Good morning. This is Kasey Jenkins, Senior Vice President of Corporate Strategy and Investor Relations. Thank you for joining today's first quarter earnings call. To accompany this call, we've posted a set of slides at ir.mccormick.com. We will begin with remarks from Lawrence Kurzius, Chairman, President, and CEO, and Mike Smith, Executive Vice President and CFO, and we'll close with a question-and-answer session. During this call, we will refer to certain non-GAAP financial measures. The nature of those non-GAAP financial measures and the related reconciliation 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. 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. Please refer to our forward-looking statement on slide two for more information. I will now turn the discussion over to Lawrence.
Good morning, everyone. Thanks for joining us. Before I go to business, it is with great sadness that I mention the passing of Buzz McCormick, who was one of the most beloved and admired leaders in McCormick's history. Buzz's career at McCormick spanned 50 years, rising through the ranks across many functions, becoming President and CEO in 1987 and serving as Chairman of the Board for a total of 11 years until his retirement for the third time in 1999. As CEO, Buzz focused McCormick on flavor by divesting non-core businesses and driving category leadership in spices and seasonings, setting the course for McCormick to be the global leader in flavor. Notably, McCormick's market cap grew by 4x under his leadership.
Buzz will not only be remembered for his enduring legacy of performance, but just as importantly, for his deep commitment to the well-being of all McCormick employees. He truly made McCormick a great place to work, believing his biggest accomplishment as a CEO was helping all McCormick employees have a better life. Today, as we reflect on his life and his contributions, we know that his legacy will live on. He has inspired many generations of McCormick leaders with his passion for people, focus on flavor, and commitment to delivering shareholder value. Next, I'd like to comment on the situation in Ukraine. First and foremost, we extend our deepest sympathies to the people of Ukraine and hope for an immediate end to the conflict and the suffering of innocent people. As we previously announced, we suspended our operations in Russia in mid-March.
Our operations in Ukraine have been paused to focus on the safety of our employees and their families. Our thoughts are with the people impacted by these tragic events, particularly our employees who we continue to support. To aid in humanitarian efforts, we're donating to the Polish Center for International Aid and the World Central Kitchen. I would also like to express my sincere appreciation to our EMEA employees, especially those in Poland, for their many personal efforts in aiding their Ukrainian neighbors in need. Their actions epitomize our power of people principle. Now, moving to slide four and our business results, we delivered solid financial results in the first quarter, in line with our expectations, driven by the successful execution of our strategies and the engagement of employees. We are confident our strong year-to-date momentum will continue to drive strong performance throughout 2022.
In the first quarter, we grew sales 3%, or 4% in constant currency, on top of our 20% constant currency growth in the first quarter of last year, demonstrating again the strength of our product offering and broad global portfolio, which drives differentiated growth and consistency in our performance. Consumer segment sales, while lapping high year-ago demand, continued to reflect the sustained shift to higher at-home consumption compared to pre-pandemic levels. Our Flavor Solutions segment growth was driven by outstanding growth with our packaged food and beverage customers, as well as robust demand from restaurant and other food service customers, due in part to recovery from curtailed away-from-home dining in the year-ago period. Through the breadth and reach of our balanced flavor portfolio, we are meeting the global demand for flavor and delivering flavor experiences for every meal occasion through our products and our customers' products.
We are end-to-end flavor. Adjusted operating income was down 14% or 12% in constant currency, and adjusted earnings per share was down 13%. As anticipated, the profit driven by our sales growth was more than offset by the well-known and anticipated headwinds of higher inflation and broad-based supply chain challenges. We have a demonstrated history of successfully navigating through volatile environments, and we expect to do the same through this high current inflationary period using pricing and other levers to offset cost pressures, which is reflected in our 2022 profit outlook. Now for more on our first quarter segment performance. Starting with the Consumer segment on slide five, growth in the Americas was more than offset by lower sales in the EMEA and APZ regions. Total Consumer segment sales declined 2% against 35% Consumer growth in the first quarter of 2021.
Given the difficult year-over-year comparison, volume declines were reflected in each region. On a two-year basis, however, compared to the first quarter of 2020, each region grew sales by double- digits. This growth highlights the strength of our categories and importantly, our products. As consumers continue to cook more at home, demand for flavor continues to grow. The pricing actions we have taken were also reflected in each region's results, and the elasticity impact we experienced has been lower than historical levels. As we look ahead and our additional pricing actions are phased in, the elasticity we experience may change, and this could be a cumulative effect, but we still expect the impact to be lower than historical levels.
Turning to highlights by region, starting with the Americas, our total U.S. branded portfolio consumption, as indicated by our IRI consumption data and combined with unmeasured channels, grew 2%, which follows a 15% consumption increase in the first quarter of 2021. This is the 8th consecutive quarter of double-digit consumption growth versus the two-year ago period. Demand has remained high, and we continue to realize the benefit of the manufacturing capacity we added, as well as our increased resilience. Our first quarter shipments were in line with consumption. However, some products remained stretched by sustained high demand. Shelf conditions continued to improve, as does our share performance, with another sequential improvement in the first quarter as we expected. Versus last year, we are beginning to grow our spices and seasoning share and in recipe mixes, we had another quarter of considerable share gain, over four share points.
We continue to see further improvement as we begin the second quarter, and we are confident in our continued momentum. In EMEA, during the first quarter, we lapped high prior year demand, partially due to restrictions resulting from COVID resurgences last year, while continuing our momentum with strong consumption growth in key categories compared to the first quarter of 2020. Our market share performance was stronger this quarter. We maintained our total EMEA region herbs, spices, and seasoning share on top of strong gains in the first quarters of the last two years. Of note, Frank's RedHot has grown consumption 60% and gained significant share versus the two-year-ago period. In the Asia Pacific region, first quarter growth was tempered by scaled-down Chinese New Year celebrations due to several cities in China imposing restrictions as a result of new COVID outbreaks.
