McCormick & Company, Incorporated Q2 FY2026 earnings call

### Core Quarterly Performance & Portfolio Strength - The company delivered robust sales growth, expanded underlying margins, and increased earnings in Q2 2026, demonstrating underlying business resilience. Accelerated momentum in Flavor Solutions offset soft consumer trends in parts of the Americas consumer segment. - The company holds share gains across multiple categories and markets: spices and seasonings in Canada, France, Poland, and China; recipe mixes in the UK; mustard in the US and Poland; hot sauce in the US, UK, and Australia; with expanded total distribution points across the Americas.

Consumer Segment Response to Current Market Conditions - Soft volume in US consumer spices and seasonings stems from increased consumer price sensitivity, higher competition from private label and branded competitors, and consumers drawing down pantry inventory. Weakness is concentrated in specific segments rather than broad-based across the category. - The company is implementing targeted corrective actions: refined revenue growth management, optimized price pack architecture, disciplined promotional and assortment strategies, targeted brand investment, expanded precision marketing, and consumer insight-driven innovation to improve consumption trends. - Pricing contributed 2% organic growth across the full consumer segment, with sustained 10 consecutive quarters of volume growth in EMEA.

Flavor Solutions Momentum - Volume growth exceeded expectations in Q2, driven by broad-based growth across large CPG, private label, and high-growth innovator customers, with strong branded food service growth from distributor volume recovery, sustained non-commercial channel demand, and strong e-commerce performance. - Innovation and reformulation activity is accelerating, particularly tied to health and wellness trends across beverages, protein products, snacks, and zero-sugar offerings. The company's win rate on health and wellness client projects remains strong, with reformulations from large CPG customers commercializing faster than initially expected.

Unilever Foods Acquisition Integration Update - Strong progress has been made on integration planning since the March 2026 announcement: a dedicated integration management office led by an experienced integration leader has been established, with 20 functional teams and over 200 total dedicated staff from both McCormick and Unilever working on the transaction. - Approximately 80% of Unilever Foods operates as a standalone organization, reducing separation complexity. Integration planning is being conducted country-by-country, with a focus on 10 core markets that represent 75% of combined sales. - Management reaffirms prior synergy and accretion targets: mid-to-high single-digit adjusted EPS accretion within 12 months post-close, and mid-to-high teens accretion by year three. - Key upcoming milestones: announcement of a European secondary exchange listing by end of July 2026, and release of further details on operating model, cost synergies, growth plans, and transition service agreements by end of September 2026.

Capital Allocation - The company maintains balanced capital priorities: funding growth investments, returning cash to shareholders via dividends, and maintaining a strong investment-grade balance sheet. Leverage at quarter-end was 2.9x, with progress being made on debt paydown ahead of the Unilever Foods close. Post-close, the company expects $1.5-2 billion available for debt paydown within the first two years, targeting a long-term leverage ratio of 2-3x.

1. Consumer Segment: Constant currency sales increased 20% YoY, with 1% organic sales growth (the rest of the growth came from the McCormick de Mexico acquisition). Organic sales were flat in the Americas (3% pricing growth offset by volume declines), grew 3% in EMEA (2% volume, 1% pricing), and grew 3% in Asia Pacific (driven primarily by volume, with continued recovery in China and strong performance in Australia). Adjusted operating income increased 33% (31% in constant currency), and adjusted operating margin expanded 140 basis points. This segment accounted for approximately 78% of total company adjusted operating income in the quarter. 2. Flavor Solutions Segment: Constant currency sales increased 6% YoY, with 3% organic growth and 3% acquisition contribution. Organic growth was split equally between volume and pricing. Organic sales grew 4% in the Americas (2% price, 2% volume, driven by strong flavors portfolio performance and branded food service growth), were flat in EMEA (lower QSR volume from softer foot traffic, particularly in the UK), and were flat in Asia Pacific (1% volume growth in China offset by softer QSR volumes in Australia). Adjusted operating income increased 26% (22% in constant currency), and adjusted operating margin expanded 210 basis points. This segment accounted for approximately 22% of total company adjusted operating income in the quarter.

Total company results: Total net sales grew 14% in constant currency (12% acquisition contribution from McCormick de Mexico, 2% organic growth). Gross profit margin expanded 270 basis points YoY (140 basis points from a tariff refund, 130 basis points of underlying expansion). Adjusted operating income grew 27% in constant currency. Adjusted EPS was $0.80, up 16% YoY, with $0.07 per share contribution from the tariff refund.

