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Presentation

McCormick & Company, Incorporated misses on earnings expectations. Reported EPS is $0.6 EPS, expectations were $0.643.

Faten Freiha: Good morning. This is Faten Freiha, VP of Investor Relations. Thank you for joining today’s first 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, Chairman, President and CEO; and Marcos Gabriel, Executive Vice President and CFO. 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 statements on Slide 2 for more information. I’ll now turn the discussion over to Brendan.

Brendan Foley: Good morning, everyone, and thank you for joining us. We are pleased to start the year with solid first quarter results that are in line with our expectations. Our performance continues to demonstrate the success of our prioritized investments in the areas that we believe will continue to drive the most value and sustain our momentum for the remainder of 2025 and beyond. McCormick remains a growth-oriented company with robust plans that leverage the demand for flavor and the strength of our brands. Our strategies have proven to be effective by driving growth and compounding that growth over the years. With our strategies and best-in-class leadership, we are well positioned to continue on our trajectory and deliver on our near-term and long-term objectives with industry-leading performance.

This morning, I will begin my remarks with an overview of our first quarter results, focusing mostly on top line drivers. Next, I will review how McCormick is positioned relative to an evolving consumer landscape. Then, I will highlight some areas of success and the areas we continue to work on as well as our growth plans. Marcos will then go into more depth on the first quarter results and review our 2025 outlook. And finally, before your questions, I will have some closing comments. Turning now to our results on Slide 4. In the first quarter, total organic sales increased by 2%, primarily driven by volume and product mix growth, and partially offset by pricing in line with our expectations. In Global Consumer, organic sales growth was volume-led, demonstrating continued momentum across key markets.

We delivered robust volume growth in all 3 regions. This sustained growth is supported by investments across our core categories, including innovative brand marketing, accelerated innovation aligned with consumer trends, expanded distribution and robust category management initiatives. As expected, volume growth was partially offset by price. In the Americas, price declined due to price gap management plans that were implemented in the second quarter of 2024, and a targeted incremental promotion related to seasonal recipe mixes. In EMEA, we took selective pricing actions to cover rising commodity costs and still maintained volume momentum. For the year to go, we expect price in our Global Consumer segment to be flat. Now to the Global Flavor Solutions segment, where organic sales growth was also volume led.

We delivered sequential volume improvement relative to the fourth quarter and are pleased with our results. Volume growth was driven by continued execution of our strategic priorities in Flavors amid a challenging customer environment. Faster growing customers partially offset larger CPG customer softness. In addition, QSR customer performance improved in Asia Pacific and the Americas, led by innovation. Furthermore, across Asia Pacific, including China, we delivered strong volume growth as we partnered with QSR customers on new products and limited time offers. Consistent with prior years, we expect Flavor Solutions volume growth to fluctuate quarterly due to timing of customer activities. However, on a full year basis, we continue to expect to deliver positive volume growth.

From a profitability perspective, we delivered results in line with our expectations, as the first quarter was impacted by increased investments in marketing and technology as well as the timing of stock-based compensation expense that shifted relative to the prior year. As we look to the year-ago period, we remain confident in our operating income and earnings growth outlook on a constant currency basis. Moving down to the macro environment, including the current state of the consumer. There is increasing consumer uncertainty and concern over returning to more inflation, and this has impacted consumer sentiment, particularly in the last month. This prolongs the consumer context of 2024, where consumers, especially lower income consumers, are more cautious, exhibiting more value-seeking behavior and tightening their budgets.

As many are worried about the future, job security and rising costs, we are seeing this not just in the U.S. but across our key markets. At the same time, we are all witnessing shifts in consumer preferences. They are becoming more health conscious, and this trend has continued to gain momentum. They are cooking at home more often and increasingly shopping the perimeter for protein and produce. As we look at growth in edible categories, unit growth is primarily driven by these perimeter categories. Healthier and better-for-you trends as well as the desire to stretch budgets are fueling a continued interest in cooking from scratch, reinforcing the demand for Flavor and for McCormick’s categories. Spices and Seasonings remain the top growing center store category.

As a result, consumption trends in our business remain strong. Ultimately, we expect the Global Consumer segment to continue to benefit from these secular trends, and we have the plans and advantaged portfolio to capitalize on them. And in our Flavor Solutions segment, we continue to partner with customers to launch new products or reformulate existing ones to fit healthier lifestyles. Furthermore, our exposure to faster-growing customers allows us to win in several high-growth categories, many of which are benefiting from the trends towards healthier eating. In the context of this environment, McCormick’s trends remained strong. Our volume-driven first quarter results and continued strength in consumption trends demonstrate our ability to continue to successfully meet our objectives for the year.

We continue to monitor consumer trends. Our focus remains on meeting consumers and customers where they are, delivering value, expanding our presence in growing channels, including mass, club and e-commerce, and aligning them with Flavor as well as helping customers innovate to meet consumers’ changing dietary needs. We believe we have the right plans in place, and we remain well positioned to capitalize on secular trends and continue to drive differentiated long-term growth across both of our segments. Let’s move to Slide 5, and let me highlight for the quarter, some of the key areas of success. Across our Global Consumer segment, we successfully executed on our plans with increased investment and competitive focus towards driving growth. We improved unit and volume share gains across our core categories in key markets.

