans and we are continuing to diversify our customer base over time.

Before moving to our growth plans, I’d like to note that our total US Branded portfolio consumption, as indicated by Circana data and combined with unmeasured channels, outpaced our sales growth this quarter, as our brand investments drove improved consumption and we are lapping the increased shipments that came in ahead of the 2023 pricing actions of the prior year. This is a function of timing from quarter-to-quarter. Let’s now move to our growth plans on Slide 6, which are supporting our second quarter performance and will continue to drive our success in 2024 and into 2025. Our base business is strengthening across major markets and core categories, and we have a number of initiatives in flight that will continue to drive this performance and differentiation.

And I look forward to sharing more details on these plans at our upcoming Investor Day in October. Brand marketing, new products and packaging innovation, category management, proprietary technologies and customer engagement continue to be the levers that drive our growth. For today, I’d like to take the opportunity to highlight one of these levers, innovation, on Slide 7 and 8. First, it’s important to recognize that we are one of the few, if not the only company that operates in end to end flavor with both our Consumer and Flavor Solutions segments. We are in a unique position with our portfolio’s breadth and reach. Our shared insights give us a strong understanding of consumers’ flavor needs, preferences and trends. And we have the ability to translate this into innovation, making McCormick a global leader in flavor trends and flavor innovation.

Innovation is a priority for us. It drives one-third of our long-term algorithm. It meaningfully contributed to our results for the first half of 2024, and we expect it to drive strong performance in the second half. As a management team, we discussed the latest trends and insights and how those might translate into innovation in both segments. We are continuously leading the pursuit of what’s next in flavor. In our company, everyone is engaged in innovation. In the first half of the year, our results benefited from new products and packaging and the performance of these launches continues to improve. Importantly, our pipeline for the remainder of the year remains robust. In our Consumer segment, our renovated US everyday urban spice portfolio is fully shipped, and roughly two-thirds of our new packaging is currently on shelf, driving double-digit velocity gains and contributing to our strong volume improvement in spices and seasonings.

New products within our spices and seasonings portfolio, including Lawry’s new seasoning blends, Flavor Maker blend, and our exciting grilling portfolio of Stubb’s rubs and new Grill Mates seasonings blends in partnership with Max the Meat Guy fuel first-half results and are expected to accelerate our performance in the second-half. In fact, in 2024, we are launching nearly 4 times more grilling rubs and seasonings compared to 2023. Importantly, our grilling season, which kicked-off at the end of second quarter is off to a great start. In addition to our grilling blends and rubs, we are excited about early results from Frank’s RedHot Dip’n sauce and popular flavors in the Squeeze bottle format that we launched this year. We are energized for the grilling season and expect our [Flame & Flavor] (ph) marketing campaign that launched in the second quarter to drive incremental consumer demand.

Our Cholula salsas and recipe mixes that launched in 2023 are driving new buyers to the category and continue to exceed our expectations since launch. Cholula salsas are driving strong incremental category growth with our high repeat buy rates and our Cholula recipe mixes are a top recipe mix brand after just one year in the market. They are driving the second highest unit growth within the category. We continue to build US distribution and we are launching both formats in Canada this year. In EMEA, growth from new product sales is accelerating and we expect it to drive significant growth in the second half of the year. In the UK, across recipe mixes and seasonings, our Schwartz range with Nadiya Hussain, restaurant-branded partnerships and a range of classic American recipe mixes with Frank’s, OLD BAY and French’s are driving our innovation performance and expanding household penetration with younger consumers.

In France, we are collaborating with Juan Arbelaez, a celebrity Colombian French chef, to drive engagement with younger households. And recently we partnered with him to launch a range of unique and delicious Ducros barbecue seasonings in time for the summer barbecue season. Moving now to our Flavor Solutions segment, we continue to leverage our proprietary technologies to support our innovation in flavors, to win new customers, diversify our customer base and drive share gains across our portfolio. Our momentum with our high-growth innovator and consumer products’ customers continues to be strong and fuel our new product pipeline. As we look to our innovation pipeline that we support for our customers, we expect to pick up in the back half of the year.

We are collaborating with many customers to heat up their products from snacking to beverages to performance nutrition. Our win rate with heat briefs are strong across our regions and we continue to dedicate resources to where we have the right to win. In Branded Foodservice, our 2023 launches, including Frank’s Mild Wings Sauce and Frank’s Nashville Hot, are delivering strong results in the first half of the year. Our early 2024 launches are also contributing to our growth and include a number of e-products like Grill Mates Fiery Habanero and Cholula Chili Lime. Looking ahead to the second half, we expect new products to meaningfully drive our top-line, and importantly, we have a strong innovation agenda, including launching Frank’s Garlic Buffalo and Mango Habanero in the Americas, as well as Frank’s RedHot Mayo in the UK and France, and we are further extending McCormick Mayonesa, which has had great performance in our Consumer segment into the foodservice channel.

Overall, we are very excited about our innovation plans for 2024. We expect new product performance to be in-line with our long-term objectives and to drive a meaningful portion of our volume growth. In addition, in the second half of the year, sales from new products are expected to nearly double compared to the first half, and a meaningful portion of this innovation is in heat. Heat-infused products span our portfolio. Across both segments, we expect heat to continue to be a long-term growth accelerator globally for total McCormick. We are uniquely positioned to win in heat with our global iconic brands, deep consumer insights and our meaningful scale, technology and expertise that we have been building for decades. As we look ahead, we are maintaining our outlook for 2024.

Mike will share more of the details. At a high level, we continue to expect our top-line to be at the mid- to high-end of our guidance range given the momentum we saw in the first half of the year, particularly in our Consumer segment. We are confident in our initiatives and we have provided proof points of where they are working. That said, we also remain prudent and continue to reflect the uncertainty in the consumer environment in our outlook for 2024. To wrap up, let me reiterate three key points. The long-term trends that fuel our categories, consumer interest in healthy flavorful cooking, flavor exploration and trusted brands continues to be very strong, and importantly, consumer interest in cooking remains strong. We remain dedicated to accelerating our volume trends.