These restrictions impacted our branded food service demand that is included in the Consumer segment in China. Turning to slide six, our Flavor Solutions segment grew 12% or 14% in constant currency, driven by base business growth, new products, and one month of incremental sales for our acquisition of FONA in December 2020. All three regions contributed to our growth, each with higher volume and product mix, as well as the pricing actions to partially offset costs. Our first quarter Flavor Solutions results reflect similar market conditions across the regions. As a reminder, our customer base in the Americas is skewed more to packaged food and beverage customers and in EMEA and APZ to quick service restaurants or QSR customers.
Our differentiated customer engagement and technical capabilities continued to drive outstanding growth, both in base business and with new products, with our packaged food and beverage customers, our at-home customer base. Our performance with these customers led to our first quarter Flavor Solutions results with double-digit growth in flavors for performance nutrition and health and end-market applications, as well as savory snacks. Our momentum with flavors for alcoholic beverages also continued. Our QSR momentum has been strong with core menu items and limited time offers driving first quarter growth, and other restaurant business continues to rebound. Our first quarter results also reflect the lapping of curtailed away-from-home dining last year. Restaurants are benefiting from the shift to takeaway and delivery that was amplified by the pandemic. There's been a blurring between channels and most of the restaurant food being consumed off-premise.
For instance, one in four dinners consumed at home is supplemented with a restaurant or other food service item. For our other institutional food service customers in our branded food service product category, we expected some recovery coming into 2022, and we saw that demand strengthen in our first quarter and drove growth in the Americas and EMEA regions. Now I'd like to share some comments on our momentum and the growth initiatives we have underway. Turning to slide seven, global demand for flavor remains the foundation of our sales growth, and we've intentionally focused on great, fast-growing categories that will continue to differentiate our performance. We are capitalizing on the long-term consumer trends that accelerated during the pandemic, healthy and flavorful cooking, increased digital engagement, trusted brands, and purpose-minded practices.
These long-term trends and the rising global demand for great taste are as relevant today as ever, with the younger generations fueling them at a greater rate. Our alignment with these trends, in combination with the breadth and reach of our global portfolio and the successful execution of our strategies, sustainably positions us for future growth. In this current dynamic global environment, we remain focused on long-term sustainable growth. We continue to experience cost pressures from higher inflation and broad-based supply chain challenges. To partially offset rising costs, we raised prices where appropriate late last year, are currently phasing in additional pricing actions, and as costs have continued to accelerate, we will raise prices again this year where appropriate. We appreciate our customers working with us to navigate this environment.
Additionally, our plans to mitigate cost pressures include our CCI-led cost savings, revenue management initiatives, and taking prudent steps to reduce discretionary spend where possible. Throughout our history, we have successfully grown and compounded our growth regardless of the environment and plan to do so again in 2022 as we continue to accelerate our momentum and drive growth from a position of strength. In our Consumer segment across our major measured markets, we have gained millions of households over the last two years and had double-digit buy rate growth. Our brands have gained new consumers, and we have driven increased usage at the same time. This performance, combined with billions of additional at-home eating occasions from consumers cooking more at home, has created a new baseline for growth.
We are continuing to drive our Consumer segment momentum by accelerating flavor usage, including delivering on the demand for heat, building confidence in the kitchen, and inspiring flavor exploration. We're also strengthening our consumer relationships at every point of purchase and creating a delicious, healthy, and sustainable future. We're fueling growth through our brand marketing investments, category management initiatives, and new products. Our brand marketing is resonating with consumers, particularly as we connect with them online. As we expand the capabilities of our marketing excellence organization globally, we are gaining efficiencies, executing with greater speed, and shifting our investments to working dollars to drive greater effectiveness. Our U.S. spice aisle reinvention is further driving our category leadership with growth for McCormick and our customers.
This initiative is continuing this year with additional stores being implemented, and we're also starting to build momentum with similar initiatives in Canada, the U.K., and France. Our Consumer new product innovation differentiates our brand and strengthens our relevance with our consumers. Our new products are focused on what's important to consumers, such as freshness, modern packaging, convenience, and flavor exploration, as well as affordability and value. 75% of global consumers find it more economical to cook at home, and in the current inflationary environment, it resonates even more now. Our products are already part of the consumer solution to manage inflation across their whole grocery basket. For instance, inflation is hitting the meat case hard, and a little bit of our flavor can make lesser cuts of meat more palatable and makes the consumer's whole meal both more affordable and flavorful.
We have products at all price points that attract many types of consumers and households, as well as different income levels. We continue to focus on ensuring we're launching new products that appeal to all types of consumers, such as additional entry-level price points for affordability as well as value offerings, including larger sizes to meet the needs of price-conscious consumers. With our new products and recipes tailored to popular new appliances, such as air fryers and Instant Pot, we're providing consumers flavor inspiration and greater convenience when using our products. In our Flavor Solutions segment, we plan to continue migrating our portfolio to more value-added products and technically insulated products, particularly our flavors product category. We're targeting opportunities to grow with our customers in attractive, high-growth end markets such as alcoholic beverages, savory snacks, and performance nutrition. We have been outpacing the market growth in these categories.
They all contributed first to strong growth in our first quarter results and further migrated our portfolio. Following a record year of new product growth last year, we're excited about a robust 2022 pipeline of culinary-inspired innovation. We're leveraging our broad technology platform to develop clean label, organic, and better-for-you solutions to solve our customers' issues without compromising on taste. We're using SAGE, our AI-enabled product development tool, to develop consumer preferred flavors at an increased speed that have a track record for lasting longer in the market for our customers. We're building a pipeline of opportunities to accelerate our global seasonings growth by expanding our mid-tier customer base, being added to core supplier lists, and strengthening our leadership in heat. We plan to continue to drive Flavor Solutions growth through our differentiated customer engagement. We have a strong passion for creating a flawless customer experience.
