I would like to welcome back McCormick to our conference, and with us today are President and CEO, Brendan Foley, and CFO, Marcos Gabriel. Welcome, gentlemen. It's truly great to be back with you in Boston. In lieu of a fireside chat, Brendan and Marcos will be walking us through some prepared remarks. Brendan, over to you, and then we'll take it to the breakout afterwards. Thanks again for being here.
Thank you. There we go. Hopefully you can all hear me?
Yep.
Yeah. Okay, great. Thank you, Andrew, and good morning. It's a pleasure to be back at the Barclays Conference in Boston. I'm going to flip to this next slide. Before we begin, let me first acknowledge the forward-looking information. Great. There we go. Make sure everyone reads that word for word. With that noted, today's presentation is organized around four key themes that reflect the strength of our business and the opportunities ahead. First, we'll highlight how we're building on a strong flavor-centric foundation, grounded in our leadership in flavor, our advantage portfolio, and the trusted brands and capabilities that differentiate McCormick. Second, we'll discuss how we're expanding our flavor focus and growth opportunities through the combination with Unilever Foods.
Third, we'll cover how we're preparing for integration and synergy capture, and with a focus on disciplined execution, operational readiness, and the actions needed to unlock value as we bring the capabilities together. Finally, we'll address how we're supporting value creation and deleveraging, reinforcing our commitment to strong financial discipline, cash generation, and long-term shareholder value. Together, these themes frame the conversation for today and demonstrate how we're positioning the business for sustainable growth, stronger execution, and continued leadership in flavor. Let's start with an introduction to McCormick. At McCormick, we create and deliver flavors that enhance the taste of food and beverages. For nearly 140 years, we've been focused on our purpose to make life more flavorful, guided by our vision to be the most trusted source of flavor across food and beverage.
Our portfolio includes leading brands in the flavor industry, household names that consumers trust for their quality and taste, and they are trusted by our customers. In fact, globally, McCormick flavors are enjoyed by nearly a half a billion people every single day. This speaks to the power of our brands, the flavor they deliver, our capabilities, reach, and our growth potential. We serve a broad range of customers and operate across every channel, from traditional brick and mortar to e-commerce, and from food service to CPG customers. We operate in advantaged categories across both of our segments, and they continue to project strong growth. In our consumer segment, we offer products at every price point, from premium to value, to meet all needs. Our brands have been part of kitchens and families for generations, and we continue to innovate.
We are winning over younger consumers who are shaping new cooking and eating behaviors, and many aligned with health and wellness trends. In flavor solutions, we flavor some of the world's iconic brands, as well as fast-growing emerging brands and private label, making us a key part of the innovation that guides the food industry. Our two segments complement each other, and this reinforces what differentiates McCormick. The scale, insights, and technology that are leveraged from both are meaningful and uniquely position us to cater to the entire flavor market and shape its future direction. Flavor is one of the most attractive, fastest-growing categories within food. It is underpinned by structural tailwinds and offers meaningful runway for the company to capture future growth. It is the number one purchase driver across cuisines, occasions, and demographics.
It transcends age, culture, dietary preferences, and income levels, making it both resilient and highly relevant in a dynamic consumer environment. We are differentiated among food and beverage peers, and let me explain how. Others compete for calories every day. We flavor them. While many peer companies compete across multiple categories every day, we are intentionally focused on flavor, enabling us to be present in every consumption opportunity. Our differentiation lies in where and how we compete. As preferences evolve and calories shift, the demand for flavor continues to grow, and McCormick is uniquely positioned to capture that growth. We see the world of food and beverage through the lens of flavor. We deliver it more broadly and more deeply than anyone else.
Our portfolio of herbs, spices, seasonings, condiments, and sauces is strongly positioned to support today's health and wellness priorities, the continued appeal of cooking at home, and emerging flavor trends. Gen Z, who are our new and future consumers, over-index to flavor. They are leaning into and exploring higher quality, premium global flavors, and they're looking to create those restaurant-quality meals at home. McCormick is a global leader in flavor with strong scale, category expertise, innovation, and consumer insights. Our growth strategy focuses on advantaged categories, productivity through CCI, and targeted investments in high return opportunities, supported by a resilient business model operating across environments. That resilience remains important today. Let me use this moment now to provide an updated perspective on the current environment.
