McCormick & Company Inc (MKC) 2020 Q4 法說會逐字稿

Good morning.

This is Kasey Jenkins, Vice President of McCormick Investor Relations.

Thank you for joining today's fourth quarter earnings call.

To accompany this call, we posted a set of slides at ir.mccormick.com.

(Operator Instructions) We'll 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 information in constant currency as well as adjusted gross margin, adjusted operating income, adjusted income tax rate, adjusted earnings per share and adjusted leverage ratio that exclude the impact of special charges, transaction and integration expenses related to the acquisitions of Cholula and FONA and for 2019, the net nonrecurring benefit associated with the U.S. Tax Act.

Reconciliations to the GAAP results are included in this morning's press release and slides.

As a reminder, we completed a 2:1 stock split at the end of our fiscal 2020.

As a result, all per share amounts mentioned today, which will be also included in our 10-K, reflect the retroactive presentation of those amounts on a split adjusted basis.

In our comments, certain percentages are rounded.

Please refer to our presentation for complete information.

In addition, 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.

It is important to note these statements include expectations and assumptions, which will be shared related to the impact of the COVID-19 pandemic.

As seen on Slide 2, our forward-looking statement also provides information on risk factors, including the impact of COVID-19 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.

Starting on Slide 4. Our fourth quarter results completed a year of strong financial performance.

We delivered strong results in 2020 despite great disruption, proving the strength of our business model, the value of our product and our capabilities as a company as well as the successful execution of our strategies.

I am incredibly proud of the way McCormick has performed in this unprecedented operating environment.

We drove outstanding underlying operating performance while protecting our employees and recognizing their exceptional performance, making important investments in our supply chain and brand building to fuel future growth and supporting our communities through relief efforts.

We're also excited about the recent acquisitions of Cholula and FONA, 2 fantastic businesses that will continue to support differentiated growth and performance, positioning McCormick for success in 2021 and beyond.

As seen on Slide 5, we have a broad and advantaged global flavor portfolio with compelling offerings for every retail and customer strategy across all channels.

The breadth and reach of our portfolio across segments, geographies, channels, customers and product offerings creates a balanced and diversified portfolio to drive consistency in our performance during volatile times as evidenced by our fourth quarter and fiscal year results.

The sustained shift of consumer behavior to cooking and eating more at home or at-home consumption drove substantial increases in our Consumer segment demand as well as increases with our packaged food company customers in our Flavor Solutions segment.

On the other hand, we experienced declines in demand from our restaurant and other foodservice customers in the away-from-home products in our portfolio.

The impact of this shift to more at-home consumption has varied by region due to differing levels of away-from-home consumption and eat as well as the pace of each region's COVID-19 recovery.

Taken together, these impacts continue to demonstrate the strength and diversity of our offering.

Heading into 2021, I'm confident our operating momentum will continue.

And our 2021 outlook, our continued underlying business momentum and the Cholula and FONA acquisitions are expected to drive robust sales, adjusted operating income and earnings growth and fund our investments in business transformation.

This morning, I will begin with our fourth quarter results, reflect on our 2020 achievements and then share with you some of our 2021 business momentum and plans.

After that, I will turn it over to Mike, who will go in more depth on the quarter and fiscal year results as well as the details of our 2021 guidance.

Turning to Slide 6. Starting with our fourth quarter results, which were in line with the guidance we provided for sales, adjusted operating profit and adjusted earnings per share on our last earnings call.

On our top line, versus the year ago period, we grew total sales 5%, including a 1% favorable impact from currency.

In constant currency, we grew total sales 4%, with both segments contributing to the increase.

Adjusted operating income declined 4% as growth from higher sales and CCI-led cost savings were more than offset by higher planned brand marketing investments, COVID-19-related costs and higher employee benefit expenses.

Our fourth quarter adjusted earnings per share was $0.79 compared to $0.81 in the prior year driven primarily by lower adjusted operating income with a partial offset from lower interest expense.

Turning to our fourth quarter segment business performance.

Starting on Slide 7, in our Consumer segment, we grew fourth quarter sales by 6% on constant currency, 5% driven by consumers cooking and eating more at home.

Our Americas constant currency sales growth was 6% in the fourth quarter.

Our total McCormick U.S. branded portfolio, as indicated in our IRI consumption data grew 14%, which reflects the strength of our categories as consumers continue to cook more at home.

Similar to previous quarters, our sales increase was lower than the U.S. IRI consumption growth, which is attributable to service level pressures and an increased level of pricing in scanner data.

As mentioned in our earnings call at the end of September, we expected service level pressures in the fourth quarter due to the sustained increase in demand.

To protect our top-selling holiday items, we had to suspend or curtail production on some secondary product, which importantly drove our strong holiday execution.

And consistent with previous quarters, scanner data includes higher pricing growth due to the channel shift with grocery outpacing mass merchandisers and club stores as well as some impact from lower promotional activity.

Focusing on the U.S. branded portfolio.

In spices and seasonings and other key categories, excluding dry recipe mixes, we grew fourth quarter consumption at double-digit rate and again, increased our household penetration and repeat buy rates.

While fourth quarter dry recipe mix consumption was impacted by supply constraints, this had double-digit growth for the year as did spices and seasonings and the other key categories.

In the fourth quarter, we continued to gain share in categories less impacted by supply constraints, including hot sauces, stocks and broths, barbecue sauce, wet marinade and Asian products.

The majority of our categories continue to outpace the total store and center of store growth rates, favorably impacting not only the McCormick brand but smaller brands as well, such as Stubb's, Lawry's, Simply Asia and Thai Kitchen.

And in e-commerce, we had triple-digit pure-play growth with McCormick branded consumption outpacing all major categories.

While we do not expect consumption to continue at the highly elevated level of our fourth quarter, we do continued and long-lasting growth from the increase in consumers cooking more at home.

The most recent IRI scanner sales data for the 5 weeks ending January 17 showed total McCormick U.S. branded portfolio consumption is still growing at approximately 11.5%, with continued strength in spices and seasonings.

Consumers are continuing to come to our brands, have a good experience and buy our products again.

In the fourth quarter, we increased our brand marketing investments in all regions as planned, with the Americas messaging and promotional activities focused on holiday proving to be successful.

And our high level of effective brand marketing investments and our initiatives to deepen our digital engagement with consumers, we're capitalizing on the opportunity to build long-term brand equity, capture trial and increased usage by existing consumers.

And with the manufacturing capacity, we've recently added, we are well positioned moving into 2021 and will continue to drive growth through strong brand marketing, category management initiatives and new product innovation.

Now turning to EMEA.

Our constant currency sales rose 10% in the fourth quarter with broad-based growth across the region.

Our largest markets continue to drive double-digit total branded consumption growth with market share gains across the region in several categories.

Spices and seasonings consumption was strong in all markets, and our Vahiné brand in France again had strong consumption growth and outpaced the homemade desserts category.