Across both segments, our strong sales and growth plans bolster our confidence in continuing our growth trajectory. We also recognize we're operating in a challenging global environment. Before Mike reiterates our guidance in a few moments, I'd like to comment on some current conditions. We will continue to monitor the situation in Russia and Ukraine very closely and adapt accordingly. Cost inflation has remained persistent, with recent escalation in some areas, such as transportation costs, and as such, we have raised our cost inflation guidance. It is now a mid- to high- teen increase. In regard to COVID, as I mentioned earlier, there are new COVID restrictions being imposed in several cities in China. We are continually assessing the dynamics of these conditions as they evolve. We recognize there will be some near-term impact, which we expect to mitigate later in the year, in part with additional pricing actions.
We are well-positioned to deliver another strong year of growth and performance in 2022 through the effective execution of our strategies and with our robust operating momentum. In addition to delivering top-tier financial results, we are also committed to doing what's right for people, communities, and the planet. We recently released our 2021 Purpose-led Performance Progress Report, which highlights our key initiatives and the progress we are making, including our recent announcement on the update of our science-based target to reduce greenhouse gas emissions by 2030, aligning with the United Nations 1.5 degrees Celsius target, as well as our commitment to net zero by 2050.
As we move forward in 2022, we're excited to continue to share our progress and success on all our Purpose-led Performance goals. Now for some summary comments on slide 11 before turning it over to Mike. The combination of our strong business model, the investments we have made, the capabilities we have built, and the power of our people position us well to continue our robust growth momentum. We are in attractive categories and are capitalizing on long-term consumer trends that are in our favor. We are actively responding to changing market conditions, consumer behaviors, and customer needs while remaining forward-looking in an ever-changing environment. We have a strong foundation and are well equipped to navigate today's environment, responding with agility to volatility and disruption while remaining focused on the long-term objectives, strategies, and values that have made us so successful.
Through the execution of our strategies that are designed to drive long-term value, we have grown and compounded that growth successfully over the years, regardless of the environment. Our fundamentals that drove that performance and our momentum and outlook are stronger than ever. McCormick employees continue to do a great job navigating a dynamic environment. Their agility and teamwork drive our momentum and success, and I want to thank them for their dedicated efforts and engagement. Now I'll turn it over to Mike.
Thanks, Lawrence, and good morning, everyone. Starting on slide 13, our top line growth continues to be strong. During the first quarter, we grew constant currency sales 4%, driven by pricing actions across both segments and incremental sales from our FONA acquisition.
Consumer segment sales declined 2% in constant currency due to lapping high demand in all three regions last year, with a partial offset from pricing. On a two-year basis, compared to the first quarter of 2020, constant currency sales grew 30% with double-digit growth in all three regions, reflecting the sustained shift to at-home consumption higher than pre-pandemic levels. On slide 14, Consumer sales in the Americas increased 2% in constant currency, driven by pricing actions, partially offset by lower volume and product mix due to lapping last year's elevated demand. Branded products led the growth, with strength in McCormick, Zatarain's, Stubb's, OLD BAY, Simply Asia, Frank's RedHot, and French's, partially offset by a decline in private label.
In EMEA, constant currency consumer sales declined 9% from a year ago, driven by lower volume and product mix, most significantly in Vahiné homemade dessert products, due to lapping last year's high demand across the region. This decline was partially offset by pricing actions. Constant currency Consumer sales in the Asia Pacific region declined 6%, driven by the exit of some lower-margin business in India. China's Consumer and branded food service demand, partially related to the Chinese New Year impacts Lawrence mentioned earlier, also contributed to the decline. These declines were partially offset by pricing actions. Turning to our Flavor Solutions segment and slide 17, we grew first quarter constant currency sales 14%, including a 2% contribution from incremental FONA sales in December. As a reminder, we acquired FONA on December 30th, 2020.
The remaining increase was driven by higher volume and product mix, as well as pricing actions. Compared to the first quarter of 2020, constant currency sales grew 18%, with double-digit growth in all three regions. In the Americas, Flavor Solutions constant currency sales grew 12%, with FONA contributing 2% and the remaining growth due to both pricing and the combination of volume and product mix. Higher sales to packaged food and beverage companies, with particular strength in snack seasonings, led the growth, with the recovery of demand from branded food service customers also contributing. In EMEA, we drove 24% constant currency sales growth, with a 17% increase in volume and product mix, and 7% related to pricing actions. EMEA's growth was led by the robust recovery of demand from QSRs and branded food service customers.
In the Asia Pacific region, Flavor Solutions sales rose 5% in constant currency, driven by pricing actions and growth from higher volume and product mix. This growth was driven by our QSR customers, both in their core menu items as well as their limited time offers and promotional activities. As seen on slide 21, adjusted operating income, which excludes transaction and integration costs related to the Cholula and FONA acquisitions, as well as special charges, declined 14%, or in constant currency, 12% in the first quarter versus the year-ago period. Adjusted operating income declined 12% in the Consumer segment, with minimal impact from currency. In the Flavor Solutions segment, it declined 17%, or 11% in constant currency.
Both segments were unfavorably impacted by higher inflation and distribution costs, both of which accelerated in the second half of last year, as well as incremental investment spending on our ERP program, which we expected to be higher earlier in 2022 versus 2021. CCI-led cost savings favorably impacted both segments. In the Consumer segment, lower sales, partially offset by a reduction in COVID-19 related costs, also contributed to the decline. In the Flavor Solutions segment, higher sales were more than offset by the unfavorable drivers I just mentioned, as well as costs related to supply chain investments, which will continue in the second quarter. As seen on slide 22, adjusted gross profit margin declined 260 basis points in the first quarter versus the year ago period.
This was driven by the net impact of cost pressures we are experiencing and the pricing actions we have taken. We estimate the dilutive impact of pricing to offset this dollar inflation increase was approximately 200 basis points in the first quarter. Additionally, a sales shift between segments also contributed to the margin decline. Our selling, general, and administrative expense as a percent of net sales increased 20 basis points from the first quarter of last year due to higher distribution costs and a higher level of investment in our ERP program. This, combined with the adjusted gross margin compression, resulted in an adjusted margin decline of 280 basis points, in line with our expectations. Turning to income taxes on slide 23.
