McCormick & Company Inc
NYSE:MKC
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McCormick & Company Inc
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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 set of slides at ir.mccormick.com. Now, all participants are in a listen-only mode. Following our remarks, we will begin a question-and-answer session. [Operator Instructions]. We will begin with remarks from Lawrence Kurzius, Chairman, President and CEO and Mike Smith, Executive Vice President and CFO. During our remarks, we will refer to certain non-GAAP financial measures. These include adjusted operating income, adjusted income tax rate and adjusted earnings per share that exclude the impact of transaction and integration expenses related to the Reckitt Benckiser Foods or RB Foods acquisition, special charges and income taxes excluding certain non-recurring impacts associated with the recently enacted U.S. tax reform which we refer to as the U.S. Tax Act as well as information in constant currency. 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 which includes the complete information. As a reminder, today's presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events or other factors. As seen on slide two, our forward-looking statements also provide information on Risk Factors that could affect our financial results. It is now my pleasure to turn the discussion over to Lawrence.
Thank you, Kasey. Good morning everyone. Thanks for joining us. With our strong second quarter and first-half results, we are confident we are well-positioned to deliver strong results in 2018. Our successful execution of our strategies and engagement of employees around the world have driven strong double-digit sales, operating profit and EPS growth as well as significant operating margin expansion across both segments in both the second quarter and year-to-date. Starting on page four. We have a broad and advantaged global flavor portfolio which is continuing to drive growth. Among the second quarter highlights across our portfolio, we grew our underlying business in our consumer segment, particularly in the Americas and China. In our flavor solutions segment, we continued to make progress on expanding our portfolio with additional growth in flavors, particularly in savory this quarter, while pruning some low margin business, and we are driving strong broad-based growth in our branded foodservice business. The reshaping of our flavor solutions portfolio is a significant driver of operating margin expansion. In addition to the solid growth on our core business, we are pleased with the Frank's and French's performance and their positive impact on our portfolio of condiments and sauces and branded foodservice. Overall, we are confident that the breadth and reach of our portfolio continues to position us to fully meet the demand for flavor around the world and grow our business. Now let me go into more detail on our second quarter performance on slide five as well as provide some business comments before turning it over to Mike, who will go in more depth on the quarter-end results and discuss our 2018 financial guidance. Starting with our topline for the second quarter, we grew sales 19% and in constant currency grew 16% for the total company. This was driven by strong results from both segments led by the Americas. Base business growth, new products and acquisitions, our three drivers of long-term sales growth, were all contributing factors. Incremental sales from our acquired Frank's and French's brands contributed 13%. In our consumer segment, we grew sales 16% in constant currency and in the flavor solutions segment we grew sales 15% in constant currency. The growth of both segments was led by incremental Frank's and French's sales, which contributed 14% to our consumer segment and 12% to our flavor solutions segment. In addition to our topline growth, our focus on profit realization drove additional adjusted operating income growth and adjusted operating margin expansion with our higher sales, cost savings led by our comprehensive continuous improvement program, CCI and our portfolio shift to more value-added products, including the addition of Frank's and French's, we grew second quarter's adjusted operating income 48% in constant currency and our adjusted operating income margin expanded 330 basis points. Both segments contributed double-digit adjusted operating income growth and a triple digit basis point expansion in adjusted operating margin. We are achieving the margin accretion we expected from the Frank's and French's portfolio and equally as important we are driving significant margin expansion in our core business led by CCI as well as a shift in our portfolio to more value-added products. At the bottom line, our second quarter adjusted earnings per share of $1.02 was 24% higher than the $0.82 in the second quarter of 2017. Our strong growth in adjusted operating income drove this increase partially offset by higher interest expense from debt related to the RB Foods acquisition as well as higher shares outstanding. Our strong results are in line with our expectations and with the increased guidance we provided last quarter and our outlook for 2018 performance remains strong. I would like to turn now to some business updates. I will begin with highlights from our consumer and flavor solutions segments and follow with a fairly deep look at our Frank's and French's portfolio. In the consumer segment, as seen on slide six, we grew sales nearly 16% in constant currency with incremental sales from Frank's and French's contributing 14% and our base business and new product growth contributing 2% driven by the U.S. and China. In the Americas, growth was particularly strong driven by the large impact of Frank's and French's, which contributed 20% growth. Our underlying Americas business grew 2% on both pricing and higher volume and mix. In U.S. spices and seasonings, our IRI data indicates scanner sales through grocery channels grew for the category at 4% and McCormick branded at 3%. Both the category and to a greater extent our consumption was impacted by a slow start to the grilling season driven by cold and wet weather. While we had strong growth in other parts of the portfolio, such as branded recipe mixes, partially due to this cold and wet weather, it did have an unfavorable impact on overall sales. Outside of grocery, we continue to be impacted by a large retailer's decision to convert a control label to private label, along with related promotional and merchandising actions which we have discussed on previous earnings calls reducing McCormick's measured multi-outlet sales growth to 1%. While this decision hurt our branded spices and seasoning share performance, it drove growth in our private label sales. We again had solid branded growth in grocery and growth in unmeasured channels including club, e-commerce, and Hispanic markets. The environment remains dynamic and we continue to work with our customers to optimize category performance. Overall we continue to see good growth in our spice and seasonings brands in the U.S. market and remain confident the initiatives we have underway position us to continue our trajectory of long-term growth. In Europe, Middle East and Africa, the EMEA region, growth was led by France. Year-to-date, France's broad-based growth across both branded and private label has driven this region's growth. In the Asia-Pacific region, our strong sales in China led the consumer segment growth driven by continued share gains on core products as well as e-commerce growth. China's direct-to-consumer storefront on Tmall continues to gain momentum since its launch earlier this year. It is already ranked in the top 15% of food [ph] category at Tmall stores. Our confidence for our consumer segments growth for the second half of 2018 is bolstered by a strong America summer grilling, fall and holiday season with the combined McCormick's and Frank's and French's promotional and merchandising programs, as well as a significant increase in brand marketing, Frank's and French's continued momentum and actions I will mention in my update on that portfolio in a few minutes. Americas new distribution gains secured in spices and seasonings and the full impact of pricing actions effective late in the second quarter, new product growth in the EMEA plus our launch of our first choice brand renovation initiative in addition to significant brand marketing increases related to new products, advertising, and product superiority. And importantly, our products remain well aligned and on-trend with consumer demand for flavorful, healthy eating. Turning now to