In the U.K., Frank's RedHot drove the hot sauce category growth and gained share with over 50% consumption growth.

In EMEA, our household penetration and rate of repeat buyers increased significantly across our major brands and markets during the fourth quarter and the full year compared to last year.

Importantly, for the full year, we gained total EMEA region market share in spices and seasonings and dry recipe mixes.

In the Asia/Pacific region, our constant currency sales declined 10% driven by softness in branded foodservice products, which are included in our Consumer segment in this region.

The foodservice industry is continuing to recover but at a gradual pace.

Growth in China was also impacted by a shift to a later Chinese New Year in 2021, which in turn impacted shipments at the end of our year.

Excluding those impacts, consumer consumption in the region was strong, particularly at Gourmet Garden and Frank's RedHot in Australia.

Turning to Slide 8. Our sales performance in Flavor Solutions returned to growth in the fourth quarter with a constant currency sales increase of 3%, and all 3 regions contributed to the sales growth.

In both our Americas and EMEA regions, we experienced increased demand from our consumer packaged food customers or at-home customer base, with strength in the base business as well as momentum with new products.

Also in both regions, we experienced demand declines in our away-from-home customer base for branded foodservice and restaurant customers.

The net impact of this demand volatility, along with pricing actions to cover cost increases drove EMEA fourth quarter constant currency sales growth of 5% and in the Americas, which is more skewed to branded foodservice, growth of 2%.

In the Asia/Pacific region, our constant currency sales grew 7% driven by Australia and China's growth with quick service restaurant or QSR customers, where we continue to see momentum in limited time offers and the core business, partially driven by the customers' promotional activities.

Moving from our fourth quarter results.

I'm pleased to share our full fiscal year accomplishments, which not only highlight what we have achieved during 2020, but fuel our confidence to drive another year of strong operating performance in 2021.

Now starting with our 2020 financial results as seen on Slide 9, we drove 5% constant currency sales growth with 10% growth in our Consumer segment, led by consumers cooking and eating more at home.

Partially offsetting this growth was a 2% constant currency sales decline in the Flavor Solutions segment as COVID-19 restrictions in most markets as well as consumer reluctance to dine out, reduced demand from restaurants and other foodservice customers.

We achieved $113 million of annual cost saves driven by our CCI program, our fuel for growth.

And there continues to be a long runway in 2021 and beyond to deliver additional cost savings.

2020 was the ninth consecutive year of record cash flow from operations ending the year at over $1 billion, a 10% increase from last year.

We're making great progress with our working capital improvements.

At year-end, our Board of Directors announced a 10% increase in the quarterly dividend, marking our 35th consecutive year of dividend increases.

We have paid dividends every year since 1925 and are proud to be a dividend aristocrat.

Now I'd like to comment on some of our 2020 achievements beyond our financial performance.

E-commerce growth accelerated significantly in 2020, which we were well prepared for from our past investments and investments we activated early in the year.

Our 2020 growth of 136% was outstanding with triple-digit growth in all categories, including pure play, click and collect and our own direct-to-consumer properties.

We expect the consumer shift to increase online shopping to continue, and we are well positioned for the opportunities still ahead.

We continue to build long-term brand equity through our brand marketing investments increasing 7% in fiscal 2020, most recently with a double-digit increase in the fourth quarter across all regions, which will continue to drive strong growth momentum into 2021.

We designed targeted media messaging focused on cooking at home and connecting with consumers digitally more than ever in 2020.

Our digital leadership was again recognized as we were ranked as the #1 food brand, with the highest designation of GENIUS, by Gartner L2 research in their Digital IQ U.S. rankings.

This is the seventh year in a row we were ranked in the top 5 food and beverage brands.

We continue to be recognized for our efforts for doing what's right for people, communities and the planet.

During 2020, we were recognized for the fourth consecutive year as a DiversityInc top 50 company.

And earlier this week, Corporate Knights ranked McCormick in their 2021 Global 100 Most Sustainable Corporations Index as #1 in the food products industry for the fifth consecutive year as well as the #1 U.S. company overall and globally #6 overall.

Finally, during the year, we continued to invest to expand our global infrastructure.

In the Americas, we broke ground on a new "state of the art" Northeast distribution center in Maryland, which will optimize our distribution network.

In our EMEA region, we began construction on a new Flavor Solutions manufacturing facility in the U.K. to support the region's strong and growing customer base.

In China, we are investing in flavor capabilities to further drive Flavor Solutions growth.

These investments will create both capacity and capability, which will further drive our growth momentum.

Turning to 2021.

Mike will go over our guidance in a few moments, but I'd like to comment on our recent acquisition announcements and provide highlights related to our growth momentum and 2021 plans.

Starting on Slide 11.

In addition to the accomplishments I just mentioned, we have reinforced our global flavor leadership and accelerated our condiment and flavors growth platforms through the recent acquisitions of Cholula and FONA.

Cholula, an iconic brand in a high-growth category, is a leading Mexican hot sauce and highly complements our existing hot sauce portfolio, broadening our flavor offerings to consumers and foodservice operators.

FONA, a leading North American manufacturer of flavors, increases the scale of our global flavors platform with the addition of its highly complementary portfolio to our Flavor Solutions segment, expanding our breadth and accelerating our portfolio migration to more value-added and technically insulated products.

We're excited about the 2021 growth contributions we expect from Cholula and FONA, which closed at the end of November and December, respectively.

For both acquisitions, our transition and integration activities are progressing according to our plans, and the alignment of our organizations is underway to deliver on opportunities quickly and to aggressively drive growth.

We have a proven playbook and unmatched expertise to effectively and efficiently unlock Cholula's significant growth potential.

In our Consumer segment, we will leverage our operational expertise and infrastructure to elevate Cholula's brand presence, increase the availability of its products and extend its product offerings into new flavors, formats and eating occasions to drive trial and household penetration.

Building our enthusiasm is an outstanding momentum Cholula carried into 2021, continuing to outpace category growth with strong consumption.

In our Flavor Solutions segment, with our broad presence across all foodservice channels, we'll be focusing on strengthening Cholula's go-to-market model.

There are opportunities to expand Cholula's distribution in its existing foodservice channels as well as increase new restaurant penetration, which we are uniquely positioned to realize and drive growth.

McCormick's reach across customers, combined with our culinary foundation and deep insights on menu trends, expands the recipe inspiration and flavor solutions that we offer operators.

Turning to FONA, which in addition to accelerating our portfolio migration, will be the cornerstone for accelerating our Americas flavor platform.

By expanding our breadth and depth in developing flavors while also combining our infrastructures to provide greater scale and increase our manufacturing capacity and technical bench strength, we're providing our customers with a more comprehensive product offering, bolstering our competitive position and creating more opportunities for growth.

With the addition of FONA, we're advancing our health and wellness portfolio.