Starting with EMEA and Asia Pacific, we are seeing a continuation of strong performance led by our consumer segment and continued strength in McCormick de Mexico. In the Americas region, the consumer backdrop, particularly in the U.S., is increasingly challenging. We are managing through uneven category and channel dynamics, which have become more pronounced recently. Across the U.S. food industry, we continue to see volume declines. Consumers remain under pressure, and we are making deliberate choices to stretch their budgets. We are seeing behaviors such as using more of what's already in the pantry, making meals from leftovers, and looking for simple, affordable ways to add flavor at home. These behaviors reinforce the relevance of our portfolio, particularly in herbs, spices, and seasonings.
We are encouraged by the signs of progress from several of the growth initiatives we outlined in our last call, including revenue growth management, targeted value marketing, and innovation alongside expanded distribution. These actions are helping to drive consumption improvement in our core categories, even in an increasingly challenging backdrop. Specifically, our consumption trends are meaningfully improving in herbs, spices and seasonings and condiments and sauces, including hot sauce. These are indicators of continued consumer engagement with flavor and at-home meal preparation. At the same time, we continue to work through categories such as recipe mixes and other parts of the portfolio where performance remains pressured. We are encouraged by the recent momentum in core categories. Our shipments for the quarter roughly reflect our improved consumption. In flavor solutions, we continue to see solid organic sales growth in the global segment.
Although we now expect the mix of growth to be more pricing driven with flattish volume. Softer trends in the U.S. are impacting some of our customers, primarily QSRs and some food manufacturers. Even with this near-term softness, the segment remains well-positioned through reformulation and innovation, supported by customer relationships, technical capabilities, and flavor expertise. Overall, our plans and initiatives are designed for these conditions, and we are moving in the right direction, and we remain on track with our outlook for FY 2026. Grounded in the resilience of our model and long-term growth strategy, we are looking ahead to the next chapter for McCormick with Unilever Foods. M&A has been an important part of McCormick's long-term value creation model and a capability that has been proven over many years.
It has strengthened our leadership in flavor, expanded us into advantage categories, built scale, and enhanced our capabilities across both consumer and flavor solutions. Over the past decade, acquisitions contributed approximately 2 points of growth on top of a 4% organic sales CAGR in constant currency, while also delivering synergies, earnings accretion, and stronger brand equity. Importantly, our integration playbook is repeatable, tested, and grounded in strong strategic rationale and proven value creation. Building on that proven playbook, the transaction with Unilever Foods represents a compelling next step in McCormick's journey as a global flavor leader. We're making good progress on the transaction, and as previously noted, today, we are sharing additional context on growth, synergies, and integration plans. Starting with the strategic rationale, the transaction strengthens our competitive advantages and creates a pure-play global flavor leader with $20 billion in sales.
Together, we will have an expanded portfolio of globally recognized brands supported by industry-leading investment. The combined company will also have a balanced geographic profile and a more diverse global distribution to bring these brands to market. We see multiple levers to drive growth, supporting margin expansion and enabling continued brand reinvestment. We also see meaningful cost synergy that will support reinvestments as well as earnings accretion by year one post-close. This is about building a stronger global flavor company with focused scale in attractive and growing categories. We are also excited about the operating model we announced in July, led by four divisions, each with a compelling growth outlook. This model is designed to place consumers and customers at the center of the combined business, enabling disciplined execution, enhanced innovation, and sustainable long-term growth.
Our talented future executive team brings together proven leaders with global experience from both McCormick and Unilever Foods. This team is 100% focused on flavor, and I am confident that they are the right executives to lead McCormick into the future. The power of our combination with Unilever Foods is that it strengthens every part of our flavor platform. It brings together greater scale, stronger insights, and more innovation across global, local, and high-growth brands. That helps us respond to consumers, innovate across categories, expand winning brands, and capture more growth across channels and geographies. As all elements accelerate, they create more opportunities to reinvest and continue building momentum. The result is a stronger flavor position and a more powerful engine for attractive, sustainable growth. Turning to the growth levers within that platform.
After further analysis, we have refined our growth agenda and enhanced our view of how we plan to capture growth. We expect to deliver growth synergies through five key priorities. First, to win where we lead. By strengthening commercial execution, accelerating growth in key countries such as the U.S., France, Germany, Brazil, Mexico, and the U.K. We have assessed the key markets, the key categories, and brands with the greatest opportunity, and this is important for near-term revenue growth. Second, to bring our brands to more homes globally by using the combined footprint and routes to market to expand high growth potential brands like Maille and Cholula. There is significant white space for these brands, and we intend to pursue it. Third, to shape the future of flavor by pairing McCormick's and Unilever's flavor expertise, consumer insights, R&D, and digital capabilities to drive scalable innovation across the portfolio.