- Full year 2026 financial outlook remains broadly consistent with prior guidance. Full year organic sales growth will be supported by improving consumer segment volume (driven by refined revenue management, new products, expanded distribution, and increased marketing investment) and sustained volume momentum in Flavor Solutions, with pricing contributing more to organic growth than in 2025. - Gross margin is now expected to expand 100-120 basis points full year 2026, an upward revision from prior implied guidance, after a stronger-than-expected first half performance. - Q3 2026 adjusted operating income is expected to grow high single-digit to low double-digit YoY, supported by continued gross margin expansion. Growth will be partially offset by higher SG&A expenses from the timing of ERP technology investments, build-back of incentive compensation, and increased brand marketing investment. - Q3 2026 adjusted EPS will face an additional 700-800 basis point YoY headwind from the lapping of an unusually favorable 2025 Q3 tax rate (2026 Q3 tax will normalize to the full year guide of ~24%). - A total of $31 million in full year tariff refund benefits is expected: $28 million was recognized in Q2, with an additional $3 million expected in the second half, which will largely offset new incremental inflationary pressures from the Middle East conflict. - The company remains on track to deliver its long-term 2026 outlook, with 21% operating margin for the combined company at Unilever Foods close (before synergies), expanding to 23-25% operating margin after synergy realization, with 100% free cash flow conversion from net income pre-synergies.

- Persistent inflation, geopolitical volatility, and elevated fuel costs are weighing on consumer confidence, leading to increased value-focused shopping behavior and heightened price sensitivity that has pressured volume in some US consumer segments. - The Middle East conflict has driven higher-than-expected inflation on logistics and freight costs, which will continue to impact results for the remainder of 2026, pushing full year cost inflation to the high end of the prior 2-6% guidance range (~6%). - Increased competition from private label and emerging niche brands has pressured share in specific US consumer spice and seasoning segments. - Soft QSR foot traffic pressured Flavor Solutions volume in EMEA (excluding core markets) and Asia Pacific (outside of China) in Q2. - Large integration and acquisition activity for Unilever Foods carries inherent execution risk, though planning to date has proceeded on schedule.

Q: U.S. spices and seasonings saw soft consumption and wider price gaps this quarter, similar to a challenge McCormick addressed several years ago. Is this period different, and how does past experience inform the current response? / A: Management says the core strategic approach is the same as the prior period, but with two key differences. Pressure is concentrated in specific segments rather than broad-based across the category, and consumer inflationary pressure is higher after cumulative inflation in recent years. The evolved digital landscape also allows more targeted marketing than was available previously. Early results from corrective actions are already meeting expectations.

Q: How can investors gain confidence that current corrective actions for Americas consumer will deliver sustained improvement and reduce volatility, given the persistent stream of macro challenges? / A: Management notes that the company delivered sustained volume improvement during the prior similar period of market pressure, demonstrating the effectiveness of the proven playbook. The company has already built resilience into operations as a core 2026 strategic priority, and healthy underlying gross margin provides flexibility to increase investment in innovation and marketing. While sharp short-term consumer behavior shifts like the one seen in Q2 can create volatility, long-term category and company performance remain resilient.

Q: Flavor Solutions reformulation activity is picking up faster than the prior expectation of a 2027 driver. Is the Q2 strength lumpy, and what is driving the faster pace, and will it continue? / A: Management says Q2 strength was broad-based across customer segments, not concentrated in lumpy one-time activity. Reformulation projects from large CPG customers are commercializing faster than initially forecast, driven by accelerating market-wide health and wellness innovation that is also boosting demand from private label and high-growth innovator customers. This trend is expected to continue building, as McCormick continues gaining share in the flavor solutions market, with sustained growth from beverage innovation in away-from-home channels.

Q: What is the current progress of Unilever Foods integration planning, and how is it organized alongside day-to-day core business operations? / A: Dedicated teams at both McCormick and Unilever are working in parallel on structured workstreams, and the process is proceeding on schedule with strong cross-company collaboration. Clear separation between integration teams and core business operations ensures the base business remains unaffected. Management remains more excited about the combination's long-term potential after the first three months of planning, with alignment on all key milestones and targets.