McCormick mpany Incorporated: DISCUSSION AND ANALYSIS OF THE MANAGEMENT OF & CO INC ON THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Form 10-Q)

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PREVIEW

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand
McCormick & Company, Incorporated, our operations, and our present business
environment. MD&A is provided as a supplement to, and should be read in
conjunction with, our financial statements and the accompanying notes thereto,
included in Item 1 of this report. We use certain non-GAAP information - more
fully described below under the caption Non-GAAP Financial Measures - that we
believe is important for purposes of comparison to prior periods and development
of future projections and earnings growth prospects. This information is also
used by management to measure the profitability of our ongoing operations and
analyze our business performance and trends. Unless otherwise noted, the dollar
and share information in the charts and tables in MD&A are in millions, except
per share data. On November 30, 2020, the Company effected a two-for-one stock
split in the form of a stock dividend on all shares of the Company's two classes
of common stock. On November 30, one like share was issued for each share
outstanding to shareholders of record as of November 20, 2020. All common stock
and per share data have been retroactively adjusted to reflect the stock split.

Business profile
McCormick is a global leader in flavor. We manufacture, market and distribute
spices, seasoning mixes, condiments and other flavorful products to the entire
food industry - retailers, food manufacturers and the foodservice business. In
fiscal year 2020, approximately 40% of our sales were outside of the U.S. We
also are partners in a number of joint ventures that are involved in the
manufacture and sale of flavorful products, the most significant of which is
McCormick de Mexico. We manage our business in two business segments, consumer
and flavor solutions.

Recent Events
On March 11, 2020, the World Health Organization designated a new coronavirus
("COVID-19") as a global pandemic. Governments around the world either
recommended or mandated actions to slow the transmission of the virus that
included shelter-in-place orders, quarantines, limitations on crowd size,
closures of dine-in restaurants and bars, and significant restrictions on
travel, as well as work restrictions that prohibited many employees from going
to work. Uncertainty with respect to the economic effects of the pandemic has
significantly impacted not only our operating results but also the global
economy. The extent and nature of government actions varied during the three and
six-months ended May 31, 2021 and 2020 based upon the then-current extent and
severity of the COVID-19 pandemic within their respective countries and
localities. As the COVID-19 pandemic continues, we expect the largest factor
impacting our fiscal 2021 performance will be the relative balance of at-home
versus away-from-home food demand.

We are actively monitoring the impact of COVID-19 on all aspects of our
business. The effects of COVID-19 on consumer behavior have impacted the
relative balance of at-home versus away-from-home food demand and have added
volatility to our sales over the course of the pandemic. For example, our
consolidated sales for the second quarter of 2020 increased by 7.6% over the
2019 level. That 7.6% sales increase was driven by a surge in demand in sales of
the consumer segment that rose by 26.0% over the second quarter of 2019, as
government-mandated measures, imposed to mitigate the spread of COVID-19 in the
second quarter of 2020 and the ensuing change in consumer behavior, resulted in
shift in consumer behavior toward at-home meal preparation that more than offset
sharply lower demand within the flavor solutions segment, principally associated
with our quick service restaurant and branded food service customers. That
sharply lower demand drove an 18.5% decline in sales of the flavor solutions
segment during the second quarter of 2020 from the 2019 level as dine-in
restaurants and bars were closed to limit the spread of COVID-19 early in the
pandemic. The extent of the at-home consumption and away-from-home demand has
varied during the pandemic and has impacted our results, as compared to the
prior year results, at different levels in any individual quarter. For the
quarter ended May 31, 2021, our consolidated sales increased by 11.1% over the
comparable period in 2020, driven by sharply higher sales in the flavor solution
segment, which increased by 39.5% over a weak 2020 quarter, partially offset by
a 1.8% decrease in sales of the consumer segment from an extremely strong 2020
quarter. For comparative purposes, the following provides a summary of growth in
net sales as reported and on a constant currency basis for the second quarter of
2021 as compared to the second quarter of 2019:

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                                                                   Three 

Ended months May 31, 2021 compared to

Three months ended May 31, 2019

                                                         Percentage Change  

Impact of the percentage change from abroad on

                                                            as Reported          Currency Exchange     Constant Currency Basis
Net sales:
Consumer segment                                                       23.7  %                 1.9  %                   21.8  %
Flavor solutions segment                                               13.7  %                 0.5  %                   13.2  %
Total net sales                                                        19.6  %                 1.3  %                   18.3  %



The percentage change in reported net sales and the percentage change on a
constant currency basis were favorably impacted by the acquisitions of Cholula
and FONA, which contributed 2.7%, 7.5% and 4.7% to the consumer segment, flavor
solutions segment and total net sales growth rates, respectively, in the
preceding table, on both a reported and constant currency basis.