Our first quarter adjusted effective tax rate was 19.7%, compared to 22.7% in the year- ago period, driven by a higher level of discrete tax items this year. Adjusted income from unconsolidated operations declined 30% versus the first quarter of 2021 due to the elimination of higher earnings associated with minority interest, as well as higher inflation costs impacting our McCormick de Mexico joint venture. At the bottom line, as shown on slide 25, first quarter 2022 adjusted earnings per share was $0.63 as compared to $0.72 for the year- ago period. The decrease was driven by our lower adjusted operating income. On slide 26, we've summarized highlights for cash flow and the year-end balance sheet.
Our cash flow from operations was an inflow of $18 million in the first quarter of 2022, compared to an outflow of $32 million in the first quarter of 2021. This increase was primarily driven by working capital improvements and lower payments for transaction and integration costs related to our Cholula and FONA acquisitions. We returned $99 million of cash to our shareholders through dividends and used $44 million for capital expenditures this quarter. We expect 2022 to be a 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 turning to our 2022 financial outlook on slide 27.
First, I would like to provide some additional perspective on some of the current conditions Lawrence mentioned earlier. As we have said, we are currently not operating in Russia and Ukraine. While the impact is not fully known, our business in these markets is small, with the combined sales across both segments totaling less than 1% of total company sales last year. Additionally, we have no manufacturing in either country. Any operating profit impact would include those related to the impact on sales, as well as potential expenses stemming from the current situation. Regarding cost inflation, we are revising our outlook and are now projecting inflationary pressure in the mid- to high-teens, as compared to mid-teens increase in our previous guidance. We expect cost inflation to remain persistent, especially as it relates to transportation, and we are continuing actions to mitigate these costs, including pricing.
Again, as Lawrence mentioned, we recognize these dynamics will have some impacts on our results, certainly in the second quarter. While we continue to monitor impacts on the broader economy and will adapt as necessary, we are reiterating our 2022 sales and profit outlook that we previously shared in our January earnings call. We are projecting strong top line growth and operating performance, with earnings growth partially offset by a higher projected effective tax rate. We also expect there will be an estimated one percentage point unfavorable impact of currency rates on sales, adjusted operating income, and adjusted earnings per share. On the top line, we expect to grow constant currency sales 4%-6%. We expect pricing to be a significant driver of our growth, with volume and product mix to be impacted by elasticities, although at a lower level than we have experienced historically.
We plan to drive growth through the strength of our brands as well as our category management, brand marketing, new product, and customer engagement growth plans. Our volume and product mix will also continue to be impacted by the pruning of lower margin business from our portfolio. Our 2022 adjusted gross margin is projected to range between comparable to 2021 to 50 basis points lower than 2021. This adjusted gross margin compression reflects the anticipated impact of a mid- to high-teens increase in cost inflation, an unfavorable impact of sales mix between segments, a favorable impact from pricing, and CCI-led cost savings. As a reminder, we price to offset dollar cost increases. We do not margin up. This has a dilutive impact on our adjusted gross margin and is the primary driver of our projected compression.
We expect to grow our adjusted operating income 8%-10% in constant currency, which reflects our robust operating momentum, a reduction in COVID-19 related costs, and our continuing investment in ERP business transformation. This projection includes an inflationary pressure in the mid- to high-t eens, a low single-digit increase in brand marketing investments, and our CCI-led cost savings target of approximately $85 million. As we shared on our last earnings call, we expect our profit growth to be weighted to the second half of the year. During the second quarter, we are phasing in pricing actions, and with costs continuing to escalate, we'll raise prices again as appropriate. While we plan to cover the cost pressures, due to the recent acceleration of inflation, there will be a lag.
As a result, our profit will now be weighted to the second half of the year even more than originally expected. As a reminder, we expect our ERP investment to be higher earlier in the year versus 2021. Our 2022 adjusted effective income tax rate is projected to be 22% and 23%. Based upon our estimated mix of earnings by geography, as well as factoring any level of discrete impacts, this outlook versus our 2021 adjusted effective tax rate is expected to be a headwind to our 2022 adjusted earnings per share growth of approximately 3%. Our 2022 adjusted earnings per share expectations reflect strong operating growth of 8%-10% in constant currency, partially offset by the tax headwind I just mentioned.
This results in an increase of 4%-6% or 5%-7% in constant currency. Our guidance range for adjusted earnings per share in 2022 is $3.17-$3.22, compared to $3.05 of adjusted earnings per share in 2021. In summary, we are well-positioned with our broad and advantaged flavor portfolio and effective growth strategies to continue to accelerate our operating momentum and drive another year of strong growth and performance.
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 28. We delivered solid first quarter results in line with our expectations, with strong sales growth on top of our 20% constant currency growth last year. We are confident that the hard work and dedication of our employees will continue to drive momentum. We recognize we're operating in a challenging global environment. Through the execution of our strategies, we've successfully grown long-term value over the years, regardless of the environment. Our long-term fundamentals that drove our performance are stronger than ever. The strength of our business model, the value of our products and capabilities, our alignment with long-term consumer trends that are in our favor, and the attractive categories we are in provide a strong foundation for long-term sustainable growth.
We're confident that our broad and advantaged flavor portfolio, our robust operating momentum, and effective growth strategies will drive another year of strong growth in 2022 and build value for our shareholders. Now, let's turn to your questions.
Thank you. At this time, we'll now be conducting a question-and-answer session. If you'd like to ask a question today, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question today will be coming from the line of Andrew Lazar with Barclays. Please proceed with your questions.
Hi. Good morning, everybody.
Morning, Andrew.
Hi there. McCormick reiterated its full-year outlook, right, despite a worsening inflation outlook and a still dynamic operating environment, and as you noted, now requires, you know, even more significant margin inflection in the back half of the year to stay within sort of your full- year gross margin guidance. I was hoping you could speak a little bit to what gives you the visibility that is playing out. I know you detailed some items on the last call, such as pricing and lapping COVID costs, smoother cadence of ERP spend and CCI saves. Share if there are any additions or changes to the above. Thank you.
