Good morning. This is Kasey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today’s Second Quarter Earnings Call. To accompany this call, we posted a set of slides at ir.mccormick.com. We will begin with remarks from Lawrence Kurzius, Chairman, President and CEO; and Mike Smith, Executive Vice President and CFO and will close with a question-and-answer session. During this call, we will refer to certain non-GAAP financial measures. These include information in constant currency as well as adjusted gross profit margin, adjusted operating income, adjusted income tax rate, adjusted income from unconsolidated operations and adjusted earnings per share that exclude the impact of special charges, transaction and integration expenses related to the acquisitions of Cholula and FONA and a gain realized upon the sale of our unconsolidated operations. Reconciliations to the GAAP results are included in this morning’s press release and slides.

Thank you, Kasey. Good morning, everyone. Thanks for joining us. Throughout the pandemic, we remained steadfast in our focus on our growth, performance, and people strategies while ensuring the health and safety of our employees and positioning McCormick to emerge stronger from the crisis. We continue to execute from a position of strength with the combination of our business model, the strategic investments we have made, and the capabilities we have built as an organization. Our broad and advantaged global flavor portfolio, the acceleration of consumer trends that our strategies capitalize on, and the effective execution of those strategies as well as our recent acquisitions of two fantastic businesses, and importantly, the engagement of our employees have positioned us well to drive differentiated growth despite challenging comparisons as we lap very strong growth last year. Our second quarter results were strong on top of our exceptional second quarter performance last year and also reflect our robust growth momentum on a two-year basis as seen on Slide 4. We delivered significant double-digit two-year growth rates for sales, adjusted operating income, and adjusted earnings per share and expanded adjusted gross profit and adjusted operating margins. Even considering increased COVID-19 and inflation costs as well as planned brand marketing investments, we are driving growth through executing on our long-term strategies actively responding to changing consumer behavior and capitalizing on new opportunities. We are emerging stronger. As we enter the second half of the year, we continue to be confident in the effectiveness of our strategies, our growth trajectory, and that we are well positioned to deliver another year of differentiated growth in 2021 with an even stronger outlook. As seen on Slide 5, we have a broad and advantaged global flavor portfolio with compelling offerings for every retail and customer strategy across all channels. The breadth and reach of our portfolio across segments, geographies, channels, customers, and product offerings creates a balanced and diversified portfolio to drive consistency in our performance in a volatile environment as evidenced again by our second quarter results. During last year’s second quarter, the onset of the pandemic drove a surge in consumers’ cooking and eating more at home, at-home consumption resulting in a substantial increase in our consumer segment demand as well as increases with our packaged food company customers in our Flavor Solutions segment. Last year, we also experienced a sharp decline in demand from our restaurant and other foodservice customers for the away-from-home products in our portfolio.

Thanks, Lawrence, and good morning, everyone. For the reasons Lawrence mentioned, my comments will also include comparisons to 2019. Our second quarter performance was very strong. Starting with our top line growth, as seen on Slide 17, we grew constant currency sales 8% during the second quarter compared to last year, with incremental sales from our Cholula and FONA acquisitions contributing 5% across both segments. Higher volume and mix drove the 3% increase in organic sales with flavor solutions growth offsetting a decline in the consumer segment versus the second quarter of 2019 we grew sales 18% in constant currency. During the second quarter, our consumer segment lapped exceptionally high demand for our products driven by the surge in consumers cooking more at home at the onset of the pandemic. As such, versus last year, our second quarter Consumer segment sales declined 5% in constant currency, which includes a 2% increase from the Cholula acquisition. Compared to the second quarter of 2019, consumer segment sales grew 22% in constant currency. On Slide 18, consumer segment sales in the Americas lapping the demand surge in the year-ago period, declined 7% in constant currency, including a 3% increase from the acquisition of Cholula. Compared to the second quarter of 2019, sales increased 26% in constant currency, with significant broad-based growth across the McCormick branded portfolio. In the EMEA, constant currency consumer sales declined 4% from a year ago also due to lapping the high demand across the region last year. Notably, this decline includes growth in our UK and Eastern European markets on top of their significant growth last year, which was more than offset by declines in the region’s other markets. On a 2-year basis, sales increased 21% in constant currency versus 2019 pre-pandemic levels with double-digit growth in all markets…