the flavor solutions segment. We grew sales 15% in constant currency in the second quarter with incremental sales from the Frank's and French's portfolio contributing 12%. In the Americas, constant currency sales growth of 22% was led by 17% from Frank's and French's, 5% growth was driven by strong momentum on flavor and seasoning sales and branded foodservice. Branded foodservice sales growth was broad-based driven by increased distribution with national and regional customers, promotional activity with operators, and expansion in emerging channels. And within flavors, our most significant growth was in on-trend savory flavors where we have been winning with existing business as well as with new products and new customers. In our EMEA and Asia-Pacific regions, we continue to win with our customers through new products and promotional activities and particularly with quick service restaurants. We are continuing to refine and optimize our portfolio, increasing our sales of higher margin flavor business and exiting lower margin business. Across our flavor solutions segment, the migration of our portfolio to more technically insulated and value-added categories will continue in 2018. We have again realized further results against this strategy in our second quarter with flavor sales up double digits in North America. Beyond our strategies to drive sales growth, we will continue to focus on profit realization as is again evident in our second quarter results. Our confidence for our flavor solutions segments growth for the second half of 2018 is bolstered by strong momentum of our flavor growth, particularly in on-trend areas and new product and new customer wins driven by our expertise in clean label and culinary approach, Frank's and French's continued momentum and actions I will discuss in a few moments, growth in branded foodservice driven by expanded distribution and increased marketing activity and customer promotions and wins with quick service restaurant customers through new products and promotional activities. Let's move now from our strong core business results and onto our Frank's and French's portfolio, starting on slide eight. We are pleased with our progress so far and with the results from the Frank's and French's portfolio. With the acquisition and integration complete, we are excited about the impact we are having on these brands and the growth plans we are continuing to successfully execute against. I would like to share now some updates our progress, starting with our North American consumer business. We are successfully growing these brands through strengthening distribution, by leveraging the scale and capabilities of our newly organized sales force, particularly in category management, as well as applying our strength in emerging channels. Starting with the performance of Frank's. As of the end of May, our Fix the Mix initiatives, which focuses on having the right assortment of flavors and sizes on shelf to drive velocity has increased our U.S. total distribution points of original RedHot and Buffalo by 7% and 12%, respectively and we are increasing Frank's share distribution on shelf. One example of how we are driving the increase is through the addition of original RedHot small and large bottle sizes at a significant retailer. These sizes are underdeveloped in the market and are critical for building trials and providing a value offering. An another example, through our investment in a new smaller case pack for recent Frank's line extensions, we were awarded more space at a significant retailer as it allowed a more efficient placement on shelf. These wins drive both our branded and overall category sales growth. We are just beginning to see the benefits of the additional sizes come through the consumption data. From a regional perspective, we have worked with retailers in areas where Frank's is not the market leader and as of the end of May increased our total distribution points in the West by 8% and Midsouth by 7%. These distribution gains on Frank's RedHot sauce and Buffalo sauce create a foundation for growth. Turning to French's mustard. We are seeing success in our initial category management efforts. We are convincing retailers to remove duplicative secondary brands as they work to maximize the efficiency of their shelf space. Our analyses have been well received and retailers, including several large ones, are beginning to implement our recommendations, eliminating lower ranking yellow mustard brands and expanding the share of shelf for French's and their store brand. As we said before, mustard will take a while to turn around but we are pleased with the progress we have made thus far to influence the fundamentals on shelf. After years of declining distribution, we have stabilized overall points of distribution year-to-date and expect to lap the losses we inherited in the second half. We still have many key objectives yet to implement in our category management efforts and continue to dedicate resources and increase capabilities related to mustard category management. We are confident our ongoing focus in this area is driving results. We are also focused on accelerating growth in unmeasured channels and are establishing these brands with early success. While off a small base, we have already realized double-digit growth in this area, including increasing the e-commerce availability of Frank's and French's. While influencing distribution share of shelf and channel participation is a continuous effort, we are pleased with our progress so far. We are in the early stages and have robust plans to further leverage our scale and capabilities to deliver growth. We are also excited about being able to drive stronger promotion and merchandising performance by combining the strength of our entire portfolio. Our first opportunity to leverage increased promotional scale is through the launch of our summer grilling event. U.S. grilling season begins with Memorial Day and heightens during the summer months. This year the grilling season was delayed due to a rainy and cold spring in broad parts of the country. Despite this, we experienced solid May consumption growth across our grilling portfolio including Frank's, French's, Stubb's, Grill Mates and Lawry's products. The summer grilling season has just gotten started and we have planned substantial increases in third quarter grilling promotions and display pallets to drive growth across the portfolio. For the combined Frank's and French's portfolio, this was the best start to summer grilling since 2014 and we are seeing the same if not better performance in Canada where grilling is off to a strong start. We are winning with increased merchandising displays across large retailers. As an example, at one large Canadian retailer consumption of French's was up 79% versus last year's second quarter, driven by an unprecedented level of display. With the same retailer, we also launched a promotional grilling kit to meet grilling flavor needs of the consumer. The kit combines Canada's classic La Grille Montréal steak seasoning with Frank's hot sauce, French's mustard and ketchup as well as Stubb's barbecue sauce and new La Grille products for trial. The promotional kit sold out in less than one week. We have also begun to drive an innovation agenda on Frank's and French's. To date, we have launched new SKUs in seasoning and dip mixes and retailer interest and acceptance has exceeded our expectations. As I mentioned it CAGNY, there is an exciting longer term pipeline of new concepts developing and I look forward to sharing details of innovation news in the coming months as we launch these products. We are planning increased marketing support against Frank's and French's, which will be more significant in the second half of 2018 than in the first half. We are just starting to launch new messaging and support for the brands. In April, Canada was our first location to launch a new television commercial with their Do You French? campaign for mustard and ketchup. The commercial received breakthrough scores in consumer testing. In the third quarter, we are launching the first dedicated mustard campaign in the U.S. in three years. This campaign actually kicked off this week. And for Frank's, we are significantly increasing working media in the second half and will be running a U.S. national television ad for the first time in seven years. To date, we have dramatically improved social media engagement by 115% and an exponential increase in online content. For example, our McCormick culinary experts have already created 100 new recipes for mustard usage which we are already promoting across our robust digital platforms, including 