Company Profile: McCormick & Company, Inc.
This week I am profiling another large company with a big market cap - approximately $13 billion. I can guarantee we all have had something this company makes in our kitchens at one time or another. Plus, I can guarantee we have eaten at a restaurant which has used a McCormick product at least once and probably hundreds of times more than that in our lives! This company is huge in the spice and flavouring space and has some really neat things it sells, does and is working towards. Here are it brands:
I have personally tried many of these brands including:
Billy Bee honey – Most Canadians would own Billy Bee honey (a Canadian company acquired by McCormick’s in 2008) and have this familiar bee in their cupboard.
Club House spices and marinades – I have tried tons of these over the years and I would say Club House spices are a mainstay in most people’s kitchens. I have also used their marinades and slow cooker sauces extensively and the quality is good and consistent.
Frank’s Red Hot – Who knew this was owned by the same company as Club House, Thai Kitchen, etc.! This is a staple in our house. It pretty much goes on everything my husband eats much to my chagrin. I like it too but in moderation and on appropriate things! In our house, Franks’ Red Hot (which they sell in large two packs at Costco for those Costco fans) goes on Ichiban noodles, Kraft dinner, melted cheese and crackers, nachos and cheese, pasta, chili, spaghetti sauce, gyoza dumplings, perogies, pizza, stew and probably a million other things I can’t think of right now. Needless to say, if my husband, and perhaps my son, needed to go into a bomb shelter or otherwise flee our house and only take a few things, this would go with them.
Lawry’s – Again, fairly ubiquitous in kitchens to assist with largely bbq flavours. I am sure we all have had a jar of Lawry’s in our kitchen now or in our kitchen growing up. I can still picture my mother’s red jar of Lawry’s seasoning salt. Remember this:
Simply Asia and Thai Kitchen – I have had both of these products as well. I would recommend the Thai Kitchen products and have used those many times over with great results.
So, as you can see from this small overview, McCormick’s has been a big part of your daily life for many years and you may not have even known! I certainly didn’t realize all of these brands were under one umbrella company.
· As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer. Also, I do not own McCormick & Company, Inc. stock and am not affiliated with them in any manner.
What is McCormick & Company, Inc. (McCormick)?
As you likely gathered from above, McCormick’s is a global leader in spices and flavourings. It is headquartered in Sparks, MD and employs approximately 11,000 people worldwide in 27 different countries. Approximately 62% of its business is to consumers like you and I and the rest is to industrial customers such as food manufacturers. Sixty-seven percent of their total sales comes from the Americas, 20% from Europe, Middle East and Africa and the remainder from Asia Pacific.
Other interesting information about this company and its investment potential (all information taken from McCormick’s website and the investor information also found on its website):
- Creates custom flavour solutions for 9 of the top 10 food and beverage companies and 9 of the top 10 restaurant chains – WOW! I find that stat sort of amazing actually. Anyone else? I couldn’t find exact restaurant clients on their site, but I would guess this means McCormick is behind that “Mediterranean” flavoured pasta dish you have at one of the major restaurant chains or the “Bourbon” flavoured ribs you have someplace else;
- Their Flavor Solutions (as a Canadian it is tough not adding the “u” to flavour!) arm creates custom flavours for multi-national food manufacturers, global restaurant chains and professional chefs. Ok, sorry for the movie reference again (I do this frequently in my posts) but is anyone else channeling Clark Griswold in the Vacation movies here? “I’m in food additives and condiments. Not preservatives”? Got to do it, here is another movie quote one for the Vacation fans:
Clark: I've spent the last 15 years of my life developing newer and better food additives. I guess I've missed an awful lot. At first, I didn't want to take this vacation. But, now I'm glad I did. It's given me a chance to spend a lot more time with you and... uh...
Clark: Audrey, yeah.
I love Chevy Chase and the Vacation movies!