Now that Mike has shared our financial results and outlook in more detail, I would like to recap the key takeaways as seen on Slide 33. In the second quarter, we drove exceptional growth despite a challenging year-over-year comparison. We delivered significant double-digit year-to-date and 2-year growth rates for sales and profit, reflecting a robust growth momentum. We have a strong foundation and a balanced portfolio, which drives consistency in our performance. We expect higher at-home consumption will persist beyond the pandemic, and we are well positioned to capitalize on long-term consumer trends which accelerated during the pandemic while continuing the momentum we are gaining in away-from-home consumption. Our enthusiasm for Cholula and FONA and our confidence we will deliver on our plants has only strengthened. Our 2021 outlook reflects another year of differentiated growth and performance while also investing for the future growth we expect. We are confident we will continue on our growth trajectory in 2021 and beyond. And now, let’s turn to your questions.

Thank you. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Good morning everybody.

Hi, Andrew. Good morning.

Good morning. One question to start off with, I know that the last couple of quarters, you’ve talked about how some markets that have recovered more fully. So let’s say, you know China or in Australia, you’ve had still elevated consumption trends for the at-home business even as the Away-From-Home business has essentially fully recovered. And I just wanted to get a sense of, do you still believe or do you believe that, that represents a reasonably good gauge for how we should expect trends to play out here in the U.S. or maybe are there some discrete differences between these markets in that regard that you would want to highlight? And then I just got a quick follow-up.

Yes. Sure, Andrew. Well, first of all, we do continue to expect consumer demand for at-home cooking products to remain elevated coming out of the pandemic. We’re certainly seeing that all over the world. Our research and survey data with consumers that we commented on just a few minutes ago, all points in that direction and the behavior seems to be bearing it out. Of course, in this quarter, in many developed markets, we’re lapping extraordinary consumption when lockdowns were heavily placed for the first time. But even in each market, in this time, if you look at the stack two year, you see consumption is still up very dramatically versus then. And just all indications are that, that’s going to be the case. We are seeing foodservice recover, and it is a bit of a paradox that consumer consumption at-home seems to be remaining high and food service is recovering. We don’t believe that people are eating more, but we do believe that they are cooking more, and that benefits our more ingredient-based flavor products.

Thanks for that. And then just focusing, I guess, specifically on the part of your Flavor Solutions segment that is – that our sales to other CPG companies. I guess I’m curious if we think towards the back half of the year, would you anticipate that part of your business to be up year-over-year just based on the elevated consumption levels that we’re continuing to see for some other CPG names in the packaged food and beverage space?

Sure. Well, without trying to dissect Flavor Solutions too much. Yes, first of all, that part of the business had largely returned to its normal growth rate towards the end of last year. It has been strong through this year. But within our portfolio, you can’t miss the fact that we’ve done a big acquisition in that Flavor Solutions space, and we are seeing a different mix of products as well, tremendous growth of beverages and innovation around hard seltzers and things like that. We – with FONA in particular, we tapped into a whole new addressable market around nutrition and health products. So, the portfolio migration is a big driver of our ongoing results in that part of the portfolio as well.

That’s really part of our long-term strategy to migrate the Flavor Solutions portfolio to these high-growth categories like beverages.

Okay. Thank you.

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

Hi, good morning.

Good morning.

I wanted to ask – I wanted to ask about the status of inventories in U.S. consumer. I think you talked about them being relatively high or low rather last quarter, and the rest of the year there will be a little bit of a build there. I am just curious where do you think those inventories stand now? Did the rebuild help a lot in 2Q? I didn’t necessarily hear you quantify that. So, I just wanted a little bit of an update there, if possible?