We refine and adapt our plans as needed and are prioritizing our investments to drive impactful results and return to sustainable volume-led growth, and you should continue to expect improvement over the coming year and into 2025 and beyond. We believe the execution of our growth plans will be a win for consumers, customers, our categories and McCormick, which will continue to differentiate and strengthen our leadership. Now, before Mike’s remarks, I’d like to speak to the management transition. As you likely know, last night we announced Mike’s decision to retire at the end of February. Mike has been an exceptional leader at McCormick for more than three decades. His strategic leadership and focus on value creation have been instrumental in driving top-tier organic growth as well as our successful acquisition agenda.

His deep knowledge of McCormick and effective execution of our CCI initiatives helped fuel our growth investments to deliver profitable growth. Mike is the embodiment of McCormick values and teamwork. He helped build a world-class global finance team. He will be missed by me and employees throughout the organization. Mike, congratulations on your successful career and your upcoming retirement. In the same announcement, Marcos Gabriel was named Executive Vice President and CFO effective December 1. Marcos will serve on our management committee and lead the company’s finance organization and global business services team. Marcos is a proven global leader with over 25 years of experience in the consumer products industry. His expertise across major multinational companies in several geographies will be instrumental as we continue to execute our growth plans.

I have worked with Marcos over the last seven years. He has served in key senior leadership roles at McCormick, contributing meaningfully to our profitable growth and improved productivity. Marcos, congratulation on this promotion and I look forward to working with you in this new role.

Marcos Gabriel: Thank you, Brendan. I’m honored to serve as the CFO of McCormick and excited to continue to partner with the entire team to deliver long-term profitable growth and drive shareholder value. It has been great to work closely with Mike and the management committee for the past year to transition into this new role. Mike, I want to thank you for your mentorship and offer my congratulations on your retirement.

Mike Smith: Thanks very much for those remarks, Marcos and Brendan. Joining McCormick more than 30 years ago was one of the best decisions I’ve ever made. This is a great company and it continues to get better. I am proud of the progress we have made over the years. We significantly grew our top-line, generated fuel for growth through improved productivity and continued to deliver solid results despite the complexity and uncertainty we experienced the last few years. I am so proud of and grateful for our entire team here at McCormick and appreciate all of their contributions and efforts. My decision to retire in February is based in part on Marcos’ readiness to move into the role. I’ve had the privilege of working with him for several years and witnessed his strong financial leadership and ability to drive results.

I’m confident that Marcos, in partnership with Brendan and the rest of our leadership team, have the capabilities and vision to continue to advance our leadership and differentiation and capture all the great opportunities that are ahead for McCormick. Lastly, I look forward to partnering with Brendan and Marcos to ensure a smooth transition over the next few months. Now moving to our results for the second quarter. Starting on Slide 11, our top-line constant currency sales declined 1% compared to the second quarter of last year, including the impact of the canning divestiture and reflects flat pricing, offset by a 1% volume and product mix decline. As expected, volume declines were primarily driven by lower customer demand and the timing of customer activities in the Flavor Solutions segment.

In our Consumer segment, constant currency sales declined 1%, driven by pricing investments. Volumes were slightly positive and reflect a substantial sequential improvement from the first quarter. On Slide 12, Consumer sales in the Americas declined to 2% versus the second quarter of last year. This decline reflects pricing investments of 1% and flat volumes. Volume growth in spices and seasonings was offset by volume declines in prepared food categories, including frozen and Asian. In terms of pricing, we continue to take a surgical and data-driven approach to managing price gaps, and our investments are still expected to impact about 15% of our Americas Consumer segment. In EMEA, constant currency Consumer sales increased 4%, driven entirely by volume.

Sales growth was broad based across product categories in our major markets. We are pleased with the volume growth we delivered in EMEA and expect the momentum to continue through in 2024. Constant currency Consumer sales in the APAC region were down 1%, driven by a 2% volume decrease, primarily due to the macro environment in China. Outside of China, we delivered volume-led growth in the mid-teens that was broad based across categories and markets. Turning to our Flavor Solutions segment in Slide 15, second quarter constant currency sales declined 1%, reflecting a 1% contribution from price, offset by a 2% decline in volume and the impact of the divestiture of the canning business. In the Americas, Flavor Solutions constant currency sales declined 1%, reflecting a 1% contribution from price, offset by a 2% decrease in volume, driven by the timing of customer activities as well as the softness in quick service restaurant and packaged food customer volumes.

This was partially offset by volume growth in our Branded Foodservice business, as Brendan mentioned. In EMEA, constant currency sales decreased by 8%, including a 3% impact from the divestiture of the canning business, lower volume and product mix of 4%, reflecting the impact of QSR and packaged food customers’ volumes and the timing of some customer activities. In the APAC region, Flavor Solutions sales grew 10% in constant currency. Volume grew 9%, driven by customers promotions, limited time offers and new products, while pricing contributed 1%. As seen on Slide 19, gross profit margin expanded by 60 basis points in the second quarter versus the year-ago period, driven primarily by the benefit of our Comprehensive Continuous Improvement program, or CCI.

As we look ahead, we continue to expect higher margins in the second half compared to the first half of the year. Now, moving to Slide 20. Selling, general and administrative expenses, or SG&A, increased versus the second quarter of last year, driven by brand marketing investments, which were partially offset by CCI cost savings. As a percentage of net sales, SG&A increased 40 basis points. As expected, brand marketing increased significantly compared to the prior year. Our investments are yielding results and we can anticipate continuing to invest behind these efforts. Adjusted operating income was flat compared to the second quarter of 2023 with minimal impact from currency as gross margin expansion was offset by higher SG&A expenses. Adjusted operating income in the Consumer segment declined 3% or 2% in constant currency.