We're expanding our research and development capabilities and technology platform with additional proprietary encapsulation methods, including expertise in flavoring health and performance nutrition products across a variety of applications.

Our clean and natural platform is meaningfully enhanced with the addition of FONA's predominantly natural portfolio as well as their expertise, particularly in citrus and fruit flavors.

The combination of our technology platforms and capabilities will provide a long runway for growth, enabling us to remain at the forefront of flavor development and expand our ability to create better-for-you and consumer-preferred Flavor Solutions across a diverse range of applications for our customers.

Our complementary customer bases of global and mid-tier customers provides growth opportunities for our collective portfolios.

FONA's customer-centric culture is very similar to ours.

And with the combined power of our organization, we're well positioned to reach a broader customer base, deepening existing customer relationships by cross-selling and establish inroads with new customers while driving innovation.

Customer response to the acquisition has been favorable as they recognize our combined power increases our customer value proposition.

We're confident we'll deliver on our acquisition plans.

This confidence is bolstered by a proven track record of successfully integrating and increasing the performance of acquired businesses, such as our acquisition of Frank's and French's.

Acquisitions are a key part of our long-term growth strategy, and both Cholula and FONA will add to our strong history of creating value through acquisitions.

Now I'd like to briefly comment on the conditions we're seeing in our markets, their potential impact and our 2021 organic growth plan, starting on Slide 14.

Global demand for flavor remains a foundation for our sales growth.

We're capitalizing on the growing consumer interest in healthy, flavorful cooking, trusted brands as well as digital engagement and purpose-minded practices.

These long-term trends have only accelerated during the pandemic.

Our alignment with these consumer trends, combined with the breadth and reach of our portfolio, sustainably positions us for continued growth.

These underlying trends, current market conditions and our robust 2021 plan position us well to successfully execute on our growth strategies in both segments.

Starting with our Consumer segment.

Around the world, we continue to experience sustained elevated consumer demand, which is real incremental consumption and reflects the trend of consumers cooking more at home.

Across our APZ region, consumer demand continues to be strong.

In China, consumer consumption remains strong, and we continue to see recovery in foodservice, which in China is in our Consumer segment, as well as optimism about the Chinese New Year holiday, which was significantly disrupted last year by the COVID-19-related lockdown.

And in Australia, even with restaurant restrictions eased and away-from-home demand increasing, at-home consumption has remained elevated.

In EMEA, many of our largest markets have recently implemented more restrictive COVID-19 measures, further fueling at-home consumption.

And we're seeing sustained levels of demand.

And of course, we see the same in the Americas.

Consumers cooking more from scratch and adding flavor to their meal occasions is a key long-term trend, which has accelerated during the pandemic.

Our proprietary consumer survey data supported by external research indicates consumers are enjoying the cooking experience and feel meals prepared at home are safer, healthier, better-tasting and cost less.

And while there have been great advances in vaccine development and distribution, there's a significant amount of uncertainty regarding the pace of vaccination in the upcoming months.

We believe that consumer behavior and sentiment driving an increased and sustained preference for cooking at home will continue globally and will persist beyond the pandemic, further driving consumer demand for our products, fueled by robust marketing, differentiated new products and our strong category management initiatives.

Our categories across the globe experienced a sustained elevated level of demand for most of 2020 because of this shift in consumer preference, which, coupled with added employee safety measures that initially reduced manufacturing capacity, depleted finished goods inventory levels, both for us and our customers and challenged our operations.

The real pressure has been on our U.S. manufacturing operations, where through the latter part of 2020, we added significant capacity.

We ended the calendar year with considerable incremental capacity through the expansion of our workforce, scaling up partnerships with third-party manufacturers and other measures in line with our previously shared plan.

In December, our Americas consumer production output was approximately 40% higher than last year.

Currently, service levels are improving and restoration plans have begun on most of the secondary items, which were suspended in order to meet the significant demand for our top-selling products.

We've now resumed shipping approximately 2/3 of the products, which had been suspended, with the balance to be added over the next several weeks.

And we expect shelf conditions to improve considerably over the next few weeks.

We're continuing to work through a stabilization period, and inventory replenishment will progress through the first half of the year.

Our category management initiatives are designed to drive growth for both our customers and McCormick, and I'd like to thank our customers for their partnership and working together with us on long-term solutions.

We're confident we're well positioned for success in 2021, and we've implemented efficient, long-term solutions and strengthened our supply chain resiliency longer term to support continued growth.

Also in the U.S. in 2020, we began our initiative to reinvent the in-store experience for spices and seasonings to consumers by introducing new merchandising elements to improve navigation and drive inspiration.

Our rollout will continue in 2021.

And with increased cooking at home expected to continue, this initiative is even more exciting to drive both category and McCormick branded growth.

Turning to global brand marketing.

We continue to increase our investments across our entire portfolio, which have proven effective and achieved high ROI.

We will continue to connect with consumers online, bringing real-time insights into actions by targeting messaging, focused on providing information and inspiration, for instance, with tips, tricks, new recipes and product to keep their meals exciting and cooking easy.

We expect our brand marketing investments, combined with our valuable brand equities and strong digital consumer engagement, will continue to drive growth with existing consumers and the millions of consumers gained in 2020.

New products are also integral to our sales growth.

In 2020, 7% of our total McCormick sales were from products launched in the last 3 years.

In our Consumer segment, new product innovation differentiates our brands and strengthens our relevance with consumers.

Our 2020 launches provide significant momentum going forward with exceptional trial.

Overall, the sell-in of our new product launches and big-bet innovation from our Flavor Solutions customers slowed in 2020 due to the focus on keeping core items on retail shelves.

Moving into 2021, we're excited about the strong pipeline, both we and our Flavor Solutions customers are carrying into the year.

In our Flavor Solutions segment, we have a diverse customer base and have seen various stages of recovery.

From a food-at-home perspective, our Flavor Solutions growth varies by packaged food customer.

But overall, as we mentioned last quarter, we've returned to pre-COVID growth rates.

We're carrying our growth momentum with packaged food customers into '21 driven by strength in their core iconic products as well as new products and bigger-bet innovation in 2021.

In our away-from-home portion of this segment, our restaurant and other foodservice customers are still impacted by government-imposed COVID-19 restrictions in most markets.

In some areas, our restaurant customers, including quick service restaurants, have been faced with an increase in restrictions due to case resurgences.

Although the impact has not been as significant as at the beginning of the crisis, given many customers have adapted their operating models toward delivery and carryout, the recovery of our branded foodservice customers continues to be slow and is also impacted by COVID-19 resurgences.

Overall, there is significant disruption experienced in 2020, recovery has begun, and we're expecting it to continue in 2021.

As QSR customers are oriented less to dine in, their recovery will be at a faster pace than the rest of the restaurant and foodservice industry.

We have positive fundamentals in place to navigate through this period and are excited about the recovery momentum.

