McCormick & Company, Incorporated (MKC) Earnings Call Transcript & Summary

Good day, and welcome to the McCormick & Company, Incorporated Annual Meeting of Stockholders. I would now like to turn the conference over to Lawrence Kurzius, Chairman, President and CEO. Please go ahead.

Good morning, and welcome to McCormick's Annual Shareholders Meeting. I'm Lawrence Kurzius, Chairman, President and CEO. I'd like to thank you for joining us today. Our theme for 2020 is flavoring a better tomorrow. As a company, we're thinking about our future and our impact to the world, and what a changing world it is. In this time of volatility and uncertainty, our theme is more important than ever as we work through the challenges of today, keeping our eyes on the long-term goals, strategies and values that have made us so successful. I'd like to begin by taking a moment to comment on the extraordinary and continually evolving global impact of COVID-19. On behalf of everyone at McCormick, I'd like to first express our deepest sympathies to all those who are affected by COVID-19 and thank all those working to keep people safe through this crisis. McCormick is committed to maintaining critical food supply across all of our markets and supporting our communities. As a company, we are seeing all stages of impact from the beginning of recovery in China to new epicenters in Europe and the United States. Employees globally have been advised of COVID-19 measures they can take to help protect themselves. We've implemented incremental health and sanitation protocols, as you would expect. In our offices, most employees are working from home. For essential employees who are required to physically report to our locations, we've announced an increase in pay, extended pay leave time to care for family members and guaranteed 100% base pay for longer time frames if operations are suspended due to the outbreak. All international travel and domestic travel is restricted through May, and our plants' social distancing protocols are in place. Our concern extends to you, our shareholders, and for this reason, we've chosen to do this year's annual shareholder meeting in a virtual format. We have 3 priorities while navigating through this period of volatility and uncertainty. First, ensure the health and safety of our employees and the quality and integrity of our products. Second, to keep our brands and our customers' brands and supply, and keep the financial strength of our business. Food and food products have been designated a critical industry, and we've been charged with a special responsibility to protect the food supply. The third priority is to ensure McCormick emerges stronger from this event. It will come to an end, and we will come out a better company if we drive our long-term strategies, respond to changing consumer behavior and capitalize on opportunity from our relative strength. The recent financial market turmoil has also made this a challenging time for shareholders. On the day of our annual meeting last year, our share price closed at $147.39. Yesterday, the price was $141.21, a decline of 4%. While I'm not pleased to report a decline, this does compare to a much larger decline in the overall market, and of course, we paid a dividend. Today, we have stockholders attending via the web portal as well as the 800 number that we have provided. As is our custom, we will conduct the business portion of our meeting first. Shareholders can submit questions through the web portal at any time during the meeting, and we will dedicate 10 minutes at the end of the meeting to answer the submitted questions, if any. So let's officially begin. As we look to the future, we recently refreshed our strategic road map. We remain steadfast in our focus on growth, performance and people as well as our commitment to purpose. Today, you'll hear more about our growth strategies designed to win with leadership across our categories as well as our performance strategies to win with results, both today and tomorrow, fueled in part by our business transformation investments. And finally, we will win with talent as our people are key to our success. For an update on 2020, please see the earnings call materials, which were published yesterday. Our strategic imperatives are designed to build long-term value for our shareholders as they have throughout our history. C.P. McCormick's comments in 1949 resonate now just as much as then as business leaders were obligated to make a profit for our shareholders as well as improve the society in which we live. With the successful execution of our strategies, our unrelenting focus on growth, performance and people, and our commitment to purpose, we're looking forward to flavoring a better tomorrow. Through the effective execution of our strategies, we're well positioned to drive differentiated performance while building the McCormick of the future. We continue to be sustainably positioned for growth and we are investing for the future. Today, I hope to leave you with a greater understanding of how we're sustainably positioned for growth. We plan to drive our undisputed leadership in spice and seasonings, accelerate our condiments and flavors' global platforms, fuel our growth in emerging markets, and strengthen innovation in consumer and customer intimacy. Our investments in business transformation will fuel our growth and build long-term shareholder value. We're expanding our infrastructure and capabilities to meet demand, not just for today, but for years to come. 2019 was another year of solid performance, I'd like to once again thank our 12,000 employees around the world for their tremendous focus, dedication and commitment to delivering another year of top-tier financial results. In 2019, McCormick outperformed our peer group with strong sales and adjusted earnings per share growth. Cash flow from operations hit a record high. And we announced our 34th consecutive year of dividend increases. I'm pleased to report that McCormick delivered solid performance across both our consumer and flavor solutions business segments. The breadth and reach of our global portfolio continues to meet the demand for flavor around the world and creates a balanced portfolio to drive differentiated growth. Keeping McCormick a great place to work is a top priority. Our employee ambassador groups, or EAGs, operate as an extension of our diversity and inclusion efforts. Today, we have over 1,100 employees participating in 8 EAGs with 4 additional chapters outside the U.S. In the past 2 years, we've introduced 2 multicultural EAGs in the Asia Pacific zone and the United Kingdom, and 2 new chapters of our women's international network in South Africa and China. McCormick celebrated our 130th anniversary in 2019 by rallying our global teams around the world in a special campaign to support hunger relief efforts. Our goal was to provide 1.3 million meals, and we delivered. In just 1 day, employees here in Maryland packed more than 20,000 meal boxes for food insecure Maryland families to enjoy for the holidays. I'm truly proud of our efforts to help communities where we live and work. The industry and our customers continue to take notice of our sustainability and corporate social responsibility efforts. McCormick was once again recognized by Corporate Knights as the world's 22nd most sustainable company and #1 in the food industry for the fourth year in a row. We also made to the Barron's 100 list of the most sustainable companies and are once again a DiversityInc Top 50 company for our continued efforts around inclusion and diversity, and a DiversityInc Top 15 company for executive women. I'm also proud of the score we received on the Human Rights' Corporate Equality Index, which measures businesses on the treatment of LGBTQ employees. Now I'd like to turn to the formal business of the day. Will the annual meeting of shareholders please come to order? I will now ask the company secretary to advise if the meeting is properly convened.