15 how-to videos. Wrapping up North America consumer for Frank's and French's, performance in these categories is robust and we are very happy with our results. Next, I am excited share some Frank's and French's updates related to our North American flavor solutions business on slide nine. Our combination of complementary strengths of the McCormick and RB Foods foodservice sales organizations and strengthened our go-to-market model in the North America's flavor solutions business and is enabling us to leverage our full portfolio across operators. Our new scale has created strong momentum within foodservice and over the past months we have had successes in key areas. We are pleased with our progress on increasing penetration with national and regional chain accounts. Through May, we have incremental sales to over 19,000 new restaurant locations, including to more than 10 large national accounts, as well as regional accounts. In addition, we are also gaining momentum with securing and converting local restaurant operations. Deeper penetration across restaurants also includes an increased menu participation and front of house presence. Our successes on menu items have included permanent additions as well as limited time offers and include products across our full portfolio. As an example, we have partnered with a Canadian quick service restaurant to launch a menu item including our Montréal steak, Cattlemen's BBQ and French's crispy products. We have also secured menu mentions in both restaurant on-site and television media campaign to build brand awareness with the end consumer through foodservice. Our efforts in increasing front of house presence are not limited to restaurants but cover the full spectrum of the foodservice industry, including business cafeterias, sports venues and lodging. Examples of our early successes include double-digit increases of French's mustard dispenser placements and mid single-digit sales increase across our portfolio of Frank's, French's, OLD BAY and McCormick's Tabletop items. Enabled by our new scale across our commercial teams, we are successfully cross-selling our culinary line McCormick For Chefs and Frank's and French's foodservice items into restaurants. Our foodservice promotional activities are also driving results. With Frank's, we have doubled the operator participation in the King of Wings program anchored in the February and March sports season. We are planning to capitalize in this success and increase Frank's awareness during another high wing consumption period, the beginning of football season by offering King of Wings for the first time in the fall. Further, for North American flavor solutions we are leveraging our product superiority to drive differentiation. Products like our Cattlemen's BBQ sauces provide superior performance and therefore tangible benefits to operators such as the more natural appearance, thicker consistency and better overall application on product. We have strengthened our marketing and selling materials to more prominently emphasize these functional differences and have started leveraging them in our sales efforts. Turning to the international markets on slide 10. We are progressing on integrating the Frank's and French's portfolio into our global network. We are continuing to apply discipline to establish the proper foundation to manage the brand globally, for example, ensuring proper product registration, trademarks and labels. We are also building a more professional presence in the market with a more sophisticated and optimized network and country specific labeling where applicable to enable stronger growth. We have transferred nearly 50 distributors from RB Foods management to McCormick and we have also added new distributors in 14 countries. We are also converting McCormick direct infrastructure where we have scale. As an example in Mexico, we are already utilizing the infrastructure of our joint venture partner. We have established a comarketing program with a leading food company specializing in protein to drive awareness and trial of Frank's. The program is targeting the millennial consumer social eating occasions such as at University's, concerts and sporting events to enjoy wings and other snacks. Overall, we are progressing as we plan to grow these brands and are excited about the momentum we are carrying into the second half of 2018. Now that the integration is behind us, we are even more confident that the combination of our powerful flavor brands will drive significant shareholder value. Mike is now going to provide more details on the financial results for the quarter and on our financial guidance. Before I turn it over to him, let me provide a few summary comments on slide 11. At the foundation of our sales growth is the rising consumer demand for flavor. We are aligned with the consumer's increased interest in bolder flavors, demand for convenience and focus on fresh natural ingredients as well as with emerging purchase drivers such as greater transparency around the sourcing and quality of food. With this increased interest, flavor continues to be an advantaged global category which combined with our execution against effective strategies will drive strong results as we go through the year. We are balancing our resources and efforts to drive sales with our work to lower costs to build fuel for growth and higher margins. Our second quarter financial results across both our consumer and flavor solutions segments are strong. We have confidence in our fiscal year outlook and are well-positioned to deliver another strong year in 2018. Around the world, McCormick employees are driving momentum and success and I thank them for their efforts and engagement. Thank you for your attention and it is now my pleasure to turn it over Mike. Mike?
Thanks Lawrence and good morning everyone. As Lawrence indicated, we delivered strong growth with our second quarter results. I will begin with a discussion of our results and then follow with comments on our current full year 2018 financial outlook. As seen on slide 13, we grew sales 19% and in constant currency 16%. Acquisitions, pricing and higher volume and product mix each contributed to the increase. Both our consumer and flavor solutions segments delivered strong topline growth driven primarily by the Americas. In addition, we have delivered significant increases in adjusted operating income and adjusted earnings per share as well as significant operating margin expansion. The consumer segment grew sales 16% in constant currency. Our acquisition of the Frank's and French's portfolio contributed 14% of the sales growth. On slide 14, consumer segment sales in the Americas rose 22% in constant currency versus the second quarter of 2017, with 20% of the increase from Frank's and French's incremental sales. The remaining increase was driven by both pricing and higher volume and product mix. Pricing included some incremental impact of 2017 pricing actions as well as actions taken late during the second quarter of 2018. While the colder weather impacted the start to the grilling season, as Lawrence mentioned, it drove volume growth in items such as branded recipe mixes. EMEA consumer sales increased 2% in constant currency driven by sales of Frank's and French's, as well as growth in France led by private label. Partially offsetting these increases was an impact from trade payments to expand distribution in the U.K. We grew consumer sales in the Asia-Pacific region 7% in constant currency led by China base business growth in herbs and spices, ketchup and bouillon. For the consumer segment in total, we grew adjusted operating income 44% to $131 million. In constant currency, adjusted operating income rose 40% from the year-ago period. The impact of sales growth and cost savings more than offset increases in brand marketing and freight costs. We expanded our consumer adjusted operating margin compared to the second quarter of last year by 280 basis points. Turning to our flavor solutions segment in slide 18, starting with sales growth. We grew constant currency sales 15%. Our acquisition of the Frank's and French's portfolio contributed 12% of the sales growth. The remaining growth was driven by both the base business and new products, offset partially by pricing actions across all regions related to the pass-through of certain commodity cost declines in our ingredients business as well as the elimination of some low-margin business. In the Americas, flavor solutions sales increased 22% in constant currency, including a 17% contribution from Frank's and French's and a 5% increase from the base business and new products. This base of new product