McCormick Company Incorporated (MKC) Earnings Conference Call Transcript

McCormick & Company, Incorporated (MKC 1.04%)
Q2 2018 Earnings Conference Call
June 28, 2018, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Kasey Jenkins -- Vice President of Investor Relations 

Good morning. This is Kasey Jenkins, Vice President of McCormick Investor Relations. Thank you for joining today's second quarter earnings call. To accompany this call, we've posted a set of slides at ir.mccormick.com. Now, all participants are in a listen-only mode. Following our remarks, we will begin a question and answer session. If you need to reach the operator at any time during the call, please press *0. We'll begin with remarks from Lawrence Kurzius, Chairman, President, and CEO, and Mike Smith, Executive Vice President and CFO.

During our remarks, we will refer to certain non-GAAP financial measures. These include adjusted operating income, adjusted income tax rate, and adjusted earnings per share that exclude the impact of transaction and integration expenses related to the Reckitt Benckiser Foods or RB Foods acquisition, special charges, and income taxes excluding certain non-recurring impacts associated with the recently enacted US tax reform, which we refer to as the US Tax Act, as well as information in constant currency.

Reconciliation to the GAAP results are included in these morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation, which includes the complete information.

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 statement, whether because of new information, future events, or other factors. As seen on slide two, our forward-looking statement also provides information on risk factors that could affect our financial results.

It is now pleasure to turn the discussion over to Lawrence.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Thank you, Kasey. Good morning, everyone. Thanks for joining us. With our strong second quarter and first half results, we are confident we are well-positioned to deliver strong results in 2018. Our successful execution of our strategies and engagement of employees around the world have driven strong double-digit sales, operating profit, and EPS growth as well as significant operating margin expansion across both segments in both the second quarter and year to date.

Starting on page four, we have a broad and advantaged global flavor portfolio which is continuing to drive growth. Among the second quarter highlights across our portfolio, we grew our underlying business in our consumer segment, particularly in the Americas and China. In our flavor solutions segment, we continued to make progress on expanding our portfolio with additional growth in flavors, particularly in savory this quarter, while pruning some low margin business. We're driving strong broad-based growth in our branded food service business.

The reshaping of our flavor solutions portfolio is a significant driver of operating margin expansion. In addition to the solid growth on our core business, we're pleased with the Frank's and French's performance and their positive impact on our portfolio of condiments and sauces and branded food service. Overall, we're confident that the breadth and reach of our portfolio continues to position us to fully meet the demand for flavor around the world and grow our business.

Now, let me go into more detail on our second quarter performance on slide five as well as provide some business comments before turning it over to Mike, we will go in more depth on the quarter end results and discuss our 2018 financial guidance.

Starting with our topline for the second quarter, we grew sales 19% and in constant currency grew 16% for the total company. This was driven by strong results from both segments led by the Americas, base business growth, new products and acquisitions, our three drivers of long-term sales growth were all contributing factors.

Incremental sales from our acquired Frank's and French's brand contributed 13%. In our consumer segment, we grew sales 16% in constant currency. In the flavor solutions segment, we grew sales 15% in constant currency. The growth of both segments was led by incremental Frank's and French's sales, which contributed 14% to our consumer segment and 12% to our flavor solutions segment.

In addition to our topline growth, our focus on profit realization drove additional adjusted operating income growth and adjusted operating margin expansion with our higher sales, cost savings led by our comprehensive continuous improvement program, CCI, and our portfolio shift to more value-added products, including the addition of Frank's and French's, we grew second quarter adjusted operating income 48% in constant currency and our adjusted operating income margin expanded 330 basis points.

Both segments contributed double-digit adjusted operating income growth and a triple-digit basis point expansion in adjusted operating margin. We're achieving the margin accretion we expected from the Frank's and French's portfolio. Equally as important, we're driving significant margin expansion in our core business led by CCI as well as the shift in our portfolio to more value-added product.

At the bottom line, our second quarter adjusted earnings per share of $1.02 was 24% higher than the $0.82 in the second quarter of 2017. Our strong growth and adjusted operating income drove this increase, partially offset by higher interest expense from debt related to the RB Foods acquisition as well as higher shares outstanding. Our strong results are in line with our expectations and with the increased guidance we provided last quarter. Our outlook for 2018 performance remains strong.

I'd like to turn now to some business updates. I'll begin with highlights from our consumer and flavor solutions segments and follow with a fairly deep look at our Frank's and French's portfolio.

In the consumer segment, as seen on slide 6, we grew sales nearly 16% in constant currency, with incremental sales from Frank's and French's contributing 14% and our base business and new product growth contributing 2% driven by the US and China. In the Americas, growth was particularly strong driven by the large impact of Frank's and French's, which contributed 20% growth.

Our underlying Americas business grew 2% on both pricing and higher volume and mix. In US spices and seasoning, our IRI data indicates scanner sales through grocery channels, grew for the category at 4% and McCormick-branded at 3%. Both the category, and to a greater extent our consumption, was impacted by a slow start to the grilling season driven by cold and wet weather. While we had strong growth in other parts of the portfolio, such as branded recipe mixes, partially due to this cold and wet weather, it did have an unfavorable impact on overall sales.

Outside of grocery, we continue to be impacted by a larger retailer's decision to convert a control label to private label, along with related promotional and merchandising actions, which we've discussed on previous earnings calls, reducing McCormick's measured multi-outlet sales growth to 1%.

While this decision hurt our branded spices and seasoning share performance, it drove growth in our private label sales. We again had solid branded growth in grocery and gross and unmeasured channels, including club, e-commerce, and Hispanic markets.

The environment remains dynamic and we continue to work with our customers to optimize category performance. Overall, we continue to see good growth in our spice and seasonings brands in the US market and remain confident the initiatives we have under way position us to continue our trajectory of long-term growth.

In Europe, Middle East, and Africa, the EMEA region, growth was led by France. Year to date, France's broad-based growth across both branded and private label has driven this region's growth. In the Asia Pacific region, our strong sales in China led to the consumer segment growth driven by continued share gains on core products as well as e-commerce growth. China's direct to consumer storefront on Tmall continues to gain momentum since its launch earlier this year. It is already ranked in the top 15% of foot category Tmall stores.

Our confidence for our consumer segment's growth for the second half of 2018 is bolstered by a strong America summer grilling fall and holiday season, with the combined McCormick's and Frank's and French's promotional and merchandising programs, as well as a significant increase in brand marketing.

Frank's and French's continued momentum and actions I'll mention on my update on that portfolio in a few minutes -- America's new distribution gains secured in spices and seasoning and the full impact of pricing actions effective late in the second quarter, new product growth in EMEA, plus the launch of our first choice brand renovation initiative in addition to significant brand marketing increases related to new product advertising and product superiority. And importantly, our products remain well-aligned and on trend with consumer demand for flavorful, healthy eating.

Turning now to the flavor solutions segment, we grew sales 15% in constant currency in the second quarter with incremental sales from the Frank's and French's portfolio contributing 12%. In the Americas, constant currency sales growth 22% was led by 17% from Frank's and French's. 5% growth was driven by strong momentum on flavor and seasoning sales and branded food service.