We are advantaged by our differentiated customer engagement in Flavor Solutions and plan on driving further wins for both us and our customers in fiscal 2021.

With our customer intimacy approach, we will continue to drive new product wins, collaborate on opportunities and solutions, manage through recovery plans and importantly, further strengthen our customer partnerships.

Additionally, the execution of our strategy to migrate our portfolio to more technically insulated and value-added categories will continue in 2021.

With top line opportunities gained from our investments to expand our flavor scale, our momentum in flavor categories as well as opportunities from our FONA acquisition, we expect to realize further results from this strategy.

In summary, we continue to capture the momentum we have gained in our Consumer segment, have positive fundamentals in place to navigate through the Flavor Solutions recovery and are excited about our Cholula and FONA acquisitions, all of which bolster our confidence for continued growth in 2021.

We expect sales growth to vary by region and quarter in 2021 given 2020's level of demand volatility and the pace of COVID-19 recovery.

But importantly, we expect we will drive overall organic sales growth in both of our segments.

Our fundamentals, momentum and growth outlook are stronger than ever.

Our achievements in 2020, our effective strategies, our robust operating momentum reinforce our confidence in delivering another strong year of growth and performance in 2021.

The following an extraordinary year in 2020, our 2021 outlook reflects both our strong underlying base business performance and acquisitions driving significant sales growth as well as strong operating income growth even considering extraordinary COVID-19 costs and our business transformation investments, which highlights our focus on profit realization.

Our top-tier, long-term growth objectives remain unchanged, and we're positioned for continued success.

Importantly, McCormick employees around the world drive our momentum and success.

During 2020, our employees demonstrated and advanced their skills, agility and resiliency during a highly challenging time, and I would like to thank them for their dedicated efforts and engagement as well as adapted to this new environment.

Now Mike will share additional remarks on our 2020 financial results and 2021 guidance.

Thanks, Lawrence, and good morning, everyone.

I will now provide some additional comments on our fourth quarter performance and full year results as well as detail on our 2021 outlook.

Starting on Slide 19.

During the fourth quarter, sales rose 4% in constant currency.

Sales growth was driven by higher volume and mix in our Consumer segment with volume and mix in our Flavor Solutions segment comparable to last year.

Pricing to partially offset cost inflation also contributed favorably to both segments.

The Consumer segment sales grew 5% in constant currency led by the Americas and EMEA regions.

The sustained shift to at-home consumption and cooking more at home as well as consumers adding flavor at home to their restaurant carryout and delivery meals, continues to drive increased demand for our consumer products, resulting in higher volume and mix in these regions.

On Slide 20, Consumer segment sales in the Americas increased 6% in constant currency versus the fourth quarter of 2019 driven by higher volume and product mix across many brands, including Simply Asia, Thai Kitchen, Frank's RedHot, French's, Lawry's, Zatarain's, Gourmet Garden and Stubb's, to name a few.

Partially offsetting these increases were volume declines in McCormick branded spices and seasonings and recipe mixes as well as private-label products due to capacity constraints.

In EMEA, constant currency consumer sales grew 10% from a year ago, with strong growth in all countries across the region.

The most significant volume and mix growth drivers were our Schwartz and Ducros-branded spices and seasonings, our Vahiné homemade dessert products and our Kamis-branded products in Poland.

Consumer sales in the Asia/Pacific region declined 10% in constant currency driven by lower branded foodservice sales and a shift to a later Chinese New Year, as Lawrence mentioned.

Turning to our Flavor Solutions segment in Slide 23.

We grew fourth quarter constant currency sales 3% with growth in all 3 regions.

In the Americas, Flavor Solutions constant currency sales grew 2% driven by pricing to cover cost increases, offset partially by lower volume and product mix.

Volume and product mix declined due to a reduction in demand from branded foodservice and other restaurant customers.

Partially offsetting this decline was higher demand for packaged food companies with particular strength in snack seasonings.

In EMEA, constant currency sales increased 5%, attributable to pricing to cover cost increases as well as higher volume and product mix.

Volume and product mix increased driven by sales growth with packaged food companies with strength in snack seasonings, partially offset by lower sales to branded foodservice and other restaurant customers.

In the Asia/Pacific region, Flavor Solutions sales rose 7% in constant currency, driven by higher sales to QSRs in China and Australia partially due to our customers' limited time offers and promotional activities.

As seen on Slide 27, adjusted operating income, which excludes transaction costs related to the Cholula and FONA acquisitions and special charges, declined 4% in the fourth quarter versus the year ago period with minimal impact from currency.

Adjusted operating income declined in the Consumer segment by 2% to $221 million or in constant currency, 3%.

In the Flavor Solutions segment, adjusted operating income declined 9% to $70 million or 8% in constant currency.

Growth from higher sales and CCI-led cost savings were more than offset in both segments by several drivers.

In the Consumer segment, an 18% increase in brand marketing from the fourth quarter of last year unfavorably impacted adjusted operating income growth.

And in the Flavor Solutions segment, unfavorable product mix due to the decline in branded foodservice sales contributed to its adjusted operating income decline.

Both segments were also unfavorably impacted by COVID-19-related costs and higher employee benefit expenses, including incentive compensation.

As seen on Slide 28.

Gross profit margin in the fourth quarter was comparable to the year ago period as we had planned.

Adjusted operating margin declined 180 basis points compared to the fourth quarter of last year driven by the net impact of the factors I mentioned a moment ago as well as higher distribution and transportation costs.

For the fiscal year, gross margin expanded 100 basis points driven by CCI-led cost savings and favorable product mix resulting from the sales shift between segments, which more than offset COVID-19-related costs.

Adjusted operating income increased 5% in constant currency and adjusted operating margin was comparable to last year.

The Consumer segment grew adjusted operating income 16% in constant currency, primarily due to higher sales and CCI-led cost savings, partially offset by a 7% increase in brand marketing, higher incentive compensation expense and COVID-19-related costs.

In constant currency, the Flavor Solutions segment's adjusted operating income declined 20%, driven by lower sales, unfavorable product mix and manufacturing costs, COVID-19-related costs and higher incentive compensation expense, with a partial offset for CCI-led cost savings.

Turning to income taxes on Slide 29.

Our fourth quarter adjusted effective tax rate of 22.9% compared to 24.7% in the year ago period was favorably impacted by discrete items.

For the full year, our adjusted tax rate was 19.9% as compared to 19.5% in 2019.

Income from unconsolidated operations declined 9% in the fourth quarter of 2020, and the full year was comparable to 2019.

At the bottom line, as shown on Slide 31, fourth quarter 2020 adjusted earnings per share was $0.79 as compared to $0.81 for the year ago period.

The decline was primarily driven by our lower adjusted operating income, partially offset by the lower interest expense and a lower adjusted income tax rate.

For the year, our 5% constant currency increase in adjusted operating income, combined with a lower interest expense drove a 6% increase in adjusted earnings per share to $2.83 for fiscal 2020, including the impact of unfavorable currency exchange rates versus last year.