The impact of COVID-19 on our consumer segment since the beginning of the COVID
19 pandemic has resulted in a significant increase in at-home consumption and
related demand for our products. While we continue to see strong levels of
consumer demand compared to the pre-pandemic levels, during the three months
ended May 31, 2021 retail demand declined when compared to the comparable
quarter of the prior year based on the surge in consumer demand at the beginning
of the pandemic. The impact of COVID-19 on our flavor solutions segment has
included both the unfavorable impact attributable to decreased demand from
certain customers that were affected by government measures related to COVID-19
in many of our markets that reduced away-from-home food demand and the favorable
impact of increased at-home consumption from certain customers in our flavor
solutions segment that use our products to flavor their own brands for at-home
consumption. The measures impacting certain of our flavor solutions customers
included the following: (i) with respect to dine-in restaurants, closures,
limitations on dine-in capacity, or restrictions on the operations of those
restaurants to carry-out or delivery only; and (ii) with respect to quick
service restaurants, limitations on operations to drive-through pick-up or
delivery. We continue to see recovery in away-from-home demand associated with
the COVID-19 recovery. During the three months ended May 31, 2021 our flavor
solutions segment sales and operating results improved as away-from-home
consumption increased as compared to the comparable quarter in the prior year,
in part, due to the lifting of much more restrictive COVID-19 measures that were
in place at the beginning of the pandemic. The impact of the COVID-19 pandemic
on our consolidated operating results during the three months ended February 29,
2020 was limited, in all material respects, to our operations in China where the
Chinese government mandated numerous measures, including closures of businesses,
limitations on movements of individuals and goods, and the imposition of other
restrictive measures, in its efforts to mitigate the spread of COVID-19 within
the country. Our operations in China saw a sharp drop in sales during the three
months ended February 29, 2020, with sales declining by $43 million from the
corresponding period in fiscal 2019.

In early fiscal 2021, vaccines effective in combating COVID-19 were approved by
health agencies in certain countries/regions in which we operate (including the
U.S., U.K., European Union, Canada and Mexico) and began to be administered. The
availability of COVID-19 vaccines and their take-up by individuals is difficult
to predict, and vaccination levels are likely to vary across jurisdictions. The
pace and shape of the COVID-19 recovery as well as the impact and extent of
COVID-19 variants or potential resurgences is not presently known. These and
other uncertainties with respect to COVID-19 could result in changes to our
current expectations in addition to a number of adverse impacts to our business,
including but not limited to additional disruption to the economy and consumers'
willingness and ability to spend, temporary or permanent closures by businesses
that consume our products, such as restaurants, additional work restrictions,
and supply chains being interrupted, slowed, or rendered inoperable or, in the
case of significant increased demand for our product, incapability of fulfilling
that increased demand. As a result, it may be challenging to obtain and process
raw materials to support our business needs, and individuals could become ill,
quarantined, or otherwise unable to work and/or travel due to health reasons or
governmental restrictions. Also, governments may impose other laws, regulations
or taxes related to COVID-19 which could adversely impact our business,
financial condition, or results of operations. Further, if our customers'
businesses are similarly affected, they might delay or reduce purchases from us.
The potential effects of COVID-19 also could impact us in a number of other ways
including, but not limited to, variations in the level of our profitability,
laws and regulations affecting our business, fluctuations in foreign currency
markets, the availability of future borrowings, the cost of borrowings,
valuation of our pension assets and obligations, credit risks of our customers
and counterparties, and potential impairment of the carrying value of goodwill
or other indefinite-lived intangible assets.

Acquisitions

Acquisitions are expected to approximate one-third of our sales growth over
time. Since the beginning of 2015, we have completed nine acquisitions, which
are driving sales in both our consumer and flavor solutions segments. We focus
on acquisition opportunities that meet the growing demand for flavor and health.
Geographically, our focus is on acquisitions that
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Large-scale table of contents where we are currently present in developed and emerging markets. Information on our recent acquisitions is provided below:

•On December 30, 2020, we acquired FONA International, LLC and certain of its
affiliates (FONA), a privately owned company, for approximately $708 million,
net of cash acquired. We financed this fiscal 2021 acquisition with cash and
commercial paper. FONA is a leading manufacturer of clean and natural flavors
providing solutions for a diverse customer base across various applications for
the food, beverage and nutritional markets which expands the breadth of our
flavor solutions segment into attractive categories, as well as extends our
technology platform, strengthens our capabilities, and accelerates the strategic
migration of our portfolio to more value-added and technically insulated
products.
•On November 30, 2020, we acquired the parent company of Cholula Hot Sauce®
(Cholula) from L Catterton for approximately $801 million, net of cash acquired.
We financed this fiscal 2020 acquisition with cash and commercial paper. Cholula
is a strong addition to McCormick's global branded flavor portfolio, which
broadens the Company's offering in the high growth hot sauce category to
consumers and foodservice operators and accelerates our condiment growth
opportunities with a complementary authentic Mexican flavor hot sauce in both
our consumer and flavor solutions segments.
•In February 2021, we issued $500.0 million of 0.90% notes due February 15,
2026, with net cash proceeds received of $495.7 million. At the same time, we
issued $500.0 million of 1.85% notes due February 15, 2031, with net cash
proceeds received of $492.8 million. The net proceeds from these issuances were
used to pay down short-term borrowings, including a portion of the $1,443.0
million of commercial paper issued to finance our acquisitions of FONA and
Cholula, and for general corporate purposes. For further information regarding
our issuance of these notes, see note 5 of the notes to the accompanying
financial statements.

As described below under Outlook 2021, FONA and Cholula
Acquisitions are expected to contribute more than a third of our sales growth in 2021.

2021 Outlook
In 2021, we expect to grow net sales over the 2020 level by 11% to 13%,
including an estimated 3% favorable impact from currency rates, or 8% to 10% on
a constant currency basis. That anticipated 2021 sales growth includes the
incremental impact of the Cholula and FONA acquisitions, which we expect to
comprise 3.5% to 4.0% of the expected 11% to 13% sales growth, and higher volume
and product mix driven by our brand marketing, new product, category management,
and differentiated customer engagement growth plans. That sales growth is also
expected to include the impact of pricing actions taken to partially offset an
anticipated increase in costs. We expect to have organic sales growth in both
our consumer and flavor solutions segments.

We expect our 2021 gross profit margin to decline 110 to 90 basis points from
our gross profit margin of 41.1% in 2020. The projected 2021 decline in gross
profit margin is principally due to (i) expected accretion from our acquisitions
of Cholula and FONA, net of transaction and integration expenses of $6.3 million
related to the amortization of the step-up of the acquired inventories of
Cholula and FONA to fair value, (ii) anticipated unfavorable sales mix in 2021
between our consumer and flavor solutions segments as compared to 2020, (iii) an
expected increase in COVID-19 related expenses of approximately $10 million in
2021 over the 2020 level, and (iv) an anticipated mid-single-digit level of
inflation in 2021 compared to 2020. Excluding the $6.3 million of transaction
and integration expenses related to our acquisitions of Cholula and FONA
included in our projected range of gross profit margin anticipated in 2021, we
expect our adjusted gross profit margin to be 100 to 80 basis points lower than
our 2020 gross profit margin of 41.1%.

In 2021, we expect an increase in operating income of 6% to 8%, which includes
an estimated 2% favorable impact from currency rates, over the 2020 level. The
projected range of change in operating income in 2021 reflects an expected
increase of approximately $30 million in expense related to our global ERP
replacement program over the fiscal 2020 level. Our CCI-led cost savings target
in 2021 is approximately $110 million and approximates the $113 million of
CCI-led cost savings realized in 2020. We anticipate transaction and integration
expenses related to the Cholula and FONA acquisitions of approximately $42
million to negatively impact operating income in 2021, as compared to $12.4
million of transaction and integration expenses in 2020. We also expect
approximately $21 million of special charges in 2021 that relate to previously
announced organization and streamlining actions; in 2020, special charges were
$6.9 million. Excluding special charges and transaction and integration
expenses, we expect 2021's adjusted operating income to increase by 10% to 12%,
which includes an estimated 2% favorable impact from currency rates, or to
increase by 8% to 10% on a constant currency basis over the 2020 level.

Our underlying effective tax rate is projected to be higher in 2021 than in
2020. We estimate our effective tax rate, including the net favorable impact of
anticipated discrete tax items, to approximate 23% in 2021 as compared to 19.8%
in 2020. Excluding
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projected taxes associated with special charges and transaction and integration
expenses, including the unfavorable impact in the first quarter of 2021 of a
deferred state tax discrete tax item directly related to our acquisition of FONA
that increased tax expense by $11.4 million, we also estimate that our adjusted
effective tax rate will approximate 23% in fiscal 2021, as compared to an
adjusted effective tax rate of 19.9% in 2020.