Fourth, to capture the global food service opportunity by bringing together McCormick and Unilever's complementary capabilities and networks. And finally, strengthen our flavor capabilities and customer co-innovation to become an even stronger partner to leading and emerging food brands. Together, these combined capabilities will help us capture the trends that support long-term growth. We expect the full opportunity to develop in phases. Year one will focus on strengthening, integrating, and prioritizing the highest value opportunities. Year two, on scaling early wins and accelerating innovation, and year three on delivering sustainably higher growth from a stronger combined platform, and then continuing to build on this improved growth. The transaction improves our geographic balance. Post-close, our emerging markets contribution increases from about 25% to over 40% of revenue.
We are excited to have exposure to these higher growth regions and well-positioned to leverage the brands and capabilities of both companies to further strengthen our combined positioning. It gives us greater exposure to markets expected to grow faster than the global category, with growth supported by strong underlying consumer and category fundamentals. It also creates a more diversified business with balanced presence across North America and Europe, and with increased scale in regions like Latin America and Asia-Pacific. Overall, the combination strengthens our long-term growth profile and positions us in some of the most attractive end markets globally. Flavor is ubiquitous, yet highly local, shaped by distinct consumer preferences across geographies and markets. Building on this foundational understanding, we validated the parts of the portfolio that will drive the strongest volume growth. Herbs, spices and seasonings, bouillon and cooking aids, mayonnaise, and hot sauce.
In herbs and spices, there is continued growth in established markets, and the combination gives us a solid route into attractive white space markets where McCormick has limited presence. By leveraging Unilever's established footprint, we can strategically build in high growth countries over time, expanding the category through McCormick's flavor leadership, innovation, and broader product range as household incomes and consumption occasions grow. In bouillon and other cooking aids, the opportunity is to win bigger in a category that is closely aligned with meal building, value, convenience, and everyday cooking. This is an underappreciated category with durable structural tailwinds. Across emerging and developed markets, consumers face increasing time pressure from urbanization, workforce participation, and value-seeking consumption. At the same time, they are still seeking flavorful meals rooted in culinary traditions that require slow-simmered stocks, complex spice bases, and labor-intensive preparation. Bouillon is uniquely positioned to meet that need.
It delivers depth of flavor, consistency, and time savings. Often for just pennies per serving, it helps consumers build flavor quickly across everyday meals while also helping stretch ingredients in value-conscious environments. Strategically, this expands our presence in the everyday meal-building moments with bouillon at the core and extending into soups, sauces, and other cooking aids, enabling consumers to build a meal, not just to season the finished plate. Knorr brings global leadership, strong brand equity, and deep local capabilities, while McCormick brings flavor and health and wellness expertise. Together, we believe there is an opportunity to modernize the Knorr brand and increase innovation and investment behind it. With growth across cube, powder, and protein-led flavors and broader cooking aids formats, further strengthening our position at the center of everyday meal preparation around the world.
In condiments and sauces, we see a large and attractive platform, particularly across mayonnaise and hot sauce. Both categories have similar tailwinds, including growing household penetration, especially with younger consumers. Both provide a runway for growth through flavor innovation, new usage occasions, premiumization, and broader global expansion. In hot sauce, you are all familiar with our growth plans in this attractive category, which will be further amplified. In mayonnaise, the category has shown consistent volume growth over the last number of years. The increase in U.S. household penetration since 2019 has been driven by younger generations, and these consumers are broadening usage, pointing to opportunities across cooking and meal occasions. We are seeing continued mayonnaise growth in other developed markets. The Hellmann's brand brings global presence, strong brand equity, and sustainable growth, and we see further opportunities for more product innovation to continue winning in this category.