Thanks, Andrew. I'll start on this and then let Mike follow up on and talk about those specific items. First of all, I wanna emphasize that, you know, first quarter is really right up the middle with our expectations, and it all starts with strong demand and strong top line performance. We expect to see continued strong demand as we go through the year. As we go through the second quarter in particular, more pricing action goes into effect, which on top of that strong demand and with the relatively low elasticity that we're seeing, will translate into both strong top line and strong bottom line of growth in the second half of the year.
This is aligned with the guidance that we talked about on our last call at the end of when we gave guidance for the year initially. Mike, do you wanna talk about those specific items?
Yeah. I think you know the thing that's really changed since the first quarter or the year-end call when we talked about the inflation moving from mid-teens to high- teens. Really there's been a bit of an acceleration in things like fuel costs that will impact our second quarter. But what we see on average across the year, that cost inflation around the same, mid- to high- single- teens, but it's been moved forward into the second quarter. Pricing, though, is continuing to build, as Lawrence said. You know, for the full- year, before we said on the last call, mid to high pricing impact, we'll be at the high end of that now.
Actually, in the second six, we'll be in a low double-digit pricing impact range, which gives us more confidence about the second half profit realization. As you mentioned, there were some other factors, ERP spending's up in the first six versus last year. Investments in supply chain, we've just announced some of the transition of production over to the Peterborough facility in the U.K. There are startup costs that have hit us in the first quarter, there will be more of that in the second quarter, really hitting the Flavor Solutions segment. We do see some of those negative impacts in Q2, but really feel confident about the second six with some of the actions that we've identified.
Then just quickly, you know, you've talked about the capacity coming on online, and I think you mentioned you shipped essentially or closer to consumption this quarter, so sort of making progress there, and we've seen that in the market share improvements. But it doesn't sound like you've yet had the ability to truly sort of really rebuild retailer inventories. I assume there's still some opportunity for that, you know, as you go forward through this year. Perhaps you could just update us on that. Thanks so much.
You know, I think that this is a work in progress. You know, supply chain continues to get better. It is not perfect, as some of our customers will remind us. The disruptions that we are seeing are much more discrete and specific rather than, you know, third quarter of last year, it seemed like everything was a problem. Supply chain has gotten better. Our ability to meet that demand has really gotten better. Although I did make that remark about certain customers a minute ago, the fact is our customers tell us that generally we are performing better than our competitive set, and this is allowing us to, you know, to win new business.
We really feel pretty, you know, pretty good about how that has improved. I think you'll continue to see us build share performance consecutively as we have been for the last several quarters with our ability to supply. That additional capacity coming on has really made the difference.
Great. Thank you so much.
The next question is coming from the line of Alexia Howard with Bernstein. Please proceed with your questions.
Thank you. Good morning, everyone.
Morning, Alexia.
Hi, Alexia.
Can I ask first of all about the private label dynamics? Because we're looking at the level of price inflation really across the grocery store. Under normal circumstances, you would expect to trade down to private label, but I know that you mentioned that your private label sales are actually down year-on-year. I'm just wondering what's driving that. Is it supply chain related? Is it retailer driven or is it simply that consumers are still feeling reasonably flush and able to afford the branded products? Then I have a follow-up.
Sure. I'd say two things. First of all, we have not yet seen significant movement in private label as a trend in either direction. You know, some of the recent market data shows some increase. It's really slight in our categories. You know, there's a dynamic you have to watch out for. Private label costs are going up for everybody. You know, it's driven by raw material, by packaging, and transportation. The same penny cost increase that's impacting brand is also impacting private label. When you put that same amount of cost increase through to private label, the percentage increase is bigger, and it creates an optic of private label growing faster, on a dollar basis.
You know, it's really, again, it's that cost passed through. I wanna make that clear. The second point that I wanna make, though, is that we are believers that there's a role for both our brand and private label, especially in the herb and spice category. We provide both to our customers. The best competitive environment for us as a company is when both our brand and private label are gaining share, putting pressure on everybody else.
Great. Thank you. As a follow-up, obviously Russia, Ukraine, is a very difficult situation right now. Can you share what percentage of sales that is for you? I'm pretty sure it's fairly low. What do you see as the risks around the world if the situation persists? I'm really talking about when we've gone through previous commodity cycles, we've seen problems because of the unaffordability of basic foodstuffs like bread in Egypt and so on. Would your supply chain, I mean, given what you've seen in the past when we see these grain cycles, are there particular ingredients that you think might be more challenged? I'm just trying to get at the risks there. Thank you, and I'll pass it on.
Hey, Alexia. Thanks. It's Mike. I'll start the answer. We have said in our 8-K, you know, sales for Russia and Ukraine are less than 1% of our total sales. That's where we're standing. It will have an impact on the second quarter, obviously, because that's when the crisis has unfolded. As far as your question about broader impacts, primarily inflation, I think you've seen in the last couple weeks, and part of the reasons we've taken our inflation expectations up and discussed pricing is because of some of those impacts. I mean, from a commodity perspective, I mean, our market basket is a lot different than a lot of other food companies. I mean, there are products that could be impacted.
You know, we source mustard from that part of the world, but we have secondary sourcing capabilities there, which we've moved to. I think, you know, our global supply chain, you know, one of the strengths we have is it's deep and has a long history, and there's alternative markets for a lot of our materials. No one raw material makes up more than 5% of our total cost of goods sold. I think, you know, that diversity really helps us.
I would say we're less exposed to the grain complex than most of our peer companies would be. You know, I think our concern, you know, and part of what we're considering in our inflationary outlook is the cost of energy, which now looks like it's gonna remain higher than perhaps it might have otherwise.
That flows through the packaging too, like plastic resins and things like that.
Great. Thank you very much. I'll pass it on.
Our next question comes from the line of [Anoori Na] with JP Morgan. Please proceed with your questions.
Hi. Good morning.
Morning.
Morning.
In light of some of the incremental cost pressures you're facing, the year-on-year decline we saw on the first quarter gross margin, is this a reasonable level of decline to think about in the second quarter as well, or should we think about the first quarter as the low point in terms of progression?