Diluted earnings per share was $2.78 in 2020. Diluted earnings per share for
2021 is projected to range from $2.83 to $2.88. Excluding the per share impact
of special charges and transaction and integration expenses of $0.01 and $0.04,
respectively, adjusted diluted earnings per share was $2.83 in 2020. Adjusted
diluted earnings per share (excluding an estimated per share impact from special
charges of $0.06, $0.16 from transaction and integration expenses, including the
unfavorable impact of a discrete tax item of $0.04 related to our acquisition of
FONA, and $0.05 gain from the sale of an unconsolidated operation) is projected
to range from $3.00 to $3.05 in 2021. We expect adjusted diluted earnings per
share to grow by 6% to 8%, which includes a 2% favorable impact from currency
rates, over adjusted diluted earnings per share of $2.83 in 2020.

OPERATING RESULTS – COMPANY

                                                                Three months ended                           Six months ended
                                                        May 31, 2021          May 31, 2020          May 31, 2021          May 31, 2020
Net sales                                              $    1,556.7          $    1,401.1          $    3,038.2          $    2,613.1
Percent increase                                               11.1  %                7.6  %               16.3  %                3.1  %

Components of percentage growth in net sales – increase (decrease):

        Volume and product mix                                  3.3  %                7.4  %                8.9  %                2.6  %
        Pricing actions                                        (0.1) %                2.2  %                0.3  %                1.7  %
        Acquisitions                                            4.4  %                  -  %                4.2  %                  -  %
        Foreign exchange                                        3.5  %               (2.0) %                2.9  %               (1.2) %
Gross profit                                           $      614.6          $      579.5          $    1,192.1          $    1,049.4
Gross profit margin                                            39.5  %               41.4  %               39.2  %               40.2  %



Sales for the second quarter of 2021 increased by 11.1% from the prior year
level and by 7.6% on a constant currency basis (that is, excluding the impact of
foreign currency exchange as more fully described under the caption, Non-GAAP
Financial Measures). Higher volume and favorable product mix increased sales by
3.3%. This increase was driven by sharply higher demand in the flavor solutions
segment across all regions, as compared to the corresponding period in 2020 when
away-from-home sales were sharply reduced by measures imposed to mitigate the
spread of COVID-19. The flavor solutions segment sales increase in the second
quarter of 2021 was partially offset by lower sales in the consumer segment, due
to lapping exceptionally high demand for our products in the second quarter of
2020 when a surge in demand for our products resulted from more consumers
cooking at home at the onset of the COVID-19 pandemic. Pricing actions reduced
sales by 0.1%, while the incremental impact of the Cholula and FONA acquisitions
added 4.4% to sales in the second quarter of 2021. Sales were also impacted by
favorable foreign currency rates that increased net sales by 3.5% in the second
quarter of 2021 compared to the year-ago quarter and is excluded from our
measure of sales growth of 7.6% on a constant currency basis.

Sales for the six months ended May 31, 2021 increased by 16.3% from the prior
year level and increased by 13.4% on a constant currency basis. Favorable volume
and product mix increased sales by 8.9% with growth from both the consumer and
flavor solutions segments. In addition, pricing actions added 0.3% and
acquisitions added 4.2% to sales, both as compared to the prior year period.
Sales were impacted by favorable foreign currency rates that increased sales by
2.9% as compared to the same period in 2020 and is excluded from our measure of
sales growth of 13.4% on a constant currency basis.

Gross profit for the second quarter of 2021 increased by $35.1 million, or 6.1%,
over the comparable period in 2020. Gross profit for the six months ended May
31, 2021 increased by $142.7 million, or 13.6% over the comparable period in
2020. Our gross profit margins for the three and six months ended May 31, 2021
were 39.5% and 39.2%, respectively, a decrease of 190 basis points and 100 basis
points, respectively, from the same periods in 2020. The decrease in gross
profit margin in the quarter ended May 31, 2021 was driven by a less favorable
mix in sales between our consumer and flavor solutions segments and increased
material costs, which were partially offset by cost savings led by our
Comprehensive Continuous Improvement ("CCI") program, all as compared to the
corresponding quarter in 2020. The decrease in gross profit margin in the six
months ended May 31, 2021 was driven by increased material costs, higher costs
associated with COVID-19 and a less favorable mix in sales between our consumer
and flavor solutions segments, partially offset by savings from our CCI program,
each as compared to the prior year. In addition, our gross profit for the six
months ended May 31, 2021 was burdened by $6.3 million of
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transaction expense, representing the amortization of the fair value adjustment
to the acquired inventories of Cholula and FONA upon our sale of those acquired
inventories in the first quarter of fiscal 2021. Excluding those transaction and
integration expenses, adjusted gross profit margin for the six months ended May
31, 2021 decreased by 80 basis points from 40.2% in the six months ended May 31,
2020 to 39.4% in the corresponding period in 2021.
                                                           Three months ended                         Six months ended
                                                   May 31, 2021          