Food service is one of the biggest opportunities in this transaction, and we believe it remains underappreciated. At close, we will stand up a dedicated global food service division. The combination creates a scaled platform with stronger capabilities, broader reach, and more growth potential than either business had on its own. The geographic unlock is significant. Unilever Food Solutions is already established in 75 countries, where McCormick has limited or no food service presence in 51 of them. That gives us an immediate path to bring McCormick's flavor capabilities into attractive new markets. Our capabilities are complementary. McCormick brings distributor relationships and flavor expertise. Unilever brings operator relationships and global reach. Together, we can go to market with a stronger, more complete food service offering. We see clear growth areas, expanding Unilever Foods in the U.S. through McCormick's customer relationships and accelerating McCormick's growth in Europe through Unilever's footprint.
In addition, we see China as a very compelling opportunity given the complementary nature of our geographic presence. Food service becomes a scaled global growth platform with meaningful white space and a much stronger right to win. Now I'm going to turn it over to Marcos.
Thank you, Brendan. Hello, everyone. I'd like to walk you through our latest progress on our plans to integrate Unilever Foods and realize synergies from the combination. I'll also speak more about our capital allocation discipline and plans to rapidly deliver and drive shareholder returns after our transaction closes. First, a quick update on our base business, where we continue to remain focused in parallel with our integration planning. We have delivered on a first half of the year commitments with solid organic sales growth, enhanced margins, and strong cash flow. As you know, we're now closing the books, and we'll provide more details on our performance on the third quarter call on October 1st. Today, I'll provide a brief update on the rest of the year. On the top line, we expect solid total organic growth in the second half, primarily driven by price.
For total sales, McCormick de Mexico continues to deliver solid growth in line with our expectations with integration substantially complete. In a challenging environment across our industry, we continue to expand our profit margins while also investing in business growth and offsetting rising input costs. We remain confident in our ability to deliver on our outlook for the year. In terms of key strategic initiatives, we continue to make strong progress, including our ERP implementation in North America. The Unilever Foods integration remains on track with detailed action plans identified to support our run rate cost synergy targets. Speaking of integration, we continue to have confidence in our $600 million net cost synergy target, with approximately 2/3 expected to be achieved by year two.
Importantly, this target is net of growth investments and potential dis-synergies, giving us clear view of the value we expected to create through disciplined execution. We expect the synergy opportunity to be driven by three primary areas, approximately 50% from SG&A, 40% from procurement, and 10% from manufacturing and logistics. Our confidence is grounded in a rigorous bottom-up integration planning process, which we've recently conducted. The integration management office, functional leaders, and external advisors are performing detailed cost analysis, benchmarking, and operational assessments to identify the specific actions required to deliver the full opportunity. This work is translating to a clear pipeline of discrete quantified initiatives, each supported by detailed execution plans, ownership, timing, and resourcing.
In short, we're building a disciplined path to capture value over the first three years post-close, with 2/3 of the savings coming in by year two and a strong line of sight of the actions needed to achieve our remaining synergy commitments. Let me bring this to life with a few examples from procurement. Direct procurement cost synergies represent approximately 40% of our total target or about $240 million of run rate savings. Our work has identified two primary levers, commercial and technical optimization. On commercial optimization, the opportunity is straightforward. We're buying many of the same quantities and type of goods, but not always at the same unit prices. Today, spend is often fragmented regionally. There is roughly 50% overlap across our top 100 suppliers, and we see inefficiencies in long-tail spend. The path to capture value is clear.
We use global and regional RFPs, targeted supplier negotiations, and a more disciplined approach to rationalize tail spend. In simple terms, we're using the combined scale of the business to buy smarter and more consistently. The second lever is technical optimization. Here, the opportunity is not just price, but how we specify and buy materials. We see the specification proliferation across direct materials and packaging, as well as meaningful variation in spec counts and spend between the two companies. To address this, we'll harmonize like-for-like specifications and align formulas where appropriate while maintaining the quality, performance, and consumer experiences our brands are known for. At the bottom of the page, we highlight two tangible examples from a longer list that demonstrates the opportunity. In plastic packaging, savings are driven by supplier base optimization. We currently have 90 suppliers, but only two in common.
Lightweighting, resin slate improvements, and standardizing specs across functionally similar formats. In starch and derivatives, the opportunity is driven by greater cost transparency, scaled buying, and harmonizing specifications across McCormick and Unilever Foods while maintaining quality. We have identified where the value is, we know how to capture it, and we have a clear path to deliver approximately $240 million in targeted run rate synergies. We have a clear roadmap and governance structure in place to support integration. Integration is led by a dedicated integration management office under Andrew Foust, who brings significant prior experience from RB Foods, Cholula, and FONA. Andrew is here with us at the conference and will participate in our Q&A. We have mobilized cross-functional resources, including 20 functional teams and more than 200 team members across both companies.