Branded food service sales growth was broad-based, driven by increased distribution with national and regional customers, promotional activity with operators, and expansion in emerging channels. And within flavors, our most significant growth was in on trend savory flavors where we've been winning with existing business as well as with new products and new customers.

In our EMEA and Asia Pacific regions, we continue to win with our customers through new products and promotional activities, particularly with quick service restaurants. We're continuing to refine and optimize our portfolio, increasing our sales of higher margin flavor business and exiting lower margin business. Across our flavor solutions segment, the migration of our portfolio to more technically insulated and value-added categories will continue in 2018.

We have again realized further results against this strategy in our second quarter, with flavor sales up double digits in North America. Beyond our strategies to drive sales growth, will continue to focus on profit realization as is, again, evident in our second quarter results. Our confidence for our flavor solutions segments growth for the second half of 2018 is bolstered by strong momentum of our flavor growth, particularly in on trend areas and new product and new customer wins, driven by our expertise in clean label and culinary approach.

Frank's and French's continue momentum, and actions I will discuss in a few moments. Growth in actions I will discuss in a few moments. Growth in branded food service driven by expanded distribution and increased marketing activity and customer promotion and wins with quick service restaurant customers through new products and promotional activities.

Let's move now from our strong core business results and on to our Frank's and French's portfolio, starting on slide eight.

We are pleased with our progress so far and with the results from the Frank's and French's portfolio. With the acquisition integration complete, we are excited about the impact we're having on these brands and the growth plans we are continuing to successfully execute against. I'd like to share now some updates on our progress, starting with our North American consumer business.

We're successfully growing these brands through strengthening distribution while leveraging the scale and capabilities of our newly organized salesforce, particularly in category management, as well as applying our strength in emerging channels. Starting with the performance of Frank's, as of the end of May, our fix the mix initiative, which focuses on having the right assortment of flavors and sides on shelf to drive velocity has increased our US total distribution points of original, red hot, and buffalo, by 7% and 12%, respectively, and we're increasing Frank's share of distribution on the shelf.

One example of how we're driving the increase is through the addition of original, red hot small and large bottle sizes at a significant retailer. These sizes are under-developed in the market and are critical for building trial and providing a value offering.

In another example, through our investment in a new smaller case pack for recent Frank's line extensions, we were awarded more space at a significant retailer, as it allowed a more efficient placement on shelf.

These wins drive both our branded and overall category sales growth. We're just beginning to see the benefits of the additional sizes come through the consumption data. From a regional perspective, we've worked with retailers in areas where Frank's is not the market leader. And as of the end of May, increased our total distribution points in the west by 8% and mid-south by 7%. These distribution gains on Frank's red hot sauce and buffalo sauce create a foundation for growth.

Turning to French's mustard, we are seeing success in our initial category management efforts. We are convincing retailers to remove duplicative secondary brands as they work to maximize the efficiency of their shelf space. Our analyses have been well-received and retailers, including several large ones, are beginning to implement our recommendations, eliminating lower-ranking yellow mustard brands and expanding the share of shelf for French's and their store brands.

As we've said before, mustard will take a while to turn around, but we're pleased with the progress we've made thus far to influence the fundamentals on shelf. After years of declining distribution, we have stabilized over all points of distribution year to date and expect to lap the losses we inherited in the second half. We still have many key objectives yet to implement in our category management efforts and continue to dedicate resources and increase capabilities related to mustard category management. We're confident our ongoing focus in this area is driving results.

We're also focused on accelerating growth in unmeasured channels and our establishing these brands with early success, while off a small base, we have already realized double-digit growth in this area, including increasing the e-commerce availability of Frank's and Frenches. While influencing distribution, share of shelf, and channel participation is a continuous effort, we're pleased with our progress so far. We are in the early stages and have a robust plan to further leverage our scale and capabilities to deliver growth.

We're also excited about being able to drive stronger promotion and merchandising performance by combining the strength of our entire portfolio. Our first opportunity to leverage increased promotional scale is through the launch of our summer grilling event. US grilling season begins with Memorial Day and heightens during the summer months. This year, the grilling season was delayed due to a rainy and cold spring in broad parts of the country.

Despite this, we experienced solid May consumption growth across our grilling portfolio, including Frank's, French's, Stubb's, Grill Mates, and Lawry's products. The summer grilling season has just gotten started and we've planned substantial increases in third quarter grilling promotions and display palettes to drive growth across the portfolio. For the combined Frank's and French's portfolio, this was the best start to summer grilling since 2014.

We're seeing the same, if not better, performance in Canada, where grilling is off to a strong start. We are winning with increased merchandising displays across large retailers. As an example, at one large Canadian retailer, consumption of French's ketchup was up 79% versus last year's second quarter, driven by an unprecedented level of display.

With this same retailer, we also launched a promotional grilling kit to meet grilling flavor needs of the consumer. The kit combines Canada's classic grilled Montreal steak seasoning with Frank's hot sauce, French's mustard and ketchup, as well as Stubb's barbeque sauce and new La Grille products for trial. The promotional kit sold out in less than one week.

We've also begun to drive an innovation agenda on Frank's and French's. To date, we've launched new SKUs, seasonings, and dip mixes, and retailer interest and acceptance has exceeded our expectations. As I mentioned at CAGNY, there is an exciting longer-term pipeline of new concepts developing. I look forward to sharing details of innovation news in the coming months as we launch these products.

We're planning increased marketing support against Frank's and French's, which will be more significant in the second half of 2018 than in the first half. We're just starting to launch new messaging and support for the brand. In April, Canada was our first location to launch a new television commercial with their new, "Do you French?" campaign for mustard and ketchup. The commercial received breakthrough scores in consumer testing.

In the third quarter, we're launching the first dedicated mustard campaign in the US in three years. This campaign actually kicked off this week. For Frank's, we're significantly increasing working media in the second half and will be running a US national television ad for the first time in seven years.

To date, we've dramatically improved social media engagement by 115% and an exponential increase in online content. For example, our McCormick culinary experts have already created 100 new recipes for mustard usage, which we are already promoting across our robust digital platforms, including 15 how to videos. Wrapping up North America consumer for Frank's and French's, performance in these categories is robust and we're very happy with our results.

Next, I'm excited to share some Frank's and French's updates related to our North American flavor solutions business on slide nine. Our combination of complementary strength of the McCormick and RB Foods food service sales organization has strengthened our go to market model in the North Americas flavor solutions business and is enabling us to leverage our full portfolio across operators.

Our new scales created strong momentum within food service and over the past month, we've had successes in key areas. We're pleased with our progress on increasing penetration with national and regional chain accounts. Through May, we have incremental sales to over 19,000 new restaurant locations, including to more than 10 large national accounts as well as regional accounts.

In addition, we're also gaining momentum with securing and converting local restaurant operations. Deeper penetration across restaurants also includes an increase in menu participation and front of house presence. Our successes on menu items have included permanent additions as well as limited time offers and include products across our full portfolio.