Lawrence, the Notice of Annual Meeting, the proxy statement and the form of proxy and the annual report of stockholders were sent by U.S. mail or electronically to each shareholder of record of the company between February 17 and 21, 2020. Further, the notice of change in location of the annual meeting was sent to each shareholder of record of the company between March 16 and March 19, 2020. An affidavit to that effect will be filed with the record of meeting. We have received proxies representing approximately 83.9% of the voting shares.

The meeting is duly convened, and a quorum is present. The meeting -- the minutes of last year's annual meeting, which was held on March 27, 2019, are available for examination by any shareholder. Please contact our company secretary, Jeff Schwartz, after the meeting, if you'd like to see a copy. The polls are now still open and will remain open until all items of business have been presented and discussed. A substantial majority of outstanding shares of voting stock have been voted by proxy, but if you still need to vote, you can do so through the voting mechanism on your screen. You do not have to vote through the meeting if you've already voted by proxy. The preliminary final vote totals will be reported after the items of business have been presented and the polls have been closed. The first item is the election of directors. I ask our company secretary, Jeff Schwartz, to place the nominees before the meeting.

The director nominees for the next year and until their successors are duly elected and qualified are; Anne L. Bramman, who is the Chief Financial Officer of Nordstrom, Inc.; Michael A. Conway, who is the Executive Vice President and President, International Licensed Markets, Starbucks Coffee Company; Dr. Freeman A. Hrabowski III, who is President of the University of Maryland, Baltimore County; Lawrence E. Kurzius, who is Chairman, President and Chief Executive Officer of McCormick & Company; Patricia Little, who is the former Senior Vice President and Chief Financial Officer of The Hershey Company; Michael D. Mangan, who is the former President of Worldwide Power Tools and Accessories of the Black & Decker Corporation; Maritza G. Montiel, who is the former Deputy CEO and Vice Chairman of Deloitte LLP; Margaret M.V. Preston, who is the former managing director, TD Bank, Private Wealth Management; Gary M. Rodkin, who is the former Chief Executive Officer of ConAgra Foods, Inc.; Jacques Tapiero, who is the former Senior Vice President and President, Emerging Markets of Eli Lilly & Company; and W. Anthony Vernon, who is the former Chief Executive Officer of Kraft Food Groups, Inc. Biographical data on each nominee is included in the proxy statement. The election of these nominees is now placed before the meeting for shareholder approval.

