A Spice Route for Investors?
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Readers of my blog probably realize by now that I typically consider companies (with trusted brands) that have been on the market for years. These companies and their brands could be anything from a General Electric (NYSE: GE) light bulb to a cache of fries from McDonald's (NYSE: MCD).
Investors may want to ponder the same things when it comes to buying stocks. Consider trusted companies, in whatever industry you choose, that have a history of providing returns to their shareholders. There's nothing that's more everyday than turning on a light bulb or having a hamburger and fries as a quick meal (okay, not every day concerning those hamburger and fries!). This 'everydayness' from these companies turns them into cash generating entities that are very inviting to many investors.
My focus in this article is McCormick (NYSE: MKC). However, I can't help mention the spicy initiatives McDonald's continues to undertake with updating menus and their aggressive promotional campaigns. For this winter, they're promoting their Spicy Thai McBistro™ Chicken Sandwich. Investors should note that this represents an additional revenue stream for the company as they go after that part of the market that favors 'trendy' taste combinations of the international sort. This is one of their 'limited time only' offerings that typically have people scurrying to buy…then they're gone… and only cold hard cash is left behind in the tills. Investors like cold hard cash - especially when it eventually comes their way in the form of regular dividends.
How spicy can GE get? Consider that GE Capital's Telecom, Media and Technology (TMT) financing business announced in February that they completed 58 deals totaling $3.7 billion during 2012. The TMT business addresses the financial needs of customers in vital growth sectors. These include cable, data centers, towers, metro fiber, TV, digital media and software, and others. GE Capital offers consumers and businesses worldwide an assortment of financial products and services. They ended 2012 among the most active lenders to the aforementioned specialized business sectors.
Of note to investors is GE's philosophy for building trust with their customers while providing value-added services. This is a strong basis for future growth for the Company and for ROI for their shareholders. Note what Mr. Pete Foley, Senior Managing Director of GE Capital's Telecom, Media and Technology team, said, "We are committed to providing more than financial capital to our customers. We help them build stronger businesses by leveraging the depth and breadth of GE's experience, including industrial and technology expertise. In 2012, we connected customers to GE's broader domain expertise, exploring new technologies and learning how the industrial and financial sectors can come together to help them solve their toughest challenges."
For investors, it's important to note that GE's taking advantage of their strength in other areas of their business; they're offering their expertise and experience in these areas to their customers. Therefore, the company is building their business further, through exposing their customers to the full spectrum of their product and service offerings company-wide.
Now, back to my interest in and due-diligence work concerning McCormick; they manufacture, market, and distribute those everyday trusted products I gravitate towards. Their products include spices (McCormick's, Lawry's, and Old Bay), seasoning mixes, condiments and others, to consumers and the food industry. I'm shaking those spice containers quite often each evening at suppertime - an everyday kind of thing.
On January 24, 2013, McCormick & Company reported financial results for the fourth quarter and fiscal year 2012. The Company grew sales by 9 percent to reach a record $4 billion. Their percentage of sales in emerging markets rose to 14 percent from 10 percent in 2011.
As an investor look at the marketing support a company gives their products. This contributes to future sales growth and helps a company, such as McCormick's, maintain market share. It also ensures their products remain 'household names'. In 2012, the Company continued to invest in brand marketing support with an increase of $11 million. They augmented this with higher spending behind price promotions and coupons.
Look at how a company is controlling costs. It seems prices are going up more – and faster – these days. It's vital that companies keep control of expenses to maintain and even improve profit margins. McCormick & Company has their Comprehensive Continuous Improvement (CCI) program. They increased operating income 7 percent with higher sales and $56 million in CCI cost savings. That is significant; it sends a message to their shareholders that their commitment is to building profit margins.
Furthermore, consider a company's cash flow. Cash flow is a business fundamental. It sounds boring, but it makes for a sound business. Good cash flow or liquidity enables a company to pay their bills. It also gives them great freedom to undertake initiatives to grow their business further. McCormick & Company generated $455 million of cash flow from operations - a record.
In addition, look at distributions; you're an investor for a reason – that reason is money. McCormick & Company increased, by 25 percent, cash returned to shareholders via dividends and share repurchases. They returned $297 million of cash to shareholders. This brings the cumulative five-year total of cash returned to almost $1 billion. In November 2012, the Company's Board approved a 10 percent increase in their dividend. This is their 27th consecutive annual increase. That can certainly spice up a cappuccino as you peruse stock market reports in the morning.
Finally, consider 'projections'. Understand where the company is going, and what their plans are for getting there. For 2013, McCormick & Company expects sound sales growth. They expect it because they've planned and are implementing programs to achieve this goal - innovation and brand marketing initiatives.
The Company is projecting earnings per share of $3.15 to $3.23 for 2013. The basis of their 2013 earnings per share projection is an underlying double-digit growth rate driven by higher sales and a minimum of $45 million in CCI cost savings. Their earnings per share for full year 2012 came in at $3.04.
Don't forget how others view companies you're interested in. What's the word on the street for McCormick & Company? Mr. Andrew Knuth and Mr. Edmund Nicklin of Connecticut's Westport Advisors, LLC (in a 2012 article for U.S. personal finance newsletter Bottom Line Personal) named McCormick & Company one of their five favorite investments for the next 10 years (as reported in The Globe & Mail Newspaper – July 30, 2012 - Special to The Globe & Mail by David Milstead).
Mr. Knuth and Mr. Nicklin said McCormick & Company "may seem a little stodgy, but we like having this cash-generating machine in our portfolio."
Research the 'old guard,' maybe even 'perceived as stodgy,' companies as part of your due diligence concerning equities. Consider those who make those everyday products you've used for years, maybe even decades. They've been around a long time for a reason. It only stands to reason that you consider one or more as possible additions to your stock portfolio.
MichaelONTARIO has a position in General Electric Company (NYSE: GE) and McDonald's Corp. (NYSE: MCD). The Motley Fool recommends McCormick and McDonald's. The Motley Fool owns shares of General Electric Company and McDonald's. 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!