管理層發言
Good morning. This is Faten Freiha, VP of Investor Relations. Thank you for joining today's first quarter earnings call. To accompany this call, we've posted a set of slides on our IR website, ir.mccormick.com. With me this morning are Brendan Foley, Chairman, President and CEO; and Marcos Gabriel, Executive Vice President and CFO. During this call, we will refer to certain non-GAAP financial measures. The nature of those non-GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. Today's presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or other factors. Please refer to our forward-looking statements on Slide 2 for more information. I'll now turn the discussion over to Brendan.
Good morning, everyone, and thank you for joining us. We are pleased to start the year with solid first quarter results that are in line with our expectations. Our performance continues to demonstrate the success of our prioritized investments in the areas that we believe will continue to drive the most value and sustain our momentum for the remainder of 2025 and beyond. McCormick remains a growth-oriented company with robust plans that leverage the demand for flavor and the strength of our brands. Our strategies have proven to be effective by driving growth and compounding that growth over the years. With our strategies and best-in-class leadership, we are well-positioned to continue on our trajectory and deliver on our near-term and long-term objectives with industry-leading performance. This morning, I will begin my remarks with an overview of our first quarter results, focusing mostly on top line drivers.
Next, I will review how McCormick is positioned relative to an evolving consumer landscape. Then, I will highlight some areas of success and the areas we continue to work on as well as our growth plans. Marcos will then go into more depth on the first quarter results and review our 2025 outlook. And finally, before your questions, I will have some closing comments. Turning now to our results on Slide 4. In the first quarter, total organic sales increased by 2%, primarily driven by volume and product mix growth, and partially offset by pricing in line with our expectations. In Global Consumer, organic sales growth was volume-led, demonstrating continued momentum across key markets. We delivered robust volume growth in all 3 regions. This sustained growth is supported by investments across our core categories, including innovative brand marketing, accelerated innovation aligned with consumer trends, expanded distribution and robust category management initiatives.
As expected, volume growth was partially offset by price. In the Americas, price declined due to price gap management plans that were implemented in the second quarter of 2024, and a targeted incremental promotion related to seasonal recipe mixes. In EMEA, we took selective pricing actions to cover rising commodity costs and still maintained volume momentum. For the year to go, we expect price in our Global Consumer segment to be flat. Now to the Global Flavor Solutions segment, where organic sales growth was also volume-led. We delivered sequential volume improvement relative to the fourth quarter and are pleased with our results. Volume growth was driven by continued execution of our strategic priorities in Flavors amid a challenging customer environment. Faster growing customers partially offset larger CPG customer softness. In addition, QSR customer performance improved in Asia Pacific and the Americas, led by innovation.
Furthermore, across Asia Pacific, including China, we delivered strong volume growth as we partnered with QSR customers on new products and limited time offers. Consistent with prior years, we expect Flavor Solutions volume growth to fluctuate quarterly due to timing of customer activities. However, on a full year basis, we continue to expect to deliver positive volume growth. From a profitability perspective, we delivered results in line with our expectations, as the first quarter was impacted by increased investments in marketing and technology as well as the timing of stock-based compensation expense that shifted relative to the prior year. As we look to the year-ago period, we remain confident in our operating income and earnings growth outlook on a constant currency basis. Moving down to the macro environment, including the current state of the consumer. There is increasing consumer uncertainty and concern over returning to more inflation, and this has impacted consumer sentiment, particularly in the last month.
This prolongs the consumer context of 2024, where consumers, especially lower income consumers, are more cautious, exhibiting more value-seeking behavior and tightening their budgets. As many are worried about the future, job security, and rising costs, we are seeing this not just in the U.S. but across our key markets. At the same time, we are all witnessing shifts in consumer preferences. They are becoming more health conscious, and this trend has continued to gain momentum. They are cooking at home more often and increasingly shopping the perimeter for protein and produce. As we look at growth in edible categories, unit growth is primarily driven by these perimeter categories. Healthier and better-for-you trends as well as the desire to stretch budgets are fueling a continued interest in cooking from scratch, reinforcing the demand for flavor and for McCormick's categories. Spices and Seasonings remain the top growing center store category.
As a result, consumption trends in our business remain strong. Ultimately, we expect the Global Consumer segment to continue to benefit from these secular trends, and we have the plans and advantaged portfolio to capitalize on them. And in our Flavor Solutions segment, we continue to partner with customers to launch new products or reformulate existing ones to fit healthier lifestyles. Furthermore, our exposure to faster-growing customers allows us to win in several high-growth categories, many of which are benefiting from the trends towards healthier eating. In the context of this environment, McCormick's trends remained strong. Our volume-driven first quarter results and continued strength in consumption trends demonstrate our ability to continue to successfully meet our objectives for the year. We continue to monitor consumer trends. Our focus remains on meeting consumers and customers where they are, delivering value, expanding our presence in growing channels, including mass, club and e-commerce, and aligning them with flavor as well as helping customers innovate to meet consumers' changing dietary needs.