As an example, we've partnered with a Canadian quick service restaurant to launch a menu item, including our Montreal Steak, Cattlemen's Barbeque, and French's Crispy products. We've also secured menu mentions in both restaurant on site and both television media campaigns to build brand awareness with the end consumer through food service.

Our efforts in increasing front of house presence are not limited to restaurants, but cover the full spectrum of the food service industry, including business cafeterias, sports venues, and lodging. Examples of our early successes include double-digit increases of French's mustard dispenser placement and mid-single-digit sales increase across our portfolio of Frank's, French's, Old Bay, and McCormick tabletop items. Enabled by our new scale across our commercial teams, we are successfully cross-selling our culinary line, McCormick for Chefs, and Franks' and French's food service items into restaurants.

Our food service promotional activity is also driving results. With Frank's, we doubled the operator participation in King of Wings program, anchored in the February and March sports season. We're planning to capitalize on this success and increase Frank's awareness during another high wing consumption period, the beginning of football season, by offering King of Wings for the first time in the fall.

Further, for North American flavor solutions, we're leveraging our product superiority to drive differentiation. Products like our Cattlemen's barbeque sauces provide superior performance and therefore tangible benefits to operators, such as the more natural appearance, thicker consistency, and better overall application on product. We've strengthened our marketing and selling materials to more prominently emphasize these functional differences and have started leveraging them in our sales efforts.

Turning to the international markets on slide 10, we're progressing on integrating the Frank's and French's portfolio into our global network. We are continuing to apply discipline to establish the proper foundation and manage the brand globally, for example, ensuring proper product registration, trademarks, and labels. We're also building a more professional presence in market with a more sophisticated and optimized network and country-specific labeling where applicable to enable stronger growth. We have transferred nearly 50 distributors from RB Foods management to McCormick and we've also added new distributors in 14 countries.

We're also converting to McCormick direct infrastructure, where we have scale. As an example, in Mexico, we are already utilizing the infrastructure of our joint venture partner. We have established a co-marketing program with a leading food company, specializing in protein to drive awareness and trial of Frank's. The program is targeting the millennial consumer social eating occasions, such as at universities, concerts, and sporting events, to enjoy wings and other snacks.

Overall, we're progressing as we planned to grow these brands and are excited about the momentum we're carrying into the second half of 2018. Now that the integration is behind us, we're even more confident that the combination of our powerful flavor brands will drive significant shareholder value.

Mike is now going to provide more details on the financial results for the quarter and on our financial guidance. Before I turn it over to him, let me provide a few summary comments on slide 11. At the foundation of our sales growth is the rising consumer demand for flavor. We are aligned with the consumer's increased interest in bolder flavors, demand for convenience, and focus on fresh, natural ingredients, as well as with emerging purchase drivers, such as greater transparency around the sourcing and quality of food.

With this increased interest, flavor continues to be an advantaged, global category, which combined with our execution against effective strategies will drive strong results as we go through the year. We are balancing our resources and efforts to drive sales with our work to lower costs to build fuel for growth and higher margins.

Our second quarter financial results across both our consumer and flavor solutions segments are strong. We have confidence in our fiscal year outlook and are well-positioned to deliver another strong year in 2018. Around the world, McCormick employees are driving our momentum and success and I thank them for their efforts and engagement.

Thank you for your attention. It is now my pleasure to turn it over to Mike. Mike?

Mike Smith -- Executive Vice President and Chief Financial Officer

Thanks, Lawrence and good morning, everyone. As Lawrence indicated, we delivered strong growth with our second quarter results. I'll begin with a discussion of our results and then follow with comments on our current full-year 2018 financial outlook. As seen on slide 13, we grew sales 19% and constant currency 16%. Acquisitions, pricing, and higher volume and product mix each contributed to the increase. Both our consumer and flavor solutions segments delivered strong topline growth, driven primarily by the Americas. In addition, we have delivered significant increases in adjusted operating income and adjusted earnings per share, as well as significant operating margin expansion.

The consumer segment grew sales 16% in constant currency. Our acquisition of the Frank's and French's portfolio contributed 14% of the sales growth. On slide 14, consumer segment sales in the Americas rose 22% in constant currency, versus the second quarter of 2017, with 20% of the increase from Frank's and French's incremental sales. The remaining increase was driven by pricing and higher volume and product mix.

Pricing included some incremental impact of 2017 pricing actions as well as actions taken late during the second quarter of 2018. While the colder weather impacted the start to the grilling season, as Lawrence mentioned, it drove volume growth in items such as branded recipe mixes.

EMEA consumer sales increased 2% in constant currency, driven by sales of Frank's and French's as well as growth in France led by private label. Partially offsetting these increases was an impact from trade payments to expand distribution in the UK. We grew consumer sales in the Asia Pacific region 7% in constant currency led by China-based business growth in herbs and spices, ketchup, and bouillon.

For the consumer segment in total, we grew adjusted operating income 44% to $131 million. In constant currency, adjusted operating income rose 40% from the year ago period. The impact of sales growth and cost savings more than offset increases in brand marketing and freight cost. We expanded our consumer adjusted operating margin compared to the second quarter of last year by 280 basis points.

Turning to our flavor solutions segment and slide 18, starting with sales growth, we grew constant currency sales 15%. Our acquisition of the Frank's and French's portfolio contributed 12% of the sales growth. The remaining growth was driven by both the base business and new products, offset partially by pricing actions across all regions related to the pass through of certain commodity cost declines in our ingredients business, as well as the elimination of some low margin business.

In the Americas, flavor solutions sales increased 22% in constant currency, including a 17% contribution from Frank's and French's and a 5% increase from the base business and new products. This base of new product increase was led by seasonings and branded food service sales, as well as double-digit growth and savory flavors.

It was partially offset by a decline in ingredient sales, attributable to both pricing and the elimination of some low margin business as well as the global realignment of major customer sales from the Americas to EMEA. We grew flavor solutions sales in EMEA 3% in constant currency with Frank's and French's contributing 1%.

The remaining sales growth was driven by volume and product mix, which included a favorable impact from the global realignment of major customer sales from the Americas to EMEA as previously mentioned. Partially offsetting the volume and product mix growth was a decline due to pricing and the timing of customer promotional activity.

In the Asia Pacific region, flavor solutions sales were down 2% in constant currency, driven by the exit of low margin business in the region as well as commodity cost declines passed through in pricing. New product sales to quick service restaurants in China partially offset these declines.

As shown on slide 22, adjusted operating income for the flavor solutions segment ended the quarter up 67% at $77 million, with a 3% favorable impact in currency. The increase was driven by favorable impact of higher sales, a shift to more value-added products, and the impact of our CCI program. These impacts more than offset increases in brand marketing and freight costs and led to a 420-basis point expansion of adjusted operating margin compared to last year.

Across both segments, adjusted operating income, which excludes the integration costs related to RB Foods and special charges, rose 51% in the second quarter from the year ago period and in constant currency by 48%. This increase includes the impact of increasing our brand marketing in the second quarter. As Lawrence mentioned, our focus on profit realization and the reshaping of our portfolio has driven significant margin expansion.