While in Flavor Solutions, adjusted operating income increased 6% with minimal impact from currency. We remain committed to restoring Flavor Solutions profitability. And in the second quarter, as expected, we drove margin expansion versus prior year in this segment. Our performance this quarter reflects our commitment to increase our profit realization and positions us well to make continued investments in 2024 to fuel top-line growth. Turning to interest expense and income taxes on Slide 21. Our interest expense was up slightly versus the prior year. The reduction in average debt was more than offset by higher short-term interest rates. And touching on tax, our second quarter adjusted effective tax rate was 13.6% compared to 22.3% in the year-ago period.

Both periods were favorably impacted by discrete tax items with a more significant benefit this year. Our second quarter adjusted rate benefited from a discrete tax item, primarily due to the recognition of a deferred tax asset related to an international legal entity reorganization. We continue to expect our tax rate to be approximately 22% for the year. Our income from unconsolidated operations in the second quarter reflect strong performance in our largest joint venture, McCormick de Mexico. We remain the market leader with our McCormick brand of mayonnaise, marmalade and mustard product lines in Mexico, and the business continues to contribute meaningfully to our net income and operating cash flow results. At the bottom-line, as shown on Slide 23, second quarter 2024 adjusted earnings per share was $0.69 as compared to $0.60 for the year-ago period.

The increase was primarily due to the discrete tax benefit and higher income from unconsolidated operations I just mentioned. On Slide 24, we’ve summarized highlights for cash flow and the quarter-end balance sheet. Through the first half of 2024, our cash flow from operations was $302 million compared to $394 million in 2023. This decline was primarily driven by increased incentive compensation payments and the timing of cash tax payments. We returned $226 million of cash to our shareholders through dividends and used $130 million for capital expenditures. As a reminder, capital expenditures include projects to increase capacity and capabilities to meet growing demand, advance our digital transformation and optimize our cost structure. Our priority remains to have a balanced use of cash, funding investments to drive growth, returning a significant portion to our shareholders through dividends and paying down debt.

Importantly, we remain committed to a strong investment-grade rating and continue to expect 2024 to be another year of strong cash flow, driven by profit and working capital initiatives. Now, turning to our 2024 financial outlook on Slide 25. Our outlook continues to reflect our prioritized investments in key categories to strengthen volume trends and drive long-term sustainable growth, while appreciating the uncertainty of the consumer environment. Turning to the details. First, currency rates are expected to unfavorably impact sales, adjusted operating income and adjusted earnings per share by approximately 1%. At the top-line, we continue to expect constant currency net sales to range between a decline of 1% to growth of 1%. Given the momentum in our first half, we expect to be at the mid- to high-end of our guidance range.

In terms of pricing, we expect the favorable impact related to the wrap of last year’s pricing actions, realized primarily in the first quarter to be partially offset by our price gap management investments that will drive volume growth. As we look to the second half of the year, we expect total pricing to be flat relative to the prior year and segment trends are expected to be similar to the second quarter. We expect to drive improved volume trends as the year progresses through the strength of our brands and the intentional and targeted investments we are making. As we noted, our initiatives will take time to materialize and we continue to expect to return to total volume growth during the second half of the year, absent any new macroeconomic headwinds.

We expect to continue to prune lower-margin business throughout the year as we optimize our portfolio. The impact of which will be reflected within the natural fluctuation of sales. In China, our food-away-from-home business, which is included in APAC Consumer, was impacted by slower demand in the first half of the year. And we continue to expect China Consumer sales to be flat to 2023 for the full year. While we recognize there has been volatility in demand in China, we continue to believe in that long-term growth trajectory of the China business. Finally, the divestiture of the Giotti canning business will impact us through the third quarter. Our 2024 gross margin is projected to range between 50 basis points to 100 basis points higher than 2023.

This gross margin expansion reflects favorable impacts from pricing, product mix and cost savings from our CCI and GOE programs, partially offset by the anticipated impact of low-single digit increases in cost inflation and our increased investments. Additionally, we expect to begin reducing our dual running costs related to our transition to the new Flavor Solutions facility in the UK in the back half of the year. Moving to adjusted operating income, we expect 4% to 6% constant currency growth. This growth is projected to be driven by our gross margin expansion as well as SG&A cost savings from our CCI and GOE programs, partially offset by investments to drive volume growth, including brand marketing. We expect our brand marketing spend to increase high-single digits in 2024, reflecting a double-digit increase in investments, partially offset by CCI savings.

And we continue to expect our increased investments in brand marketing be concentrated in the first half of the year. Our 2024 adjusted effective income tax rate projection of approximately 22% is based upon our estimated mix of earnings by geography as well as factoring in discrete items. We expect a mid-teens increase in our income from unconsolidated operations, reflecting the strong performance we anticipate in McCormick de Mexico. To summarize, our 2024 adjusted earnings per share projection of $2.80 to $2.85 reflects a 4% to 6% increase compared to 2023. As Brendan noted, we continue to prioritize our investments to drive impactful results and return to differentiated and sustainable volume-led growth. We are moving in the right direction and we remain confident in the underlying fundamentals of our business and delivering on our 2024 financial outlook and long-term objectives over time.

Brendan Foley: Thank you, Mike. Before moving to Q&A, I would like to close with our key takeaway on Slide 26. First-half results and volume performance in the Consumer segment demonstrate that we are making the right investments to drive long-term sustainable organic growth and reinforces our confidence. We are executing on proven strategies and investing behind our business with speed and agility and in alignment with consumer behavior, and capitalizing on our advantaged categories across segments. We’re able to do this and continue to make great progress on managing costs, led by our cost saving programs to support our increased investments in the business and drive margin expansion. Our performance for the first half coupled with our growth plans give us confidence in achieving the mid- to high-end of our projected constant currency sales growth for 2024.

Finally, I want to recognize McCormick employees around the world for their dedication and their contributions, and reiterate my confidence that together we will continue to drive differentiated results and shareholder value. Now, for your questions.

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Operator: Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your questions.

Q&A Session

Andrew Lazar: Great. Thanks so much. Mike, congratulations to you on your retirement announcement. Glad we have you around for another couple of quarters. And Marcos, congratulations to you on the new role.