In the U.S., the vast majority of our categories are growing unit share. Let me provide some color on the categories globally. Starting with Spices and Seasonings. In Americas, EMEA and Asia Pacific, including China, we delivered strong volume growth. In the U.S., we drove unit and volume share growth, outpacing private label for the third consecutive quarter. In addition, we drove market share in Canada and China. In recipe mixes, we continue to strengthen consumption trends in the Americas and drove unit and volume share gains in the first quarter. In the U.S., McCormick gravy and chili recipe mixes were a significant growth driver as they deliver on the value and convenience consumers are seeking. In addition, we are outpacing the total category in total new buyers as well as dollars per buyer.

In Canada, we drove dollar unit and volume share gains. In mustard, we made great progress globally over the last 4 quarters and are pleased to see that our plans are driving great results. In the first quarter, we drove dollar, unit and volume share gains in the Americas. In Poland, one of the top mustard consuming countries, our mustard consumption continues to grow, and we are also realizing dollar share gains. In addition, we are gaining dollar share in the U.K. In hot sauce, our plans continue to yield great results. In the U.S., we drove positive unit share gains reflecting significant progress. Distribution gains as well as investments in differentiated brand marketing, including a strong Super Bowl activation, and innovation, continue to fuel our performance.

Outside of the U.S., we are gaining market share in France, the U.K. and Australia. Additionally, we continue to make progress on total distribution points. In the Americas, we significantly expanded TDPs across Spices and Seasonings, recipe mixes and hot sauce in the Americas. In EMEA, we are seeing broad-based distribution gains in Spices and Seasonings and hot sauce. We are also gaining distribution in high-growth channels like discounters and e-commerce. In Asia Pacific, our business in China is recovering gradually relative to the prior year, as expected. We delivered strong performance amid a continually challenged environment. Growth in our categories, including spices and seasonings and condiments outpaced the market, which included the Chinese New Year holiday.

Moving to Flavor Solutions. We saw strength in our technically insulated high-margin product category, Flavors. In Flavors, in the Americas, we remain focused on being the partner of choice across our 4 taste competencies: savory, heat, naturally sweet and citrus and fruit. As a result of this continued focus, we are winning new customers and gaining share. We outperformed the industry across many end categories, including alcoholic and nonalcoholic beverages as well as snacking bars. Partially offsetting this is the softness we continue to see in larger CPG customer volumes. QSR trends improved in the Americas and in Asia Pacific. In the Americas, we are continuing to drive innovation with our customers, driving volume growth amid soft foot traffic.

In China and Australia, our customers new products and promotions are driving strong volume growth. In Southeast Asia, volume growth benefited from our customers lapping the impact of geopolitical boycotts in the prior year. Let me now touch on some areas where we are seeing some pressure. The areas of pressure are primarily in our Flavor Solutions business. In the Americas and in EMEA, some of our CPG customers continue to experience softness in volumes within their own businesses. We continue to work on offsetting these trends through innovation and collaboration with customers and by winning new customers. The foodservice environment remains challenged. While our food away-from-home performance continues to outpace the industry, we are seeing flat performance in branded foodservice in the Americas, as well as some of our customers are seeing softness in their volumes due to a slowdown in foot traffic.

QSR traffic remained soft in EMEA. We have seen this pressure impact our results for several quarters. It’s difficult to predict QSR traffic. However, we are collaborating with our customers as they focus on improving their volumes through innovation and value and align with consumer trends. As outlined on Slide 6, our growth plans remain consistent to drive growth through category management, brand marketing, new products, our proprietary technologies and our differentiated customer engagement. Our growth levers are supported and enhanced through data and analytics as we continue to accelerate our digital transformation. Our base business is strengthening across major markets and core categories. And we have a number of initiatives in flight that will continue to drive this performance and differentiation.

Let me focus on brand marketing as our plans across all categories are supported by our global brand marketing initiatives. We are prioritizing investments to connect with consumers and fuel growth. Our differentiated brand marketing is driven by a combination of factors, In addition to maintaining a high share of voice, we are committed to having the best content in our categories, content that inspires and educates consumers and reaches them at the right points on their path to purchase and on their flavor or diet journey. From flavor exploration to menu planning, to shopping and cooking and even to eating and sharing the experience online. In the first quarter, brand marketing spend increased against the high spend in the prior year as expected.

This increase was broad-based and a key driver in supporting volume growth for this quarter as well as for maintaining our volume momentum for 2025. Through our efforts across multiple channels and by leveraging our digital capabilities, we are driving further household penetration and increasing buy rates across our core categories. Our holiday campaigns across our regions proved successful. Our marketing campaigns in the Americas highlight our everyday value, innovation and point of difference to consumers, and are supporting our volume growth and driving share gains. Our Frank’s Super Bowl activation campaign with Paris Hilton was very successful. We gained new buyers, and media and consumer sentiment was incredibly positive. To wrap up our growth plans, although we are navigating in a difficult environment, we remain confident in the long-term health of our business and in our fundamentals, and in delivering our 2025 financial outlook on both near-term and long-term objectives.

We remain focused on investing behind our growth levers to continue to drive differentiated performance. Now over to Marcos.

Marcos Gabriel: Thank you, Brendan, and good morning, everyone. Starting on Slide 8. Our total organic payers grew 2% for the quarter. This increase was volume led, with more than 2% volume and product mix growth, partially offset by pricing. Moving to our Consumer segment on Slide 9. Organic sales increased 1% as volume growth of 3% was partially offset by a 2% impact of pricing investments. Consumer organic sales in Americas was flat, 3% volume growth was offset by price investments. Volume growth was strong across our core categories and was driven by our investments in brand marketing, innovation and category management. In terms of pricing, the decline primarily reflects the price gap management investments that were mostly in place in the second quarter of 2024, as well as incremental and targeted promotional activities.