increase was led by seasonings and branded foodservice sales as well as double-digit growth in savory flavors. It was partially offset by a decline in ingredient sales, attributable to both pricing and the elimination of some low-margin business as well as the global realignment of a major customer sales from the Americas to EMEA. We grew flavor solutions sales in EMEA 3% in constant currency with Frank's and French's contributing 1%. The remaining sales growth was driven by volume and product mix, which included a favorable impact from the global realignment of a major customer sales from the Americas to EMEA, as previously mentioned. Partially offsetting the volume and product mix growth was a decline due to pricing and the timing of customer promotional activity. In the Asia-Pacific region, flavor solutions sales were down 2% in constant currency, driven by the exit of low-margin business in the region as well as commodity cost declines passed through in pricing. New product sales to quick service restaurants in China partially offset these declines. As shown on slide 22, adjusted operating income for the flavor solutions segment ended the quarter up 67% at $77 million with a 3% favorable impact from currency. The increase was driven by favorable impact of higher sales, a shift to more value-added products and the impact of our CCI program. These impacts more than offset increases in brand marketing and freight costs and led to a 420 basis point expansion of adjusted operating margin compared to last year. Across both segments, adjusted operating income, which excludes the integration costs related to RB Foods and special charges, rose 51% in the second quarter from the year-ago period and in constant currency by 48%. This increase includes the impact of increasing our brand marketing in the second quarter. As Lawrence mentioned, our focus on profit realization and the reshaping of our portfolio has driven significant margin expansion. As seen on slide 24, in the second quarter, we increased gross profit margin 340 basis points year-on-year. While this expansion includes an accretion impact from the addition of the Frank's and French's portfolio, the core business was also a significant driver of the margin growth. Our portfolio shift to more value-added products and CCI-led cost savings continued to drive across profit expansion across both our segments. Our selling, general and administrative expense, as a percentage of net sales, increased by 10 basis points from the second quarter of 2017. Leverage from sales growth as well as CCI-led cost savings were more than offset by significant increases in distribution expense, driven by freight. The net impact of the gross margin expansion and the SG&A increase resulted in an adjusted operating margin expansion of 330 basis points from the second quarter of 2017. Below the operating income line, interest expense increased $29 million in the second quarter from the year-ago period, primarily driven by the debt secured for the RB Foods financing. Turning to income taxes on slide 25. Our second quarter adjusted effective tax rate was 22.2% as compared to 23.1% in the year-ago period, which included a favorable impact from a lower U.S. tax rate partially offset by a lower level of favorable discrete items. Our second quarter adjusted rate was lower than anticipated due to discrete tax items. There can be volatility in our rate quarter-to-quarter due to the impact of these discrete items and changes to our forecasted mix of earnings. Income from unconsolidated operations was $7 million compared to $8 million in the second quarter of 2017, a 12% decrease, mainly due to the elimination of higher earnings associated with minority interest. We continue to expect our 2018 income from unconsolidated operations to be comparable to 2017. At the bottom line, as shown on slide 27, second quarter 2018 adjusted earnings per share was $1.02, up 24% from $0.82 for the year-ago period, mainly due to higher adjusted operating income, partially offset by higher interest expense and shares outstanding. On slide 28, we summarize highlights for cash flow and the quarter-end balance sheet. Our cash flow provided from operations was $235 million for the second quarter of 2018 compared to $177 million through the second quarter of 2017. This change was driven by the increase in our net income. We continue to see improvements in our cash conversion cycle, finishing the second quarter at 67 days, down nine days versus our fiscal year-end, primarily driven by our extended terms and inventory programs. We returned $137 million of cash to shareholders through dividends and used $60 million for capital expenditures through the second quarter of 2018. We expect 2018 to be another year of strong cash flow and our priority is to continue to have a balanced use of cash, making investments to drive growth, returning a significant portion to our shareholders through dividends and to pay down debt. Year-to-date, we have made $100 million of prepayment on our three-year term loan secured as part of the RB Foods acquisition financing. This brings our total prepayments to $350 million. Let's now move to our current financial outlook for 2018 on slide 29. Our sales, adjusted operating margin and adjusted earnings per share targets for the year remain unchanged. At the topline, we reaffirm our guidance to grow sales 13% to 15%, including an 8% incremental impact of the acquisition of Frank's and French's and underlying base business and new product growth of 3% to 5% from higher volume, product mix and pricing as well as a two percentage point favorable impact due to currency. Previously, we expected at least $100 million of CCI. We now expect at least $105 million. With our revised CCI guidance, the momentum of our first half gross margin expansion and our continued strategy of shifting to a more value-added portfolio, we are now projecting our 2018 adjusted gross profit margin to be 175 to 225 basis points higher than 2017. This is an increase from our previous projection, which was a 150 to 200 basis point increase versus 2017. We expect this additional favorability to be offset by incremental freight costs. As a reminder, for 2018, we are planning to increase brand marketing at a rate above our sales growth and for the first half of 2018, our brand marketing increase was lower than the rate of our sales growth. We also expect currency favorability to be greater in the first half of the year than in the second half and we have seen more volatility and uncertainty recently. As such, our adjusted operating income increase remains unchanged. We expect to increase adjusted operating income 23% to 25% from $786 million in 2017, which includes a one percentage point impact from favorable currency rates. We reaffirm projected adjusted earnings per share of $4.85 to $4.95, an increase of 14% to 16% versus our $4.26 adjusted earnings per share in 2017. This range of growth includes an estimated one percentage point impact from favorable currency rates. For the fiscal year, we expect our higher profit and working capital initiatives to lead to another year of strong cash flow. In summary, we are projecting excellent growth in our 2018 constant currency outlook for sales, adjusted operating profit and adjusted earnings per share, following record double-digit performance across each objective in 2017. We also reaffirm our 2018 GAAP earnings per share range, which is projected to be $6.85 to $6.95. There are several projected 2018 adjustments which are expected to drive our GAAP to non-GAAP reconciliation. First, approximately $23 million for integration expenses related to RB Foods, which is in line with our previous estimate. Second, approximately $18 million of special charges. And finally, the net impact of two nonrecurring items required by the U.S. Tax Act, which is currently expected to be a tax benefit of approximately $298 million in 2018. The total net impact of these adjustments is anticipated to be a $2 favorable impact to our GAAP earnings per share for fiscal 2018. Finally, before we move to your questions, let me recap the key takeaways from our remarks this morning. Our momentum has continued into the second quarter and with our excellent first half results, the strength of both of our core business and our Frank's and French's portfolio is evident. We are delivering against our plans for both sales and profit realization and are confident in the effectiveness of our strategies. And finally, we are reaffirming our strong 2018 outlook for underlying sales, adjusted operating income and adjusted earnings per share growth. Now let's turn to your questions.