As seen on slide 24 in the second quarter, we increased gross profit margin 340 basis point year on year. While this expansion includes an accretion impact from the addition of the Frank's and French's portfolio, the core business was also a significant driver of the margin growth. Our portfolio shift to more value-added products and CCI-led cost savings continued to drive gross profit expansion across both our segments.

Our selling general and administrative expense as a percentage of net sales increased by 10 basis points from the second quarter of 2017. Leverage from sales growth as well as CCI-led cost savings were more than offset by significant increases in distribution expense driven by freight.

The net impact of the gross margin expansion and the SG&A increase resulted in an adjusted operating margin expansion of 330 basis points from the second quarter of 2017. Below the operating income line, interest expense increased $29 million in the second quarter from the year ago period, primarily driven by the debt secured for the RB Foods financing.

Turning to income taxes on slide 25, our second quarter adjusted effective tax rate was 22.2% as compared to 23.1% in the year ago period, which included a favorable impact from a lower US tax rate partially offset by a lower level of favorable discreet items. Our second quarter adjusted rate was lower than anticipated due to discreet tax items. There can be volatility in our rate quarter to quarter due to the impact of these discreet items and changes to our forecasted mix of earnings.

Income from unconsolidated operations was $7 million compared to $8 million in the second quarter of 2017, a 12% decrease, mainly due to the elimination of higher earnings associated with minority interests. We continue to expect our 2018 income from unconsolidated operations to be comparable to 2017.

At the bottom line, as shown on slide 27, second quarter 2018 adjusted earnings per share was $1.02, up 24% from $0.82 for the year ago period, mainly due to higher adjusted operating income partially offset by higher interest expense and shares outstanding.

On slide 28, we summarized highlights for cashflow and the quarter end balance sheet. Our cashflow provided from operations was $235 million through the second quarter of 2018 compared to $177 million through the second quarter of 2017. This change was driven by the increase in our net income.

We continue to see improvements in our cash conversion cycle, finishing the second quarter at 67 days, down 9 days versus our fiscal year end, primarily driven by our extended terms and inventory programs. We returned $137 million of cash to shareholders through dividends and used $60 million for capital expenditures through the second quarter of 2018.

We expect 2018 to be another year of strong cashflow and our priority is to continue to have a balanced use of cash, making investments to drive growth, returning a significant portion to our shareholders through dividends, and to pay down debt.

Year to date, we have made $100 million of prepayments on our three-year term loans secured as part of the RB Foods acquisition financing. This brings our total prepayments to $350 million. Let's now move to our current financial outlook for 2018 on slide 29.

Our sales adjusted operating margin and adjusted earnings per share targets for the year remain unchanged. At the topline, we reaffirm our guidance to grow sales 13% to 15%, including an 8% incremental impact of the acquisition of Frank's and French's and underlying base business and new product growth of 3% to 5% from higher volume, product mix and pricing, as well as a 2-percentage point favorable impact due to currency.

Previously, we expected at least $100 million of CCI. We now expect at least $105 million. With our revised CCI guidance, the momentum of our first half gross margin expansion and our continued strategy of shifting to a more value-added portfolio, we are now projecting our 2018 adjusted gross profit margin to be 175 to 225 basis points higher than 2017.

This is an increase form our previous projection, which was a 150 to 200-basis point increase versus 2017. We expect this additional favorability to be offset by incremental freight costs. As a reminder, for 2018, we are planning to increase brand marketing at a rate above our sales growth. For the first half of 2018, our brand marketing increase was lower than the rate of our sales growth.

We also expect currency favorability to be greater in the first half of the year than in the second half and we have seen more volatility and uncertainty recently. As such, our adjusted operating income increase remains unchanged. We expect to increase adjusted operating income 23% to 25% from $786 million in 2017, which includes a one-percentage point impact from favorable currency rates.

We reaffirm projected earnings per share of $4.85 to $4.95, an increase of 14% to 16% versus our $4.26 adjusted earnings per share in 2017. This range of growth includes an estimated 1-percentage point impact from favorable currency rates.

For the fiscal year, we expect our higher profit and working capital initiatives to lead to another year of strong cashflow. In summary, we are projecting excellent growth in our 2018 constant currency outlook for sales, adjusted operating profit and adjusted earnings per share following record double-digit performance across each objective in 2017.

We also reaffirm our 2018 GAAP earnings per share range, which is projected to be $6.85 to $6.95. There are several projected 2018 adjustments which are expected to drive our GAAP to non-GAAP reconciliation. First, approximately $23 million for integration expenses related to RB Foods, which is in line with our previous estimate, second, approximately $18 million of special charges, and finally, the net impact of two non-recurring items required by the US tax act, which is currently expected to be a tax benefit of approximately $298 million in 2018.

The total net impact of these adjustments is anticipated to be a $2.00 favorable impact to our GAAP earnings per share for Fiscal 2018. Finally, before we move to your questions, let me recap the key takeaways from our remarks this morning. Our momentum has continued into the second quarter and with our excellent first half results, the strength of both our core business and our Frank's and French's portfolio is evident.

We are delivering against our plans for both sales and profit realization and are confident in the effectiveness of our strategies. Finally, we are reaffirming our strong 2018 outlook for our underlying sales, adjusted operating income, and adjusted earnings-per-share growth.

Now, let's turn to your questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key. One moment please while we pull for your questions.

Our first question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.

Robert Moskow -- Credit Suisse -- Analyst

Good morning. I was curious about Mike, I think you said that brand marketing was slower than sales growth in the first half and then it's going to reaccelerate in the back half and then your CCI is a little bit ahead of expectations. But then you said, I think, that there's more volatility than you expected. I didn't quite get what that was. I guess the question is did you have to reduce some of the advertising in second quarter or shift it to take into account that volatility? And then I guess the follow-up question is the quarter is so much better than what consensus had, but it sounds like it was just in line with what you were planning and the phasing was different than what the street had forecast for the year, is that fair?

Mike Smith -- Executive Vice President and Chief Financial Officer

Yeah, Rob. As you know, we are performing according to our plans and we really don't give quarterly guidance. We feel it was a great quarter, as you said. The thing you've got to realize that some of it is timing. We talked about A&P. We have underspent net sales growth year to date, but we've always planned for the year the second half was going to be backloaded from an A&P perspective.

 We're launching our first choice advertising late in the third quarter in Europe for our brand relaunch there of Ducros and Schwartz. We have our French's and Frank's plans and strong grilling across the summer. The comment about volatility was more around the effects, you're seeing some of the effects rates jumping around the last month or so. Our FX has been very favorable year to date, about 3.5%. We see that going down for the year about 2%.

Robert Moskow -- Credit Suisse -- Analyst

I see. Okay. Just one follow-up on French's -- I think that it sounds like getting the distribution right is being well-received by the trade but it's going to take a while to execute. What's the obstacle to getting it done? Why not just have it done for this year's grilling season? Is it just to convince retailer by retailer to do it or what is it?