In EMEA, we grew consumer organic sales 4%, driven by a 2% increase in volume and 2% increase in price. The volume growth was broad-based across product categories in our major markets. We’re pleased with the strong sustained volume growth in EMEA. As Brendan mentioned, we took selected pricing actions in EMEA to offset commodity costs. Consumer organic sales in the Asia Pacific region increased 3% driven by a 2% increase in volume and 1% contribution from price. This growth reflects the gradual recovery we expected in China. We’re pleased with our performance and expect these trends to continue through 2025. Turning to our Flavor Solutions segment on Slide 10. First quarter organic sales increased 3%, driven by volume growth of 2% and a 1% contribution from price.

In the Americas, Flavor Solutions organic sales increased 4%, reflecting 3% price contribution and 1% volume growth. Our results reflect a strong performance with faster growing flavor customers and improved QSR growth, which were partially offset by soft CPG customer volumes. The price contribution is primarily related to currency in Latin America. In EMEA, organic sales decreased by 4%, including a 2% decline from price and a 2% impact of lower volume and product mix, reflecting the impact of soft CPG and QSR customer volumes. In the Asia Pacific region, Flavor Solutions organic sales increased 15%, with volume growth of 16%, driven by QSR customer promotions, limited time offers as well as new products, partially offset by pricing. Moving to Slide 11.

As expected, gross profit margin expanded by 20 basis points in the first quarter versus the year ago period, driven primarily by the benefits from our Comprehensive Continuous Improvement program, or CCI. Selling, general and administrative expenses, or SG&A, increased relative to the first quarter of last year, driven primarily by a shift in timing of our stock-based compensation expense from the second quarter into the first quarter, as well as increased investments in technology and brand marketing as expected. For the quarter, adjusted operating income declined by 5%. Excluding impact of currency, adjusted operating income decreased by 3%. This decline was driven by the increased SG&A expenses I just mentioned. Our first quarter adjusted effective tax rate was 22%, compared to 26% in the year ago period.

Our tax rate this past quarter benefited from discrete tax items. Our income from unconsolidated operations in the first quarter declined 18% primarily due to the strengthening of the U.S. dollar against the Mexican peso. Turning to our segment operational results on Slide 12. Adjusted operating income in the Consumer segment decreased 17% or 16% in constant currency. The decrease was primarily due to pricing and increased SG&A costs, including brand marketing and technology investments, partially offset by cost savings generated by our CCI program. Looking ahead, we expect Consumer adjusted operating income margin expansion to normalize in the year-to-go period. In Flavor Solutions, adjusted operating income increased 28% or 33% in constant currency, driven by product mix, pricing and CCI like cost savings, partially offset by increased SG&A costs.

We continue to make progress in expanding our operating margins in line with our objectives. The bottom line, as shown on Slide 13, first quarter 2025 adjusted earnings per share was $0.60 as compared to $0.63 for the year ago period. This decrease was primarily due to the SG&A increase I mentioned earlier, as well as the increasing impact of currency on our operating profit and unconsolidated results, partially offset by a more favorable tax rate. The impact of currency on adjusted earnings per share is about $0.03 per share. On Slide 14, we summarize highlights for cash flow and balance sheet. Our cash flow from operations for the first quarter of 2025 was $116 million compared to $138 million in 2024. The decrease was driven primarily by higher cash used for working capital, partially offset by lower incentive compensation.

We returned $121 million of cash to shareholders through dividends and used $37 million for capital expenditures. Note that the timing of capital expenditures would fluctuate on a quarterly basis, depending on the phasing of initiatives equaling projects to increase capacity and capabilities to meet growing demand, advance our digital transformation and optimize our cost structure. Our priority remains to have a balanced use of cash. This means funding investments to drive growth, returning a significant portion of cash to shareholders through dividends and maintaining a strong balance sheet. We remain committed to a strong investment-grade rating and expect to continue to deliver strong cash flow in 2025 driven by profit and working capital initiatives.

Now turning to our 2025 financial outlook on Slide 15. We are maintaining our guidance for the year. Our outlook continues to reflect our prioritized investments in key categories to strengthen volume trends and drive long-term profitable growth, while appreciating the current level of uncertainty in the consumer and macro environment. First, let me address tariffs. As you know, the situation remains fluid. At this time, we plan to offset costs related to U.S. import tariffs on China with our CCI savings and some very targeted price adjustments. Our focus remains on safeguarding the health and competitiveness of our brands, sustaining the growth moment in our business and maintaining transparency with our customers. We don’t believe our current planned actions will be material to the total business or will have a significant impact on our volume mix outlook for the year.

That said, due to continued uncertainty on this topic, our outlook does not include any additional impacts from tariffs that could potentially be implemented this year. As things evolve, we will provide updates on our outlook within our typical reporting cadence. Turning now to the details of our outlook. Currency rates are still expected to have a 1 point negative impact on both net sales and adjusted operating income and 2 points on adjusted earnings per share. At the top line, we continue to expect organic net sales growth to range between 1% and 3%, and for growth to be volume led. In the year-to-go, we expect to deliver total volume growth across both segments, and for total pricing to be flat to slightly positive, primarily driven by Flavor Solutions.

For China, our outlook assumes a gradual recovery, and we expect China consumer sales to improve slightly year-over-year. We saw this come through this past quarter, and we expect it to continue for the rest of the year. Our 2025 gross margin is still projected to range between 50 to 100 basis points higher than 2024. This gross margin expansion reflects favorable impacts from product mix and cost savings from our CCI program, partially offset by the anticipated impact of a low single-digit increase in cost inflation. Consistent with historical trends, we expect our gross margin expansion to build throughout the year. In addition to our gross margin expansion, we expect SG&A benefits from cost savings to be partially offset by investments in technology as well as brand marketing to drive volume growth.