[Operator Instructions]. Our first question comes from the line of Robert Moskow with Credit Suisse.
Hi. Thank you. Good morning. I was curious about --
Hi. Good morning Rob
Good morning. Mike, I think you said that brand marketing was slower than sales growth in the first half and then it's going to reaccelerate in the back half and then your CCI is a little bit ahead of expectations, but then you said, I think that there's more volatility than you expected and I didn't quite get in what that was. So I guess the question is, did you have to reduce some of the advertising in the second quarter or shift it to take into account that volatility? And then I guess, the follow-up question is, the quarter is so much better than what consensus had, but it sounds like it was just in line with what you were planning and the phasing is different than what the street had forecasted for the year. Is that fair?
Yes. Rob, as you know, we are performing according to our plans and we really don't give quarterly guidance. So we feel it was a great quarter, as you said. The thing is, you have got to realize that some of this is timing and we talked about A&P. We have under-spent net sales growth year-to-date, but we have always planned for the year, the second half was going to be back-loaded from an A&P perspective. We are launching our first choice advertising late in the third quarter in Europe for our brand relaunch there of our Ducros and Schwartz. We have our French's and Frank's plans and strong grilling across the summer. So the comment about volatility was more around FX. You’re seeing some of the FX rates jumping around the last month or so. That's it. And our FX has been very favorable year-to-date, about 3.5%. We see that going down for the year about 2%.
I see. Okay. And then just one follow-up on French's. I think that it sounds like getting the distribution right is being well received by the trade but it's going to take a while to execute. What's the obstacle to getting it done? Like why not just have it done for this year's grilling season? Is it just kind like you have to convince retailer-by-retailer to do it? Or what is it?
Well, Rob, this is Lawrence. Well, first of all, I would say we are getting it done. So the change in the distribution that we talked about in our prepared remarks really reflects a lot of real execution that's already happened at retail, especially on Frank's, where we have substantially improved the distribution or the total points of distribution on the Frank's brand and we have made some good progress on mustard really just by stabilizing it, a story that's pretty positive. We inherited some distribution losses there, and the longer-term trend on distribution had been negative as well. So bringing stability to that is a good step in the right direction. Retailers, resetting a shelf operationally is a big deal for them. You do, do it customer-by-customer, but it's a disruption to their stores. And so they tend to have specific windows in which they will do the resets. And so even some of the changes that we have sold to customers and they have accepted haven't unfolded just yet because we are not at the window when they are going to reset that aisle or that section of the store.
Or the competitor product has to sell through.
Yes, exactly. But we have made a lot of progress in this area. I mean I am really pleased with it and there's a lot of runway for continued improvement there. We are really in the early innings of the improvement in distribution on French's and Frank's. They were tremendously under-skewed and under-shelved and the progress that we have made while it is meaningful and we are going to see it in the numbers in the second half, there's a lot more to be had there.
Yes. I didn't catch what you said about the competitor. Is the competitor also -- ?
Yes. Rob, even if you win and as Lawrence said, there are windows you have to reset things, the competitor product is on-shelf that has to sell through. It's still in their supply chain. So that is a natural delay.
Okay. All right. Thank you.
But there were a few of them or I don't think you have written a note on this, but some of your peers have written notes about noticing some of our competitors disappearing at certain accounts.
Well, they are doing a great job, those competitors. Thank you.
Thank you. Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question.
Hi. Thank you.
Hi Ken. Good morning, by the way.
Hi. Good morning everyone. I wanted to ask a couple of things. First, just in the store checks that we do when I put my hat on as a food retail analyst, we have seen, I know you don't want to mention specific customers, but I guess I can. Kroeger, moving some of spice and seasonings products around the store and in some cases, putting spices and seasonings in areas of the store where there's no other food. And I am just wondering, is this something you are seeing on any kind of broad scale? Or are these really, as far as you know and maybe you haven't seen this at all, are these sort of one-off changes in your view? I am just trying to get a sense of whether this is something that we should see as a canary in a coal mine a little bit.
So Ken, Kroeger certainly is doing that. I would say that that actually isn't anything new and it's something that we see is pretty widespread practice to put spices and seasonings into secondary locations. It's not abandonment of central sections for spices and seasonings, but putting spices and seasonings into the meat area, taco and so forth with the Hispanic product, some presence in the produce area, these are things that not only does Kroeger do but other accounts do and is actual performance that we sell to retailers to accelerate sales and in fact, we have got specific brands that are designed to live in those other parts of the store over in the produce section, we have Gourmet Garden brand and our Produce Partners brand. For example, Adolph's very often appears over in the meat section. So this kind of secondary placement is not unusual and really part of the health of the category.
Yes. I think I asked that question. I could have asked that in a better way. What I really meant was the primary placement has shifted. But I will follow up offline with that.
Okay. I would say we are not seeing the primarily placement shift really.
Okay. Good. Thank you for that. I appreciate that. And then I wanted to ask, we are looking, obviously, scanner data is becoming less meaningful for a lot of food manufacturers. It seems to be really less meaningful for you as you shift to some alternative customers. But we are seeing that for a number of your brands, not just with season, a number of brands, whether it's Zatarain's, OLD BAY, et cetera, that McCormick is losing distribution points as a company with a major customer. And I don't see a reason really for concern because at the same time that your distribution points are dropping, your velocities are getting a lot better with these brands. But is there anything that you can see in the data or help us understand why your TDP with this particular customer or with any one big customer is rolling over? Or is the data incorrect?
