Company Spotlight - McCormick & Co. (MKC)

  Spicy Products, Steady Performance

January 2, 2008 - When it comes to spicing up food, McCormick & Co. (NYSE:MKC) tingles the tastebuds. This company is the global leader in spices, seasonings, herbs, and other food flavors. For the investor's palate, McCormick delivers solid profits, double-digit growth, and a decent dividend.

McCormick sells ingredients to food processors and restaurants as well as directly to consumers under the McCormick, Thai Kitchen, Simply Asia, and Zatarain's brands via grocery and other retail sales channels. In November, the company announced a deal to acquire the Lawry's brand of seasonings and marinades from Unilever for $605 million. The deal is still pending regulatory approval, but if it goes through McCormick said it will be immediately accretive to earnings.

The Epicurian purchase in 2006 added a line of Asian products under the Thai Kitchen and Simply Asia brands. While relatively small (pre-acquisition annual sales of $50 million), Epicurian brought a compound annual growth rate of 32% over the previous three years.

McCormick is trying to ignite growth in its consumer business and boost profit margins. McCormick said its working to revitalize the spice and seasoning business in the U.S. with new merchandising and product initiatives. The company has stated financial targets of 3%-5% annual growth in sales and 8%-10% in earnings per share over the next several years. For FY2007 ending in November, the consensus is for EPS of $1.91, representing 11% growth. That figure jumps to $2.12 in FY2008.

McCormick is not the kind of company that will dazzle investors with rapid growth or by blowing past earnings estimates. It might beat the consensus by a few cents now and then, but for the most part this is a business that is well-established and delivers dependable growth at a pace in the low double-digits. In other words, there aren't many surprises--good or bad--from this leader of a mature and stable industry.

McCormick boosted its consumer sales with the 2003 acquisition of Zatarain's, and the company is seeking additional acquisitions to expand its business. 2005 sales came in at $2.59 billion, and that figure grew to $2.72 billion last year. The outlook is for $2.89 billion in FY2007 and $3.05 billion in FY2008. The company has a track record of solid growth and it pays a respectable dividend of 88 cents per share, giving it a yield of 2.30%. Return on Equity is an impressive 23.9%.

With the stock at $37.91 currently, McCormick trades at 17.8 times earnings using the 2008 consensus. Considering this company is only growing at a 10-11% pace, it seems investors are willing to pay up for the dependable growth that McCormick puts up year after year.

McCormick isn't the kind of stock that lights up the ticker with tremendous growth or blowout quarters, but over the years MKC's been a solid performer and has easily outpaced the S&P 500. Selling spices and other food flavor products is a steady business with respectable growth, and McCormick's leadership position makes it a company worth knowing in any investment climate.

- James Hale