Sure, Ken. And I am glad to do that, and I will try to quantify it as well here in Q2. Well, first of all, this is an Americas consumer issue. We are shipping to consumption and have been in the rest of the world. Our Flavor Solutions isn’t impacted by this on the Americas consumer. We weren’t able to keep up with the sustained demand, and so trade inventories, and perhaps the consumer pantries have been depleted. And so there has been a need to do a rebuild. You all saw on the shelf that, especially as we came through the end of last year, the shelves looked pretty rough. A number of you on the call, and Ken, I think maybe you’ve also written about TDPs and so on. But, we are about 90% of the way to restoring the shelf. We really ended suspensions. We still have a few products on allocation, and demand has continued to be really strong. So, we are in some cases, very much hand to mouth on some products. Old Bay is a product that requires a lot of blending capacity. And so, we are a bit hand to mouth on that one, believe it or not. But in terms of restocking the shelf, honestly, I wish we have done a little bit more in the second quarter. I said we are at 90%. We would have really hoped to have it all done, and there is still more work to do because the demand has just continued to remain high through this period. If you just do the math, there is a lot of noise in the year ago numbers. So if you take it back to ’20, and then a year ago, consumption was up tremendously, but we couldn’t ship to that. Our shipments flagged a lot. So if we compare back to 2019, our consumption is up in second quarter, 18% versus 2019. Our organic sales, stripping out acquisitions are up 22%. I would suggest there is about a 4% inventory rebuilding impact in the second quarter on our Americas consumer business. So, it was a factor. It’s not as big as I think a lot of people have it in their mind.

Perfect. Thank you for that. And then I wanted to ask – that was helpful. I wanted to ask on Flavor Solutions. The margin did improve nicely year-on-year, but still down over 100 basis points versus 2019, even though your organic sales were up over that time. I realize we are a little bit apples-to-oranges here. You have added some businesses, but just curiously, how are you thinking about I guess, the drivers of the margin recovery from here and maybe the pace of margin recovery over the next couple of quarters?

Yes. I mean, as you say, I think, Ken, this is Mike. I mean we had a large recovery on the margin last year because it pretty much lapped what we did in the second quarter of the prior year. I think the reality of this as some costs go up as we pass through pricing, you are going to have a natural compression in the Flavor Solutions business, which we have seen in the past as we pass through penny cost, as we said. COVID cost obviously hit us in the second quarter, although we were comparable to last year overall, but there was some segment mix there. We do feel too within the Flavor Solutions category though, we – one with FONA, that’s a nice margin bump. But even within the product portfolio, we see some margin positive as we migrate the business. So, as we grow sales more and get that – get more leverage to the rest of the year, because we are lapping a pretty soft second six last year, we are hopeful that will improve, too.

Thanks Mike.

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

Hi. Thanks for the question. I want to know in the Americas, we have heard through in the industry that it’s a little bit more difficult to negotiate with retailers on merchandising and pricing if you have had continued supply problems. Maybe your category is different and because of your leadership, it’s different. But what have the conversations been regarding that with your retailer customers? Has it compromised you at all in getting done what you need to get done?

Well, I don’t want to get too specific about our conversations with customers on pricing. There is always an amount of commercial tension in our pricing discussions, but we are really confident that we are going to be able to get through the pricing that we need. We take a long-term perspective with our customers. They know that we are fair that we are transparent in our cost. There is broad based inflation that’s recognized by everybody. It’s not just us that’s going up in isolation that’s full industry is moving. And so we are pretty confident that we are going to be able to take the pricing that we need. We are going to use all of the levers that we have to address costs. So, pricing certainly has to be part of the solution. But cost savings and revenue management are going to factor in the dealing with the inflation issue. And I think we have pretty strong confidence that these discussions are going to be positive. I think too, we are continuing to invest in our brands. We are – most of the share of voice in the category, which our customers know that. And you saw year-to-date we are up nicely in A&P. And again into the third quarter, so that is supporting their business, too.

Okay. And a follow-up question, maybe just for modeling, Mike. Can third quarter profits still be up year-over-year, because you mentioned that there is going to be a lag effect on inflation? I just want to make sure we are getting the phasing right. And then I would imagine fourth quarter, do you have a very easy comparison to a year ago because of the inventory, because of the supply chain shortages a year ago?