- Euromonitor (a global market intelligence publisher) estimates a 5% average annual growth rate for global spices and seasonings through 2021;
- 2/3 of US consumers add spices and flavourings to personalize their meal;
- Spices and seasonings are outpacing unit growth of other food categories;
- Excellent rankings in terms of sustainability (#1 in the consumer staples category);
- Working through a period of fundamental change by: increasing the economic viability of the communities it sources its ingredients from, reducing its environmental impact with increased efficiency and minimizing packaging, improving diversity of its workers; and contributing to healthier eating habits;
- 2016 was its 31st consecutive annual dividend increase. Again, WOW...;
- It is nearly 4 times the size of the next largest global competitor. Clearly, it is dominant in this category;
- Milennials are more likely to use flavourings and spices in their meals and think of McCormick’s as the best or one of the best;
- Top food brand for organic Facebook engagement;
- By 2020 expect e-Commerce to represent 1/3 of its growth;
- Global leader in the industrial segment (flavor solutions);
- $600M share repurchase underway, recall from other analyses on this site that this can mean the company is of the view the stock price is undervalued. Thus buy back some of its shares and perhaps resell them later when the price has gone up; and
- Aims for cash flow of $2 billion by 2019.
I am thoroughly impressed with this company. It is a global leader and is not resting on its laurels in the industry and is continuing to forge ahead with anticipation of trends, including consumer desire for transparency in what is in the food they are consuming. Its website and investor information has so much interesting information but again, I cannot cover it all. I highly recommend you taking a look around their site.
What is McCormick’s stock doing?
As at December 6, 2017, the numbers from our basic stock evaluation tools are as follows:
Share price: $103.00 USD
One share of McCormick’s would cost you $103.00 USD. The price over the past 52 weeks has ranged from $89.26 to $106.50.
Price to Earnings (P/E): 31.0 TTM
Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. The industry average here according to Morningstar is 26.6. To put this figure into perspective, the market is giving McCormick’s a value equal to 31 years of its earnings so it would appear investors are still looking for some growth on this company. Having said that, it is close to the industry average.
Dividend Yield: 1.83%
Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. It is the dividend paid per share divided by the price per share. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. For example, maybe the company is not doing as well and there is only one way for the dividends to go - down and a very high dividend yield may be a red flag. On the other hand, a high dividend yield may be a good sign that the stock may be underpriced.
Remarkably, McCormick’s has increased its dividend payout every year for the past 31 years.
Earnings per Share (EPS): $3.60 TTM (Trailing Twelve Months, takes the numbers for the past twelve months to come to this figure)
This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential.
McCormick’s shares earn $3.60 per share and it has been generally increasing over the past 5 years. This is a fairly high EPS and the company aims to get that number to $5 in the near future.
Revenue: $1.185 Billion for the last Quarter (total Revenue in 2016 was $4.412 Billion so it is on track for something similar in 2017)
Increasing revenue is a good sign that the company is growing. If you look at past revenue figures, McCormick’s revenue figures have not grown by leaps and bounds in the last five years but have stayed steady with small increases.
Return on Equity (ROE): 21.5% (TTM)
ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. McCormick’s ROE last year was slightly higher at 28.65% but overall these are high numbers.
Market Capitalization: $13.46 Billion
This indicates McCormick’s is a large cap stock. Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies. McCormick’s is a huge company!
Net Profit Margin: 10.1% TTM (Trailing Twelve Months)
This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin. Here, the industry average is 6.9% so McCormick’s is somewhat better than the industry average.
Cash Flow per Share: 3.50 (end of 2016)
Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position.
This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should take into account one time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, ie. “fixed assets”) that required large amounts of cash.
Price to Sales (P/S): 2.9
This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the industry average is 1.8 so McCormick’s is higher than average.
Price to Book (P/B): 5.3
This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be leftover if the company went bankrupt for example. The industry average is 2.7 so McCormick’s is considerably higher.
Price to Cash Flow (P/CF): 20.5
Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the industry average for this industry is 17.7.
This completes a basic evaluation of McCormick’s. As always, there are tons of articles and discussions online about this stock and all stocks so they are also a good place to look at for further consideration. I am very impressed with McCormick’s. The numbers paint a favourable picture and the growth in the spice and flavouring industry appears promising. Out of interest, it is noted that this stock was around $35.00 10 years ago. It is now over $100 per share.
**Top photo courtesy of Erwan Hesry on Unsplash