Mike Smith: Thank you, Andrew. We’ll see you at Investor Day.

Marcos Gabriel: Thank you, Andrew.

Andrew Lazar: Thanks. I guess first off, looking at the sequential improvement in volume in the Consumer segment, particularly in the Americas, certainly seems like the investments are starting to yield results. I was hoping maybe you could unpack that for us a bit and speak to the levers that are driving the performance, and what gives you the confidence that that will continue through the back half?

Brendan Foley: Thanks, Andrew, and good morning. Just to maybe open up with a couple of points to reinforce, we did have a good quarter and sales do continue to strengthen, which gives us confidence in that mid- to upper-end of our range. But this also includes that short-term weakness that we felt with Flavor Solutions in the quarter. I think one of the important things I want to make sure we get across is that we did drive volume growth in our global Consumer segment. And it does reflect kind of in many ways, I think that additional program that we talked about. We’re also driving strong sequential volume improvement in Americas like you just called out in the Consumer business, and specifically in spices and seasonings, we delivered volume growth across all major markets and then included driving unit share growth in the US.

So, we said this was a year of investment and we further executed those programs that we’ve been talking about. And at the same time, we still expanded margins. So, we’re pretty pleased with the results at this point. It is a halfway point in the year and we do like the progress that we’re making. If I were to add more context and unpacking those levers that we’ve been talking about on this call and in previous calls, a lot of it is, we did ramp up brand marketing in the first half and it wasn’t just in the first quarter. We also saw a significant ramp up in the second quarter, too. And a lot of that investment was going more against our core categories to drive demand and support our initiatives. And we continue to expect healthy levels as we go into the second half of the year on brand marketing.

New products was also a big part of that, too, in the first half and it contributed pretty meaningfully, especially a lot of that build happened in the second quarter. I would say, it was more pronounced in the second quarter than even in the first, just because of the build of getting items on shelf and beginning to ship them. And we expect to double that innovation when you compare the second half to the first half. So, that lines up nicely as we go into the balance of the year. And then, we expanded distribution in certain categories. Our new products are gaining strong retail acceptance. And so, that’s obviously one of those levers that helps. And in terms of pricing in the second quarter, we activated many of our price gap management programs.

And so, we expect this to continue into the second half, because we know the [uplift] (ph) with the performance that we’re seeing from that, but it’s still only a portion of our strategy. As we said before, it impacts about 15% of our Americas Consumer business, but it is yielding the results that we were expecting to get. And so, all of these growth levers are contributing and driving, I think, really healthy outcomes as we think about the performance of our business. So, by the way, we operate in great categories, too. So, the categories are performing well also. And so that obviously is a nice tailwind as part of that.

Andrew Lazar: Great. Thanks for that. And a quick follow-up. Mike, you had called out some weakness in Flavor Solutions volume several weeks ago. The result today, I guess, was at the sort of more favorable end of that range you provided in terms of Flavor Solutions volume in the quarter. And I guess, I’m just trying to get a sense of sort of what the exit rate of sort of volume in Flavor Solutions in the Americas and Europe sort of looked like kind of coming out of fiscal 2Q? Just to get a sense if maybe it sort of weakened from what we saw in the 2Q result or maybe if we can expect some sequential improvement in the US and Europe as we move further into fiscal 3Q? Thank you so much.

Mike Smith: Yes, that’s no problem. I mean, we did say on the call, we are expecting some sequential improvement in the Q3 and Q4. There was — we had talked about that a month ago, low-single digit to mid-single digit. So, we did come in at the low-single digit phase, which we’re happy with. We’re always happy with those results. As you get down into some of the customer activity timing, which we have more clarity to, some of the partnership that we’re working with and getting more information on activities of customers, now some of those are second-half related, some will carry into 2025. So, we don’t want to get too far ahead of ourselves, but we feel good about where that sequential improvement we’re seeing in addition to the great consumer performance that Brendan just alluded to.

Andrew Lazar: Thank you.

Operator: Our next question is from the line of Peter Galbo with Bank of America. Please proceed with your questions.

Peter Galbo: Hey, guys. Good morning.

Brendan Foley: Good morning.

Peter Galbo: Congrats, Mike, on your retirement, and congrats to Marcos as well. Maybe just to pick up on Andrew’s question just around kind of consumer confidence in the back half of the year, and that acceleration, Brendan, I think in your prepared remarks, you mentioned a bit more — you’re seeing consumer shopping the perimeter of the store relative to center store and maybe that explains why you might be bucking the trend relative to some of your peers. But maybe you could just unpack that a bit more what you’re seeing from that consumer perspective and again what kind of drives the confidence as you get into the back half?

Brendan Foley: Yes, I think what drives our confidence is as we look at our business, at the brand and sort of the key category and unit level, we think the programs are having strong impact, coupled with where we think consumers are moving within the store and what they’re doing. As people tend to when they feel like — if you think about the inflation, food-away-from-home, we’re definitely seeing people shift more to eating at home, and that certainly benefits our business as we’ve always mentioned. But as people shop the perimeter, I think they’re looking for opportunities in terms of how they flavor their meals, and so that really does benefit our categories. When I think about broadly though, Peter, just the overall consumer outlook, it hasn’t really changed a lot since our last guidance or even on our last call.

I mean, we’re pretty confident in our initiatives and we think they’re working. But our outlook assumes the consumer is kind of where they are, or they have been like in the fourth quarter of ’23 and the first half of ’24. And so, we continue to take a cautious view on our outlook. I think that just reflects what might be uncertainty or inconsistency that we tend to see in the environment. But we believe even in that environment, we plan for our plants to kind of deliver this type of performance. So, we see the consumer moving around and shifting channels, that’s definitely happening, and I think that pops up in the numbers, but it tends to benefit our business, whether it’s in foodservice or whether it’s at meals-at-home. We’re flavoring all those occasions.

So, we really believe that when we’re — as an end-to-end provider of flavor, we tend to benefit depending on wherever channel it shifts into.