It’s – you are right, we are lapping a third quarter – a strong third quarter last year, we had about 8% total growth at 9% constant currency. And the consumer business was stronger compared to flavor last year. So, from a segment mix perspective is a little bit of a headwind in the third quarter. And you are right, the lagging of pricing does help the fourth quarter. We are also, as I just mentioned, higher brand marking in the third. Because if you remember, last year, in the fourth quarter, we had – I think it was around a 20% A&P increase, which was continued in Q1 and Q2. So, it would be an easier fourth quarter comparison from an A&P perspective. And a little bit from the sales, of sales in the fourth quarter for the company. We are below that 9% constant currency I mentioned before.

I think Mike is talking about kind of the shape because try to avoid giving too specific – any particular quarter. Now these are our biggest quarters of the year coming up and so part of our thinking as we set guidance for the year.

Okay. Well. Thank you.

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

Good morning everyone.

Hello Alexia. Good morning.

So, I guess picking up on some earlier questions, are you able to sort of quantify what your input cost inflation outlook looks like at the moment? Are we talking about mid-single digit COGS inflation, perhaps including the freight component as well. I just want to get a sense of the order of magnitude there? And then I have a follow-up.

Sure, Alexia. Yes. Our previous guidance was low-single digit. We have moved that to mid-single digit. And as we said on the call, I mean the three components, obviously, the freight in the ocean freight we have talked about, which is hitting everyone. We source a lot of our products in the Asian market. So, those rates are up, but also packaging due to resin costs and things like that going up. And then thirdly, commodities. But yes, low-single digit to mid-single digit now for this year.

Great. And then I am just curious about the market share trends that we are seeing in the U.S. Nielsen data. It looks as though there is some sell-off happening on the core herbs and spices area. Am I right in that? And do you expect that to correct going forward or is it just because of strange comparisons from the year ago period at this point?

It’s a little bit of both. And so the – so first, yes, we do expect that to turn positive. In the year ago period, we had heavy supply, heavy through second quarter, we were in a great stock position. We were building inventory for an ERP pilot. And so we had unusually high stock levels of finished goods ourselves going when the crisis hit, which enabled us to have extraordinary supply in the early weeks of the pandemic. I will say, by the end of second quarter, it was a very different situation, but going into the quarter, it was strong. And so our shelf position was really advantaged. And then, of course, we went through a long period where we weren’t able to meet the demand and our shelf position deteriorated. We had to suspend items, put them on allocation, stop promotion and so on. And our total distribution points declined as a result. And – and so we are comparing against a period of unusual strength at retail and in the year ago period and in this period, we have got a time when we are rebuilding that shelf position pretty much everywhere where we have been able to have good supply and good service to our customers. Our share has grown, not declined. That’s the case across our markets in Europe. That’s the case in some categories here in the U.S. The real pressure point has been herbs and spices and recipe mixes, where just the extraordinary demand ran down the shelf. And as we restore it, we are confident that our share position is going to improve.

Great. Thank you very much. I will pass it on.

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

Yes. Thanks. Good morning everyone.

Good morning.

I want to maybe think a little bit longer term and some of the kind of key takeaways and points you have been highlighting on the call have talked about the increases in at-home consumption. Could have some staying power and that uniquely benefits your portfolio. And I am wondering how, if at all, that makes you think about the long-term organic sales potential of the business. I mean you have a long-term 4% to 6% sales growth algorithm that encompasses a little bit of M&A over time. So, 2% to 5% organic embedded in that. To do the changes in consumption post pandemic make you think that, that long-term organic sales growth potential could be higher or – and if not, why?

Well, I don’t think we are going to raise our long-term guidance today. But with our confidence in that long-term guidance is really reinforced by what we are seeing. I mean there has been a lot of talk about the changes in consumer behavior, but really is an amplification of trends that were already in place that we believe our long-term secular trends that underlie our growth and that our strategies are designed to capitalize on and the global demand for flavor has been growing steadily for I don’t even know how long. It’s a tremendous amount, your monitor projects global flavor demand to grow the 6% rate going forward for the next 5 years. And that is really the foundation for our sales growth. And then if you just think about compared to 2019, underlying global demand for flavor growing in the absence of a pandemic, 6% CAGR, you would expect us to be up 12%. So, I think that the performance that you are seeing is really more of a bleed through of what you are going to see in a post-pandemic world, consumers for cooking at home more before the pandemic. We believe that, that was accelerated that people – a lot of lapsed cooks had the opportunity to cook. Everyone learned their grandma and mother’s secret recipes and then how to prepare them, someone in every household has become a very proficient. And it’s been a positive experience for people. They have an outlet for creativity. It’s brought families together, and we think that this is a behavior that is going to be sticky. Younger consumers, in particular, have leaning towards healthy, flavorful, more scratch cooking and in particular, among Gen Z, a return to trusted brands and brands with some nostalgia, we think that these are really long-term demographic trends that are going to benefit us for a long time. So, our confidence in our long-term guidance is to reinforce of what we are seeing happen right now.