Lawrence Kurzius -- Chairman and Chief Executive Officer

Well, hey, Rob, this is Lawrence. First of all, I would say we are getting it done. The change in the distribution that we talked about in our prepared remarks really reflects a lot of real execution that's already happened at retail, especially on Frank's, where we've substantially improved the distribution or the total points of distribution on the Frank's brand. We've made some good progress really just by stabilizing it. That's pretty positive. We inherited some distribution losses there. The long-term trend on distribution had been negative as well.

So, bringing stability to that, is a good step in the right direction. Retailers, resetting a shelf operationally is a big deal for them. You do do it customer by customer, but it's a disruption to their stores. So, they tend to have specific windows in which they'll do the resets. Even some of the changes that we have sold to customers that they have accepted haven't unfolded just yet because we're not at the window when they're going to reset that aisle or that section of the store.

Mike Smith -- Executive Vice President and Chief Financial Officer

Or the competitor product has to sell through also.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Exactly. But we've made a lot of progress in this area. I'm really pleased with it. There's a lot of runway for continued improvement there. In the early innings of the improvement and distribution of French's and Frank's. We were tremendously under-SKU'd and under-shelved and the progress that we've made, while it is meaningful and we're going to see it in the numbers in the second half, there's a lot more to be had there.

Robert Moskow -- Credit Suisse -- Analyst

I didn't catch what you said about the competitor also?

Mike Smith -- Executive Vice President and Chief Financial Officer

Yeah, Rob, even if you win, as Lawrence said, there are windows. You have to reset things. The competitor product is on shelves. It has to sell through. It's still in their supply chain. There's a natural delay.

Robert Moskow -- Credit Suisse -- Analyst

Alright. Thank you.

Lawrence Kurzius -- Chairman and Chief Executive Officer

There were a few of them. I think some of your peers have written notes about noticing some of our competitors disappearing at certain accounts.

Robert Moskow -- Credit Suisse -- Analyst

Well, they're doing a great job, those competitors. Thank you.

Operator

Thank you. Our next question comes form the line of Ken Goldman with J.P. Morgan. Please proceed with your question.

Ken Goldman -- J.P. Morgan -- Analyst

Hi, thank you.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Hey, good morning, by the way.

Ken Goldman -- J.P. Morgan -- Analyst

Hey, good morning, everyone. I wanted to ask a couple of things. First, just in the store checks that we do when I put my hat on as a food retail analyst, we've seen -- I know you don't want to mention specific customers, but I guess I can -- Kroeger moving some spice and seasoning products around the store and in some cases, putting spices and seasonings in areas of the store where there's no other food. I'm just wondering is this something you're seeing on any kind of broad scale or are these really, as far as you know -- and maybe you haven't seen this at all -- but are these one-off changes in your view? I'm just trying to get a sense if this is something that we should see as a canary in the coal mine a little bit.

Lawrence Kurzius -- Chairman and Chief Executive Officer

So, Ken, Kroeger certainly is doing that. I would say that actually isn't anything new and it's something that we see pretty widespread practice to put spices and seasoning into secondary locations. It's not abandonment of central sections for spices and seasonings, but putting spices and seasonings into the meat area, taco and so forth, with the Hispanic product, some presence in the produce area, these are things that not only does Kroeger do, but other accounts do and it's actual performance that we sell to retailers to accelerate sales then.

In fact, we've got specific brands that are designed to live in those other parts of the store over in the produce section. We have our gourmet garden brand and our produce partner's brand -- for example, Adolph's very often appears over in the meat section. So, this kind of secondary placement is not unusual and it's really part of the health of the category.

Ken Goldman -- J.P. Morgan -- Analyst

Yeah. I think I could have asked that in a better way. What I really meant was the primary placement has shifted. I'll follow-up with that offline.

Lawrence Kurzius -- Chairman and Chief Executive Officer

I would say we're not seeing a primary placement shift.

Ken Goldman -- J.P. Morgan -- Analyst

Okay. Good. Thank you for that. I appreciate that. Then I wanted to ask -- obviously scanner data is becoming less meaningful for a lot of food manufacturers. It seems to be really less meaningful for you as you shift to some alternative customers. But we are seeing it for a number of your brands, not just fit season, a number of brands, whether it's Zatarain's, Old Bay -- McCormick is losing distribution points as a company with a major customer.

I don't see a reason, really, for concern because at the same time that your distribution points are dropping your velocities are getting a lot better with these brands. But is there anything you can see in the data or help us understand why your GDP with this particular customer or with any one big customer is rolling over or is the data incorrect.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Sure. Ken, let me take this in two parts. First of all, there is a syndicated Nielsen product report that is widely drawn upon that is kind of a standardized product they sell to industry. We've had a disconnect versus that for a long time. It does not accurately track us. Where it does track, we believe, it's tracking the channels that are losing share, not where we're losing share, but that are actually losing share to other channels. So, we think it understates consumption overall not just for us but for everybody. That's my opinion. I don't have a quantification on that, but we call unmeasured channels have been outpacing the growth and measured channels for a long time.

The second part of that regarding distribution point loss on some of the specific items, there's a statistical artifact in that when you change your package, the old package shows up in the data and the new package as if they were two separate items. So, Old Bay in particular, which is one of the ones you mentioned, a year ago, we were converting from the metal tin to the BPA-free plastic containers they're in today and while that transition was taking place, the syndicated data was reporting those items as if they were two separate things. A three-ounce Old Bay package was showing up really kind of as a double count. That has come out of there right now. Noise like that around packaging transitions makes a difference.

It sounds like that wouldn't be very much but on Old Bay in particular, that's actually quite a big difference. We haven't lost on anything. Old Bay is a great performing product. Others like Zatarain's, rice mixes is a category that is a little bit off-trend right now due to carb consumption and TDPs for that entire category have declined and Zatarain's has lost some distribution along with that as consumers have gone more toward protein-based foods and away from carbohydrate-based foods. I will say that Zatarain's has an advantage in that it's more of a dinner mix than a side dish. So, people add meat to it when they consume it. But there has been some distribution loss on Zatarain's.

If you step back, the changes in distribution that are coming through in the syndicated data around Old Bay and also on some of the spice items in what we call the super deal side reflect packaging changes and there were also some limited edition Grill Mate items that were out there a year ago and they've come out to. If you adjust for those, we've actually gained distribution. So, you take that noise out, our points of distribution are actually up, not down.

Ken Goldman -- J.P. Morgan -- Analyst

That's really helpful. Thanks very much.

Operator

Thank you. Our next question comes from the line of Alexia Howard with Alliance Bernstein. Please proceed with your question.

Alexia Howard -- Sanford C. Bernstein & Company -- Analyst

Good morning, everyone.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Good morning.

Mike Smith -- Executive Vice President and Chief Financial Officer

Good morning, Alexia.

Alexia Howard -- Sanford C. Bernstein & Company -- Analyst

Okay. One main question, a quick follow-up -- can you elaborate a little bit on how things are going in China. It looks like the flavor solutions business is under a little bit of pressure sales-wise, but the consumer business is doing well. Is that e-commerce taking off or is that in more of the traditional trade? That would be great. And then just a quick follow-up -- can you quantify the gross margin impact of the RB Foods acquisition? How much of a benefit has that been since that deal was closed? Thank you.