I'd say, you know, between the first half and the second half, yeah, you're gonna have that big change due to the pricing dynamic I mentioned before, and some of the one-timers in the first six. I mean, the things we've laid out as far as costs increasing versus our original expectations in the second quarter, I think it's probably a pretty good estimate that in that range of gross margin, what we did in the first quarter is probably close. We do have the additional Peterborough supply chain investment costs like I talked about, so for dual running costs and things like that. I don't think you're far out of the ballpark there.
Great. Thank you. That's helpful. I just wanted to switch to ask about pricing in Consumer, EMEA. The pricing remained, like, fairly muted in the quarter. Can you walk us through what to expect from pricing in this region as the year progresses and what some of the challenges are, if any, to taking pricing here? Thank you.
Well, I'd say that, you know, we've said we're gonna take pricing as appropriate. You know, different regions are gonna have different, you know, levels of the inflationary impact and different levels of pricing and different timings in which those pricing actions might take effect. Even within regions, there are gonna be differences from country to country, especially in the region abroad.
Even within segments.
Within our segments, certainly. I can say, though, that, you know, broadly, you know, we have our current pricing actions that or our pricing actions that we've spoken about are very much on track. We have pricing going into effect in second quarter in several markets. I know your question was about EMEA, but I'll be, you know, more specific about our U.S., you know, Consumer business because increases are going into effect this week for the next round. In our Flavor Solutions segment, you know, broadly, the brand of food service part of the portfolio moves with Consumer pricing.
The rest of the Flavor Solutions business, you know, pricing is based on contractual windows, and the timing is gonna vary tremendously, based on the windows of reassessing the pricing. I'd say that, you know, in EMEA and APZ, you know, pricing actions are on track and are gonna be phased in through the first half of the year. Pricing is always an ongoing discussion, and we prefer not to get too specific. I've really been quite specific just now, for both customer and for competitive reasons.
Yeah. I think you'll see the same trends in across the regions that the pricing will build during the year.
Got it. Thank you.
Our next question is coming from the line of Robert Moskow with Credit Suisse. Please proceed with your questions.
Hi. Thanks for the question. I guess it's in two parts. I wanted to confirm what I heard about the level of pricing you think, Mike, that will show up in your P&L by the end of the year. I thought I heard you say low- teens, but I could have gotten that wrong. Is it scaling up that much? The second part is, you know, I think, Lawrence, you said that you're operating from a higher baseline because you've brought in a lot of consumers to the franchise and the category has expanded, perhaps structurally. The category is declining in the U.S., modestly. It's declining a lot in Europe, from what I can tell.
Is there a risk here that as consumers regain more mobility, and they're gaining it very quickly right now, that the Consumer category might not be at the right baseline, that there might be a lower baseline out there than what you would expect? Thanks.
Well, first of all, good morning, Rob.
Oh.
I think we'll start with the-
Yeah, let me-
With the pricing question.
Let me answer the pricing question. Yeah. When I said and just to be clear, you know, we had given guidance that pricing for the full- year was gonna be mid- to high-single-digit. You know, we're moving to the high end of that based on the recent cost increases. Oh, this is a single- digit. You're right. I'm getting confused. Mid- to high- single- digit. We moved to high based on some of this recent cost inflation I talked about primarily impacting the second quarter.
Yeah.
What I said about first half, second half, in the second half, if you look at that in particular, back to Andrew's question, we are gonna see low double-digit price increases, which are cumulative coming through for the third and fourth quarter. It builds during the year to my point before.
Yeah.
Not for the full- year, but for the second six.
Yeah. Okay. That, I mean, that's a big price increase in the back half of the year.
Well, I think you're good. You're lapping last year, and in the Americas particularly, you're, you know, pricing in the fourth quarter of last year. You do get that cumulative impact of several price increases. Three of them, actually.
Okay. The risk to the baseline?
Well, you know, of course, there was elevated demand because consumers were forced to stay at home and cook. We never expected all of it to remain. We do believe that consumers have moved to a higher level of consumption and higher level of cooking at home, structurally. All of our research points in that direction. You know, just the logic of people still cooking at home, you know, and staff still working from home in part. You know, lunch is gonna be a meal occasion that is, you know, consumed more at home. You know, breakfast because of work from home, people are actually cooking breakfast instead of using more ready-to-eat solutions.
You know, there's kind of both the qualitative and the quantitative work that points to say consumption at home is gonna continue to remain elevated. I mean, you know, 88% of consumers say they're gonna cook as much at home or as much or more at home than they did during the pandemic. To the extent there's economic pressure on us from a recession, that also reinforces the whole cook at home. We know in particular our categories and our brands perform well during recessionary periods. During both of the last two recessions, you know, our brand growth was right in line with our long-term guidance.
We are seeing a difference in our Consumer business in the U.S. versus Europe, but the biggest factor there is actually that in our European business we have a significant component that is baking, particularly with our Vahiné brand in France, and so we're seeing baking return to more of a baseline level. We do believe that there's been a step up in our other categories.
Yeah, I mean, just look at total McCormick Consumer in the last two years, and we were lapping a really tough quarter last year in Q1. We're up 30% in two years constant currency Consumer sales. That's pretty amazing. That's that step up that Lawrence is talking about.
Yeah.
Just because-
Maybe one last follow-up, if I could. If pricing's up low- double- digit, let's say it's like 12% in the back half of the year, it's probably not unheard of to expect a volume decline of like -5%, -6%. Yeah, is that close to how you're thinking about elasticity, number one? If volume is that down that much, does that have any implications for your fixed cost leverage or, you know, what does it do to your, the rest of your P&L if anything?
Well, I'm not gonna get too specific on our exact elasticity modeling, but we do model elasticity. You know, these price increases are really outside the range of those models, and the environment is different from the environment in which those models were built. I think that all of us are in a little bit uncharted territory right now. You know, we've assumed a level of elasticity, and so far so good in the sense that the elasticity that we're actually seeing is actually at the low end of what we've been modeling. That gives us some encouragement. Again, elasticity is partly based on substitutability, and everything's going up.