We believe we have the right plans in place, and we remain well-positioned to capitalize on secular trends and continue to drive differentiated long-term growth across both of our segments. Let's move to Slide 5, and let me highlight for the quarter some of the key areas of success. Across our Global Consumer segment, we successfully executed on our plans with increased investment and competitive focus towards driving growth. We improved unit and volume share gains across our core categories in key markets. In the U.S., the vast majority of our categories are growing unit share. Let me provide some color on the categories globally. Starting with Spices and Seasonings. In Americas, EMEA, and Asia Pacific, including China, we delivered strong volume growth. In the U.S., we drove unit and volume share growth, outpacing private label for the third consecutive quarter. In addition, we drove market share in Canada and China.
In recipe mixes, we continue to strengthen consumption trends in the Americas and drove unit and volume share gains in the first quarter. In the U.S., McCormick gravy and chili recipe mixes were a significant growth driver as they deliver on the value and convenience consumers are seeking. In addition, we are outpacing the total category in total new buyers as well as dollars per buyer. In Canada, we drove dollar unit and volume share gains. In mustard, we made great progress globally over the last 4 quarters and are pleased to see that our plans are driving great results. In the first quarter, we drove dollar, unit and volume share gains in the Americas. In Poland, one of the top mustard consuming countries, our mustard consumption continues to grow, and we are also realizing dollar share gains. In addition, we are gaining dollar share in the U.K. In hot sauce, our plans continue to yield great results.
In the U.S., we drove positive unit share gains reflecting significant progress. Distribution gains as well as investments in differentiated brand marketing, including a strong Super Bowl activation and innovation, continue to fuel our performance. Outside of the U.S., we are gaining market share in France, the U.K., and Australia. Additionally, we continue to make progress on total distribution points. In the Americas, we significantly expanded TDPs across Spices and Seasonings, recipe mixes, and hot sauce. In EMEA, we are seeing broad-based distribution gains in Spices and Seasonings and hot sauce. We are also gaining distribution in high-growth channels like discounters and e-commerce. In Asia Pacific, our business in China is recovering gradually relative to the prior year, as expected. We delivered strong performance amid a continually challenged environment. Growth in our categories, including spices and seasonings and condiments, outpaced the market, which included the Chinese New Year holiday.
Moving to Flavor Solutions. We saw strength in our technically insulated high-margin product category, Flavors. In Flavors, in the Americas, we remain focused on being the partner of choice across our 4 taste competencies: savory, heat, naturally sweet, and citrus and fruit. As a result of this continued focus, we are winning new customers and gaining share. We outperformed the industry across many end categories, including alcoholic and nonalcoholic beverages as well as snacking bars. Partially offsetting this is the softness we continue to see in larger CPG customer volumes. QSR trends improved in the Americas and in Asia Pacific. In the Americas, we are continuing to drive innovation with our customers, driving volume growth amid soft foot traffic. In China and Australia, our customers' new products and promotions are driving strong volume growth. In Southeast Asia, volume growth benefited from our customers lapping the impact of geopolitical boycotts in the prior year.
Let me now touch on some areas where we are seeing some pressure. The areas of pressure are primarily in our Flavor Solutions business. In the Americas and in EMEA, some of our CPG customers continue to experience softness in volumes within their own businesses. We continue to work on offsetting these trends through innovation and collaboration with customers and by winning new customers. The foodservice environment remains challenged. While our food away-from-home performance continues to outpace the industry, we are seeing flat performance in branded foodservice in the Americas, as well as some of our customers are seeing softness in their volumes due to a slowdown in foot traffic. QSR traffic remained soft in EMEA. We have seen this pressure impact our results for several quarters. It's difficult to predict QSR traffic. However, we are collaborating with our customers as they focus on improving their volumes through innovation and value and alignment with consumer trends.
As outlined on Slide 6, our growth plans remain consistent to drive growth through category management, brand marketing, new products, our proprietary technologies and our differentiated customer engagement. Our growth levers are supported and enhanced through data and analytics as we continue to accelerate our digital transformation. Our base business is strengthening across major markets and core categories. And we have a number of initiatives in flight that will continue to drive this performance and differentiation. Let me focus on brand marketing as our plans across all categories are supported by our global brand marketing initiatives. We are prioritizing investments to connect with consumers and fuel growth. Our differentiated brand marketing is driven by a combination of factors. In addition to maintaining a high share of voice, we are committed to having the best content in our categories, content that inspires and educates consumers and reaches them at the right points on their path to purchase and on their flavor or diet journey.
From flavor exploration to menu planning, to shopping and cooking and even to eating and sharing the experience online. In the first quarter, brand marketing spend increased against the high spend in the prior year as expected. This increase was broad-based and a key driver in supporting volume growth for this quarter as well as for maintaining our volume momentum for 2025. Through our efforts across multiple channels and by leveraging our digital capabilities, we are driving further household penetration and increasing buy rates across our core categories. Our holiday campaigns across our regions proved successful. Our marketing campaigns in the Americas highlight our everyday value, innovation, and point of difference to consumers, and are supporting our volume growth and driving share gains. Our Frank's Super Bowl activation campaign with Paris Hilton was very successful. We gained new buyers, and media and consumer sentiment was incredibly positive.