May 31, 2020 May 31, 2021 May 31, 2020
Selling, general and administrative expenses (SG&A) $ 356.6 $

  319.2          $     677.9          $     593.9
Percent of net sales                                      22.9  %              22.8  %              22.3  %              22.8  %


SG&A increased by $37.4 million in the second quarter of 2021 compared to the
2020 level, driven by (i) SG&A associated with the acquired Cholula and FONA
businesses, (ii) increased brand marketing costs, and (iii) greater selling and
distribution expenses associated with the higher sales volume. Those increases
were partially offset by lower performance-based employee incentive expenses, as
compared to the prior year period. SG&A as a percent of net sales increased by
10 basis points from the prior year level as increased brand marketing
investment was partially offset by the impact of the leverage of fixed and
semi-fixed expenses over a higher level of sales during the 2021 period.

SG&A increased by $84.0 million in the six months ended May 31, 2021 compared to
the 2020 level, primarily as a result of (i) SG&A associated with the Cholula
and FONA acquisitions, (ii) increased brand marketing costs, and (iii) greater
selling and distribution expenses associated with the higher sales volume, all
as compared to the corresponding period in 2020. SG&A as a percent of net sales
for the six months ended May 31, 2021 decreased by 50 basis points from the
prior year level, driven by the impact of the leverage of fixed and semi-fixed
expenses over a higher level of sales during the 2021 period.
                                                  Three months ended                             Six months ended
                                          May 31, 2021          May 31, 2020           May 31, 2021            May 31, 2020
Total special charges                    $      13.7          $         2.9          $     14.8              $         3.9


During the three months ended May 31, 2021, we have registered $ 13.7 million special charges consisting mainly of an impairment charge on non-cash assets of
$ 6.5 million associated with an administrative site which will be closed in conjunction with our decision to employ a hybrid work environment and
$ 4.7 million to rationalize actions in the Americas Region.

During the six months ended May 31, 2021, we recorded $14.8 million of special
charges consisting principally of the previously described non-cash asset
impairment charge of $6.5 million, $5.2 million of streamlining actions in the
Americas region, and $1.3 million of streamlining actions in the EMEA region.

During the three months ended May 31, 2020, we recorded $2.9 million of special
charges consisting primarily of $2.8 million of streamlining actions in the EMEA
region, including $1.9 million related to severance and related benefits, $0.6
million of third-party expenses, and $0.3 million related to other costs.

During the six months ended May 31, 2020, we recorded $3.9 million of special
charges consisting of $2.8 million of streamlining actions in the EMEA region
and $1.1 million related to our Global Enablement initiative.
                                                      Three months ended                           Six months ended
                                              May 31, 2021          May 31, 2020          May 31, 2021         May 31, 2020
Transaction expenses included in cost of
goods sold                                   $          -          $          -          $       6.3          $          -
Other transaction and integration expenses            6.9                     -                 25.7                     -

Total transaction and integration fees $ 6.9 $

$ 32.0 $ –

During the three months ended May 31, 2021, we have registered $ 6.9 million integration costs related to our acquisitions of Cholula and FONA.

During the six months ended May 31, 2021, we recorded $32.0 million of
transaction and integration expense related to our acquisitions of Cholula and
FONA. These costs consisted of (i) $6.3 million of amortization of the
acquisition-date fair value adjustment of inventories that is included in cost
of goods sold, (ii) $13.8 million of other transaction costs primarily related
to outside advisory, service and consulting costs, and (iii) $11.9 million of
integration expenses.

We expect transaction and integration expenses related to our acquisitions of
Cholula and FONA to negatively impact operating income in the second half of
fiscal 2021 by approximately $10 million.
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                             Three months ended                     Six months ended
                       May 31, 2021        May 31, 2020      May 31, 2021       May 31, 2020
Interest expense    $     35.6            $       34.4      $    69.4          $       69.7
Other income, net          3.9                     3.1            8.5                   8.6



Interest expense increased by $1.2 million in the second quarter of 2021,
compared to the same period in 2020, as an increase in average total borrowings
was partially offset by a decrease in interest rates. Interest expense decreased
by $0.3 million in the six months ended May 31, 2021, compared to the same
period in 2020, as an increase in average total borrowings was more than offset
by a decrease in interest rates. Other income, net for the three months ended
May 31, 2021 increased by $0.8 million, while other income, net for the six
months ended May 31, 2021 decreased by $0.1 million, both as compared to the
prior year period.

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