I declare the nominations closed. The next item of business is the ratification of the appointment of Ernst & Young LLP to serve as the company's independent registered public accounting firm for fiscal 2020. I call on Jeff Schwartz to place this item before the meeting.

The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the independent registered public accounting firm for the company for the current fiscal year. The ratification of this appointment is now placed before the meeting for shareholder approval.

The next item of business is the advisory vote on executive compensation. I call on Jeff Schwartz to place this item before the meeting.

In accordance with the rules of the Securities and Exchange Commission, the company has presented a proposal to stockholders, known as the say-on-pay proposal, that asks for the approval on a nonbinding basis of the compensation arrangements for the company's named executive officers, as disclosed in the proxy statement. This advisory vote is now placed before the meeting for shareholder approval.

The preliminary vote tabulation has been completed. The inspector of elections has prepared a preliminary report on the results of the voting for this meeting. A substantial majority of shares have been voted by proxy on the items of business. These results, plus any shares voted through this meeting, will be tallied, and the results will be available for shareholders to review on our Form 8-K, which will be filed with the Securities and Exchange Commission within 4 business days of this meeting. I declare the polls closed. I call on our secretary to announce the vote.

The preliminary voting results based on proxies received prior to this meeting and tabulated this morning, are as follows: First, as provided by the majority of vote standard in our bylaws, a director nominee must receive a majority of votes cast in order to be elected. Each of the 11 director nominees has been elected, with each director nominee having received at least 5,966,314 votes in favor, or 97.3% of the votes cast. Second, the Board's request for ratification of the appointment of Ernst & Young LLP as the company's independent registered public accounting firm requires the approval of a majority of the votes cast. Ernst & Young's appointment has been ratified. We have 7,697,493 votes cast in favor, or 98.2% of the votes cast. Third, the Board's recommendation that stockholders approve, on an advisory basis, the compensation arrangements for the company's named executive officers requires the approval of a majority of the votes cast. This say-on-pay proposal has been approved with 5,916,282 votes cast in favor, or 97.5% of the votes cast.

Thank you, Jeff. We have now completed the corporate business portion of the stockholder meeting. I now call on our Executive Vice President and Chief Financial Officer, Mike Smith, for his report.

Thank you, Lawrence, and good morning, everyone. Please note that our remarks will include forward-looking statements and non-GAAP financial measures. You can find the GAAP to non-GAAP reconciliations for this presentation on McCormick Investor Relations website. Now let's begin with our 2019 financial performance. For an update on 2020, please see the earnings call materials, which were published yesterday. We are differentiated by our top-tier growth objectives. When you compare our long-term guidance to our packaged food peers, McCormick is the best-in-class for both our sales growth targets and our expected increase in adjusted earnings per share. And over the past 4 years, we have delivered against each of our long-term constant currency growth objectives. During this period, our 4-year compounded annual growth rate was 7% for sales, 13% for adjusted operating income. And for adjusted earnings per share, our growth rate was 12%, all exceeding our long-term constant currency growth objectives. In our most recent fiscal year 2019, we delivered solid sales, adjusted operating income and adjusted earnings per share growth. Starting at the top line, total company sales rose 3% in 2019. We grew sales of our base business, driven by expanded distribution and brand marketing, and through new products, with sales from launches in the past 3 years reaching 8% of 2019 sales. For 2019, adjusted operating income, excluding the impact of special charges, increased 7%. We had the benefit of higher sales and cost savings, led by our comprehensive continuous improvement program, CCI. This program generated $119 million in cost savings, which funded investments to drive growth such as brand marketing increases, new products and costs related to modernizing our information technology systems as well as contributing to our adjusted operating margin expansion. Turning to our consumer segment. We grew sales 3%, led by new product sales as well as base business growth driven by the U.S. and China. Brand marketing investments, expanded distribution and new products contributed to the growth in the consumer segment. In 2019, we increased adjusted operating income 7%, with higher sales and CCI-led cost savings more than offsetting investments for growth. In the flavor solutions segment, we grew sales by 3%, led by higher volume from new products and base business as well as product mix. Higher sales, the continued portfolio shift to more value-added products and CCI-led cost savings more than offset the unfavorable impact of investments for future growth, resulting in a 5% increase in adjusted operating income. Adjusted earnings per share ended 2019 at $5.35 compared to $4.97 in 2018. This growth of 8%, which includes the impact of unfavorable currency rates, was primarily driven by higher adjusted operating income performance, lower interest expense and higher income from unconsolidated operations. Now turning to cash flow. We have a long history of generating robust cash flow from operations and returning cash to shareholders. In 2019, we generated strong cash flow from operations, reaching another new high of $947 million, an increase of 15% from 2018. This strong cash flow was driven by higher operating income and working capital improvements. Since 2015, we have increased cash flow from operations by more than $350 million. In addition, through 2019, we have paid down $1.25 billion of our $1.5 billion in acquisition-related term notes. We are committed to using our strong cash flow to pay down our debt. We are also committed to returning cash to our shareholders through our dividend. At the end of 2019, our Board of Directors approved a 9% increase in the quarterly dividend, marking our 34th consecutive year of dividend increases. We are proud to be a dividend aristocrat, having paid dividends every year since 1925. Our focus on growth, performance and people is driving strong long-term results, which generated double-digit total shareholder return in the past 1-, 5-, 10- and 20-year periods. And in 2019, our 15% return compares favorably to a 12% return for our peers in the packaged food index. To conclude, our results reflect the effective execution of our balanced strategy to drive both sales and profit and to generate significant cash flow. With the engagement of our employees around the world, we are confident that the momentum of our business is sustainable, and we will continue to build value for you, our shareholders. Thank you for your attention. It is now my pleasure to turn the floor back to Lawrence.