For the year, we expect our brand marketing spend to increase in the high single digits, reflecting a double-digit increase, partially offset by anticipated CCI savings. As a result, our adjusted operating income is expected to grow 4% to 6% in constant currency. Similar to our gross margin trends, we expect growth in our operating income to build throughout the year. This remains a balanced outlook that gives us the flexibility to continue to invest in the business, while expanding margins in line with our 2028 objectives. In terms of tax, we expect our tax rate to be approximately 22% for the year compared to 20.5% in 2024, where we benefited from a number of discrete tax items that are not expected to repeat in 2025. We expect our income from unconsolidated operations to decline in the mid-teens range in 2025, reflecting the strengthening of the U.S. dollar against the Mexican peso, which is impacting the results of our largest joint venture, McCormick de Mexico.

To summarize, our 2025 adjusted earnings per share projection of $3.03 to $3.08 on a reported dollar basis reflects current steel headwinds and the impact of increased tax rate relative to the prior year. On a constant currency basis, our adjusted EPS is still expected to grow between 5% and 7%. To wrap up, our continued volume growth underscores that our plans are yielding results and sustaining this differentiated performance. Looking ahead, our cost savings programs will continue to fuel our investments and drive margin expansion. And we remain confident in the underlying fundamentals of our business and in delivering on our 2025 financial outlook, near-term and long-term objectives.

Brendan Foley: Thank you, Marcos. Before moving to Q&A, I would like to close with our key takeaways on Slide 16. While the environment has gotten more challenging and consumer sentiment has been impacted, we have managed through these environments in the past and we expect to navigate through this successfully as we continue to refine and align our plans. The long-term trends that fuel our categories, consumer interest in healthy, flavorful cooking, key flavor exploration and trusted brands, continue to be strong. And importantly, consumer interest in cooking is growing. We continue to execute on our strategic road map with speed and agility and in alignment with consumer trends, further capitalizing on our attractive categories across segments and driving category leadership, our results demonstrate that we are investing in the areas that drive the most value, and we expect to maintain this momentum.

We also expect to continue to expand margins and manage our costs as we are investing in the business. These improvements are led by our favorable product mix and cost savings programs. Our performance historically and over the last few quarters, coupled with our growth plans, give us confidence in achieving our near- and long-term objectives. Ultimately, 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. Finally, I want to recognize all McCormick employees for their dedication and contributions and reiterate my confidence that, together, we will continue to drive differentiated results and shareholder value. Now for your questions.

Operator: [Operator Instructions] Our first question will be coming from the line of Andrew Lazar with Barclays.

Andrew Lazar: I think on last quarter’s call, you had guided to operating profit in fiscal 1Q to be sort of flat to slightly down. And as you mentioned, operating profit fell about 5% in the quarter. The decline was heavily weighted, obviously, to the Consumer segment. I think you mentioned pricing, stock-based comp and brand investments. I think a lot of which were anticipated previously. So I’m just trying to get a better sense for what drove maybe the stronger-than-forecast operating profit decline, particularly in consumer. Was there a timing shift relative to initial expectations or sort of what drove that? And then more importantly, I guess, what now gives you the confidence in sort of reaffirming the full year?

Brendan Foley: Okay. Andrew, let me kick it off, and I’ll have Marcos handle maybe more directly the question on operating profit. At a high level, Q1 was roughly in line with what our expectations were. And in fact, we had planned for Q1 to be sort of a different quarter than what the rest of the year will look like. And I think you kind of see that play out in a lot of our prepared comments. But there are timing elements that were called out before, like you mentioned, that will certainly impact that. But we do remain confident in the year to go period, and it’s really supported by strong sales performance. Marcos, do you want to…

Marcos Gabriel: Yes, sure. So Andrew, on the operating profit, I mean, you mentioned minus 5% decline in Q1. Adjusted for currency, it was minus 3%. So on a constant currency basis, 3%. A couple of timing-related items, as we mentioned on the call. One is the shift of the stock-based compensation from Q2 into Q1. And I feel normalized for that, and ROP would be essentially flat for Q1. Also, we had some timing in terms of brand marketing and technology investments hitting in Q1. We’re going to continue to have some of those investments in the future quarters of the year, but a little bit of timing between Q1 and Q2 there as well. In the Consumer space, specifically, we had to lap the price gap management investments that we put in place in 2024.

So that was a headwind that’s going to go away. If you think about it on the Consumer operating profit, a decline of 16%. I mean 2/3 of it will roll away in the next quarter, which is the pricing and the stock comp shift. And FX was a bigger headwind. I mean we’re trying to focus on the things that we can control. It was a bigger headwind. Now we’re seeing FX moderating a little bit going forward. So that’s where we’re keeping the guidance as it is. And then in terms of the guidance question, yes, we do have a lot of confidence in the guidance that we’ve put out there. I mean top line is coming as we expected. We will continue to see growth in both segments, Consumer and Flavor Solutions, for the full year. In the Consumer, you’re going to see growth all quarters and across all regions for the balance of the year.

I’m pleased with the Flavor Solutions performance this quarter, driving not only top line but also profitability. And as you saw, profitability was up 240 basis points on the back of CCI, product mix and as well as the top line that drives leverage through the P&L. So happy there as well. Gross margin will build throughout the year, as I said on the call, 50 to 100 points on a full year basis on the back of the CCI program. We want to invest back in the business, as we said before, in terms of SG&A, particularly brand marketing. And we feel confident about expanding margins for the full year between 4% and 6% operating profit growth for the full year, primarily driven by the Flavor Solutions segment.