Lawrence Kurzius -- Chairman and Chief Executive Officer

I'll take the first half of that and then I'll pass it over to Mike to talk about gross margin. Our business in China has been really robust on the consumer side. The majority of the growth over there that you're seeing is still being driven by early base business growth. We have continued to expand distribution, household penetration.

We've gained share in every category that we compete in over there on the consumer side of the business. It's a great story. We are having tremendous growth on our new team all store, but I will temper that by saying it's still small and these are early days. We've only just opened it this year. While it's a contributor to the growth, that's not what the real growth story is China just yet.

On the flavor solutions business, that business is just a choppy, lumpy business and we have a fair degree of customer concentration there. Customer promotional activity can change the quarter to quarter numbers, but the trend line for flavor solutions in our business in China has been positive and continues to be and we've got a very good outlook for that. Mike, do you want to comment on gross margin?

Mike Smith -- Executive Vice President and Chief Financial Officer

Just to follow-up on your point on China -- China flavor solutions activity grew, as we said. But in the rest of the zone, we were exiting some low margin business as part of our focus on profit realization. But the China underlying falvor solutions business did grow.

From a gross margin perspective, you asked a question about the share of the gross margin expansion due to RB Foods versus the core business, I'd say approximately on a year to date basis, approximately half is from RB and half is focused coming from our core business, really that focus on CCI and moving more toward value added products.

Alexia Howard -- Sanford C. Bernstein & Company -- Analyst

Very helpful. Thank you very much. I'll pass it on.

Operator

Thank you. Our next question comes from the line of Chris Growe with Stifel. Please proceed with your question.

Chris Growe -- Stifel Nicolaus -- Analyst

I just had a couple questions for you, if I could. The first one would just be about the gross margin. It was up at a stronger rate. You just gave a little color on the sources of that growth. Freight costs are up. It seems like inflation doesn't align with expectations. I just thought it was interesting this quarter, you had a little less pricing coming through as well. I'm just wondering if you could speak about the pricing overall and the effect that could have had on the gross margin, given inflation is still in place for the business.

Mike Smith -- Executive Vice President and Chief Financial Officer

Good morning, Chris. I'll take this. This is Mike. From a gross margin perspective and pricing, the pricing that's going through the first half of this year is really related to pricing actions we took in 2017. We talked about this in the script that late in the second quarter, the pricing will start coming through late in the second quarter and third and fourth quarter will be fully effective. You'll see in the third and fourth quarter a little bit more from a pricing perspective.

But as we said from the beginning of the year, the commodity cost inflation is low single digits and we're passing that on low single-digit price increases. From a margin perspective, as I just mentioned, about half of the gross margin improvement is from the core business, half form the RB accretion. We talked about CCI. We put in the $400 million target back in 2016. We're overdelivering that. We're overdelivering this year and that's how we called up the full year to at least $105 million.

Really great performance there across the company. This continued move to reshape our portfolio, really a lot on the flavor solutions side was moving more to the flavor and seasonings. You saw this quarter in the Americas zone, for example, savory flavors up, seasonings up. So, those are the types of things that really help our core business grow gross margin.

Chris Growe -- Stifel Nicolaus -- Analyst

Related to that, there is a comment in a couple divisions where you are exiting low margin businesses and flavor solutions, is there at all a quantifiable drag on the topline? And maybe even commensurately how much of the incremental margin that non-RB Foods margin improvement, gross margin improvement is coming from that activity, if it's big enough to even site.

Mike Smith -- Executive Vice President and Chief Financial Officer

It's built into our guidance for the year. So, we don't quantify that, but it is helping our gross margin improvement.

Chris Growe -- Stifel Nicolaus -- Analyst

And how much was sales drag, is that a large amount of sales drag as you walk away from some of these contracts?

Mike Smith -- Executive Vice President and Chief Financial Officer

We don't really break that out, Chris, but it's not material, but it's within our guidance for the year from a sales perspective.

Chris Growe -- Stifel Nicolaus -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Rob Dickerson with Deutsche Bank. Please proceed with your question.

Rob Dickerson -- Deutsche Bank -- Managing Director

Great. Thank you so much. I guess I have a question that goes back to gross margin as well, but then also as it relates to EPS for the year. So, Q1, you had a strong first quarter. It seems like you had a fairly strong second quarter with part of the EPS performance really being driven by better than the market expected on the gross margin side kind of falling through. We see you increased your gross margin guidance for the year by, I think 25 basis points, but the EPS isn't increasing.

So, I'm just curious around your comments on FX volatility, second half versus first half, the increase in marketing more back half weighted. Could you just provide some color as to why you would not increase your EPS guidance for the year since the first half has been so strong? I guess that's one. And then two, if you're running at like 2.5% organic sales for the first half of the year but the year implies 3% to 5%. I'm assuming we should we should still be expecting a decent step up in the back half to get us to that 3% to 5%. Thanks.

Mike Smith -- Executive Vice President and Chief Financial Officer

Alright. There's a lot in there to unpack, Rob.

Rob Dickerson -- Deutsche Bank -- Managing Director

Sorry about that.

Mike Smith -- Executive Vice President and Chief Financial Officer

That's alright. You hit on a couple points that I mentioned, but one thing, gross margins are up. Part of that was due to our CCI efforts calling that up by $5 million. But on the SG&A line where we classify freight, unlike a lot of our peers, freight is up versus last year. So, we didn't get leverage on our SG&A as we have done in the past due to that freight increase. We'll see that increase into the third and fourth quarter.

The other thing we mentioned -- we're continuing to reinvest in our business and the A&P increase in the second half will be above the rate of sale. That all plays into our full-year guidance. Everything is baked into our range of $485 million to $495 million. The FX, as you pointed out, we weren't very favorable year to date and the rest of the year, it will be somewhat neutral, but that's also impacting the second half growth rate.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Right. I'll just add to that that our year is progressing as we have planned. We did just increase guidance last quarter and we still have our two biggest quarters ahead of us. I think we're comfortable with where everybody's model for the year are settled.

Rob Dickerson -- Deutsche Bank -- Managing Director

Okay. Fair enough. And then just one quick question on the pricing. I'm just curious -- I think I heard you mention promotional activity and different parts of the world. So, I know pricing is coming through in certain categories, I assume, in the Americas, in the back half. So, one is do you feel like there's potentially a little bit of increased promotional activity in the market at this point, one, and then two, was there any volume component to offset some of that pricing this quarter or maybe in Q3. Thanks.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Hey, Rob, Lawrence here. That wasn't what we were trying to message at all. I think what we're messaging is that first of all, the second half of the year seasonally is the strongest part of the year, so our promotional activity is higher overall and our plans for the year always included an acceleration of marketing activity as we got into the second half of the year. I'd say that is particularly true on the Frank's and French's business, where a year ago, we just acquired the business and hadn't had a chance to impact the consumer marketing program during that time. So, that's all that we're trying to signal there.