Thanks, Mike. Our long-term fundamentals and growth outlook remains strong. Let's take a look at the underlying fundamentals and our strategies. Throughout the world, the demand for flavor continues to grow, with our spices and seasonings, recipe mixes and hot sauce segments growing the fastest. We know that our consumers want more flavor as they continue to experiment with flavorful ingredients and try new spices, the McCormick's differentiated global portfolio is positioned well to provide them with great tasting, healthy food options. Younger generations continue to fuel demand for flavor and drive growth across McCormick's portfolio. As the largest consumer segment, Generation Z, is just starting to enter the workforce, form households and fuel the next generation of flavor growth. These younger consumers seek authentic, global, bold and spicy flavors and want to experiment with new healthy food options. Generation Z also emphasizes ethics and sustainability as they make decisions about their food. Finally, Generation Z is nostalgic for brands and flavors with heritage. With our 130-year history, McCormick has the right brands for them. I'm pleased to now share more about our consumer growth plans. We're driving undisputed leadership in our key categories through strong brand marketing, consumer relevancy and our category management initiatives, starting with spices and seasonings. McCormick continues to be the global leader with approximately a 20% share, nearly 4x the size of the nearest branded competitor. We're also the brand leader in organic spices and seasonings around the world with our strong positions in our key markets. While the recipe mix category has tracked in fewer markets around the world, McCormick has the #1 category leadership share in key markets. Recipe mixes offer the consumer real value in terms of convenient flavor solutions and are a great solution for people who are spending more time at home these days. We've also highlighted simple and clean ingredient statements on our dry recipe mixes. We're both renovating our recipe mix portfolio and delivering innovation, such as through our new partnership with Instant Pot. This smart multifunction cooker is one of the top-selling kitchen appliances in the world. We're advancing our leadership in consumer condiments and sauces by driving strong performance across our entire portfolio of global brands as well as strong regional leaders. In hot sauce, the McCormick-branded portfolio has the #2 share globally, with #1 positions throughout most of North and Central America. McCormick is also the #2 global share leader in mustard, with the #1 position in many key markets behind a strong portfolio of brands. All of these varieties of liquid spice continue to represent a strong growth platform for McCormick. Turning to Frank's and French's. We have an exciting slate of new product launches in the U.S. to continue to accelerate the growth of these terrific brands. Frank's -- it's a tongue twister. This is live radio, folks. Frank's RedHot thick sauce and varieties like buffalo ranch will bring great Frank's flavor to new occasions for dipping and topping our desire. We have great success with our Frank's new products and launching them in new categories. In 2020, Frank's is celebrating its 100th birthday. And as our consumer campaign says, Frank's RedHot is pretty hot for 100. We've made significant brand marketing investments over the last few years, and as a percentage of sales, our consumer segment brand marketing is the highest amongst our peer group. We continue to win with best-in-class content. Our in-house marketing excellence group produced over 21,000 pieces of content in 2019. Our digital leadership was recognized again by Gartner L2 research. McCormick is ranked #1 on their Digital IQ Index for food. This marked our sixth consecutive year in the Top 5 ranking of over 100 food and beverage brands on the effectiveness of our website, digital, social media, e-commerce and mobile platforms. We're scaling up digital programs and activating more opportunities for consumers to connect with us, and I encourage all of you to download our McCormick Flavor Maker app. In the U.S., we're making all touch points shoppable, and you can simply click on Buy Now while watching an online recipe video and have our products delivered. Now turning to our flavor solutions segment. We're delivering sales growth in flavor solutions with an 8% net sales 4-year compound annual growth rate. This is due to acceleration of our higher value add portfolio, expansion globally and in fast-growing categories, and expansion with midsized customers. We sell a comprehensive range of flavoring solutions that range from unique building blocks to complex flavoring systems. Our portfolio consists of bulk ingredients and coating systems, custom condiments, branded foodservice products and custom flavors. This portfolio enables us to collaborate with a wide range of customers and channels, consumer manufacturers, restaurants and distributors that deliver great taste in the products they make or sell across the food and beverage industry. While short-term results are being impacted by restaurant closures and consumers staying at home, we expect the long-term growth of flavor solutions to continue to be strong. Culinary -- as our foundation differentiates us, we have a world-class team of culinary food scientists and flavor experts in our state-of-the-art technical innovation centers. Using our deep understanding of real food and beverage and leveraging our leading technology, we create authentic and natural flavors with certifications in non-GMO, USDA Organic and Rainforest Alliance, just to name