Even though our prices are going up, the consumer's perspective or the kind of relative frame of reference is in a context where all the substitutes and everything that products are used on is going up as well. Again, you know, as we tried to say in our prepared remarks, which we've seen and heard from consumers in the past, you know, is that, you know, our products are a very small part of the cost of their meal and in many cases are part of them solving their whole grocery basket inflation problem. If they've got meat going up 40%, you know, the increase on spices pales by comparison. Using even more spice to substitute a lower cost cut of meat is real behavior that we see in consumers.
I'm less worried about the fixed costs in our supply chain. I mean, we manage ups and downs all the time. If there happens to be some volume decrease, you know, there's been a large investment in capacity the last couple of years, and we've gotten out a lot of those co-pack costs from COVID. We would absorb that.
Yeah. I would say we're still, you know, in order to meet the high level of the demand, maybe if the volume came down a little bit, it actually might even benefit us.
Oh, interesting. Okay. All right. Thank you.
Our next question is coming from the line of Adam Samuelson with Goldman Sachs. Please proceed with your questions.
Yes, thank you. Good morning, everyone.
Morning.
Morning. I was hoping to dig in on the Flavor Solutions growth a little bit and really trying to think about the performance in some of the different buckets and very different comp layout in that part of the business than in the Consumer segment, where you were still lapping some easy food service and quick service comps a year ago. Those get notably tougher. Your packaged food customers, especially in North America, are probably wrestling with a lot of the same demand elasticity questions that Rob and others have been asking about already. I'm just trying to think about how we should think about the volume growth, whether it's by region or by the different type, different parts of that business over the balance of the year.
I'll start off to say that Flavor Solutions growth for the total company was really strong, and for Americas and EMEA, it was likewise really strong. Even Asia Pacific, you know, where the growth was a little bit lighter, I'm not gonna complain about the amount of growth that we recognized over there as well. The food away from home component slightly trailed food at home overall. Those results were really different by region. You know, our whole flavor and seasoning business has really been robust in the Americas, and that drove a lot of the growth.
Quick service restaurant recovery has continued to be strong. Branded food service is now reopening, so we're seeing, you know, solid, you know, growth there. I mean, it's hard to say what's not. I mean, I couldn't tell you what's not growing.
Yeah. It's not only the secular trends, but we're winning business. I mean, that's the thing that, you know, we talked about with the FONA acquisition, what that has unlocked across, you know, the flavor business and some of these high-growth categories. We talked about it at CAGNY. I think you're seeing a lot of good trends across Flavor Solutions.
Right. No, I get that. I'm just trying to think about this on the go forward. The comp layout on volumes is looking very different from an activity level than your Consumer business. And I'm trying to think about especially if there's risks of maybe a bit lower economic growth, especially in EMEA. You got COVID lockdowns in Asia or in China specifically. Just how are you thinking about that business as we go through the balance of the year?
Well, I think, you know. Gosh, I mean, all companies are struggling, like, with this. You know, I think in times when other of our, say, packaged food companies are trying to come up with innovation, maybe take cost out, where our products are such a small percentage of the total product they sell to the consumer, it's actually an opportunity for us to work with them. I'm less concerned about some of the elasticity they're seeing, things like that you've said. You know, we're a small component, just like on the consumer side of that meal, whether you're branded food service or whether you're buying a snack seasoning.
In China specifically, you know, this, we're watching this, but I'd say it's within the norm. You know, there are always puts and takes and pressures within the business, so I'd say that what we're seeing, at least so far, is within that range.
Okay. If I could we follow up on the commodity cost inflation point? I appreciate your basket looks very different than a lot of other food companies. You guys also are much more diverse just in terms of the spice and seasoning herbs that are gonna have a lot of emerging market kinda growers, very small holder farmers. Can you talk about the contracting of that? Just when you actually will agree to price with those growers through the year? They're gonna be facing some pretty dramatic input cost inflation. I'm wondering how that will impact the price that you're paying for that basket of commodities. Is that really more of a fiscal 2023 event as we think about their costs flowing up to you? Just trying to-
I think honestly, most of the impact we've talked about, especially recently, is more on the transportation and the packaging side. There's exposures to the resins and oil costs and things like that. You know, for commodities, we have long history relationships with partners and joint ventures that secure commodities over time. You can look at our balance sheet. We have more raw materials now than we did last year, so that's part of the way we protect our future supply.
Right. I think that, you know, we could get into too much detail here. You know, I would say that, you know, our global sourcing and our boots on the ground and our long relationships with producers in these markets and kind of the strategic partnerships that in some cases are multigenerational have really advantaged us in this area. This has actually been an area that where I think that, you know, we've demonstrated tremendous competitive advantage and is giving us some buffer. I think that others are probably experiencing even greater cost pressure, inflation pressure for some of these same components. This is an area where scale really matters.
Okay. All right. That's all helpful. I'll pass it on. Thanks.
Thanks.
Okay, thanks.
Thank you. Our next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your questions.
Yeah. Hey, thanks, and good morning. Perhaps building on your comments in response to Alexia's question on private label and Rob's questions as well, it seems, you know, there's an increased focus in your comments this morning on entry price points for affordability, maybe not just limited to private label, but generally and value offerings such as the larger pack sizes. I guess, I just wanna validate that I'm picking up on a fair evolution in tone since the start of the year, number one. Number two, maybe some comments around how that's altered your outlook for volume versus product mix alongside the increases in pricing. Clearly, you haven't altered the top line outlook, and you've dimensioned the incremental pricing anticipated, so we can solve for the difference.
Within that, I'm curious how you're thinking about volume versus mix trade-offs. It sounds like you expect the response to skew more towards mix versus a unit volume decline. I just, you know, again, wanna validate that and love some incremental thoughts.
I mean, I'll start with this. There's a lot in there unpacked. I mean, the nice thing in our Consumer business is we. You know, whether you're buying recipe mixes or bottles of spices or Frank's RedHot sauce, the margins are very solid. You know, so we have a broad portfolio of products and flavor things, but you know, really high margin business across the board. So I don't think, you know, I don't think there's gonna be an impact there from a shift. I mean, you may see, you know, in previous recessions, like we've talked about, I don't think we're shifting a message.