I think that on pricing, the message is that we've got the pricing plans that -- the pricing that we were intending to take, we got not only negotiated but actually in place toward the end of the second quarter, so we would expect that to be a net benefit in the second half.

Mike Smith -- Executive Vice President and Chief Financial Officer

Yeah, the other thing, Rob -- the promotional activity you might have been referring to in the script, we talked about flavor solutions. The customers have different promotion schedules. So, that impacts the timing of sales.

Rob Dickerson -- Deutsche Bank -- Managing Director

Fair enough. Thank you so much.

Operator

Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

Adam Samuelson -- Goldman Sachs -- Analyst

Thanks. Good morning, everyone. Two questions -- first, in the flavor solutions business, the margin expansion here has been quite considerable. I'm just, again, trying to think about how mix between RB Foods and some of the mix changes you've undertaken in your base business have impacted it and maybe a little bit more color on the growth you're seeing between the flavors and branded food service versus your ingredients business, that would be the first question.

Mike Smith -- Executive Vice President and Chief Financial Officer

Sure, Adam. This is Mike. Similar to the question that Alexia asked, for the whole company and for the segment, roughly about half of the accretion on gross margin is coming from the base business and half is coming from the RB Foods accretion. So, it works out that way.

Adam Samuelson -- Goldman Sachs -- Analyst

I was going to say is the rest more CCI or is it conscious mix changes in your legacy business between branded food service flavors and some of the lower margin ingredients you had before?

Mike Smith -- Executive Vice President and Chief Financial Officer

It's really both. CCI really falls across both segments but it impacts flavor solutions heavily. The conscious decisions we're making on the ingredient business, also really focusing on flavors and seasonings and branded food service, which has also performed very well, both on the core business and in the Frank's and French's business too. So, they're all levers we're pulling to help us.

Adam Samuelson -- Goldman Sachs -- Analyst

Okay. And then just more broadly -- and it's hard to parse given the old reporting and how it's now split -- but RB Foods kind of in aggregate on its own, what was its organic growth in the second quarter, if you have that number?

Lawrence Kurzius -- Chairman and Chief Executive Officer

I don't think that we're saying that, but the full amount of the sales, of course, is visible because the sales attributable to acquisition are 100 percent from RB Foods. I will say that RB is tracking uncannily close to our original acquisition model.

Mike Smith -- Executive Vice President and Chief Financial Officer

Which Lawrence said in the first quarter too.

Lawrence Kurzius -- Chairman and Chief Executive Officer

But it is uncanny how close it is, which included some pretty aggressive growth as we go through this year. We're really pleased with it, but we're not quantifying that. There's a reason for that. That's because when we get to fourth quarter, it's going to drop into base business and as we go forward, we're not going to be reporting on it separately. It will fall into the segments. So, providing that visibility during this period of time would just be unnecessary amount of detail. But you can see in our overall sales growth and in margin performance that we're getting good results there.

Adam Samuelson -- Goldman Sachs -- Analyst

And I guess along similar lines, not just disclosing the actual realized synergies to date on the acquisition?

Mike Smith -- Executive Vice President and Chief Financial Officer

We said this year, we're getting higher than we originally thought. We're not quantifying it, but we're progressing well. This is kind of a broad question even back to why we aren't calling up our guidance -- we're only about 40% through the year from an earnings perspective. Our big two quarters are coming up. It's something, I think, in the third quarter, we'll have more news.

Adam Samuelson -- Goldman Sachs -- Analyst

Okay. I appreciate the color. Thanks.

Operator

Thank you. Our next question comes from the line of Jonathan Feeney with Consumer Edge Research. Please proceed with your question.

Jonathan Feeney -- Consumer Edge Research -- Analyst

I wanted to ask about -- I know you're not going to give us the apples to apples sales and volume for Frank's and French's, but you did give some comments earlier in the call about some impressive distribution gains there. I really wanted to dig into first of all, if you could comment as to whether those distribution gains -- I think on a regional basis and a national basis -- are an acceleration from what had previously been going on.

I'd imagine the answer to that question is yes, but please correct me if I'm wrong about that. I'm wondering what is it you're doing to drive that? Are there some analytics there that you have that others don't or did you approach it in a different way? How would you bucket the success you're having with that? I think it applies broadly with what's going on with innovation in your company, broadly. Thanks.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Hey, great. Thanks, Jonathan. One of the things that we've got that the previous owner didn't have is we've got tremendous category management capability. Reckitt Benckiser is a fabulous company. In their core categories, they've got tremendous capability, but this was not one of their core categories. They regard this as an off-strategy business. So, it didn't get the resources that the other brands in that company got. They're category management capabilities were, frankly, pretty rudimentary.

Today's category management exercises require specialist tools. It requires a lot of data and it requires talent, all of which are expensive and require substantial scale to work. Their competitor was able to push them around on the shelf pretty handily for the last three years before we bought the business. We've been able to successfully now push back against that. As an example, in many customers, French's mustard has the same shelf presence as, let's say, the other brand that's out there, but has three to four times the velocity.

The competing brand doesn't deserve equal presence. Customers have been very responsive to the fact that French's is under-shelved and under-SKU'd and that the competitive brands are over-SKU'd and may not even deserve to be there in the first place. That's a selling story that it's a customer-by-customer selling story, but they've been very receptive to it. The data totally supports it and we've been pretty credible.

This is an area that's been historically a strength for McCormick. We've really built a lot of muscle in this capability over the last several years. So, I think we're able to push back pretty effectively. The gains so far are really pleasing. We, again, believe we are not at the end of the story. There's a lot more runway still here to improve our shelf presence and share of shelf.

Mike Smith -- Executive Vice President and Chief Financial Officer

The other thing we bring to it -- Lawrence mentioned this -- in the third quarter, we have a new French's advertising campaign. That would be the first time in several years. So, that will help further drive growth.

Lawrence Kurzius -- Chairman and Chief Executive Officer

While we've done a great job on the shelf in the first half of the year, as we get through the second half and start introducing the new advertising, we're going to start to see consumer response be really good.

Jonathan Feeney -- Consumer Edge Research -- Analyst

Thank you.

Lawrence Kurzius -- Chairman and Chief Executive Officer

That French's campaign actually just started this week. So, it's in the market now.

Operator

Thank you. Our next question comes from the line of Akshay Jagdale with Jefferies. Please proceed with your question.

Akshay Jagdale -- Jefferies -- Analyst

Hey, good morning. Thanks for the question and congrats on a solid quarter.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Thanks.

Akshay Jagdale -- Jefferies -- Analyst

Can you hear me?

Lawrence Kurzius -- Chairman and Chief Executive Officer

Yes.

Akshay Jagdale -- Jefferies -- Analyst

So, I wanted to ask about the organic growth. So, the acceleration that's expected in the second half, is that primarily pricing or does that include some other distribution gains on the base business that we're not aware of?