Peter Galbo: Got it. And Mike, I think, depending on whether you look at the IRI or — sorry, the Circana or the Nielsen data, there was maybe a gap just in Americas consumer relative to the — I think you gave some of the factors, but just anything you can dimension there on kind of the gap in terms of shift to consumption of that?

Mike Smith: Yeah, absolutely. There’s a number of factors that kind of impact the difference between our shipments and consumption. And just to give you some context around that, and maybe I’ll just share with you three points to kind of consider. First of all, our consumption is strengthening. And if I were to think about how that progressed through the second quarter, I think more of it we saw in the back half of the second quarter than in the front half. So, that would reflect as we started to really get execution of our programs, in retail, we were seeing stronger consumption. So, it started to pull up. In Q2 across the total portfolio, we drove almost a full point of unit growth. And so that gave us reason to feel confident and that includes those declines in prepared foods that we talked about like the frozen and Asian category declines.

But it was a substantial improvement from Q1 and driven by that increased programming. I think that is, to some degree, a condition of sales catching up to our performance on shelf. So, as retailers start to see, I think, our movement, we obviously expect sales to keep up with that. I would expect more strengthening to continue in the second half. The other condition that in the second quarter, I think it’s important to call out is we were lapping increased shipments that came ahead of the 2023 pricing actions of the prior year. And we also had a similar condition in ’22 compared to ’23. So that did play a little bit of impact, I think, when we look at shipments versus consumption. And then, in terms of retailers, they’re always looking to be more efficient.

That’s not new. It’s always I think a focus of theirs. But overall, we are not seeing at this time any unusual activity. So, I think just to give you a little bit of context on consumption as an impact, what was going on in the prior year and then how our retailers behaving, I think that would be the perspective I would want you to think about with McCormick.

Peter Galbo: Great. Thanks very much guys.

Operator: Our next question is from the line of Ken Goldman with JPMorgan. Please proceed with your questions.

Ken Goldman: Hi, thank you. And Mike and Marcos, congratulations to both of you. And Mike, thank you for all of your help over the years. I know you’re not done yet, but it’s appreciated. I wanted to ask a little bit about — you have a pretty confident tone, I think it’s fair to say, about the direction of trends into the second half. You beat this quarter on the bottom-line by a decent amount. You beat the first quarter by a decent amount. It sounds like you’re implicitly — well, you are implicitly guiding for the tax rate to be closer to 24% in the second half roughly. I guess putting that all together, were there any thoughts of raising guidance? I realize it’s a pretty unpredictable environment right now, but I just want to get a little bit of sense for how you view the second half in terms of — I’ll use the word prudence in relation to just how well the first half performed at least versus external expectations?

Brendan Foley: Yeah.

Mike Smith: You want to get it?

Brendan Foley: I’ll lead off with a couple of comments, Mike.

Mike Smith: Yeah.

Brendan Foley: I mean, I do think, Ken, we felt like we did have strong consumer performance and our investments are working and doing what we said we would do. And so that does give us confidence going into the second half and perhaps that’s why you’re hearing a little bit of confidence in our tone. But given how the first half performed, we expect those growth levers in the consumer part of our business to continue to operate and work well. As we said on Flavor Solutions, we expect sequential improvement versus what we saw in the second quarter, because there’s many other things that I think as Mike said earlier in the questions here, it does give us confidence as we think about what how we might look at the Flavor Solutions business. But Mike, if you want to talk a little bit about what drives our prudence probably has to do with the back half is a big part of the year…

Mike Smith: As we think about where we are on the life cycle of the year, and we talked about Q2 being an important quarter for us, because it was the pivot quarter where pricing is — we lose some of the protection of pricing, which we saw in the first quarter and last year, the shift of volume and particularly what makes us happy is that consumer volume going positive, which is great. There’s some back-half assumptions on volume growth in Consumer, which were very — we know the programs are working, but you still have to assume that the second half of the year is the biggest half and biggest quarter is the fourth quarter. So, while we’re really pleased with the results, we realized the second half is important to continue that momentum and we believe we will.

We’re always looking at the guidance. I mean, you referenced tax, I’m kind of chuckling, because I think my first earnings call, we probably I think we had a big tax adjustment as similar and we talked about guidance for the year versus these things happen lumpily in the quarter or half. So, I’ll take that one right off, 24% in the second half because our underlying rate is 24% to 25%, so that’s roughly what we’ll probably land. I mean, we do have the second half, if you think about built-in operating margin growth, we have volume growth, things like that. So, we feel like we’ve called it prudently. Obviously, if there’s opportunities as things change, we want to keep our financial flexibility to make investments in some of these growth drivers that we’re really seeing positive on.

So, we want to have that flexibility, too. But I think we’re really pleased going into the third quarter. We talked a bit about some of the consumer uncertainty, which impacts some of our Flavor Solutions business. We’re always cautious there too, but I’d say we’ve called it pretty much down the middle with hopefully a lean in to the positive.

Ken Goldman: Sounds good. Thank you. I’ll pass it on.

Operator: Our next question is from the line of Alexia Howard with Bernstein. Please proceed with your question.

Alexia Howard: Good morning. And congratulations, Mike. And welcome or congratulations, Marcos. I guess, we’ll see you both at the Investor Day coming up in October, and thank you. Can I pick up on Andrew’s question around Flavor Solutions and maybe think about the longer-term strategies for building resilience in that segment? You have a lot of exposure to QSR, quite focused on one particular customer in the salty snacks segment. Are there plans to diversify? And how quickly can you get off to those new opportunities? And which kinds of categories that are faster growth can you go after?

Brendan Foley: Alexia, thanks for the question. Good morning. I think as you think about the core of your question is that long-term outlook as you think about our customer space and portfolio of Flavor Solutions, I would go back to things that we’ve said in prior discussions. If we think about the Flavor Solutions business is constantly in activity of continuing to shape that portfolio to higher value-added products and technologies and customer base. So, as we continue to shape that portfolio, it continues to go in the direction of sort of our flavors business, which includes seasonings as we think about our portfolio. And in many ways, some of the fastest-growing areas of that portfolio happened to be the small, highly-innovative, emerging customers that are operating in categories that like performance nutrition or non-alcoholic beverages, where like this quarter, we continue to see real strength.