Yes, I think, too, I mean another testament to our broad-based differentiated portfolio. But if you add them to your question about our 4% to 6% constant currency long-term growth of which a third of that is M&A. So you bolt on M&A, you take that out. So, you are kind of highlighting a 2.5% to 4% is our long-term guidance. Last year, constant currency organic growth was 5%. This year, the midpoint of our guidance is around 5%, too. So, we are seeing – I think Lawrence, the acceleration of those trends is reinforcing our belief on that organic growth of our long-term guidance.

Okay. That’s helpful. And then a follow-up just a modeling question trying to Rob’s question a little bit differently. Just remind us the $30 million or so – of ERP expenses headwind year-on-year? How much of that’s been already incurred in the first half of the year and $50 million of COVID-related expenses that you expect in fiscal ‘21, how much has been already incurred year-to-date, just so we are thinking about the first half phasing?

Yes. The ERP is mostly going to be a second half headwind and very little impact year-on-year in the first half. From a COVID perspective, we had guided to $60 million for this year versus $50 million last year, and that’s mostly been occurred in the first half.

Got it. Okay, that’s really helpful. Alright. Thank you.

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

Hi guys. Good morning. Thank you for taking the questions.

Good morning Peter.

Mike, the gross margin, just wanted to go back there, the commentary or the new guidance on kind of 80 bps to 100 bps lower. It sounded like in your comments that actually mix or sales mix moving back to Flavor Solutions might have been a bigger impact actually than cost inflation. So, I wanted to clarify that comment. And just if there is kind of a way to break out those two kind of how they impact between mix and the cost inflation?

Yes. Really, in the second quarter, it was mainly segment mix as we said. I mean the costs have been rising, but we have taken some pricing – but it’s really around segment mix in Q2. It changed a little bit in the second six, as we have guided gross margin probably between 90 basis point and 120 basis points if you do the squeeze on the gross margin, two-thirds of that is really – you are raising sales due to some pricing offsetting inflation and the FX piece, it’s not dropped through the profits. So, that’s about two-thirds of that compression. The other third is some of the lag in the pricing, costs are coming through in the third quarter. We got pricing a little later. So, it’s a little bit of that, but it’s basically two-thirds due to mass and a third due to kind of the timing of the price.

Okay. No, that’s helpful. And then maybe just two more quick modeling questions. I didn’t see in the guidance anything on capital spend for the year or interest expense as well?

Yes. We don’t – I mean you will see in the Q coming out today, capital hasn’t changed from last quarter. What was the question so we don’t give interest guidance.

Okay. Thanks very much guys.

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

Thanks, everyone, for your questions and for participating on today’s call. McCormick is differentiated by the breadth of reach of our balanced portfolio, which has sustainably positioned us for growth. We are very pleased with our outstanding year-to-date operating performance which proves the strength of our business model, the value of our products and our capabilities as a company. We expect to drive even further growth as we continue to execute on our long-term growth, performance and people strategies actively respond to changing consumer behavior and capitalize on new opportunities. Our investments provide a new foundation for growth while enhancing our agility and our relevance with our consumers and customers, which when combined with our dedicated and engaged employees, positions us well for continued success and long-term shareholder value creation. For everyone listening in the U.S., I hope your 4th of July plans include getting together around the grills with friends and family and enjoying some Montreal Steak Seasoning, French’s Mustard and Stubbs barbecues.

Thank you, Lawrence and thank you to everyone for joining today’s call. And for those of you that might be joining from Canada, Happy Canada Day today. If you have any further questions regarding today’s information, please feel free to contact me. This concludes this morning’s call. Thank you.