Founded in 1889 by Willoughby McCormick at age 25 from a room in a cellar, McCormick’s (MKC) first products were root beer extract, flavoring extracts, fruit syrups & juices sold door to door. In the 1890s McCormick went into the spice business when it purchased a spice company and now the company celebrates its 125th year in business.
Today, McCormick has 22% of the global spices & herb market. But it’s not just spices. It has man other brands including Zatarain’s (also founded in 1889 in New Orleans), Old Bay Seasoning, Thai Kitchen, Simply Asian, Lawy’s & Adolph’s. In 2013 MKC acquired WAPC which increased China sales by 60%, but when I hear the worlds “International Expansion” I just know sales and profits will be hurt even with the best companies. And that’s no different with McCormick, which is being hurt by the strong dollar. A third of McCormick sales are abroad. 65% from the Americas, 22% from Europe, Middle East & Africa, and 13% come from the Asia/Pacific region. The 2014 annual report (which has a scent of Shawarma a Middle Eastern spice rub) says 17% of sales came from emerging markets, up from 10% three yrs earlier.
One Year Chart
MCK stock has had a surprisingly good year, considering it does 1/3rd of its sales internationally. Last qtr sales grew 7% in constant currency, but just 2% after accounting for foreign exchange. Profits fell 11%. You see in the one-year chart profit growth averaged just 4% the last 4 qtrs, and 4% growth is expected the next 2 qtrs as well.
MKC made $500 in cash flow last year, returned $437 million to shareholders through dividends and share repurchases. Streamlining actions will save around $100 million this year, up from $69 million in 2014.
Fair Value
The overall spice market is expected to grow 6% a year overall the next 5 yrs. Analysts estimate MCK will grow profits 9% per year long-term and management has a long-term target of 9% to 11% profit growth. The stock also has a 2% yield, for a possible 11%-13% total return each year depending on who you ask (hypothetically, on average). My Fair Value on the stock is 22x earnings.
Today MCK is $84, up from $80 when these charts were done earlier this month (10/5). My Fair Value for next year is $83.
Sharek’s Take
McCormick is a safe stock. Value Line gives it a top rating for safety, in addition to perfect 100 ratings for price stability and earnings predictability. Company management has increased the dividend for 28 consecutive years. During the past ten years management has used 30% of its cash flow on dividends, 20% on share repurchases, 30% on acquisitions and 20% on capital expenditures. MKC is also health conscious. It has a goal of having 70% of its McCormick brand spices, herbs and extracts in the US non-GMO within a year. In addition 80% of its gourmet line with be organic, up from 10% today. That’s good because organic foods is a growth industry. Overall this is a safe stock I think you can count on for decades to come, but it’s fairly valued now and thus ranks just 26th of 29 in the Conservative Growth Portfolio Power Rankings.
View the Earnings Table here.
