Can McCormick Spice Up Your Portfolio?
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. Fresh off a solid third quarter, I would like to examine the largest spice company in the world: McCormick & Company (NYSE: MKC).
- Global Presence: McCormick possesses its main production and distribution centers in the United States and Europe, however has a worldwide presence with facilities in China, Australia, Mexico, India, Singapore, Central America, Thailand, and South Africa; the company sells its products in the majority of these markets
- Dividend: Currently McCormick pays out quarterly dividends of $0.31, which when annualized puts the dividend yield at 1.95%
- Stable Sales Growth: In 2007, McCormick reported sales of $2.9 billion; in 2011, the company reported sales of $3.7 billion; representing year over year annual growth of 6.28%, and this growth is anticipated to sustain into the future, with projections putting 2014 sales at $4.5 billion
- Solid Margins: The company currently possesses a net profit margin of 10.12%, giving the company a cushion to fall on if input prices rise
- Debt: The company currently possesses around $1.06 billion of debt on its balance sheets, and it is crucial that the company gets this situation under control
- Exposure to Americas: 71% of McCormick’s revenue was derived from the Americas in 2011, and while this region possesses the fast growing Latin American market, the main market, the United States, is in on the brink of another recession, which could severely hurt the company’s core business
- Pricy Valuation: McCormick currently possesses a price to earnings ratio of 21.83, and a price to book ratio of 5.27, both of which point to a company that is moderately overvalued
- Product Innovation: McCormick has a long and proven track record of innovating and creating new products, and more innovation into the future is probable
- Emerging Market Expansion: Only 8% of McCormick’s total revenue was derived from the Asia Pacific region in 2011; double digit growth is expected to continue as the company integrates more and more of its products into the Chinese market (2010 to 2011Asia-Pacific Revenue Growth: 15.17%)
- Acquisitions: McCormick could acquire other spice brands from other larger, more diversified food companies, which could fuel future growth
- Capturing Market Share: McCormick holds the majority of the consumer spice market, but still has considerable room to run in the industrial segment of their business
- Dividend Growth: Since 1925, McCormick has paid out dividends; the company has increased its dividend payouts in 26 consecutive years, and further growth is widely expected, with projections putting the 2014 annual dividend at $1.40
- Competition: There other major players in the spice market, and competition to offer the best product for the lowest price can lead to margin contraction
- Economic Downfall: McCormick’s spices are not considered a necessity, and in times of economic decline luxuries such as spices are one of the first things to go
- Rising Input Costs: If spice prices were to be affected by a drought or other natural occurrence, McCormick would be faced with a situation in which they could either pass the extra costs onto their customers or swallow the pain in their margins
- Dependence on Suppliers: McCormick’s success is completely contingent on their suppliers providing them with the spices they need, however the company is diversified and does not depend on one supplier
Major publically traded competitors of McCormick include the H.J. Heinz Company (NYSE: HNZ) and the J.M. Smucker Company (NYSE: SJM). Heinz main products include ketchup, condiments, and sauces. Heinz is valued at about $18.6 billion, and pays out a dividend yielding 3.55%. Smucker also produces food products on a worldwide basis, and is valued at around $9.2 billion. The company pays out a dividend yielding 2.48%
The Foolish Bottom Line:
McCormick possesses several strengths, weaknesses, opportunities, and threats; however, in the end it appears to be a financially solid company with a long history of being the premier spice company. The company’s dividend is decently sized, and the level of growth expected from the company is fast-paced and sustainable with the company’s history of innovation. The foolish bottom line is that McCormick is a tremendous addition to any long-term portfolio, and should offer incredible returns to its investors in the coming decades.
makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend H.J. Heinz Company and McCormick & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!