a few. We have a broad portfolio of product platforms and technologies that deliver a range of natural solutions for our customers, which include FlavorCell, a controlled release encapsulation technology that helps to preserve flavor integrity; FlavorFull, our proprietary modulation technology that meets low and no challenges without sacrificing flavor; FlavorSpice, which offers flexible natural replacements for ground spices and herbs; and FlavorReal, our clean and natural platform. Now I'd like to discuss our performance strategies. Our performance strategies are designed to win with results. Our investments in business transformation will fuel our growth and build long-term shareholder value. Our transformation investments span many areas, including information technology, increasing our business analytics capabilities, the development of our employees to INNOVATE.ALL and our industry-leading supply chain, all of which will enable us to increase our competitiveness for years to come. We're transforming and building a global supply chain of the future, expanding our infrastructure and capabilities by optimizing our distribution network as well as modernizing and expanding our manufacturing capabilities globally. These investments will provide integrated solutions to increase efficiencies and create capacity. Our supply chain investments are not just about new facilities. McCormick has a long legacy of sourcing for over 85 countries around the world. We're sourcing with purpose to deliver differentiated and sustainable supply of spices and herbs. Through agricultural science programs, the application of digital technology and analytics, combined with supporting pharma communities, we are transforming the sourcing value chain. Our global sourcing is a real competitive advantage right now and we have no meaningful product shortages caused by inability to get raw materials or packaging. In January, we released our purpose-led performance progress report where we highlighted the progress we've made towards our 2025 goals. Our progress includes increasing the representation of women and ethnically diverse talented and leadership positions, partnering with global organizations to help improve farmer livelihood and reducing environmental impact. At McCormick, we know that to execute our strategies, our people are the key to our success. We are incredibly proud of our people first culture, which began with C.P. McCormick's introduction of the Power of People. Our employee value proposition state: We bring our passion for flavor to work each day. We encourage growth, respect everyone's contribution and do what's right for our business, our people and our purpose. Across the world, we continue to modernize our workplaces to be open and technology-enabled to allow employees to collaborate more easily in or out of the office. We're continuing to implement advanced technology and focusing on our learning and development programs to ensure that all employees have the tools and skill sets to do their jobs effectively in or out of the office. We value the contribution of every employee and strive to create a diverse and inclusive workplace. Through these initiatives, we're ensuring that McCormick stays a great place to work. Now every year during this meeting, we recognize employees who embody McCormick's commitment to their communities as they volunteer selflessly to make a positive impact. Now in its 17th year, the Community Service Award perfectly represents the Power of People at McCormick. One grand prizewinner will receive $25,000 for their charity, and all remaining finalists will receive $5,000 for their charities. Here are the Community Service Award finalists for 2020: Niel Anderson, the Metropolitan-Caloundra Surf Lifesaving Club in Palmwoods, Australia. The Metropolitan Caloundra Life -- Surf Lifesaving Club, established in 1933, is committed to keeping beach-goers and swimmers safe on Kings Beach during the peak season. Esther Fernandez, RABIYA, Delhi, India. RABIYA's mission is to impart education and life skills in marginalized children, youth and women, thereby creating change makers who become wholesome contributing members of society. [ Aliv Kravnick ], the House of Lodz (sic) [ The Home in Lodz ], Lodz, Poland. The House of Lodz (sic) [ The Home in Lodz ] was created in 2006 to provide care for the physically and mentally handicapped, and to provide love, medical care, support and rehabilitation to orphan children. Wanda Lewis, Boys Hope Girls Hope of Baltimore, Baltimore, Maryland. Boys Hope Girls Hope of Baltimore was founded in 2002 and provides resources to ensure that academically motivated middle and high school students are able to be successful in their college careers and beyond. [ Anna Sabor, ] the Gajusz Foundation, Lodz, Poland. The Gajusz Foundation was established in 1998 to provide relief and support for sick children and their families, mainly from the Lodz region. Ron Taylor, the LADACIN Network, Lakewood, New Jersey. LADACIN Network, founded in 1949, provides educational, therapeutic, social and residential support to infants, children and adults with physical and developmental delays. Before I announce the winner, I'd like to congratulate all finalists for your commitment to your communities. And the winner of the 2020 McCormick Community Service Award is [ Anna Sabor ] and the Gajusz Foundation. Congratulations, Anna, on winning this year. I'd be happy now to receive your questions and comments. You'll be able to submit questions through the virtual shareholder meeting website. And as we've gone through this formal part of the meeting, we have had quite a few questions submitted. So we're ready to begin.