Sure. Well, Ken, let me take this in two parts. First of all, there's a syndicated Nielsen report that is widely drawn upon that's kind of a standardized product that they sell to the industry and we have had a disconnect versus that for a long time. It does not accurately track us. And where it does track, we believe, it's tracking the channels that are losing share, not where we are losing share, but that are actually losing share to other channels. And so we think it understates consumption overall, not just for us but for everybody. That's my opinion. I don't have a quantification on that. But what we call unmeasured channels have been outpacing the growth than measured channels for a long time. The second part of that, regarding the distribution point loss on some of the specific items. Yes, there's a statistical artifact in that, when you change your package, the old package shows up in the data and the new package, as if they were two separate items. So in OLD BAY, in particular, which is one of the ones that you mentioned, a year ago, we were converting from the metal tins to BPA-free plastic containers that they are in today. And while that transition was taking place, the syndicated data is reporting those items as if they were two separate things. So a three-ounce OLD BAY package was showing up really kind of as a double count and that has come out of there right now. So noise like that around packaging transitions makes a difference. And it sounds like, that wouldn't be very much on OLD BAY, in particular, that's actually quite a big difference and we haven't lost anything in OLD BAY. It's a great-performing product. And others like Zatarain's, rice mix is a category that is a little bit off trend right now due to carb consumption and TDPs for that entire category have declined and Zatarain's has lost some distribution along with that as consumers have gone more towards protein-based foods and away from carbohydrate-based foods. We will say that Zatarain's has an advantage and that it's more of a dinner mix than a side dish and so people add meat to it when they consume it but there has been some distribution loss on Zatarain's. But if you step back, the changes in distribution that are coming through in the syndicated data around OLD BAY and also on some of the spice items in, what we call the super deal size, reflect packaging changes. And there were also some limited-edition Grill Mate items that were out there a year ago and they have come out. So thus for those, we have actually gained distribution. So if you take that noise out, our points of distribution are actually up, not down.
That's really helpful. Thanks very much.
Sure.
Our next question comes from the line of Alexia Howard with AllianceBernstein. Please proceed with your question.
Good morning everyone.
Good morning Alexia
Okay. So one main question and a quick follow-up. Can you elaborate a little bit on how things are going in China? It looks as though the flavor solutions business is under a little bit of pressure sales-wise, but the consumer business is doing well. Is that e-commerce taking off? Or is that in more of the traditional trade? That would be great And then just a quick follow-up. Can you quantify the gross margin impact of the RB Foods acquisition? How much of a benefit has that been since that deal was closed? Thank you.
Great. Hi, Alexia, I will take the first half of that and then I will pass it over to Mike to talk about gross margin. But our business in China has been really robust on the consumer side. The majority of the growth that you are seeing over there is still being driven by really base business growth. We have continued to expand distribution, household penetration and we have gained share in every category that we compete in over there on the customer side of the business. So it's a great story. We are having tremendous growth on our new Tmall store, but I will temper that by saying it's still small and these are early days. We have only just opened it this year. So while, it's a contributor to the growth, that's not what the real growth story is in China just yet. On the flavor solutions business, yes, that business is just a choppy, lumpy business and we have a fair degree of customer concentration there. And so customer promotional activity can change the quarter-to-quarter numbers, but the trend line for flavor solutions in our business in China has been positive and continues to be and we have got a very good outlook for that. Mike, do you want to comment on gross margin?
Yes. I think the thing, just to follow up on your point on China, China flavor solutions actually grew, as we said. But in the rest of the zone, we were exiting some low-margin business as part of our focus on profit realization, but the China underlying flavor solutions business did grow. From a gross margin perspective, you asked a question about the share of the gross margin expansion due to RB Foods versus the core business. I would say approximately on a year-to-date basis, approximately half is from RB and half is focused coming from our core business, with really that focus on CCI and moving more toward value-added products.
Very helpful. Thank you very much. I will pass it on.
Thank you. Our next question comes from the line of Chris Growe with Stifel. Please proceed with your question.
I just had a couple of questions for you, if I could. The first one will just be in relation to the gross margin. It was up at a stronger rate and you just gave a little color around the sources of that growth. Freight costs are up. It seems like inflation is in line with expectations. I just feel that initially this quarter, you had a little less pricing coming through as well. So I wonder if you could speak about the pricing overall? And then how the effect that could have on the gross margin, given inflation is still in place for the business?
Good morning Chris. I will take this. This is Mike. From a gross margin perspective and pricing, yes, the pricing that's going through the first half of this year is really related to pricing actions we took in 2017. And we have talked about this in the script late in the second quarter. We have seen some of the pricing will start coming through late in the second quarter and third and fourth quarter will be fully effective. So you will see in the third and fourth quarter, a little bit more from a pricing perspective. But as we said from the beginning of the year, commodity, cost inflation is low single digits and we are passing that on low single-digit price increases. From a margin perspective, as I just mentioned about half of the gross margin improvement is from the core business, half from the RB accretion. We talked about CCI. We put in the $400 million target back in 2016 and we are delivering that. We are delivering this year. And that's why we called the full year to up that at least $105 million, really great performance there across the company. And this continued move to reshape our portfolio really a lot on the flavor solutions side with moving more to the flavor and seasonings and you saw a lift this quarter in the Americas zone, for example, savory flavor's up, seasoning's up. So those are the types of things that really help our core business grow gross margin.
Okay. And related to that just there was a comment on a couple of the divisions where you are exiting low-margin businesses in flavor solutions. Is there at all a quantifiable drag on the topline? And maybe even commensurately, how much of the incremental margin that non-RB Foods gross margin improvement is coming from that activity, if it's big enough to even cite?
No. It's build into our guidance for the year. So we don't quantify that, but it is helping our gross margin improvement.
And how much of a sales drag was that? Is that a large amount of sale drag? Did you walk away from some of these contracts?
We don't really break that out, Chris. But it's not material, but it's within our guidance for the year from a sales perspective.
Okay. Thank you.
Thank you. Our next question comes from the line of Rob Dickerson with Deutsche Bank. Please proceed with your question.
Great. Thank you so much. So yes, I guess I have a question that goes back to gross margin as well, but then also as it relates to EPS for the year. So Q1, you had a strong first quarter. It seems like you have a fairly strong second quarter with part of the EPS performance really being driven by better than the market expected on the gross margin side kind of falling through. And then we see you increased your gross margin guidance for the year by, I think, 25 basis points. But then the EPS isn't increasing. So I am just curious around your comments on FX volatility second half versus first half and the increase in marketing more back-half weighted, can you just provide some color as to like why you would not increase your EPS guidance for the year since the first half has been so strong? I guess, that's one. And then two is just if you are running at like 2.5% organic sales for the first half of the year, but the year implied 3% to 5%, that I am assuming we should still be expecting a decent step-up in the back-half to get us to that 3% to 5%? Thanks.
Right. There's a lot in there to unpick, Rob, but that's fine.
Sorry about that.