Operator: Next questions are from the line of Peter Galbo with Bank of America.

Peter Galbo: Two questions on the Americas Consumer business. And Brendan, I’ll toss the first one to you. I think you mentioned that the price gap management — the incremental price gap management in the first quarter was maybe seasonal or tied to a seasonal business. And the expectation is that the consumer price will be flat going forward. I’m just wondering if, on an underlying basis, within Americas, if that pricing still has an opportunity to be negative given some incremental investments? And maybe that’s you saw good returns on the promo around the holidays and so you’ll look at that as we get into grilling season, and then you’re offsetting that possibly with EMEA. But I just want to understand kind of the pieces underneath the flat price for Consumer comment at a total company level relative maybe to the geography.

Brendan Foley: Okay. So thanks, Peter. First of all, let me just kick off with, overall, we had very really strong sales performance throughout the company in both segments. Specifically thinking about Consumer, that’s where most of your question focused on, we delivered really strong volume growth across the business. I mean across all regions, up 2.6%. So we really think that, that was indicative of the type of strength we have been communicating on in the prior quarters. There was a price element, obviously, as you called out, specifically in Americas in Q1. And a lot of that had to do with — we did target an incremental promotion on a recipe mix business. I’m not sure if everyone felt the cold weather that most of the country felt, but that’s really good for chili volume and gravy.

And so we saw an opportunity — really a great opportunity to just continue to drive that business even harder during the first quarter because it’s a great time of the year for those specific products. And we really see it actually in a lot of our volume and share performance in that segment of our business. So that’s what really drove a lot of it. It was sort of one of those — we reserve the flexibility to be able to spend across the business where we feel like we need to, and that might have been sort of the one element that was, if you could say, incremental to what the price gap management plans and programs one would have expected. As we look to the rest of the year, we don’t really see price having much contributions in terms of it being super positive or super negative across the portfolio globally.

But I would say that’s definitely going to be the case in the Americas. We’re going to be maintaining the price investments in the prior year. There is a little bit of pricing that’s going to come through in EMEA to deal with some commodity pressures that they’re feeling. So you will see a little bit of that, but they will be growing volume. And so that’s kind of one perspective, I think, on how to think about the first quarter and then what to expect for the rest of the year. Volume growth in the Americas is really the fundamental driver. I think you saw that strength in our consumption. You’re also seeing it in the actual sales results. There might have been a little bit of a gap from a standpoint of our consumption in our sales, but that’s really typical dynamics for us in the first quarter as we would typically see that after obviously a very strong holiday period that we had.

So I’ll stop there to see if I’ve addressed your question, but happy to take on more.

Peter Galbo: No, Brendan, I think that’s very helpful context. And maybe just as a follow-up, I think we’ve gotten a few questions this morning just around, again, in Americas Consumer kind of shipment versus consumption. And just whether there were any dynamics you saw from a carryover perspective on inventories out of Thanksgiving? Or any timing shift related to Easter just that you’re thinking about, again, as we contemplate — consumption?

Brendan Foley: Sure. Yes, let me go — let me add some more context on shipments to consumption. We have very few concerns about our shipment versus consumption profile. Just to give you some more context. First of all, we had a really great holiday program, resulting in really strong consumption, not only in Q4 but also in Q1. So we have a really strong consumption profile kind of underpinning really our sales growth over the past 2 quarters. Consumption and the outpacing in Q1 of sales is a typical dynamic that we see on inventory patterns across our business over the last decade or so. I mean that’s just something that we typically expect. There’s probably 2 other variables, though, that I think one could say is a little bit incremental or new in this quarter.

And the first one is we’re not really seeing any early Easter shipments like we did last year because Easter is falling later in April. And so it’s just there isn’t really anything happening in Q1 with regard to Easter, like it might have the year before. And then we do have a strong innovation plan for the year. We got an early kickoff on that this year, which means a little bit more slotting spend. Whatever increases we had in slotting comes into the first quarter because it matches with the shipments of the item. So that’s one indication that obviously, we’re off to a good start on innovation. But some of that spend comes into the first quarter, and that was a little bit heavier than it was the prior year. But I don’t look at those 2 things as structural problems.

Those are just cycles that we go through. It’s really quite normal. And I think it looks — the profile is what we would expect. If you combine Q4 and Q1 together into one number, it’s exactly where we want to be.

Operator: Our next questions are from the line of Alexia Howard with Bernstein.

Alexia Howard: So can I focus on the growth of sales in Flavor Solutions. I’m wondering if you could quantify or at least comment on how much new high — these new high-growth customers are adding to your sales or your volumes in that segment? And then by contrast, how much does the QSRs benefited also in there? And then offsetting that, you had the CPG customer weakness, how big was that compared to some of the other dynamics? And then I have a follow-up.

Brendan Foley: Thanks for the question, Alexia. We did have a good quarter on Flavor Solutions overall. In fact, I would say, in 2 out of our 3 regions, we have volume growth, mostly in the Americas and Asia Pacific. Just to give you a little bit more context and detail, I’m not going to be able to sort of quantify each individual segment within or kind of categorize each volume and give it a framing on numbers. So I’ll give you some context in terms of what we saw in the quarter. We did very well with those high-growth sort of innovator customers that are a lot of emerging segments, many of them attached to health and wellness. And so we continue to see strong growth from them. We also continue to acquire new customers there.