So the first question I'd like to address is that there have been many questions about the gift bags, goody bags, that are normally distributed at our meeting when it's held in purpose -- held in person. And so I wanted to speak about what we've done with those gift bags. And my apologies to all shareholders, we will not be doing a distribution of those to shareholders. When the meeting -- when the decision was made to hold this meeting in a virtual format, we'd actually already packed the gift bags for the meeting and had them on hand. And what we've done with them is we've donated them to medical first responders and frontline medical personnel who are fighting the COVID-19 epidemic in the immediate neighborhood surrounding our headquarters location here in Baltimore County, and the primary recipient of those was Saint Joseph Medical. And they have posted about it quite a lot, a very happy thanks on social media, which everybody should be able to have free access to. So if I could go on to the next question. There's a question about when can we expect to see OLD BAY Hot Sauce in Florida? Well, actually, OLD BAY Hot Sauce actually has been accepted by one of the major retailers in Florida. And I think as soon as the retail conditions settle down to normal and shelf set changes can be made, you'll be seeing that in there. I don't often talk about specific customers, but it's a Publix markets that has accepted OLD BAY. And so later this year, when things hopefully are a little bit more normal, you'll be able to find OLD BAY Hot Sauce down in Florida. I have a question. What do you anticipate will happen to the dividend with all the financial turmoil we've been experiencing? Mike, you want to take that one?