To wrap up our growth plans, although we are navigating in a difficult environment, we remain confident in the long-term health of our business and in our fundamentals, and in delivering our 2025 financial outlook on both near-term and long-term objectives. We remain focused on investing behind our growth levers to continue to drive differentiated performance. Now over to Marcos.
Thank you, Brendan, and good morning, everyone. Starting on Slide 8. Our total organic payers grew 2% for the quarter. This increase was volume-led, with more than 2% volume and product mix growth, partially offset by pricing. Moving to our Consumer segment on Slide 9. Organic sales increased 1% as volume growth of 3% was partially offset by a 2% impact of pricing investments. Consumer organic sales in Americas was flat, 3% volume growth was offset by price investments. Volume growth was strong across our core categories and was driven by our investments in brand marketing, innovation, and category management. In terms of pricing, the decline primarily reflects the price gap management investments that were mostly in place in the second quarter of 2024, as well as incremental and targeted promotional activities. In EMEA, we grew consumer organic sales 4%, driven by a 2% increase in volume and a 2% increase in price.
The volume growth was broad-based across product categories in our major markets. We're pleased with the strong sustained volume growth in EMEA. As Brendan mentioned, we took selected pricing actions in EMEA to offset commodity costs. Consumer organic sales in the Asia Pacific region increased 3% driven by a 2% increase in volume and 1% contribution from price. This growth reflects the gradual recovery we expected in China. We're pleased with our performance and expect these trends to continue through 2025. Turning to our Flavor Solutions segment on Slide 10. First quarter organic sales increased 3%, driven by volume growth of 2% and a 1% contribution from price. In the Americas, Flavor Solutions organic sales increased 4%, reflecting 3% price contribution and 1% volume growth. Our results reflect a strong performance with faster growing flavor customers and improved QSR growth, which were partially offset by soft CPG customer volumes.
The price contribution is primarily related to currency in Latin America. In EMEA, organic sales decreased by 4%, including a 2% decline from price and a 2% impact of lower volume and product mix, reflecting the impact of soft CPG and QSR customer volumes. In the Asia Pacific region, Flavor Solutions organic sales increased 15%, with volume growth of 16%, driven by QSR customer promotions, limited-time offers as well as new products, partially offset by pricing. Moving to Slide 11. As expected, gross profit margin expanded by 20 basis points in the first quarter versus the year-ago period, driven primarily by the benefits from our Comprehensive Continuous Improvement program, or CCI. Selling, general and administrative expenses, or SG&A, increased relative to the first quarter of last year, driven primarily by a shift in timing of our stock-based compensation expense from the second quarter into the first quarter, as well as increased investments in technology and brand marketing as expected.
For the quarter, adjusted operating income declined by 5%. Excluding the impact of currency, adjusted operating income decreased by 3%. This decline was driven by the increased SG&A expenses I just mentioned. Our first quarter adjusted effective tax rate was 22%, compared to 26% in the year-ago period. Our tax rate this past quarter benefited from discrete tax items. Our income from unconsolidated operations in the first quarter declined 18% primarily due to the strengthening of the U.S. dollar against the Mexican peso. Turning to our segment operational results on Slide 12. Adjusted operating income in the Consumer segment decreased 17% or 16% in constant currency. The decrease was primarily due to pricing and increased SG&A costs, including brand marketing and technology investments, partially offset by cost savings generated by our CCI program. Looking ahead, we expect Consumer adjusted operating income margin expansion to normalize in the year-to-go period.
In Flavor Solutions, adjusted operating income increased 28% or 33% in constant currency, driven by product mix, pricing and CCI cost savings, partially offset by increased SG&A costs. We continue to make progress in expanding our operating margins in line with our objectives. The bottom line, as shown on Slide 13, first quarter 2025 adjusted earnings per share was $0.60 as compared to $0.63 for the year-ago period. This decrease was primarily due to the SG&A increase I mentioned earlier, as well as the increasing impact of currency on our operating profit and unconsolidated results, partially offset by a more favorable tax rate. The impact of currency on adjusted earnings per share is about $0.03 per share. On Slide 14, we summarize highlights for cash flow and balance sheet. Our cash flow from operations for the first quarter of 2025 was $116 million compared to $138 million in 2024. The decrease was driven primarily by higher cash used for working capital, partially offset by lower incentive compensation.