That is a form of looking at how we diversify our customer base, but we’re also operating where we think there are strong areas of growth. And these this really I think is kind of the central point that we’ve talked about is, we’ll continue to shape that part of our — the Flavor Solutions segment and that portfolio to that higher value-added sort of product and technology sale that we have. And this is, I think, what you see quarter-to-quarter is a reflection of that.

Mike Smith: I think, too, people sometimes forget the branded through service business, which really good margins and we like that portfolio and we’re continuing to gain share. We keep coming up with opportunities. We talked about expanding McCormick Mayonesa into that category, things like that. So, there’s really lots of opportunities on that side, which we like on the Flavor Solutions side. It’s a diversified portfolio. That’s I think the message and we continue to diversify and optimize and move toward more higher-margin product lines.

Alexia Howard: Great. Thank you very much. Could I just do a quick follow-up on the highlights of the remaining cost saving opportunities? You talked a little bit about getting rid of costs that were incremental through COVID. What are the major buckets of cost savings remaining to you over the next couple of years?

Mike Smith: Oh gosh, we could talk the whole earnings call on that one. It means, our CCI program has a long history of generating sustainable cost savings. We talked a little bit on this call about — we’re finalizing the transition to our new UK Flavor Solutions business in the second half, which will give us some tailwind into next year, which is great. But our CCI program — we target all levels of the P&L. I mean, a lot of times programs will just look at cost of goods sold, raw material, things like that, which is an important part of our portfolio. We’re looking at optimizing SG&A. A&P, when we talked about A&P a lot this year, we’re actually spending A&P — our guidance is high-single digits, but from an effectiveness perspective, we’re actually spending low double digits and getting CCI savings as we optimize spend to touch more customers more effectively.

So, those are examples everywhere along the P&L. I’d say, it’s a program that’s special because the ideas come from the bottom up in our organization as part of our culture to drive that, because we want to use it as fuel for growth, so we can drive the growth levers that we talked about this year at CAGNY and help drive that volume. So, I think there’s a lot more opportunity and I look forward to Marcos helping drive that into the future, too.

Alexia Howard: Thank you very much. I’ll pass it on.

Operator: The next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your questions.

Steve Powers: Hey, guys. Good morning. And Mike and Marcos, congrats from me as well. So, Brendan, I wanted to talk a little bit about the price gap management initiatives you’ve put in place in Consumer. With the commentary on year-over-year pricing in the back half expected to resemble what we’ve seen in the second quarter, it doesn’t sound like you expect a whole lot more of incremental unit price investment over the course of the year. And I guess just wanted to kind of test that assumption. And then, in the context of what you were saying around just the value seeking behavior and the consumer financial pressures that you’re observing across the consumer landscape, just what gives you the confidence that that kind of — you’ve kind of done enough at this point and you’ve got in place what you need for the duration of the year? Thank you.

Brendan Foley: Thank you, Steve. I think in the two questions you asked there, let me address your first one first. Yeah, you can make the assumption that as we think about the rest of the year in that price gap management activity, what we’ve implemented year-to-date largely reflects how we’re thinking about carrying through the rest of the year. Having said that, we’re looking at performance all the time. And so, we might make tweaks. We might look at the performance of programs and decide whether or not we want to make adjustments. But as we look at it today, we feel like we’re positioned for given the performance so far that these programs are operating the way we want them to and should continue into the second half, I think with a strong level of confidence.

So, I think just to kind of hit that first area first and how you should think about that program activity. As it relates to the consumer and how they’re operating and what might be the way to think about consumer behavior today in the store, I would just maybe add a couple of thoughts there. We have the broadest portfolio in the category, particularly like in spices and seasonings and that really does differentiate us. But what that allows us to do is, we’re operating across all channels. We have products at every price point, whether it be premium or lower price points and we even explored like we did with the Lawry’s opening price point, launching that item in there was to really take care of another price point area that we felt like we need to operate in.

But this broader diversified portfolio allows us to meet consumer needs and then we become part of the solutions for what consumers are looking for. Cooking at home does remain elevated right now and our price points are really a small percentage of the cost of a meal when you think about the most enjoyable part of the meal, which is flavor. And so, as we see consumers increasingly shop the perimeter, continue to cook at home, our categories really play an even more important role, including condiments and sauces and we’re seeing a benefit from that. I mean, one thought is just to show you how consumers are responding in this current environment. In the second quarter, spices and seasonings were the top category in the center of store growth across measured channels.

So, that tells you something that this is a tool for consumers to really deliver on what they’re looking for. And of course, we’re the leading branded player, but we’re also driving category unit growth within that context, too. When consumers are pressured, I think in this environment, regardless of maybe their level of income and they’re cooking at home, they will lean in on flavor, they might even splurge on it. One example that we would share or at least a couple is when we look at what’s driving younger consumers right now, interestingly, they’re going to our gourmet line and buying more of our gourmet line. As they cook more at home, they do want to — we know they want to explore and really kind of explore flavor overall. And that gourmet line, I think really kind of suits what they’re looking for.

If you think about the low- to mid-income consumer, they’re looking for brands with price points closer to private label. That’s why we’re — from an innovation standpoint, we’re adding new seasoning blends to our Lawry’s line, and that attracts these consumers and we’re seeing the consumer trade up in that particular case, because they’re looking for brands that they trust. We do see right now overall consumer shopping smaller sizes than maybe we did this time last year, where we saw a lot of large size purchasing going on. So that means we have to assure that we have the right price pack architecture in place to meet that demand. Another example that just to give you even more color, if you will, is in recipe mixes. With a lot of our programs, including sort of revenue management and price gap management, we’re attracting a lot more consumers overall to that category.