So it’s not only volume, but it’s also gaining share that’s helping us there. And it allows us to diversify our sales mix and our portfolio. But we also saw strength in the QSR business even if there is weak traffic in the industry. And what was driving that is we had some innovation wins executed in the quarter. We also won some new customers there, too. So in the Americas region, it was the QSR customer base and the sort of small, high-innovator customers that we have in Flavor that we’re really driving and offsetting any of the weakness that we saw with larger CPGs. In Asia Pacific, it was a lot of QSR performance that drove the business. Increased customer promotions and limited time offers certainly contributed to some strong numbers. But also we were lapping the geopolitical boycotts from a year ago.

So that also improved volume performance in Asia Pacific. EMEA, on the other hand, definitely saw continued weakness, although we see sequential improvement quarter-to-quarter, it still is soft in terms of traffic with QSRs. And so that one — that region was down. But underlying all of this, there is a softness with larger CPG companies, I would say, not just within the Americas, but also we’re seeing that in Europe, too. And that’s consistent with what you’re hearing, I think, from other company reports. And so we’re seeing a little bit of that in our performance. I would say, though, when we look at a category to category, we tend to still outperform what’s going on in the broader market, but nonetheless, the volumes are weaker.

Alexia Howard: Great. And as a quick follow-up. It’s probably too early to say anything, but RFK Jr. seems to be pursuing an agenda of driving out artificial additives across packaged food and probably in the restaurant sector as well. As I said, it’s probably too early to tell because he’s just turned off on the scene, but are you seeing any uptick in reformulation efforts on the part of your CPG or restaurant customers in the U.S.?

Brendan Foley: Yes. With regard to colors, just let me first provide some context on the McCormick portfolio, our consumer portfolio. We don’t really have a lot of usage of color in our products, as you might expect, at least very, very few overall. Now with respect to formulations, we are seeing more activity on that, definitely. Now reformulation activity has always been a part of the work that we do with our customer base, and we’ve been doing that for quite some time. But we are seeing a tick-up in reformulation activity, and that would align with what you’re seeing and being written out in the news media regarding what we’re hearing from the new administration. But it isn’t just colors, it’s also sodium. We’ve always been working on sodium. It’s also about just working on trends that are certainly positive, like hydration, functional foods, high protein. We’re seeing reformulation activity across our customer base, but also a lot of new product activity, too.

Operator: The next question is from the line of Ken Goldman with JPMorgan.

Kenneth Goldman: Understanding the situation changes daily or sometimes hourly, what should investors be looking for in terms of key tariff risks ahead, as well as, I guess, related headwinds and actions that the company will take in response? And I know these are myriad in nature, but anything you’re really keeping an eye on that we should also be following, I think, would be helpful.

Brendan Foley: Well, just in case it might have been missed. There are known tariffs already that we have accounted for in our forecast and our guidance for the year. Those are specifically the ones that were levied on China. So those are already factored into our thinking right now, overall, Ken. As it relates to anything moving forward, it is difficult to sort of project on what will be the areas that we have to focus on, because we’re not exactly sure how exactly these might come through. So we’re still — like you just said, we’re staying very close to what the latest news and the latest potential plans might be. We’re thinking through a number of scenarios there in terms of how that might get applied. There’s obviously a lot of variability on how one might think through these tariffs just based on what might be recent reports, but we’re staying close to what everyone else is learning, too.

I think from a broader standpoint, I would just say these are situations that we dealt with in the past, and we expect to be able to deal with them successfully moving forward, too, depending on where the tariff might be in terms of country or on type of sort of raw ingredient or finished good. I mean this is quite varied, I would say. And as you might expect, complex. But we’re prepared to work through that when we know exactly what will happen.

Kenneth Goldman: Okay. And then a quick follow-up. I recognize that given quarterly guidance isn’t always your practice. But just in light of some of the moving pieces in the first half and some of the conversation about pricing and SBC shifts, how would you like us to sort of think about directionally EBIT and EPS in 2Q either relative to 1Q or versus a year ago? Just I think any help you can get in — or we can get in or sort of narrowing that would be useful.

Brendan Foley: Yes. Ken, I’m going to maybe kick it off and then ask Marcos to add more context to this. But kind of back to my opening remarks, we always saw Q1 as being a very different quarter than the rest of the year. And so I think that would be the picture that we continue to paint. We felt like we’ve made that kind of clear when we closed the fiscal year in ’24. But Marcos, do you want to add to Ken’s question?

Marcos Gabriel: Yes, Ken. So it’s difficult to give quarterly guidance, as you can imagine, especially in this dynamic environment that we are in these days. You should see a continued momentum in terms of — our top line growth will continue, as I mentioned, between Q3, Q2 and Q4. The margin, gross margin will build progressively. You’ll see the bulk of our profitability comes in the second half of the year, which is — second half is bigger than our first half. So you should see more of the gross margin impacting the second on a positive way, impacting the second half versus the first half. And that will flow through the P&L to operating profit as well. We continue to invest in SG&A every quarter, and that is proving to be positive in terms of the volume that we’re getting out of those investments that we’re making.

And then profitability will continue to build as well in line with the gross margin build. So you should see some of the flip and timing-related items that impacted in Q1 as a tailwind into Q2, but then continue to build gross margin and operating margin through the balance of the year.

Operator: Our next question is from the line of Robert Moskow with TD Cowen.