That's all right. No and you hit on a couple of points that I mentioned. But one thing, gross margins are up and part of that was due to our CCI efforts calling that up by $5 million. But on the SG&A line, where we classify freight unlike a lot of our peers, freight is up versus last year. So we didn't get leverage on our SG&A as we have done in the past due to that freight increases and we will see that continue into the third and fourth quarter. The other thing we mentioned, we are continuing to reinvest in our business and the A&P increase in the second half will be above the rate of sales. So that all plays into our full year guidance. Everything is baked into our range of $485 million to $495 million. And the FX, as you pointed out and I think, on a note, we were very favorable year-to-date and then the rest of the year, it will be somewhat neutral, but that's also impacting the second half growth rate.
Right. And I will just add to that, that our year is progressing as we have planned. We did just increase guidance last quarter and we still have our two biggest quarters ahead of us. And so I think we are comfortable with where everybody's models for the year are settled.
Okay. Fair enough. And then just one quick question on the pricing. I am just curious, I think I heard you mention promotional activity in different parts of the world. So I know pricing is coming through in certain categories, I assume in the Americas in the back half. So one is, do you feel like there's potentially a little bit increased promotional activity in the market at this point, one? And then two, was there any volume component that kind of offset some of that pricing this quarter or maybe in Q3? Thanks.
Rob, Lawrence here. I don't think that that wasn't what we were trying to message at all. I think what we are messaging is that first of all, the second half of the year seasonally is the strongest part of the year and so our promotional activity is higher overall and that our plans for the year always included an acceleration of marketing activity. As we got into the second half the year, I would say that is particularly true. On the Frank's and French's business, where a year ago we just acquired the business and really hadn't had a chance to impact the consumer marketing program during that high season. So that's all that we are trying to signal there. I think that on pricing, the message is that we have got the pricing that we were intending to take, we got not only negotiated but actually in place towards the end of the second quarter and so we would expect that to be a net benefit in the second half.
Yes. Other thing, Rob, the promotional activity, we might have been referring to in the script, really we talked about flavor solutions, the customers have different promotion schedules, so that impacts the timing of sales.
Fair enough. Thank you so much.
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. Two questions. I guess first, in the flavor solutions business, help me, I mean the margin expansion here has been quite considerable and just again trying to think about how mix between RB Foods and just some of the conscious to mix changes that you have undertaken in your base business have impacted it? And may be a little more color on the growth that you are seeing between the flavors and branded foodservice versus your ingredients businesses? That would be the first question.
Sure. Adam, this is Mike. Similar to the question that Alexia asked, for the whole company and for the segments, roughly about half of the accretion on gross margins is coming from the base business and half is coming from the RB Foods accretion. So it works out that way. Go ahead.
No, I was going to say and so is the rest more CCI? Or is it conscious mix changes in your own legacy business between branded foodservice flavors and some of the lower margin ingredients that you had before?
It's really both. I mean, CCI really falls across both segments, but it impacts flavor solutions heavily. But the conscious decisions we are making on the ingredient business also really focusing on flavors and seasonings and branded foodservice, which has also performed very well, both on the core business and then the Frank's and French's business too. So they are all leverage we are pulling to help us.
Okay. And then just more broadly and it's hard to parse given the old reporting and how it's now split. But RB Foods kind of in aggregate on its own, what was its organic growth in the second quarter, if you have that number?
I don't think that we are saying that, but the full amount of the sales, of course, is visible because the sales attributable to acquisition are 100% from RB Foods. I will say that RB is tracking uncannily close to our original acquisition model and --
Which Lawrence said in the first quarter too.
Yes, I know it is but it is uncanny how close it is which included some pretty aggressive growth as we go through this year. So we are really pleased with it, but we are not quantifying that. And there's a reason for that and that's because when we get to fourth quarter, it's going to drop into base business. And as we go forward, we are not going to be reporting on it separately. It will fall into the segments. And so it just seems like providing that visibility during this period of time would just be an unnecessary amount of detail. But you can see in the overall sales growth and in margins performance that we are getting good results there.
Okay. And I guess along similar lines, you are not disclosing the actual realized synergies to date on the acquisition?
No. But we have said this year, that we are progressing, we are getting higher than we originally thought. We are not quantifying it, but we are progressing well. At some point during the year, we will quantify it, but not yet. This is kind of a broad question, even back to why we aren't calling up our guidance. We are only about 40% through the year from an earnings perspective. Our big two quarters are coming up. So it's something, I think, in the third quarter, we will have more news.
Okay. I appreciate the color. Thanks.
Thank you. Our next question comes from the line of Jonathan Feeney with Consumer Edge Research. Please proceed with your question.
Good morning. Thanks for the question.
Good morning.
Hello. I wanted to ask about, I know you are not going to give us the apples-to-apples sales and volume for Frank's and French's, but you did give us some comments earlier in the call about some impressive distribution gains there and I really wanted to dig into, first of all, if you could comment as to whether those distribution gains on a regional basis and a national basis are an acceleration from what had previously been going on? I would imagine the answer to that question is yes, but please correct me if I am wrong about that. And I wondered what is it that you are doing to drive that? Are there some analytics there that you have that others don't? Or did you approached it in a different way? Like how would you bucket the success you are having with that because I think it applies broadly to what's going on with innovation in your company broadly? Thanks.
Hi. Great. Thanks, Jonathan. One of the things that we have got that the previous owner didn't have is that we have got tremendous category management capability. I mean, Reckitt Benckiser, that was a fabulous company. In their core categories, they have got tremendous capability, but this was not one of their core categories. They regarded this as an off-strategy business and so it didn't get the resources that the other brands in that company got. And their category management capabilities were frankly pretty rudimentary. Today's category management exercises require specialized tools, it requires a lot of data and it requires talent, all of which are expensive and require substantial scale to work. And so, their competitor was able to push them around at the shelf pretty handily for the last three years before we bought the business. And we have been able to successfully now push back against that. As an example, in many customers, French's mustard has the same shelf presence as, let's say, the other brand that's out there, but at three to four times the velocity. I mean, the competing brand doesn't deserve equal presence. Customers have been very responsive to the fact that French's is under-shelved and under-skewed and that the competitor's brands are over-shelved, over-skewed and may not even deserve to be there in the first place. And so that's a selling story that it's a customer-by-customer selling story, but they have been very receptive to it. The data totally supports it and we have been pretty credible. This is an area that's been historically a strength for McCormick. We have really built a lot of muscle in this capability over the last several years. And so I think we are able to push back pretty effectively. The gain, so far, are really pleasing. We again believe are not at the end of the story. There's a lot more runway still here to improve our shelf presence and share of shelves.
The other thing we bring to it and Lawrence mentioned this, but in the third quarter, we have anew French's advertising campaign. That would be the first time in several years. So that will help further drive growth.