Lawrence Kurzius -- Chairman and Chief Executive Officer

Hey, Akshay. This is Lawrence. There are -- it's not just pricing. Pricing is part of it. We have a much stronger A&P plan in the second half of the year compared to the first. As Mike mentioned, for the first half of the year, our A&P spending, while it's up, is not up equal to our sales growth, but for the full year, we expect the company spending on A&P to be higher than sales growth. So, implied in that is pretty strong acceleration of A&P spending in the second half of the year. That is our highest consumption period.

So, I think that real consumer offtake driven by our marketing program is one of the main factors, that and pricing. We have distribution gains that we have won that haven't been fully reflective at the shelf in the first half of the year, some of which are still even in the process of being implemented that gave us a lot of confidence in the second half of the year, especially going into the fourth quarter.

And then fourth quarter, remember, Frank's and French's will be part of that core business and we're going to be lapping into some of the fourth quarter supply chain issues from last year. So, we're expecting a very robust fourth quarter from that really good point.

Akshay Jagdale -- Jefferies -- Analyst

Okay. Just on the category management -- obviously, it's playing through quite nicely, it looks like in the acquired business. But in the base business, my question on category management was larger customers, we've seen, obviously, some strategic initiatives from them as it relates to private label and controlled brand promotion that, I think, have not been in line with what you have suggested. Can you give us an update on that and how that's shaping up? Should we expect that the new shelf resets a different strategy? The reason that's important is it obviously has a huge impact on channel data. But I'm just wondering if you'll have an update on that.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Well, I think that our category management efforts are reinforcing a competitive dynamic that we see in the market right now where the leading brand is gaining and private label is gaining. If you're thinking of herbs, spices, and seasonings in particular, this is a category where we make both. Our category management efforts have been around accelerating the growth of those two and that's put pressure on everything that's in the middle.

The numbers there are distorted by one large customer that we've talked about at some length. I'm not going to repeat all that stuff. But if you look at the total grocery trends, our IRI scan shows that we are pretty close to keeping pace with the category. I think our category management efforts there have been pretty successful.

Akshay Jagdale -- Jefferies -- Analyst

And just one last one on the acquired business. Hard for us to really track the unmeasured data, but from your comments, it looks like everything is right on track despite the late start to the grilling season. Can you help me marry those two? I'm assuming you didn't foresee a late grilling season, but it sounds like if it weren't for a late grilling season, the numbers would have been even better and it's just the timing issue. Is that a fair way to think about it?

Lawrence Kurzius -- Chairman and Chief Executive Officer

Well, I won't say it's just a timing issue, but certainly if we hadn't had a later start to the grilling season -- March and April were cold and wet across the east and south and that's where a lot of our consumption is. That consumption is gone. So, that's not going to repeat. But yes, if it weren't for that, I think we would have been even stronger. I don't think that really manifests itself so much on the French's and Frank's portfolio as much as it does on our core grilling products. For French's in particular, this is -- actually, for French's and Frank's, this is the strongest start to the grilling season that they've had since the competitive product was introduced. It's the first time those brands have gained volume during that period.

Akshay Jagdale -- Jefferies -- Analyst

Okay. I'll pass it on. Thank you.

Operator

Thank you. Our final question comes from the line of Steven Strycula was UBS. Please proceed with your question.

Steven Strycula -- UBS -- Analyst

Hi, good morning.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Good morning.

Steven Strycula -- UBS -- Analyst

So, I have a strategic question, Lawrence, for you. I wanted to understand for the United States and for France -- what have some of the retail learnings been as they've maybe rotated and done a few of this labeling changeover to private label? Has category value suffered at all from these decisions and how do you kind of interpret the recent trend line in that direction? Then I have a quick follow-up.

Lawrence Kurzius -- Chairman and Chief Executive Officer

That's an interesting question. For us, the change that happens for our brand, it was already an entry price point item. So, the transition from that entry price point economy brand to a private label really wasn't a category devaluing event. It wasn't a margin devaluing event for us either. The thing that has been category devaluing within that customer has been some intense promotional activity that they've put against that item that occurred most intensely during the first quarter and fourth quarter of last year. As we lap that, I think we'll see some improvement there. That's the case for us. I really don't know what the answer to that is more broadly.

Steven Strycula -- UBS -- Analyst

Okay. That's helpful. Then in the UK last year, we saw some retailer action to just take net distribution out of the category for general merchandise. Has there been any thought process on to that coming back your way or to the category's way, by any means? And then to wrap it up, I just wanted to understand if you guys do a little bit private label manufacturing for herbs and spices, is that to say that part of the commercial strategy in condiments might be to do the same for select retailers? Thank you.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Okay. So, the two questions -- first of all, in the UK, we're coming up on the lap of that distribution change. So, certainly, that won't be the negative impact that it has been. On the other end, I don't want to speculate in advance about what the change in distribution we might get with them going forward.

As far as the condiment private label, I think that's something that we would have to think long and hard about. That is not a business we are right now. We have provided private label in our urban spice category because it's a very complicated category to manage. We've tried to offer the customer a full category solution for the category. It's got hundreds of SKUs and it's very challenging to manage. Condiments are a little bit different than that. So, I think we'd have to think long and hard about that. That's not a business we're in right now.

Steven Strycula -- UBS -- Analyst

Thank you.

Operator

Thank you. We have reached the end of our question and answer session. I would like to turn the call back over to Mr. Kurzius for any closing remarks.

Lawrence Kurzius -- Chairman and Chief Executive Officer

Thanks, everyone. I'd like to thank everyone for your questions and I'd like to apologize for those who are still in the queue. We have gone 15 minutes over and we still have questions in the queue. My apologies for those we didn't get to. I'd like to thank everyone who participated on today's call. McCormick is a global leader in flavor and we're differentiated with a broad in advantage portfolio which continues to drive growth. We're responding readily to changes in the industry with new ideas, innovation, and purpose.

With a keen focus on growth, performance, and people, we continue to perform strong globally and build shareholder value. I'm pleased with the strong results for the first half of the year and I'm confident in our continuing momentum for growth in 2018 and I look forward to reporting to you on the shareholder value we'll continue to create. For those of you who are in the US, have a great Fourth of July. And wherever you are -- go out and grill something with lots of seasonings and top it off with French's and Frank's. Thank you.

Operator

Thank you, Lawrence and thank you to all for joining today's call. If you have any further questions regarding today's information, you can reach us at 410-771-7140. That concludes this morning's conference call. Thank you.

Duration: 77 minutes

Call participants:

Kasey Jenkins -- Vice President of Investor Relations 

Lawrence Kurzius -- Chairman and Chief Executive Officer

Mike Smith -- Executive Vice President and Chief Financial Officer

Robert Moskow -- Credit Suisse -- Analyst

Ken Goldman -- J.P. Morgan -- Analyst

Alexia Howard -- Sanford C. Bernstein & Company -- Analyst

Chris Growe -- Stifel Nicolaus -- Analyst

Rob Dickerson -- Deutsche Bank -- Managing Director

Adam Samuelson -- Goldman Sachs -- Analyst

Jonathan Feeney -- Consumer Edge Research -- Analyst

Akshay Jagdale -- Jefferies -- Analyst

Steven Strycula -- UBS -- Analyst

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