On Slide 32, we summarize highlights for cash flow and the year-end balance sheet.

Our cash flow from operations ended the year at a record high of more than $1 billion, a 10% increase compared to $947 million in 2019, primarily driven by higher net income.

We finished the fiscal year with our cash conversion cycle down 9% versus our 2019 fiscal year-end as we continue to execute against programs to achieve working capital reductions.

We returned $330 million of this cash to our shareholders through dividends, and we are very pleased that we fully paid off the term loans related to the acquisition of the Frank's RedHot and French's brands.

Following the acquisitions of Cholula and FONA, we have a pre-synergy pro forma net debt to adjusted EBITDA ratio of approximately 3.9x.

And we expect to delever to approximately 3x by the end of fiscal 2022.

Based on our demonstrated track record of debt paydown and our anticipated strong cash flow generation, we are confident that we will deliver on our plan.

Our capital expenditures were $225 million in 2020 and included growth investments and optimization projects across the globe, including our ERP business transformation investment and beginning the supply chain global infrastructure investments that Lawrence mentioned earlier.

In 2021, we expect our capital expenditures to be higher than 2020 as we continue to spend on the initiatives we had in progress as well as support our investment to fuel future growth.

We expect 2021 to be another year of strong cash flow driven by profit and working capital initiatives.

And our priority is to continue to have a balanced use of cash, funding investments to drive growth, returning a significant portion to our shareholders through dividends and paying down debt.

Now I would like to discuss our 2021 financial outlook on Slides 33 and 34, with a brief update on our ERP replacement program first.

Starting with our ERP replacement program, we remain committed to this business transformation initiative and have recently completed our rephasing of the program.

We are now projecting the total cost of our ERP investment to range between $350 million and $400 million from 2019 through the anticipated completion of our global rollout in fiscal 2023, with an estimated split of 50% capital spending and 50% of operating expenses.

As such, the total operating expense impact for the program to be incurred from 2019 through 2023 is estimated to be between $175 million and $200 million, slightly lower than our previous estimate.

In fiscal 2021, we are projecting our total operating expense to be approximately $50 million, which is an incremental $30 million over fiscal 2020.

And at this time, we are not anticipating any significant go-lives in 2021.

By the end of 2021, we will have spent approximately $90 million of the total program operating expense.

We are excited to continue moving forward with this investment to enable us to further transform our ways of working and realize the benefits of a scalable growth platform.

Moving to our 2021 outlook with our broad and advantaged flavor portfolio, our robust operating momentum and effective growth strategies, we are well positioned for another year of differentiated growth and performance.

In our 2021 outlook, we are projecting top line and earnings growth from our strong base business and acquisition contribution, with earnings growth partially offset by the incremental COVID-19 costs and the ERP investment as well as a higher projected effective tax rate.

We also expect that there will be an estimated 2 percentage point favorable impact of currency rates on sales, adjusted operating income and adjusted earnings per share.

At the top line, we expect to grow constant currency sales 5% to 7%, including the incremental impact of the Cholula and FONA acquisition, which is projected to be in the range of 3.5% to 4%.

We anticipate our organic growth will be primarily led by higher volume and product mix driven by our category management, brand marketing, new products and customer engagement growth plans.

As Lawrence mentioned earlier, we expect sales growth to vary by region and quarter in 2021, given 2020's level of demand volatility and the pace of the COVID-19 recovery.

But importantly, we expect we will drive overall organic sales growth in both of our segments.

Our 2021 adjusted gross profit margin is projected to be comparable to 25 basis points higher than 2020, which reflects margin accretion from the Cholula and FONA acquisitions as well as unfavorable sales mix between segments and COVID-19 costs.

We estimate COVID-19 costs to be approximately $60 million in 2021 as compared to $50 million in 2020 and weighted to the first half of the year.

Fiscal 2021's COVID-19 costs are largely driven by third-party manufacturing costs and, of course, could vary based on demand fluctuations.

Our adjusted operating income growth rate reflects expected strong underlying performance from our base business and acquisitions, which is projected to be 10% to 12% constant currency growth, partially offset by a 1% reduction from increased COVID-19 costs and a 3% reduction from the estimated incremental ERP investment.

This results in a total projected adjusted operating income growth rate of 6% to 8% in constant currency.

This projection includes low single-digit inflationary pressure and our CCI-led cost savings target of approximately $110 million.

It also includes an estimated low single-digit increase in brand marketing investments, which will be heavier in the first half of the year.

Our 2021 adjusted effective income tax rate is projected to be approximately 23% based upon our estimated mix of earnings by geography as well as factoring in a level of discrete impacts.

This outlook versus our 2020 adjusted effective tax rate is expected to be a headwind to our 2021 adjusted earnings per share growth of approximately 4%.

Our 2021 adjusted earnings per share expectations reflect strong base business and acquisition performance growth of 9% to 11% in constant currency, partially offset by the impacts I just mentioned related to COVID-19 costs, our incremental ERP investment and the tax headwind.

This results in an increase of 3% to 5% or 1% to 3% in constant currency.

Our guidance range for adjusted earnings per share in 2021 is $2.91 to $2.96, compared to $2.83 of adjusted earnings per share in 2020.

Based on the expected timing of some expense items, such as COVID-19 costs and brand marketing investments as well as a low tax rate in the first quarter of last year, we expect our earnings growth to be weighted to the second half of the year.

We have a strong start to the year and recognize we are lapping a very strong second quarter of 2020.

In summary, we are projecting strong underlying base business performance and growth from acquisitions in our 2021 outlook, with earnings growth partially offset by incremental COVID-19 costs and ERP investment as well as a higher projected effective tax rate.

I'd like to now turn it back to Lawrence for some additional remarks before we move to your questions.

Thank you, Mike.

Now that Mike has shared our financial results and outlook in more detail, I would like to recap the key takeaways as seen on Slide 35.

We delivered strong results in 2020 despite great disruption, proving the strength of our business model, the value of our products and our capabilities as a company as well as the successful execution of our strategies.

We have a strong foundation.

We're confident in the sustainability of at-home consumption and with the investments we've made to strengthen our supply chain resiliency, we are even better positioned to capitalize on accelerating consumer trends.

We're excited about the recent acquisitions of Cholula and FONA, which reinforce our global flavor leadership and accelerate our condiment and flavors growth platform.

We are confident these investments further position us for continued success.

Our fundamentals, momentum and growth outlook are stronger than ever.

Our 2021 outlook reflects another year of differentiated growth and performance while also making investments for the future.

We are confident we will emerge stronger from these uncertain times.

Now let's turn to your questions.

(Operator Instructions) And our first question comes from the line of Andrew Lazar with Barclays.

Lawrence, thank you for the additional color in Consumer Americas around some of the capacity and service level dynamics that you were facing over the last couple of months or quarters.