Right. So while we have done a great job on the shelf in the first half of the year, I think as we get through the second half and start introducing the new advertising, we are going to see consumer response be really good.
Thank you.
That French's campaign actually just started this week. So it's in the market now.
Thank you. Our next question comes from the line of Akshay Jagdale with Jefferies. Please proceed with your question.
Hi. Good morning. Thanks for the question and congrats on a solid quarter.
Thanks.
Can you hear me?
Yes.
Okay. So I wanted to ask about the organic growth. So the acceleration that's expected in the second half, is that primarily pricing? Or does that include some of the distribution gains on the base business that we are not aware of?
Hi, Akshay, this is Lawrence. And it's not just pricing. Pricing is part of it. But we have a much stronger A&P plan in the second half of the year compared to the first, as Mike mentioned. For the first half of the year, our A&P spending, while it's up, is not up equal to our sales growth, but for the full year, we expect the company spending on A&P growth to be higher than sales growth. So implied in that is pretty strong acceleration of A&P spending in the second half of the year and that is our highest consumption period. And so I think that real consumer offtake driven by our marketing programs is one of the main factors. That and pricing. And we have distribution gains that we have won that haven't been fully reflected at the shelf in the first half of the year and indeed some of which are still even in the process of being implemented that give us a lot of confidence in the second half of the year, especially going into the fourth quarter. And then in the fourth quarter, remember that Frank's and French's will be part of that core business and we are going to be lapping some of the fourth quarter supply chain issues from last year. So we are expecting a very robust fourth quarter from that really good point.
Okay. And then just on the category management, obviously it's playing through quite nicely it look likes in the acquired business. But in the base business, my question on category management was the larger customer as you have seen, obviously, some strategic initiatives from them as it relates to private label and planned conversion and some promotion that I think have not been in line with what you would have suggested. So can you give us an update on that? And how that's shaping up? I mean, should we expect that the new shelf resets a different strategy? And the reason I am asking is obviously this has some huge impact from external data. But I am just wondering if you have enough data in that regard?
Well, I think, that our category management efforts are reinforcing on a competitive dynamic that we see in the market right now where the leading brand is gaining and private label is gaining. And if you are thinking of herbs, spices and seasonings in particular, this is a category where we make both. And so our category management efforts have been around accelerating the growth of those two and that's put pressure on everything that's in the middle. The numbers there are distorted by a new low by one large customer that we have talked about at some length. I am not going to repeat all that stuff. But if you look at the total grocery trends, our IRI scanner shows that we are pretty close to keeping pace with the category and I think our category management efforts there have been pretty successful.
And just one last one on the acquired business. Again, it's hard for us to really track the unmeasured data, but from your comment it looks like everything is right on track despite the late start to the grilling season. So can you help me marry those two because I am assuming you didn't foresee a late grilling season, but it sounds like if it weren't for a late grilling season, the numbers would have been even better and it's just a timing issue. Is that a fair way to think about it?
Well, I won't say that it's just a timing issue. But certainly, if we hadn't had a later start to the grilling season, I mean, March and April were cold and wet across the East and the South and that's where a lot of our consumption is. That consumption has gone. So that's not going to repeat. But yes, if it weren't for that, I think we would have been even stronger. I don't think that that really manifests itself so much on the French's and Frank's portfolio as much as it does on our core grilling products. Well, actually for French's and Frank's, this is the strongest start to the grilling season that they have had since the competitive product was introduced. This is the first time that those brands have gained volume during that period.
Okay. I will pass it on. Thank you.
Thank you. Our final question comes from the line of Steven Strycula with UBS. Please proceed with your question.
Hi. Good morning.
Good morning.
So I have a strategic question, Lawrence, for you, I wanted to understand for the United States and for France. What have some of the retail learnings been as they have maybe rotated and done a few this labeling change over to private-label. Has category value suffered at all from these decisions? And how do you kind of interpret the recent trend line in that direction? And then I have a quick follow-up. Thank you.
Okay. Well, that's an interesting question. For us, the change that happened for our brand, it was already an entry price point item. And so the transition from that entry price point economy brand to a private label really wasn't a category devaluing event. It wasn't a margin devaluing event for us either. The thing that has been category devaluing really within that customer has been some intense promotional activity that they have put against that item that occurred most intensely during, say, through fourth quarter and first quarter of last year. And as we lap that, I think we will see some improvement there. But that's the case for us. I really don't know what the answer to that is more broadly.
Okay. That's helpful. And then in the U.K., last year we saw some retailer action to just take net distribution out of the category for general merchandise. Has there been any thought process on to that coming back your way or to the category's way by any means? And then to wrap it up, just wanted to understand, if you guys do a little bit of private-label manufacturing for herbs and spices, is that to say that part of the commercial strategy in condiments might be to do the same for select retailers? Thank you.
Okay. So there are two questions. Well, first of all, in the U.K., we are coming up on the lap of that distribution change and so certainly, that won't be the negative impact that it has been. But on the other hand, I don't want to speculate in advance about what the change in distribution we might get with them going forward. As far as the condiment private label, I think that's something we would have to think long and hard about. That is not a business that we are in right now. We have provided private label in our urban spice category because it's a very complicated category to manage and we have tried to offer the customer a full category solution for the category. It's got hundreds of SKUs and it's very challenging to manage. Condiment is a little bit different than that. So I think we got to think long and hard about that. That's not a business we are in right now.
All right. Thank you.
Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Kurzius for any closing remarks.
Thanks everyone. I would like to thank everyone for your questions and I would like to apologize for those who are still in the queue. We have gone 15 minutes over and we do still have questions in the queue. So my apologies to those that we didn't get to and I would like to thank everyone who participated on today's call. McCormick is a global leader in flavor and we are differentiated with a broad advantaged portfolio which continues to drive growth. We are responding readily to changes in the industry with new ideas, innovation and purpose. With a keen focus on growth, performance and people, we continue to perform strong globally and build shareholder value. I am pleased with the strong results for the first half of the year and I am confident in our continuing momentum for growth in 2018. I look forward to reporting to you on the shareholder value we will continue to create. For those of you who are in the U.S., have a great Fourth of July and wherever you are, go out and grill something with lots of seasonings and top it off with French's and Frank's. Thank you.
Thank you, Lawrence and thanks to all for joining today's call. If you have any further questions regarding today's information, you can reach us at 410-771-7140. That concludes this morning's conference call. Thank you.