Recipe mix is a great value, especially when you just want to buy for a specific meal. It’s a great convenience. There’s no waste. It’s a great way to explore new flavors at low risk, so you don’t have to invest in, let’s say, a whole bottle. But what’s happened is we’ve seen household penetration grow for our brands during the second quarter in a category like that. So, I think that also gives some context. And then, I’ll just wrap it up with one other idea. We are seeing a lot of growth in this mini trial size area and we view that as a pretty interesting tool for lowering the cost for consumers to try new flavors. And so, we’re also launching those here in the second quarter and just shipping those now, but that’s just another opportunity for consumers to explore, look at innovation, but it’s at a lower price point for them to kind of give it a try in these mini trial sizes.

So, I kind of wanted to give you sort of a collection of context or points to consider when we think about meeting the consumers’ needs today.

Steve Powers: Yes. I appreciate that. Thank you very much. And if I could maybe pivot, Mike, a question on gross margin. I apologize if you already provided some commentary here, but indulge me anyway. Through the first half of the year, you’re trending towards the upper end of that gross margin expansion range. And I guess just as I extrapolate to the back half, is it fair to assume that you’re comfortable with the upper half of the range at least for the full year? Or is — are we open to more volatility in the back half, where that the full range is kind of in play?

Mike Smith: Well, I think in the back half, the guide implies almost like 5 basis points to 100 basis points and we say for the year 50 basis points to 100 basis points. So, we realized we had a really strong first half. As I said, pricing was large in the first quarter for us, that’s going away into the second half. And the key is the volume growth. I mean, volume growth — volume is great for a lot of things and it helps gross margin and mix and all that sort of stuff. So, I think we’re comfortable with the guide we have. I wouldn’t say right now I’d guide to the higher end at this point, but to give you all the reasons I said.

Steve Powers: Yeah. Okay. Fair enough. Thank you.

Mike Smith: Remember, some of the cost savings program we have like GOE was really first quarter into the second quarter. So, some of those are going away also. But it’s still — the trends we see in gross margin, the first — the second half is higher than the first half traditionally, which is going to continue again, and we do see a nice trajectory there for gross margin over time as we continue our multiyear journey of getting back to kind of the pre-COVID gross margin levels.

Steve Powers: Understood. Okay. Appreciate it. Thank you very much.

Operator: Our next question is from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

Adam Samuelson: Yes. Thank you. Good morning, everyone.

Brendan Foley: Good morning.

Mike Smith: Good morning.

Adam Samuelson: Let me add my congratulations to Mike and to Marcos. So, looking forward to working with you. Maybe if I could continue on some of the pricing discussion that we just had, and I guess what I’m just trying to segregate, if I look at the spices and seasonings category in the more recent months in the scanner data, it does seem like the whole — your entire portfolio has unit pricing lower on a year-on-year basis. And I guess maybe is there a size — it doesn’t seem like there’s an impact of size and unit and price pack architecture necessarily. Promo percentage is also a little bit lower year-over-year. But I guess I’m trying to just square the notion of more surgical pricing actions on a small part of the portfolio with the spices and seasonings category in total for you that is showing kind of negative pricing in the last few months of Nielsen data.

Mike Smith: Yeah.

Brendan Foley: Go ahead, Mike.

Mike Smith: Yeah, I’ll start. I mean, at the end of the day, the net sales guidance we gave for pricing and the results of what we showed, again, you have for the Consumer business for the second quarter was down a little under 1%, which we continue to see that in the second half. So that would suggest that the pricing actions we said we were going to do, the surgical pricing actions on a limited part of the portfolio, that’s what shown up through net sales. Now what happens when that gets to shelf, that’s a whole another story. And in addition to the things that we’re doing on some of those items, there’s other retailer actions that are happening too. Because as Brendan said before, this is a category — our categories are growing.

That’s where people want to shop in more of the perimeter of the store. They’re wanting to use products like ours to flavor these — and manage cost inflation across protein and things like that. So, the retailers also are contributing to some of these things. We might not — it might not be our price adjustments on items, that maybe other ones that they’re seeing and operating in their stores too. So, I think there’s a combination of factors that maybe skewing a little bit of the data you’re seeing versus our internal kind of what we’re actually reporting on these calls.

Brendan Foley: Just to add to that, Adam, when you look just like spices and seasonings and recipe mixes depending on how you’re looking at data, the percentage is still small in terms of the percentage of that part of our portfolio that it’s kind of receiving that sort of an effort. But let’s also not forget, we have a broad program from in terms of increased brand investment, new items, increased distribution, et cetera. And so, we’re driving volume growth, particularly even in — I would say, certainly it’s an accelerated area as a part of our portfolio that’s driving unit volume growth. And so, we’re seeing really good performance — net performance from that.

Adam Samuelson: All right. That’s helpful color. If I just ask a clarifying question just on guidance? On the JV on Mexico, if I look at the guidance, it would seem like you’ve already achieved for the full year the equivalent of mid-teens profit growth on income from the Mexican JV. And I just — make sure I’m understanding, is there expectations of profit declines in the back half or — because otherwise you’re going to be well above mid-teens profit growth on that line…

Mike Smith: Remember, going back to last year, we’re lapping a really strong second half. A lot of the acceleration they’ve seen and great performance is really second-half focused last year. So, we’re lapping a tough comp, I’d say.

Adam Samuelson: Okay. All right. That’s helpful. I’ll pass it on. Thank you.

Operator: The next question is from the line of Tom Palmer with Citi. Please proceed with your question.

Tom Palmer: Good morning. Mike and Marcos, congratulations to you both. I wanted to clarify just on the expected volume recovery in the back half of the year in Flavor Solutions. Are you assuming that industry trends get better or this is really McCormick-specific initiatives or maybe it’s a combo? I just want to clarify that.