I guess, first off, I'm curious if those dynamics are in such a place now where we should expect sort of shipments to start to outpace consumption sort of in 1Q and 2Q.

Or if you expect still maybe somewhat of a lag effect because you're still building the capacity and the service levels to where you want them to be?

Because I'm trying to just dimensionalize that sort of first quarter aspect.

But more importantly, how to dimensionalize maybe how big of a benefit to 2001 organic growth just a rebuilding of inventory levels to the extent that needs to happen can be to organic growth?

And then I just have a quick follow-up.

Right.

Sure.

Well, Andrew, we've been ramping up production as we've gone through the fourth quarter -- and well, really it's through the third and fourth quarter as we talked about on previous calls.

And anybody that walks into a store can see that the shelves are pretty poor conditioned.

There are a lot of holes in the shelf, particularly in spices and seasonings and recipe mixes that reflect the fact that we've had our secondary SKUs on suspension to protect the key holiday items.

And it's really been those 2 categories that's had the greatest impact.

Our other product categories has had pretty good service through the third and fourth quarter and into this year.

So that's been our focus area.

We have -- starting at the beginning of January, begun reinstating those secondary items.

And so they are coming back on.

As we said in our prepared remarks, about 2/3 of them have been reinstated and the remainder coming in the coming weeks.

So I think you'll see the shelves starting to get a lot better gradually over the next few weeks.

We still are allocating product.

There's a big bow wave of demand ahead of us as our customers want to rebuild their inventory.

And frankly, everyone forgets about consumer pantries being a bit bare during this time as well.

So we do expect there to be a benefit to this fiscal year.

And we're really thinking about it in terms of the first half in terms of the rebuild of Consumer inventory.

I also want to emphasize that this is an Americas problem.

Our manufacturing has really been able to keep up with the demand in the rest of the world.

It's just the scale of our Consumer business in the Americas is so great, particularly in the fourth quarter of the year.

Even in normal circumstances, we have to prebuild inventory to supply the huge demand that comes through in those categories in the fourth quarter of the year.

And coming into the fourth quarter, very much hand to mouth already due to the sustained demand.

That's why we were signaling that we were going to have service issues through the fourth quarter.

We knew that to be the case.

I will say, just commenting on current conditions, and I don't want to get too much into 2021.

We were almost 2/3 of the way through our first quarter and the service levels that we are shipping to our customers, while we're still allocating product, it's the best service that we've had since the spring.

Got it.

And then a super quick follow-up.

I found your comments very interesting around the trends you're seeing in Australia.

As restrictions ease, consumption of at-home items still remains elevated at this point.

And some other companies have said similar things.

I've also heard similar things be discussed around China for some companies as well there as restrictions have eased.

And I may have missed it.

Are you seeing that same dynamic in your China business as well or not as much?

Yes, but it's not quite -- yes, we are, but it's not quite as clean in China.

Because in China, they've actually reinstated some restrictions.

So it's not the same as it was a year ago where there was a government lockdown.

But the government is encouraging people not to travel, encouraging people to celebrate Chinese New Year at home.

Generally in China when the government gives encouragement to do something, they do it.

And so I think that right now, for Chinese New Year, I'm not sure we can draw a lot of conclusions around the consumer behavior.

It's not quite as clean as in Australia, where COVID seems to be under control.

Restrictions have been lifted, and consumers are still making the choice without that government encouragement to continue to cook at home.

Right.

Too, in 2021, Chinese New Year is later in the first quarter.

So after that, they'll have a better read on it.

Yes, I think so.

But Andrew, as a couple of other companies have commented on it, and I'll just say it again.

Our consumer research, both the syndicated information that we get and our own proprietary research, says consumers are enjoying cooking more at home.

3 out of 4 consumers say it relaxes them.

It reduces their stress.

Probably 1/4 of consumers say they actually intend to cook more at home after the pandemic than they are even now.

And with the added uncertainty around the vaccine timing and the take-up of the vaccine and new variants emerging, I think that there's a lot of reason to believe consumption is going to be elevated this year, at least for quite some time.

The next question comes from the line of Ken Goldman with JPMorgan.

I wanted to ask -- I think you mentioned -- when you talked about the sales drivers, organic sales drivers for '21, I think you mentioned volume and product mix.

Unless I missed it, I didn't think I heard pricing.

So I'm curious, do you expect pricing to play any major role in your growth this year?

And as a corollary to that, how might you maybe describe the willingness of your customers to kind of accept price hikes at this time?

Sure.

Well, Ken, first of all, pricing is an ongoing discussion with customers.

I don't want to get too specific about pricing actions that haven't been taken because of customer and competitive freeze and so on.

And so our comments on that are pretty limited right now.

I'll remind everybody on the call that 40% of our sales are through the Flavor Solutions segment, and a great portion of that is based on a contractual relationship where there's a pass-through of pricing.

I don't think we have the same pressure on pricing as maybe some other companies.

Our outlook is for low single-digit inflation.

We have a unique basket of commodities and input costs that are not an exact match to inflation or an exact match to our peers.

We do use CCI as well.

We are seeing cost inflations.

Freight is up.

Ocean freight, in particular, is an emerging -- a current and emerging concern.

But we're really not prepared to talk about -- make too many specific comments about pricing right now.

We do have some wrap from 2020 pricing actions.

And where we need to take pricing in 2021, we're confident we can take it.

And then for my follow-up, you're balancing a lot of things right now that some might consider outside what might be the normal course of business, right?

You're undertaking an ERP implementation or at least you're starting to, right?

You're integrating 2 acquisitions.

You're navigating through COVID.

So can you just help us think about how you and your team are maybe balancing some of the balls in the air right now or keeping them in the air?

And how you sort of allocate your time, your -- to the day-to-day blocking and tackling of just selling core products.

There's a lot sort of going on right now at the company.

Well, Ken, there is a lot going on, but I think that we can handle it.

We have a strong ambition to grow.

We've been choiceful about priorities.

And so we suspended our business transformation and ERP activity last year in order to make sure that we could focus on dealing with the crisis and keep our people safe, our quality up, do all the right things for business continuity and come out stronger.

But that was a pause, not a suspension.

We paused our activity, and we think that we've got the resources to ramp it back up.

Even during that pause, we spent some time rescoping, realigning partners.

And we've actually come out of it with a stronger program.

We've got a lot of data cleansing done.

Those who have been through this before know that's always an issue.

And so we feel pretty good about our ability to handle that, handle the recovery of our business.

And we really are actually quite thrilled about the 2 acquisitions that we made.

We've added a great asset in each one of our segments.

We think that this has been a great capital allocation decision.

And the integration of these are pretty straightforward, I think.

Mike, do you want to comment on that?

Yes.

I mean the integration is going very well.

I mean the Cholula, obviously, is more of a plug and play.

It's doing a lot of copack, like we said, so that's a pretty straightforward one.

And FONA has a great business.