Robert Moskow: Brendan, I wanted to follow-up to Andrew’s question at the top of the call. You described the results as roughly in line with your expectations, and I’m just trying to drill down a little bit more into the organic growth for Consumer versus organic growth for Flavor Solutions. Just based on tone heading into the results, I would have thought that Flavor Solutions would be a little weaker, Consumer would be stronger given everything you said about the shift to scratch cooking the desire for more fresher foods and the flavors that are used to prepare them. And so this is kind of the reverse in first quarter. And I want to know if that was also in line with your expectations or not. And then more specifically on the chili promotion, is that a profitable promotion? It obviously drove a lot of volume. You said it was incremental. Did it grow profits?

Brendan Foley: Sure. Thank you, Rob. Let me go to the top of your question in terms of expectations overall. I do think that Flavor Solutions is a little bit stronger than what we would have expected. I think it really came through more in the QSR volume performance overall. So I think that was one part of your question. But then from a Consumer standpoint, boy, I’m looking at volume and it was really quite good. I mean the Americas was up, I think, 2.9%. We talked about the shift to consumption, obviously, as being a dynamic there that we typically expect. But overall, we felt like — and as you see the consumption, we think it was quite strong overall. So — and in fact, a nice continuation from what we saw in Q4. Now the holiday season obviously has a lot more demand going on in it, but we see a continuation of the strength that we have.

China, I would say we were looking for a gradual improvement, and we are pleased with the performance of China in the first quarter. As we look at our performance versus the Chinese New Year in the market, we believe that we slightly outperformed there. So that was — we planned on growth. We called it slight growth, I would say, that 3% that we saw was pretty good in terms of the challenge in the marketplace that is and where consumer sentiment is at that point in time. So just to give you context on the consumer side, I would say quite pleased with the performance of volume in the Americas and as well as in China. EMEA also performed well, too. Now we see a little bit more pricing coming through in EMEA as a result of some commodity pressure that they’re feeling, but we’re still growing volume in the context of having a little bit more pricing.

And so that’s the profile there. Now with respect to the incremental promotional recipe mix, when we look at price overall, revenue management, price gap management, all of those things, we certainly take a very hard look at whether or not they’re smart from a profit perspective. So I can tell you that our team, when they execute these programs, they’re doing because they know that they’re strategically good for the business, they build loyalty and they’re also financially smart. And so we’re pretty pleased with the performance, I think, overall in the first quarter. And just to kind of help bridge if there’s any slight disappointment in the Consumer number, I would just say, we felt like that number was pretty strong. I want to make sure I got all the point of your question.

Okay. Great.

Operator: Our next question is from the line of Max Gumport with BNP Paribas.

Max Andrew Gumport: Recently, packaged food players, particularly those with exposure to snacking, some of whom are your key customers in Flavor Solutions have been observing prolonged softness and attributing it to the consumer feeling financial pressure. It sounds like you’ve acknowledged some of those pressures, but you also seem to be attributing much more of this to changing consumer preferences as well, which is supporting your — some of your key categories in the Consumer segment. I was hoping you could provide a bit more color on these changing consumer preferences that you’re seeing. And also how you would think about parsing out the weakness that we’re seeing in snacking between the consumer feeling financial pressure versus the consumer changing their preferences for eating.

Brendan Foley: Well, thank you for the question, Max. As it relates to sort of snacking trends and are the drivers related more towards affordability or are the drivers related to health and wellness trends, like a lot of things in life, it’s a lot of both things, I think probably. It’s hard to parse that out. Let me tell you what I think we’re seeing is in terms of snacking trends, there is a little bit more softness, but we’re seeing pockets of growth also in snacking, too. So especially within those value-added segments so protein-based snacks and better-for-you options are, in many ways, part of the snacking category as well, and we see growth in those areas. So I don’t know that snacking, by itself, is the issue. It’s just people are looking for other opportunities and other options as they consider snacking as part of the repertoire throughout the day.

But we also, in terms of our own performance, believe that we’re gaining market share in a number of these areas from competitors. So it’s helped offset what we believe to be. Maybe a little bit of temporary weaknesses as we’re looking at the snacking category, but it’s more dynamic than maybe just one version of it. And that would be — sort of one context I would give from a consumer perspective, specifically on snacking. Now if you think about just broadly the state of the consumer, Max, we think consumers continue to be resilient, but they’re definitely still in a challenging environment. And as many of us have seen, consumer sentiment has been impacted, especially over this past month, primarily related to concerns over rising inflation potentially.

And I think my — our view is that this prolongs what we saw as we thought about sort of the back half of ’24, that the mindset of the consumer may not be getting — shifting all that much towards the positive. It’s just still kind of remaining resilient, but challenged. They’re still cautious about how they spend their money on food and beverage, and they’re continuing that value-seeking behavior. In our own categories, what we’re seeing is some people are maybe trading down to smaller units, but we’re also seeing a lot of growth in our larger units actually. So it tells me that people are looking for value. They’re also putting a lot of focus on the value per ounce that they’re spending. So I think consumers are quite savvy as we all know, and they’re trying to make their dollar stretch as much as they can, which is another reason why they go into the perimeter of the store to make scratch meals, et cetera.

They see them as healthier, but they also see them as cheaper. And so I think both of these kind of — you started with the snacking segment, but I’m going to end just more broadly, what we’re seeing in our own categories is consumers are sort of blending both, and it’s hard to parse them apart.

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

Stephen Robert Powers: Brendan, I was hoping you could talk a little bit more about what you’re seeing in Europe and, I guess, in the EMEA segment as it relates to Consumer. Volume growth there as well this quarter, and you’ve got some pricing coming through because of the commodity backdrop. But at the same time, you cited other CPG companies in Europe kind of facing parallel dynamics as we’re seeing here in the U.S. with consumer weakness. So as you think about the progression of demand in Europe over the balance of the year, I guess, how are you sort of taking you through the scenarios there? And is there incremental investments that may have to be put into place in Europe as well as the year goes on to offset some of that demand weakness?