We returned $121 million of cash to shareholders through dividends and used $37 million for capital expenditures. Note that the timing of capital expenditures would fluctuate on a quarterly basis, depending on the phasing of initiatives equaling projects to increase capacity and capabilities to meet growing demand, advance our digital transformation and optimize our cost structure. Our priority remains to have a balanced use of cash. This means funding investments to drive growth, returning a significant portion of cash to shareholders through dividends and maintaining a strong balance sheet. We remain committed to a strong investment-grade rating and expect to continue to deliver strong cash flow in 2025 driven by profit and working capital initiatives. Now turning to our 2025 financial outlook on Slide 15. We are maintaining our guidance for the year. Our outlook continues to reflect our prioritized investments in key categories to strengthen volume trends and drive long-term profitable growth, while appreciating the current level of uncertainty in the consumer and macro environment.
First, let me address tariffs. As you know, the situation remains fluid. At this time, we plan to offset costs related to U.S. import tariffs on China with our CCI savings and some very targeted price adjustments. Our focus remains on safeguarding the health and competitiveness of our brands, sustaining the growth moment in our business and maintaining transparency with our customers. We don't believe our current planned actions will be material to the total business or will have a significant impact on our volume mix outlook for the year. That said, due to continued uncertainty on this topic, our outlook does not include any additional impacts from tariffs that could potentially be implemented this year. As things evolve, we will provide updates on our outlook within our typical reporting cadence. Turning now to the details of our outlook. Currency rates are still expected to have a 1 point negative impact on both net sales and adjusted operating income and 2 points on adjusted earnings per share.
At the top line, we continue to expect organic net sales growth to range between 1% and 3%, and for growth to be volume led. In the year-to-go, we expect to deliver total volume growth across both segments, and for total pricing to be flat to slightly positive, primarily driven by Flavor Solutions. For China, our outlook assumes a gradual recovery, and we expect China consumer sales to improve slightly year-over-year. We saw this come through this past quarter, and we expect it to continue for the rest of the year. Our 2025 gross margin is still projected to range between 50 to 100 basis points higher than 2024. This gross margin expansion reflects favorable impacts from product mix and cost savings from our CCI program, partially offset by the anticipated impact of a low single-digit increase in cost inflation. Consistent with historical trends, we expect our gross margin expansion to build throughout the year.
In addition to our gross margin expansion, we expect SG&A benefits from cost savings to be partially offset by investments in technology as well as brand marketing to drive volume growth. For the year, we expect our brand marketing spend to increase in the high single digits, reflecting a double-digit increase, partially offset by anticipated CCI savings. As a result, our adjusted operating income is expected to grow 4% to 6% in constant currency. Similar to our gross margin trends, we expect growth in our operating income to build throughout the year. This remains a balanced outlook that gives us the flexibility to continue to invest in the business, while expanding margins in line with our 2028 objectives. In terms of tax, we expect our tax rate to be approximately 22% for the year compared to 20.5% in 2024, where we benefited from a number of discrete tax items that are not expected to repeat in 2025.
We expect our income from unconsolidated operations to decline in the mid-teens range in 2025, reflecting the strengthening of the U.S. dollar against the Mexican peso, which is impacting the results of our largest joint venture, McCormick de Mexico. To summarize, our 2025 adjusted earnings per share projection of $3.03 to $3.08 on a reported dollar basis reflects current steel headwinds and the impact of increased tax rate relative to the prior year. On a constant currency basis, our adjusted EPS is still expected to grow between 5% and 7%. To wrap up, our continued volume growth underscores that our plans are yielding results and sustaining this differentiated performance. Looking ahead, our cost savings programs will continue to fuel our investments and drive margin expansion. And we remain confident in the underlying fundamentals of our business and in delivering on our 2025 financial outlook, near-term and long-term objectives.
Thank you, Marcos. Before moving to Q&A, I would like to close with our key takeaways on Slide 16. While the environment has gotten more challenging and consumer sentiment has been impacted, we have managed through these environments in the past and we expect to navigate through this successfully as we continue to refine and align our plans. The long-term trends that fuel our categories, consumer interest in healthy, flavorful cooking, key flavor exploration, and trusted brands, continue to be strong. And importantly, consumer interest in cooking is growing. We continue to execute on our strategic roadmap with speed and agility and in alignment with consumer trends, further capitalizing on our attractive categories across segments and driving category leadership. Our results demonstrate that we are investing in the areas that drive the most value, and we expect to maintain this momentum.
We also expect to continue to expand margins and manage our costs as we are investing in the business. These improvements are led by our favorable product mix and cost savings programs. Our performance historically and over the last few quarters, coupled with our growth plans, give us confidence in achieving our near- and long-term objectives. Ultimately, we believe the execution of our growth plans will be a win for consumers, customers, our categories, and McCormick, which will continue to differentiate and strengthen our leadership. Finally, I want to recognize all McCormick employees for their dedication and contributions and reiterate my confidence that, together, we will continue to drive differentiated results and shareholder value. Now for your questions.
分析師問答
Our first question will be coming from Andrew Lazar with Barclays.