Brendan Foley: Yeah, I don’t know that — Tom, as we look at it, we don’t say we’re making a call or projection on the industry as total. We kind of look at our customer base, and we understand their plans and programs, what might be innovation that’s going to be launching soon, how they might be thinking about driving maybe an uptick in their own activity. And so that’s really what drives I think our thinking is more specifically at a customer level as opposed to hearing us make a call and a projection on an industry. I don’t know if you want to go deeper on that, but I think just to quickly kind of let you know how we think about it, that’s what drives our thinking.

Tom Palmer: Okay. Thanks for that. No, I was just trying to reconcile some of the foodservice weakness with the positive tone. And so that was helpful. Thank you.

Brendan Foley: Well, I think let me just add to that, Tom. I mean, in Branded Foodservice though, I mean, just to give you some context around that, we are seeing nice performance there. I think that’s a reflection of — we operate in every segment of foodservice. So, it isn’t just QSRs, it’s fast casual, casual dining, independent restaurants, college and university, et cetera, et cetera. So, it’s a very diverse sort of marketplace. As we look at that, we’re doing really well in Branded Foodservice, because we’re driving some really, I think interesting programming like with limited time offers with our brands like Frank’s or we’re growing share in a number of categories or performing well in spices and seasonings. We’re getting more hot sauce on tabletops.

That’s what kind of drives, I think, our performance right now in Branded Foodservice, which operates a little bit differently than maybe the QSR part of the foodservice marketplace. So maybe that additional color might provide some additional things to think about.

Tom Palmer: No, that was very helpful. Thank you. Just on the expected margin improvements in Flavor Solutions, should we be thinking about continued sequential improvement in margin as the year plays out and some of these cost initiatives take hold?

Mike Smith: We’ve said it at the beginning of the year, I’ll go back to that, I mean, one, we’re really happy with the margin improvement we’ve experienced last year and we gave guidance for this fiscal year for the total company of about 80 basis points of OP margin improvement. And we said at the time, Flavor Solutions might be slightly ahead of that, but in the range of [0.8] (ph). Through the first half, Flavor Solutions was at I think at 80 basis points, so roughly around there. So again, we’re always looking for improvement. I’d say that for the whole company, we’re really comfortable with 50 basis points to 100 basis points. A lot of — and as I said about a month ago, a lot depends on the volume numbers and the Consumer business continues to see volume growth that drives margin improvement.

In Flavor Solutions, a bit of dip in the second quarter could put a little bit of pressure on margins, as I said, but we’re expecting sequential improvement in Flavor Solutions. That’s not going to be materially different than what we said at the beginning of the year, I’d say.

Tom Palmer: Thank you.

Operator: Thank you. Our final question is from the line of Rob Dickerson with Jefferies. Please proceed with your questions.

Rob Dickerson: Great. Thanks so much. I think I always get the final question with McCormick. Just, I guess, kind of a broader question around frozen, Asian that you commented, it seems like consumers are shopping at the perimeter of the store a little bit, understand kind of the desire to kind of cook at home still. Maybe there’s some value seeking in there. But I’m just curious like if you step back and you think about that consumer behavior on the perimeter and on the spice and seasoning side relative to kind of what you’ve seen in frozen and Asian, maybe you could just provide a little bit more color as to how you’re thinking about kind of that relative performance of those two areas and maybe why parts are frozen and Asian specifically aren’t performing as well as maybe they have in past economic cycle? Thanks.

Brendan Foley: Well, thanks for the question, Rob. If I go back and I think about that part of our portfolio, one of the important things maybe to reinforce, it’s a smaller part of our business. But the declines, I think, as far back as like the fourth quarter of ’23 were steeper. So, they’re pulling down, I think, the overall view of the portfolio. And that’s why we decided to make sure it was kind of called out, because as we are putting more focus in investment around what we would call those core categories, that was going to — we felt that would offset that. As we move through the rest of the year, I think that we start to see those core categories start to overcome whatever declines might be experiencing there. To the consumer behavior context that you’re asking about, we think that has a lot to do with, it could be the impact of inflation in the marketplace.

I think that certainly can have an impact on that overall. And we’re a relatively small player in a number of these areas. So, it’s not as if we’re operating with the type of scale and competitive leverage that others might be. So yes, we certainly see inflation hurting that. But also I think some consumer trends might have been shifting away a little bit from some parts of whether it’d be frozen or some Asian categories that we compete in. And so therefore, I don’t know that they’re necessarily suggesting a structural impact of change, but rather this is just a trend that we’re working through. And it was we felt like we are going to experience it most of this fiscal year. So, I would share that as our context. What we’re seeing in the primitive store is simply, you need to add flavor in a lot of these situations, whether it be protein or produce or carbs.

Our category is going to play an important role in flavoring, or both of our categories rather. And so, we see consumer shifting there probably because they’re looking for healthy eating. That’s not a new trend and that’s something that we think continues to fuel our business. So, I think it’s probably where I’d keep it for right now today, Rob. And if there’s any other clarification you want, let me know.

Rob Dickerson: Yeah. No, that was very helpful. Thank you. And then, Mike, first, congratulations, [indiscernible]. I think there was a comment you made, Mike, in the prepared remarks where you said that there might be similar segment trends expected as you get to the back half relative to Q2. And I may have missed that, but I just wanted to clarify because clearly everything else we’ve been talking about in Q&A suggests that things should get better. So, just want to understand what you’re…

Mike Smith: Yeah, that was in the prepared remarks. We talked — that was really in the reference in that section we’re talking about pricing for the remainder of the year and similar segment trends — similar company and segment trends for the remainder of the year. So, if you look at the pricing trends in Q2 versus prior year, approximately the same by segment and for total company.

Rob Dickerson: Okay. Got it. That’s all.

Mike Smith: That really helps your model question.

Rob Dickerson: Yeah. No, right. I get it. Appreciate it. Thank you.

Operator: Thank you. At this time, we’ve reached the end of our question-and-answer session. And I’ll hand the floor back to management for closing remarks.

Faten Freiha: Thank you. And thanks everybody for joining today’s call. If you have any further questions on the information we shared today, please feel to contact me. And this concludes this morning’s conference call. Thank you.