Stock (Symbol) |
McCormick (MKC) |
Stock Price |
$93 |
Sector |
| Food & Necessities |
Data is as of |
| April 28, 2016 |
Expected to Report |
| Jun 29 – Jul 5 |
Company Description |
 MKC Incorporated manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the food industry. MKC has two business segments: consumer and industrial. Under the Consumer segment, its brands in the Americas include McCormick, Lawry’s and Club House. It also markets ethnic brands, such as Zatarain’s, Thai Kitchen and Simply Asia. In Europe, the Middle East and Africa (EMEA), its brands include the Ducros, Schwartz and Kamis brands of spices, herbs and seasonings, and a line of Vahine brand dessert items. In the Asia/Pacific region, it markets products under the McCormick and DaQiao brands In India, its majority-owned joint venture owns and trades under the Kohinoor brand. In the industrial business segment, it offers seasoning blends, spices and herbs, condiments, coating systems and compound flavors to food manufacturers and foodservice customers. Source: Thomson Financial |
Sharek’s Take |
 McCormick (MKC) made a little run higher this year as investors sought out safe havens in consumer staple stocks. MKC was around $85 at the end of 2015 then shot to $100 during the 1st qtr as the sector got red-hot. But with single-digit profit growth and a P/E over 25, the stock settled back down as fears of a recession quickly went away. Founded in 1889 by Willoughby McCormick at age 25 from a room in a cellar, McCormick’s 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 126th year in business. Today, McCormick has 22% of the global spices & herb market in addition to other brands including Zatarain’s (also founded in 1889 in New Orleans), Old Bay Seasoning, Thai Kitchen, Simply Asian, Lawry’s & Adolph’s. One third of sales are International, and F/X had been hurting profits. But with the USD in decline, I forecast MKC will make more than analysts think. On a long-term basis, management projects profit growth of 9% to 11% a year in addition to paying a 2% dividend, which has increased each year since 1987. McCormick is a very safe stock — and excellent choice to hand down from one generation to the next — but at 25x earnings it’s a little high right now. |
One Year Chart |
 MKC topped out just past $100, which was predictable as this is a large slow-growing company and the stock went from $75 to $100 in a year. Too much, too fast. The P/E got as high as 27 and has now settled in at 25, which is that it was last qtr. Management did raise annual estimates from $3.69 to $3.74, thus the stock has gone from $91 to $93 since I looked at MKC last. Looking ahead, qtrly profit growth Estimates the next 4 qtrs are: -1%, 12%, 12%, and 7%. MKC beat the street by 5 cents last qtr so maybe with the weaker dollar the company can get back to consistent double-digit profit growth if it beats the street in the coming qtrs. |
Fair Value |
 Now I want to focus on next year. Notice in this table to the right that MKC has had a P/E of around 21-23 the past few years (which was really the high point the last decade). I feel the 25 P/E is an anomaly and the stock will settle down some more when money moves away from value stocks and into growth stocks. Yes the stock is above my Fair Value now but if you sell you might not be able to get back in at this price as I feel estimates will rise later this year as F/X costs dissipate. |
Bottom Line |
 McCormick management makes great use of cash flow, and has used 30% on dividends, 20% on share repurchases, 30% on acquisitions and 20% on capital expenditures the past decade. The company is also health conscious, with a goal of having 70% of its McCormick brand spices, herbs and extracts in the US non-GMO within a year. And 80% of its gourmet line is expected to be organic this year, up from 10% last year. McCormick’s is a solid stock that has produced safe double-digit returns plus a 2% dividend. Although the stock is a little high right now, its such a high quality holding it could be held for generations. MKC ranks just 33rd of 35 stocks in the Conservative Portfolio Power Rankings because I sold half my position last qtr. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 33 of 35 |