And as I've said before, it's discrete teams, focusing on them and helping integrate into our business.

So it's not taking away from the base focus we need on the core business, if that's kind of where you're going at.

The next question comes from the line of Alexia Howard with Bernstein.

So my first question actually goes to e-commerce.

I just wonder where you ended up for fiscal '20 in terms of e-commerce as a percent of sales.

And has that slowed down at all in the later part of the year?

I'm just wondering what the prognosis is in terms of growth on that side.

Well, we've had tremendous growth in e-commerce.

As we went through the year, we talked about this a couple of times as well as everybody else.

And I know our own experiences anecdotally are that many of us have shopped on e-commerce.

If you take all 3 legs of e-commerce as we think about it, DTC, pure play, and our click-and-collect type of customer brick-and-mortar efforts, all of that was up well over 100% on a global scale.

And while we don't actually disclose the total percentage of our business that is from e-commerce on the Consumer side, it's less than 10%.

But it's up substantially from past years and continuing a long trend of a shift by consumers to shopping with e-commerce.

Great.

And as my follow-up, as Ken mentioned, there's an awful lot of uncertainty out there.

We're still living through these unprecedented times.

If you think about your outlook for 2021, what do you think the biggest uncertainties are, maybe positively and negatively, in terms of the risks in either direction?

Well, I think the biggest uncertainty is -- I mean, it's also the most obvious one is the pace of recovery from the pandemic and the durability of the consumer behaviors coming out of it.

And really, it's more of the recovery of the foodservice side that we wonder about than the -- whether consumers are going to continue to cook at home.

I think there's just -- I think that there's a pretty broad range of possible outcomes with, again, vaccine take-up, new variants that might come up.

So those are some pretty -- I'd say that's the biggest uncertainty factor out there.

I will say, we're managing through this now on a much more -- I'd say managed on an operational basis rather than in a crisis mode.

So I think we're very well prepared for the possible outcomes in the market.

Do you want to add anything, Mike?

Want to -- I mean we're prepared for any environment.

We have a broad and diversified portfolio.

Just like we showed last year, to have that kind of sales growth and performance, we can manage any environment.

And I think to Lawrence's point is -- because we think these consumer trends will be sticky, although people will go out more to eat as the vaccine becomes more global.

But we think we've created some habits that aren't to go away.

Our next question is from the line of Robert Moskow with Crédit Suisse.

I wanted to know about the guidance for the first half of the year.

I think you said the earnings growth is going to be back-half weighted.

But when I look at the first quarter coming up, you seem to have a very easy comparison to a year ago in the core operations, which were down in sales and down in EBIT.

I think I and others have a pretty outsized first quarter expectation fundamentally because of inventory reloading and, I guess, improving performance in Flavor Solutions as well.

So can you help us think about first quarter a little bit, too?

You mentioned the tax rate.

But other than that, is it actually going to be a strong start in first quarter?

Rob, it's Mike.

I'll take that one.

I mean it's a great point.

I mean we did highlight the first half, second half story.

Within the first half, there are 2 stories also.

Obviously, it's an easy comparison, especially from a consumer perspective in the first quarter.

And we think we're off to a strong start this year, as you would suspect, as you can see in some of the consumption data in the U.S. primarily.

But we also know we're lapping a really strong second quarter.

And I think it's something as you look at your modeling, you want to adjust to those -- that assumption.

Tax rate, you know is a really tough comparison in the first quarter compared to last year, which was highlighted.

But in the first half, as we talked about, we're going to have COVID costs.

It will be across both quarters, primarily in the first half.

Significant investment in A&P as we drive our brands, as we recover really in the first quarter, too, but in the second quarter also, but -- yes.

And I'll also just -- and for the second half, as you think about it, our COVID costs are high in the first half, but we begin to get them out of the business in the second half.

Whereas a year ago, that's when we were really ramping up on things that were expensive relative to COVID.

And so we'll have the unwinding of that as a bit of a tailwind in the second half of the year as well.

So you'll see things like ERP costs build throughout the year.

So it would be, again, a first half, second half, going to become more weighted to the second half.

Okay.

And a follow-up.

I was surprised to see Flavor Solutions positive in the fourth quarter.

And you mentioned it's really driven by CPG.

Is there a way to break out how much growth you're seeing in CPG right now?

And how much of a decline you're seeing in the other half of the Flavor Solutions business, which is more foodservice-oriented?

And would you expect that relationship to continue in 2021?

Yes.

I think I'll answer that one.

And Lawrence can add in there.

I mean we're seeing -- we're not going to give you percentages because it really varies by region based on the split of our packaged versus restaurant.

But in the Americas, we've seen very strong CPG performance, mid- to high-single digits, offset by similar ranges on the branded foodservice on the restaurant side.

But it's the mix of the business in regions, which give you that.

But overall, being positive, we are very thrilled with that.

We know a lot of people were surprised by that.

Even the Consumer grew very strongly.

If I were to point to one thing where we're maybe our sales performance for the fourth quarter was different than our expectations, it would be in this area of Flavor Solutions.

It was a bit stronger across the board than we would have thought when we gave that year-end guidance.

Our next question is coming from the line of Faiza Alwy with Deutsche Bank.

So first, I just wanted to ask Lawrence, you'd made a comment early on about the pricing disconnect that we're seeing in Nielsen.

So I just -- I was wondering if you could expand a little bit on that, maybe clarify.

And what I'm really trying to get at is, I think Andrew had asked the question around the -- if there's any quantification of what the inventory reload might be in the first half?

That would be really helpful.

Okay.

Well, I think those are 2 different questions.

But on pricing, there are 2 things that are happening in Nielsen that make it look like there's more pricing perhaps than there actually is.

The first is that there's been a bit of a channel shift as we've gone through the crisis, where, I'd say, regular -- I'd say regular grocery has been stronger than other channels and tend to carry a higher price point as a result.

And that comes through as pricing inflection in the Nielsen data.

That is really kind of artificial, and that was one of the things that I was pointing to.

And then the other is there's still a reduced level of promotional activity that is happening.

And not just for us, but across the board.

That comes through as if it was a price increase in the Nielsen data.

As far as the inventory build, we've not really quantified it, but it stands to reason that there's going to be a substantial catch up on trade stock that we will ship to.

We have shipped under consumption now for 3 quarters.

And I think that you can expect that we will -- as our American supply chain catches up, that we'll -- you'll start to see us shipping above consumption.

Now consumption is still very strong.

I mentioned that our production was up 40% in December for our U.S. Consumer business.

And then the market took all of that and that has just -- it still blasted through.

When we talk about inventories, it's not backroom warehouse stock.

It's restocking the shelf itself, that's part of that.

And I think that, that's going to be a gradual process as we go through the first half of the year.

Okay.

Understood.

And then I was wondering if you could talk a little bit about how retailers are thinking about -- you had mentioned shelf realignment last year.