I think on last quarter's call, you had guided to operating profit in fiscal 1Q to be sort of flat to slightly down. And as you mentioned, operating profit fell about 5% in the quarter. The decline was heavily weighted, obviously, to the Consumer segment. I think you mentioned pricing, stock-based comp, and brand investments. I think a lot of which were anticipated previously. So I'm just trying to get a better sense for what drove maybe the stronger-than-forecast operating profit decline, particularly in consumer. Was there a timing shift relative to initial expectations or sort of what drove that? And then more importantly, I guess, what now gives you the confidence in sort of reaffirming the full year?
Okay. Andrew, let me kick it off, and I'll have Marcos handle maybe more directly the question on operating profit. At a high level, Q1 was roughly in line with what our expectations were. And in fact, we had planned for Q1 to be sort of a different quarter than what the rest of the year will look like. And I think you kind of see that play out in a lot of our prepared comments. But there are timing elements that were called out before, like you mentioned, that will certainly impact that. But we do remain confident in the year to go period, and it's really supported by strong sales performance. Marcos, do you want to...
Yes, sure. So Andrew, on the operating profit, I mean, you mentioned a minus 5% decline in Q1. Adjusted for currency, it was minus 3%. So on a constant currency basis, 3%. A couple of timing-related items, as we mentioned on the call. One is the shift of the stock-based compensation from Q2 into Q1. And I feel normalized for that, and ROP would be essentially flat for Q1. Also, we had some timing in terms of brand marketing and technology investments hitting in Q1. We're going to continue to have some of those investments in the future quarters of the year, but a little bit of timing between Q1 and Q2 there as well. In the Consumer space specifically, we had to lap the price gap management investments that we put in place in 2024. So that was a headwind that's going to go away. If you think about it on the Consumer operating profit, a decline of 16%. I mean 2/3 of it will roll away in the next quarter, which is the pricing and the stock comp shift.
And FX was a bigger headwind. I mean we're trying to focus on the things that we can control. It was a bigger headwind. Now we're seeing FX moderating a little bit going forward. So that's where we're keeping the guidance as it is. And then in terms of the guidance question, yes, we do have a lot of confidence in the guidance that we've put out there. I mean top line is coming as we expected. We will continue to see growth in both segments, Consumer and Flavor Solutions, for the full year. In the Consumer, you're going to see growth all quarters and across all regions for the balance of the year. I'm pleased with the Flavor Solutions performance this quarter, driving not only top line but also profitability. And as you saw, profitability was up 240 basis points on the back of CCI, product mix, and as well as the top line that drives leverage through the P&L. So happy there as well. Gross margin will build throughout the year, as I said on the call, 50 to 100 points on a full year basis on the back of the CCI program.
We want to invest back in the business, as we said before, in terms of SG&A, particularly brand marketing. And we feel confident about expanding margins for the full year between 4% and 6% operating profit growth for the full year, primarily driven by the Flavor Solutions segment.
Next questions are from the line of Peter Galbo with Bank of America.
I have two questions regarding the Americas Consumer business. Brendan, I'll direct the first question to you. You mentioned that the management of the price gap in the first quarter might be seasonal or linked to seasonal business trends, and you expect consumer prices to remain flat moving forward. I'm curious if, on a deeper level within the Americas, there is still a chance for pricing to become negative due to additional investments. It seems you experienced good returns from promotions during the holidays, and you might consider this as we approach grilling season, potentially offsetting that with EMEA. I just want to clarify the factors contributing to the flat price for Consumer at the overall company level, especially in relation to geography.
Thank you, Peter. To start, we experienced very strong sales performance across the company in both segments. Regarding the Consumer segment, which is the focus of your question, we saw impressive volume growth of 2.6% across all regions. This reflects the strength we've discussed in previous quarters. As you noted, there was a pricing factor in the Americas during Q1, largely due to a targeted promotion for our recipe mix products. Many regions experienced cold weather, which boosted demand for chili and gravy. This was a prime time for those products, allowing us to push the business even harder in the first quarter, positively impacting our volume and market share in that segment. We have the flexibility to invest in areas where needed, contributing to the pricing strategies we implemented. Looking ahead, we don't anticipate price changes to significantly affect our global portfolio, although we will maintain pricing strategies similar to last year in the Americas.
There will be some price adjustments in EMEA to address commodity pressures, but that area will also see volume growth. Overall, volume growth in the Americas remains the main driver, which you can see reflected in our consumption and sales results. While there may be a slight discrepancy between our consumption and sales in the first quarter, this is typical following a strong holiday season. I'll pause here and see if I’ve answered your question, and I'm open to further discussion.
No, Brendan, I think that's very helpful context. As a follow-up, we received several questions this morning regarding the differences in shipment and consumption within the Americas Consumer segment. I was wondering if you noticed any carryover effects on inventories from Thanksgiving or any timing shifts related to Easter that you're considering as we look at consumption?