The TSA structure is designed to reduce execution risk with limited sales impact and costs already embedded in deal expectations. Services will be phased out in waves over two years, supported by a centralized contracts process to maintain critical third-party relationships. We do anticipate, and have included in our considerations and plans, some level of dual running costs as we exit the TSAs. Stepping back, TSA costs represent the cost of services to be provided by Unilever during a defined period. As we exit the TSAs, we will stand up our own services, which we expect to have a similar level of cost. The integration management office will continue for as long as needed to ensure disciplined execution, culture unification, business continuity, synergy delivery, and an efficient exit from the two-year TSA. Let's turn to the carve-out and integration plans.
As we shared previously, approximately 80% of Unilever Foods revenue today is managed as a standalone organization. Currently, Unilever has a highly experienced, dedicated team advancing the separation. Unilever completed 14 carve-outs in the last five years, demonstrating repeatable execution in separating brands and businesses with distinct routes to market, supply chains, and regional footprints. By two to three months pre-close, we expect that 100% of Unilever Foods business will be managed as a standalone organization. This means that all its corporate functions, from sales and marketing to supply chain, information technology, finance, and so on, will be part of the distinct Unilever Foods business unit, paving the way for a smoother integration. In addition, Unilever Foods business will operate with internal TSA support from Unilever. At close, this TSA support will transition to McCormick.
Following the close, we will begin integrating the business, capturing synergies, and executing on our phased TSA exit. Finally, we expect to exit TSAs within a two-year period in a way that provides business continuity and de-risks execution. The TSAs are comprehensive, and they are designed to ensure business continuity while integration progresses. Support is concentrated mostly in back-office functions, including technology, operations, finance, and people services. There is also some commercial and customer enablement support to ensure a seamless transition. Importantly, these plans are designed to protect day-to-day execution and commercial customer-facing operations while building long-term readiness. Before moving to capital allocation, it is important to reiterate the financial merits of the deal. This slide lays out our expectations for year three post-close. At the top line, our 3%-5% sales growth reflects favorable conditions at a high end.
Our adjusted operating margin reflects the capture of synergies and allows for significant reinvestment. When you combine the strength of both the standalone businesses with the impact of this revenue and cost synergies, the result is a structurally advantaged, best-in-class financial profile. The combination is expected to deliver meaningful accretion in the first full year across sales growth, adjusted operating margin, and adjusted earnings per share. Ultimately, this creates a higher growth, higher margin platform with stronger cash generation, positioning the company, the combined company for durable long-term value creation and sustained profitability. Lastly, we remain committed to maintaining a strong balance sheet and reasonable leverage position as we close the transaction with Unilever Foods. We expect the combined company to have a strong and growing free cash flow profile, enabling a disciplined approach to capital allocation.
That includes continued investments in the business and preserving our dividend aristocrat status. We expect to have $1.5 billion- $2 billion of cash available to pay down debt by year two. Aside from the potential funds available, McCormick is now on track to reach less than 2.9x net leverage on a standalone basis by the end of 2026. As a result, we are well positioned to reach our leverage target post-close. I will now turn it back to Brendan to close.
Thanks, Marcos. Overall, we are incredibly proud of our progress, having announced the transaction only five months ago. We are as focused on delivering our 2026 goals, even as we advance the work needed to close and integrate Unilever Foods. Additionally, we have made significant progress in the relatively short time of on integration, having unveiled our leadership team, operating model, and secondary listing, establishing global TSAs for day one, having a clear picture of our synergy opportunities, and making significant progress on detailed integration planning. In the coming months, we expect to announce further updates on our go-to-market plans, the status of our regulatory clearance, and our expected timeline to close. We look forward to sharing updates in the quarters ahead. As stated at the announcement, we expect the transaction to close in mid-2027. To wrap up, our foundation remains strong.
It is focused on flavor in advantaged categories. We are well positioned to deliver on our FY 2026 commitments. We are excited about the opportunities for growth provided by this combination, which accelerates our strategy and flavor focus. Lastly, I would like to thank our entire team who has worked tirelessly to help us achieve all of this while maintaining our base business performance at the same time. That concludes our presentation, and we will now move to the other room for, I think, Q&A. Thank you.