Brendan Foley: Thanks, Steve. Well, in Europe specifically, let me step back. We do a lot of proprietary research throughout the year, frequently throughout the year. And we’re trying to understand consumer sentiment not only with cooking and shopping and value and inflation, et cetera, many other — many topics, but we do this almost every quarter, and that helps us understand what the sentiment of the consumer is, especially let’s say, comparing Europe to the U.S. or other big markets that we operate in. What’s striking to us is the similarity that we’re seeing from a U.S. consumer sentiment, broadly, with European. And so very similar trends in terms of, “Hey, I’m cooking from scratch more often, I’m eating at home more often than I did.” I’m looking for value overall.

We see growth in discounters, as an example of that, which we’re gaining distribution in. We also see performance of e-commerce really accelerating too. So people are looking for sort of that convenience overall, and that’s accelerating quite nicely in that marketplace. So we’re seeing somewhat of a similar sort of parallel, if you will, behaviors and sentiment from a consumer standpoint. The worry of inflation is just as high there as it would be here in the U.S. And so that’s coming through in the data that we’re looking at. So I don’t know that I could pinpoint something uniquely different in Europe that’s happening in the U.S. right now.

Stephen Robert Powers: Okay. Maybe if I could just follow up. So the — is there — as we see net positive pricing flowing through your business this quarter and over the course of the year, as expected, is that — is what we’re really seeing in there is sort of commodity-based pricing offset by promotional investments and the like? Or is the — in value, not quite as strong as the U.S. despite those dynamics?

Brendan Foley: The commodity inflation that we’re experiencing there is not broad-based, it’s very targeted on specific items. And so as you know, like for example, we have a homemade desserts business in France, and so there are very specific items are receiving some inflation there. And so think about this as quite targeted. But still, having said that, we’re focused on making sure that we have the right price points on shelf. It isn’t necessarily through promotions only, but it’s also through just sort of that — making sure like price gap management that we’re getting to the right price point on the shelf. But I do want to illustrate that’s more of a targeted issue from a commodity standpoint, not broad-based.

Operator: Our next question is from the line of Tom Palmer with Citi.

Thomas Palmer: Maybe just to start out, I wanted to clarify an element of Ken’s question from earlier. I appreciate the sales momentum and the expectation for gross margin to build as the year progresses. But I wanted to just clarify on SG&A, given some of the timing items that were called out in 1Q. I think traditionally, SG&A dollars in the second quarter are quite a bit higher than we see in the first quarter. Does this still hold this year? Or was there enough pull forward of some of these items into 1Q that will be a bit more balanced?

Marcos Gabriel: It is going to be balanced between Q1 and Q2. You should look at those 2 quarters together, Tom, as you think about the SG&A line. There is a shift into Q1, a negative shift into Q1, as I explained, but that’s going to be a tailwind into Q2. Brand marketing technology will continue across both quarters. So Q1, you saw some of that, a little bit more heavily than anticipated, but it’s going to come back in Q2 as well. We’re going to continue to invest on the back of those 2 items. So I would look at it as the combination of Q1 and Q2 for more of a normalized view on SG&A.

Thomas Palmer: Okay. And I wanted to ask on Canada. We’ve seen headlines about weaker sales for U.S. brands. Are you seeing any of that at this point? And then just any refresher on your exposure to Canada?

Brendan Foley: In Canada, we actually had a really — just like in the U.S., a really robust quarter in terms of consumption and performance there. And I’m familiar with what you’re referring to in terms of what we’ve seen written in the press. But we currently — we’re not experiencing any sort of difficulties there. And honestly, as we look at our performance from a consumption and sales standpoint, we’re pretty happy with it.

Operator: Our final question is from the line of Matt Smith with Stifel.

Matthew Smith: I wanted to follow up on America’s QSR trends or QSR trends more broadly. You called out traffic weak — or weaker traffic trend, but volumes were actually up. Can you talk about the drivers of growth that more than offset that traffic weakness and your expectation for the rest of the year in terms of industry traffic trends and your ability to outpace the industry traffic? Were some of the limited time offers and menu benefits more short term? Or do those continue and allow you to outperform the traffic trends we’re seeing for QSR?

Brendan Foley: We’ve often described this business as lumpy, variability quarter-to-quarter. And one of the variables that drives that is things like customer promotions, limited time offers, because they may or may not continue for either a short period of time or a long period of time. Difficult for us to fully predict. But that is one element in terms of what we saw, is just particularly when you think about in Asia Pacific, just a lot more heightened activity. In fact, I would say QSRs in Asia Pacific have been doing pretty well for the last couple of quarters. And so they’ve been growing stores, but also accelerating on traffic overall. In fact, I think the store growth itself is one other contributor to overall performance there, which is not a same-store sales type metric overall.

The other items that — for us, if we win more business or we get innovation, that becomes incremental to the prior year. And so that enables one to sort of overcome whatever might be the trends with traffic going on in the industry. So we saw more of that happen in the Americas region. And that is an example of something that is necessarily short term, but rather it’s something that sort of, we’re continuing to sort of improve our sales mix by either winning new customers or getting new products overall or selling them new products, if you will. So that’s the other context there, which is equivalent to gaining share, if you will.

Operator: Thank you. I’ll now turn the call back to Brendan Foley for closing remarks.

Faten Freiha: Thank you all for joining today’s call. If you have any further questions regarding today’s information, please feel free to contact me. This concludes our conference call for this morning.