Sure. Let me provide some additional context on shipments relative to consumption. We have very few concerns regarding our shipment and consumption profile. To elaborate, we had an excellent holiday program that led to strong consumption not only in the fourth quarter but also in the first quarter. This strong consumption pattern has underpinned our sales growth over the past two quarters. The outpacing of sales in the first quarter is a typical trend we have observed in our inventory patterns over the last decade. However, there are two other factors that seem a bit new this quarter. Firstly, we are not experiencing any early Easter shipments as we did last year since Easter is later in April this time. Therefore, there isn't much happening in the first quarter related to Easter as it was the previous year. Secondly, we have a robust innovation plan for the year, which started early this time.
This means we have increased spending on slotting, and any increases we had in slotting will reflect in the first quarter due to the timing of item shipments. This suggests that we are off to a good start with our innovation, although some of that spending is heavier than last year. However, I do not view these factors as structural issues; they are just part of normal cycles we experience. Overall, the profile looks just as we expected. If we combine the fourth and first quarters into one figure, it aligns perfectly with our targets.
Our next questions are from the line of Alexia Howard with Bernstein.
So can I focus on the growth of sales in Flavor Solutions? I'm wondering if you could quantify or at least comment on how much new high-growth customers are adding to your sales or your volumes in that segment? And then by contrast, how much does the QSRs benefit also in there? And then offsetting that, you had the CPG customer weakness, how big was that compared to some of the other dynamics? And then I have a follow-up.
Thanks for the question, Alexia. We did have a good quarter on Flavor Solutions overall. In fact, I would say, in 2 out of our 3 regions, we have volume growth, mostly in the Americas and Asia Pacific. Just to give you a little bit more context and detail, I'm not going to be able to sort of quantify each individual segment within or kind of categorize each volume and give it a framing on numbers. So I'll give you some context in terms of what we saw in the quarter. We did very well with those high-growth sort of innovator customers that are a lot of emerging segments, many of them attached to health and wellness. And so we continue to see strong growth from them. We also continue to acquire new customers there. So it's not only volume, but it's also gaining share that's helping us there. And it allows us to diversify our sales mix and our portfolio. But we also saw strength in the QSR business even if there is weak traffic in the industry.
And what was driving that is we had some innovation wins executed in the quarter. We also won some new customers there, too. So in the Americas region, it was the QSR customer base and the sort of small, high-innovator customers that we have in Flavor that were really driving and offsetting any of the weakness that we saw with larger CPGs. In Asia Pacific, it was a lot of QSR performance that drove the business. Increased customer promotions and limited time offers certainly contributed to some strong numbers. But also we were lapping the geopolitical boycotts from a year ago. So that also improved volume performance in Asia Pacific. EMEA, on the other hand, definitely saw continued weakness, although we see sequential improvement quarter-to-quarter, it still is soft in terms of traffic with QSRs. And so that region was down. But underlying all of this, there is a softness with larger CPG companies, I would say, not just within the Americas, but also we're seeing that in Europe too.
And that's consistent with what you're hearing, I think, from other company reports. And so we're seeing a little bit of that in our performance. I would say, though, when we look at a category to category, we tend to still outperform what's going on in the broader market, but nonetheless, the volumes are weaker.
Great. And as a quick follow-up. It's probably too early to say anything, but RFK Jr. seems to be pursuing an agenda of driving out artificial additives across packaged food and probably in the restaurant sector as well. As I said, it's probably too early to tell because he's just turned off on the scene, but are you seeing any uptick in reformulation efforts on the part of your CPG or restaurant customers in the U.S.?
Yes. With regard to colors, just let me first provide some context on the McCormick portfolio, our consumer portfolio. We don't really have a lot of usage of color in our products, as you might expect, at least very, very few overall. Now with respect to formulations, we are seeing more activity on that, definitely. Now reformulation activity has always been a part of the work that we do with our customer base, and we've been doing that for quite some time. But we are seeing a tick-up in reformulation activity, and that would align with what you're seeing and being written out in the news media regarding what we're hearing from the new administration. But it isn't just colors, it's also sodium. We've always been working on sodium. It's also about just working on trends that are certainly positive, like hydration, functional foods, high protein. We're seeing reformulation activity across our customer base, but also a lot of new product activity, too.
The next question is from the line of Ken Goldman with JPMorgan.
Understanding the situation changes daily or sometimes hourly, what should investors be looking for in terms of key tariff risks ahead, as well as, I guess, related headwinds and actions that the company will take in response? And I know these are myriad in nature, but anything you're really keeping an eye on that we should also be following, I think, would be helpful.
There are known tariffs that we have already included in our forecast and guidance for the year, specifically those imposed on China. As we look ahead, it's challenging to anticipate which areas will require our attention, as we are uncertain about how future developments will unfold. We are closely monitoring the latest news and potential plans, and we are considering various scenarios regarding the application of these tariffs. There is significant variability based on recent reports, but we are keeping abreast of what others are learning as well. Historically, we have managed similar situations, and we expect to navigate them successfully moving forward, depending on the specific country or type of raw material or finished product involved. This process can be quite varied and complex, but we are prepared to address it once we have clearer information.