Yes. As we've talked about in our call yesterday and I've talked about today, we generate significant cash flow. We have sufficient liquidity to run our business. We've been a dividend aristocrat, paying dividends increases for over 34 years. So I don't think you need to worry about the dividend. So it's something that the Board of Directors actually does approve.

We have a number of questions about the company's response to COVID-19 and the support that we're providing for employees and for the local communities. And so I'd like to give a somewhat comprehensive answer to that question. First of all, one of the most important things that we can do in response to COVID-19 is, in fact, support our employees to make sure that they are safe and know that they are cared for, and to demonstrate the values of the Power of People in our practice as well as in our words, and to do our part also to slow the spread of the COVID-19 and help flatten the curve. We're experiencing all aspects of COVID-19 from the early stages of recovery in China, to the kind of the fog of war around the new epicenters that have emerged in Europe and in the U.S. We've put in place extra sanitation and health protocols. We have put in travel restrictions. These were put in actually quite early to reduce the risk of infection through travel. We have social distancing measures that have been put in place. And the vast majority of our office-based workforce is working from home, sitting here in our corporate headquarters building. Roughly 95% of people are working from home at this time. But those who have to report to one of our physical locations in order to do their jobs, we've put in place a premium pay to recognize the extra stress that they're taking. We've also put in place a series of benefits to support employees during times of school closures. Many times, schools have closed very suddenly. Employees didn't have childcare options. They've had to stay home or switch off, stay home with their spouses. We've given an extended new benefit to allow for employees to take time off to care for their children or for elder care without counting it against their sick time or vacation time. It counts as a -- it's paid leave. And we've also put in place protections to give peace of mind to employees that if we have a facility that has to suspend operations temporarily due to the COVID-19 crisis, that we will continue to make sure that base pay is protected for up to 12 weeks of closure, which is far more than we anticipate of any facility having to be closed. We've also put in place a whole series of protocols and escalations around incidents where we may have an employee in a work area who has been exposed or tested or even come in positive to COVID-19. And as a result of those procedures, we've put it into practice. We have had some sporadic closures of work areas or even whole facilities for a deep clean. And in some cases, we've asked employees to quarantine for a period of time. So that's a pretty long answer on employees. I just wanted to give it a fulsome attention. In our communities, more broadly, we're part of the essential food supply. And we've been designated in almost every country of the world and certainly in the United States, as a critical industry, and we've actually been charged with a special responsibility to remain open to make sure that food and food ingredients continue to be supplied. So consumers, even who -- those who are sheltering at home, don't have to worry about not being able to get food. So this is a responsibility that we have that many other companies don't have to work through the crisis. I know that some of the questions specifically are thinking about charitable response and so on. We have -- I don't have the figures at my fingertips, but we have supported charitable responses in dozens of countries and committed to $1 million of support for response to COVID-19 in our communities. And then finally, we've been asked about whether we can make any of the critical medical supplies. There's been a long list that's been published about our ability to make some of the things that are needed. We're not really in a position to make respirators or masks, but we are investigating whether we can make hand sanitizers. And while we're not doing that currently, we're looking to see whether we can convert some of our extract manufacturing line to be able to pack hand sanitizers. That's a pretty long answer to a group of questions that were being asked. There's also a question about why in the first quarter were sales down when more people were cooking at home. Well of course, in the first quarter of the year, we were experiencing the full impact of the closure in China. China is our second largest market in the world. In particular, our business in China is over 50% foodservice. And of course, all the restaurants were shut down, as they are in many parts of the world -- the western world today. And so this has a very strong impact on our first quarter. Mike, you want to elaborate on that?

Yes. I just want to remind investors, they can go to our Investor Relations website. Lawrence and I had our earnings call yesterday with the investment community and highlighted our earnings forecast and other items for 2020. So I'd just encourage you to go to that website so you can hear us again taped and also see the presentation we gave to investors.

Great. Can we buy any McCormick hand sanitizer? Not yet. There has been some spoof social media about OLD BAY hand sanitizer, but that is not real. That's fake news. Someone's humor there. Right now, we're not -- right now, that's not available. And I've got a longer-term question here. How does McCormick plan to sustain its long-term growth? This is quite a disruption that we're experiencing right now, but it will pass. Consumers are still eating. And McCormick, through our broad portfolio of flavors, food and beverage, wherever it's found and through whatever channel it's purchased in, and the long-term trend that consumers have had towards stronger, bolder flavors, driven by the younger people, in particular, is something that we see continuing into the long term. So we will pivot to meet the changes in consumer behavior. It's likely that consumers are going to be cooking more at home for a period of time. This has generally been beneficial to our business in the long run. There's likely to be an acceleration of the movement towards online shopping, for which we are very well prepared. But I think that we are well positioned to continue to see long-term growth. We're going to go through a short-term period of disruption this year. But we see the long-term trends that underpin our growth is continuing into the future. And with that, we're at our time limit. And so I'm going to draw us to a close now. So ladies and gentlemen, thank you very much for attending the meeting and for your continued support of our great company. I declare the meeting adjourned.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.