You'd spent a significant amount of time talking about that at CAGNY.

And I know some of those efforts were paused.

How should we think about the timing of that as we go into this year?

Well, we do have a reinvention of the spice aisle, and it's an important category management program that is both -- it's a win-win.

It's great for the customers and it's great for us.

Although we didn't make as much progress on that last year as we would have hoped when we were talking about it at CAGNY, we were able to impact a little over 5,000 stores last year.

So we did continue that effort, even with the pandemic going on.

And we would expect to get a like number of stores again in 2021.

Which is really between the 2 years is quite enough, it really moves the needle.

And so we're continuing with those efforts that we think are important.

This has also been a chance to rethink the assortment in the category.

And so we've taken a look as part of this to -- it reduces the number of items in the store for their section.

But we've also looked at the assortment that we offer, and we've SKU rationalized out part of the fairly long tail of products that we have to the tune of about 250 items in the -- purged by seasoning and recipe mix categories to simplify our assortment as well.

Our next question comes from the line of Adam Samuelson with Goldman Sachs.

I just wanted to maybe clarify a little bit at this point on channel kind of inventory kind of restocking or getting your -- the shelves restocked, not necessarily.

I mean the back -- warehouse inventory is restocked.

At the segment level -- at the company level, you're guiding organic revenue growth about 1.5% to 3% -- 3.5% a year for the full year.

We've talked about kind of there being some unfavorable segment mix.

So presumably, we're going to have expectations of the Consumer business being a little below that and Flavor Solutions above that baseline.

And the Consumer business does have a tailwind of -- from this restocking benefit as we think about the first half, because you've been undershipping consumption.

Now I understand the consumption comps get exceedingly difficult as you get into March, April, May.

But I'm just trying to wrap my head around the idea that with some inventory, we're thinking about -- because of the restock, we're thinking about kind of flat to up 2% or so Consumer growth.

And I'm trying to make sure I understand the moving pieces within that.

Well, I'm not sure I could address each one of those points.

But our expectation is for our Consumer segment to grow in 2021, independent of the acquisitions that we made.

Many of our categories have been in full supply through the whole crisis.

All of this discussion about inventory stocking and TDPs has been predominantly in herbs, spices, seasoning and recipe mixes.

The growth is going to vary from quarter-to-quarter.

I mean we're going to lap some extraordinary consumption.

So while consumption is still running strong for us.

The most recent period was still 11.5%, and that includes the fact that we've got all of those gaps on the shelf.

It's -- and that is -- that's really strong and quite elevated.

That compares to over 50% consumption growth in Q2, and I believe -- what was the number, 30...

Yes.

30-some-odd number.

It's at the tip of my fingers right now in Q3.

And so we're going to lap that.

And those are some pretty tough comps in the Consumer business for the Americas.

And not exactly the same numbers but comparable peaks coming across EMEA.

So that's going to be a bit of a headwind as we go past those.

Yes.

I think we had talked about our Flavor Solutions business being a little lumpy because it's based on customer demand and things like that.

Consumer will be lumpy this year because of the quarterly comparisons.

So much happened last year by quarter that you're going to have to -- we're going to help you through that.

But we're giving broad guidance for the year, which makes it a little difficult because most of us have already forgotten 2020.

Okay.

And then again, a quick follow-up.

Just talked about low single-digit kind of raw material cost inflation.

Maybe this is more for Mike.

Just maybe go through some of the key buckets in terms of the freight, packaging.

Any specific pockets of -- on the actual raw materials that are maybe more concerning from the inflationary side that we should be focused on there?

Well, as Lawrence mentioned, we have a broad market basket of things, which are very different than our peers.

And you have the normal big volume items, some are up and some are down.

But nothing stands out particularly.

I mean we all know everyone in the industry is getting hit recently by ocean freight and other freight strengths.

That's in the -- that's in our market basket, so we say low single digits.

We don't break it out.

But 70% of our costs are really -- is really raw material and packaging.

So that's -- but there's nothing I would say that is crazy at this point.

The bigger impact, frankly, is the incremental and extraordinary expenses for dealing with the COVID crisis that are right now running through our business that we expect to get out as we get into the second half here.

Our final question is from the line of Peter Galbo with Bank of America.

Lawrence, maybe just to go back to Andrew Lazar's question around China.

I guess maybe what's underappreciated is the idea that organic growth in Consumer probably relies, at least to some extent, on China foodservice making a pretty remarkable comeback.

We've heard about some retrenchment there recently.

I think in your prepared remarks, you said as well.

Can you just maybe give us a look into how you're thinking about that recovery of your China foodservice customers for the balance of '21?

And then I have a follow-up.

Well, I'll speak broadly about China.

I'm expecting that we're going to have a very strong recovery in China.

China had a very strong response to the COVID crisis with a very comprehensive lockdown.

Consumers did not have a chance to shop.

And so the results in China in the first and second quarter last year were really depressed.

And so I expect to see a very strong rebound from that as we lap those numbers.

And additionally, I think that there's a little bit of a benefit from Chinese New Year being slightly later this year than last year.

Some of our Chinese New Year volumes that would have normally shipped at the end of our fiscal year actually is falling into fourth quarter.

And so that's going to be -- also add to a favorable comparison.

It was part of our fourth quarter last year.

Right.

Right.

And Mike, maybe just one clean up.

I don't know if it's in your outlook there, if you had given on interest expense.

But just anything there would be helpful.

No.

I mean obviously, you can calculate -- we talked about our assumptions on the acquisitions for -- in the models.

So that's an incremental cost in 2021.

And we'll get a natural decline in some of the other base parts of the portfolio as we aggressively paid down debt last year.

But overall, interest is off obviously.

And Peter, as related to your question, we spent up on A&P in the fourth quarter in every region of the world, including in China, to make sure that our Consumer business was off to a strong start.

That A&P is not just for immediate business performance, but for long-term brand building.

And China was one of the markets that are -- that we invested additional A&P in, in the fourth quarter of last year.

That will help us get a good start on 2021.

I will now turn the floor over to Lawrence Kurzius for his closing remarks.

Well, I'd like to thank everyone for your questions and for participating on today's call.

McCormick is differentiated by the breadth and reach of our balanced portfolio, which drives consistency in our performance during volatile times.

I'm incredibly proud of the way McCormick performed during 2020.

We drove outstanding underlying operating performance during unprecedented times while prioritizing the safety and health of our employees and supporting the communities in which we operate.

We expect to drive even further growth as we continue to execute on our long-term strategies, actively respond to changing consumer behavior and capitalize on new opportunities from our relative strength.

Our investments provide a new foundation for growth while enhancing our agility and our relevance with consumers and customers, which positions us well for continued success and long-term shareholder value creation.

Thank you, Lawrence, and thanks to everyone for joining today's call.

If you have any further questions regarding today's information, please feel free to contact me.

This concludes this morning's call.

Have a nice day.