Okay. And then a quick follow-up. I recognize that given quarterly guidance isn't always your practice. But just in light of some of the moving pieces in the first half and some of the conversation about pricing and SBC shifts, how would you like us to sort of think about directionally EBIT and EPS in 2Q either relative to 1Q or versus a year ago? Just I think any help you can get in or sort of narrowing that would be useful.
Yes. Ken, I'm going to maybe kick it off and then ask Marcos to add more context to this. But kind of back to my opening remarks, we always saw Q1 as being a very different quarter than the rest of the year. And so I think that would be the picture that we continue to paint. We felt like we've made that kind of clear when we closed the fiscal year in '24. But Marcos, do you want to add to Ken's question?
Yes, Ken. It's challenging to provide quarterly guidance in this dynamic environment. We expect our top line growth to continue between Q3, Q2, and Q4. The gross margin will build progressively, with the majority of our profitability occurring in the second half of the year, which will outperform the first half. You'll notice a more significant positive impact on gross margin in the second half compared to the first. This will also contribute positively to our operating profit. We are consistently investing in SG&A each quarter, which has been beneficial in generating volume from those investments. Profitability is expected to align with the growth in gross margin. You should also see some of the timing-related effects from Q1 acting as a tailwind in Q2, alongside a steady increase in gross and operating margins for the remainder of the year.
Our next question is from the line of Robert Moskow with TD Cowen.
Brendan, I wanted to follow-up to Andrew's question at the top of the call. You described the results as roughly in line with your expectations, and I'm just trying to drill down a little bit more into the organic growth for Consumer versus organic growth for Flavor Solutions. Just based on tone heading into the results, I would have thought that Flavor Solutions would be a little weaker, Consumer would be stronger given everything you said about the shift to scratch cooking the desire for more fresher foods and the flavors that are used to prepare them. And so this is kind of the reverse in first quarter. And I want to know if that was also in line with your expectations or not. And then more specifically on the chili promotion, is that a profitable promotion? It obviously drove a lot of volume. You said it was incremental. Did it grow profits?
Thank you, Rob. Let me address your question regarding our overall expectations. I believe Flavor Solutions performed slightly better than we anticipated, particularly in terms of QSR volume performance. From the Consumer perspective, I'm pleased to report that volume in the Americas increased by approximately 2.9%. We've noticed a shift towards increased consumption, which is a trend we generally expect. Overall, we felt that consumption was robust, continuing the positive momentum we observed in Q4. Although the holiday season typically drives higher demand, we’re seeing a sustained strength in our performance. In China, we anticipated a gradual improvement, and we're satisfied with the first quarter results. Compared to the Chinese New Year, we feel we performed slightly better than expected. We had projected slight growth, and the 3% increase we experienced was commendable given the market challenges and consumer sentiment at that time.
To give you more insight, we're pleased with the volume growth in the Americas and China, and EMEA also performed well. We are witnessing some pricing adjustments in EMEA due to commodity pressures, but volume growth continues despite these changes. Regarding our promotional strategy, when evaluating price, revenue management, and price gap management, we assess whether these strategies are profitable. I can assure you that our team executes these programs because they are strategically beneficial for the business, foster customer loyalty, and are financially sound. Overall, we are quite pleased with our performance in the first quarter. If there's any minor disappointment regarding the Consumer figures, I want to emphasize that we still consider those figures to be quite strong. I hope this addresses all aspects of your question.
Our next question is from the line of Max Gumport with BNP Paribas.
Recently, packaged food companies, especially those connected to snacking, have been experiencing sustained weakness and are attributing this to consumers feeling financial strain. While it seems you have recognized some of these pressures, you also appear to link a significant portion of this issue to shifts in consumer preferences, which are benefiting certain categories within your Consumer segment. Could you provide more insight into the changing consumer preferences you are observing? Additionally, how do you differentiate the decline in snacking from consumers feeling financial pressure versus their evolving preferences for eating?
Thank you for the question, Max. When it comes to snacking trends, the drivers seem to relate to both affordability and health and wellness. It's challenging to differentiate the two. What we are observing is a slight decline in some areas of snacking, yet there are also segments experiencing growth, particularly in protein-based and healthier snacks. This indicates that snacking itself isn't the core issue; instead, people are exploring various options throughout the day. Moreover, we believe we are capturing market share from competitors in these areas, which helps mitigate the temporary weaknesses we see in the snacking category. Looking at the broader state of the consumer, we find that while consumers are resilient, they remain in a difficult environment. Recently, consumer sentiment appears to have declined, primarily due to concerns about rising inflation. This situation influences our expectation for the latter half of 2024, as we anticipate that consumer attitudes may not shift positively anytime soon.
Consumers remain cautious about their food and beverage spending and continue to seek value. In our categories, we notice some customers opting for smaller units, though we are also seeing significant growth in larger units. This suggests that consumers are looking for value and carefully considering the cost per ounce of what they buy. Our observations show that consumers are quite savvy and are trying to maximize their spending. This is another reason they may shop in different areas of the store to prepare scratch meals, viewing them as both healthier and more economical. Overall, while we began discussing snacking trends, it’s evident that consumers are merging affordability and health considerations, making it difficult to separate the two.