I think we've talked about very consistently in recessionary periods such as 2001, 2009, our products do really well. We show volume growth and pricing growth that we need to. So there may be a shift in products from gourmet to recipe mixes because people are going down the value chain, but the margins are there. You know, the use of the one packet DS dry seasoning mix versus a bottle actually helps us in some way. I think the fear that you're raising isn't fair.
Yeah. We're not trying to signal anything when we talk about. You know, we offer this whole range of price points from super premium to mid-tier to entry price point. At a time when we and everybody are taking pricing actions, we also wanna make sure that our products are accessible to, you know, lower income consumers and value-conscious consumers. Really, that's all we're really trying to provide reassurance in that area. It's not an anticipation of, you know, some, you know, change or it's not a shift in strategy or focus for us.
Okay, fair enough. Thank you very much.
Thank you. Next question is from the line of Chris Growe with Stifel. Please go ahead with your questions.
Hi, good morning.
Hi, Christopher.
Hi. Just had a couple quick questions. I think these have become pretty much follow-ups at this point, but just to be clear on a couple points. Given the higher inflationary outlook you mentioned, you do have more pricing coming online in the second quarter. Is that new pricing or is that pricing that was expected to pick up from some of your actions I think you put in place in the fourth quarter?
No, like I said, this is pricing that has been planned.
Right. Okay.
With these price increases, in order for them to be effective now, they were presented before our last call, I can assure you, so t hese are not new. The additional pricing that we're planning later in the year was planned. The magnitude of that pricing was still flexible and we're locking that in now.
That makes sense. I got it now. Yeah, okay. Got it. Then I just wanna be clear on the cost inflation. That accelerates in the second quarter, even though prices accelerate, it sounds like it's still gonna be some extra costs, whether it be ERP, and the facility costs in Peterborough. That would be factors that would keep the gross margin from improving much sequentially, but the second half should show that improvement as more of the pricing comes through. Is that the way to think about that relative between pricing and inflation?
Yeah. I think maybe in the second half, as I said, for the reasons you mentioned, but also the fact that, you know, that cost acceleration for the fuel costs and things like that into the second quarter in addition to some of the things we've had out before with some of the supply chain. Yeah, you're right.
Okay. I just got a question. Oh, go ahead. Sorry.
I was just saying, I think you got it.
Okay, great. One quick question on Flavor solutions. You talked about some strategic investment spending. Is that related to, you know, future demand or is that related to, Peterborough, for example, or things you're moving around? I'm just curious what that referred to.
That's specifically reflecting majority of it's related to Peterborough startup costs and redundant running costs there.
Okay. Thanks so much.
Which is a great new facility. It's net carbon zero in manufacturing and in running. It's gonna be fantastic long term, but there is a start-up cost. Yeah. Yep.
Thank you. Our final question is from the line of Peter Galbo with Bank of America. Please proceed with your questions.
Hey, good morning, Lawrence and Mike. Thank you guys for fitting me in.
Morning.
Just wanted to circle back, I think, to some comments you made maybe a few years ago around China and make sure some of the numbers we're working with are still okay. I believe in the past you've disclosed that China is, you know, sub 10% of the business, and I think about half of that business is away from home, just as we're thinking about, you know, 2Q impacts of potential lockdowns.
You're right about the less than 10%. I think it's close enough. Yeah.
On the away from home, at home, what. Yep.
Yeah. That's what I mean.
Yeah. I mean, you have to remember within our Consumer business, we have you know, there's products we sell that are used for both in food service that we classify them as part of Consumer, which is a little different than other parts of the world just because the fact they could be used in both channels.
Right. Okay. Then maybe just as a follow-up, Mike, and I know we've kind of gone over this on the cost inflation side and in pricing, but I just on reconciling the gross margin guidance specifically for the year, you know, given kind of the hole you're working out of in 1Q, some of the lasting impacts in 2Q, you know, and not margining up when you take price in the back half of the year, just how do you kind of still get to, you know, a flat to down 50 basis points gross margin number in as you're looking at it internally? Just can you help us there? Thanks very much.
Well, I think you gotta remember, first quarter is historically the smallest quarter. You know, the back half of the year is traditionally our biggest quarter. There you get a math thing going that helps us as you know, as we have increased volumes and pricing and things like that we've talked about, you know, that helps fill some of that gap you're talking about. I mean, we're always looking. You know, we talked at CAGNY, we talked on the earnings call about the things that are gonna help us, whether it's CCI. You know, people forget about the reduction in COVID costs. You know, we spent $60 million in COVID costs last year, of which some of that still remains in the underlying business.
That's a big tailwind for us to help offset some of the segment mix we've talked about, the pricing compression that we've talked about, which is the main driver. There's other things we're doing, whether it's rev management, the shift to higher margin products, you know, both in the Flavor Solution side and Consumer that we're intentionally doing. There's a lot of puts and takes within that 0%-50% or 50 basis points for the full- year. You know, we're one quarter in and you know, it's just too early to move. Things will move in that range too as things change with Ukraine, Russia, commodity costs, pricing. We're comfortable with where we are right now. That's a lot I threw at you there.
No, thanks. Thanks very much.
Thank you. I'll now turn the floor back to Lawrence Kurzius for closing remarks.
Great. Thank you. McCormick is differentiated by the breadth and reach of our balanced portfolio, which has positioned us for sustainable growth. We're very proud of our solid first quarter operating performance. We're disciplined in our focus on the right opportunities and investing in our business. We're continuing to accelerate our momentum and drive further growth as we successfully execute on our long-term strategies, actively respond to changing consumer behavior, and capitalize on opportunities from our relative strength. We are well positioned for continued success and remain committed to driving long-term value for our shareholders.
Thank you, Lawrence. Thank you to everybody for joining today's call. If you have any further questions about today's information, please feel free to contact me. This concludes this morning's call. Have a nice day.