The next question is from the line of Steve Powers with Deutsche Bank.
Brendan, I was hoping you could talk a little bit more about what you're seeing in Europe and, I guess, in the EMEA segment as it relates to Consumer. Volume growth there as well this quarter, and you've got some pricing coming through because of the commodity backdrop. But at the same time, you cited other CPG companies in Europe kind of facing parallel dynamics as we're seeing here in the U.S. with consumer weakness. So as you think about the progression of demand in Europe over the balance of the year, I guess, how are you sort of taking you through the scenarios there? And is there incremental investments that may have to be put into place in Europe as well as the year goes on to offset some of that demand weakness?
Thanks, Steve. In Europe, we conduct extensive proprietary research throughout the year to understand consumer sentiment regarding cooking, shopping, value, and inflation, among other topics. We do this almost every quarter, which helps us compare consumer sentiment in Europe to that in the U.S. and other major markets. What stands out to us is the striking similarity between U.S. consumer sentiment and that of Europeans. We're seeing similar trends, such as an increase in home cooking and dining, alongside a focus on value. Growth in discount retailers is one example, where we are gaining distribution. E-commerce is also experiencing significant acceleration as consumers seek convenience, leading to similar behaviors and sentiments across both markets. The concern over inflation is similarly high in Europe as it is in the U.S., which is reflected in our data. Therefore, I can't identify anything particularly different occurring in Europe compared to the U.S. at this time.
Okay. I would like to follow up. As we observe net positive pricing affecting your business this quarter and throughout the year, are we really witnessing commodity-based pricing being balanced by promotional investments? Or is the value not as strong in Europe compared to the U.S., despite these factors?
The commodity inflation we're experiencing is not widespread; it's very specific to certain items. For example, our homemade desserts business in France is seeing inflation on particular products. This situation is quite targeted. Nevertheless, we are committed to ensuring that our price points on the shelves are appropriate. This involves not just promotions, but also effectively managing price gaps to achieve the right pricing. I want to emphasize that this is more of a targeted concern from a commodity perspective, rather than a broad issue.
Our next question is from the line of Tom Palmer with Citi.
Maybe just to start out, I wanted to clarify an element of Ken's question from earlier. I appreciate the sales momentum and the expectation for gross margin to build as the year progresses. But I wanted to just clarify on SG&A, given some of the timing items that were called out in 1Q. I think traditionally, SG&A dollars in the second quarter are quite a bit higher than we see in the first quarter. Does this still hold this year? Or was there enough pull forward of some of these items into 1Q that will be a bit more balanced?
It is going to be balanced between Q1 and Q2. You should look at those 2 quarters together, Tom, as you think about the SG&A line. There is a shift into Q1, a negative shift into Q1, as I explained, but that's going to be a tailwind into Q2. Brand marketing technology will continue across both quarters. So Q1, you saw some of that, a little bit more heavily than anticipated. But it's going to come back in Q2 as well. We're going to continue to invest on the back of those 2 items. So I would look at it as the combination of Q1 and Q2 for more of a normalized view on SG&A.
Okay. And I wanted to ask on Canada. We've seen headlines about weaker sales for U.S. brands. Are you seeing any of that at this point? And then just any refresher on your exposure to Canada?
In Canada, we had a really strong quarter in terms of consumption and performance, similar to the U.S. I understand what you are referring to regarding the press coverage, but we are not facing any difficulties there. Overall, we are quite pleased with our performance in terms of consumption and sales.
Our final question is from the line of Matt Smith with Stifel.
I wanted to follow up on the trends in the quick service restaurant sector in America. You mentioned that traffic has been weak, but volumes were actually up. Can you discuss the factors that contributed to this growth, which compensated for the traffic decline, and share your outlook for the rest of the year concerning industry traffic trends and your ability to outperform the sector? Were some of the limited time offers and menu enhancements just temporary, or do they continue to help you exceed the current traffic trends in the quick service restaurant industry?
We often characterize this business as variable from quarter to quarter. One factor influencing this variability is customer promotions and limited-time offers, which can be unpredictable in duration. We've observed heightened activity in the Asia Pacific region, where quick service restaurants have performed well over the last few quarters, growing both their stores and overall customer traffic. The growth of new stores has contributed to overall performance, although it's not measured by same-store sales. Additionally, when we secure more business or introduce innovations, it adds to our previous year's performance, helping us navigate the trends affecting traffic in the industry. We experienced more of this in the Americas, which illustrates that our improvements in sales mix are driven by acquiring new customers or offering new products. This approach is akin to gaining market share.
Thank you. I'll now turn the call back to Brendan Foley for closing remarks.
Thank you all for joining today's call. If you have any further questions regarding today's information, please feel free to contact me. This concludes our conference call for this morning.