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McCormick & Co Research Report 1.19.2024

Ticker: MKC
Sector: Consumer Defensive
Industry: Packaged Foods
Headquartered: Maryland, USA
Moat: Wide – Intangible asset – Brand, Economies of Scale, Process Power

Action at date of this post

Strong Buy as of 1.19.2024
The price and value intersection points to buying as much as the full amount you intend on investing or somewhere in the range of 50-100% of your intended position.

McCormick Corporate Overview

McCormick & Company is the global leader in the manufacturing, marketing, and distribution of spices, herbs, flavorings, and other food products. Founded in 1889 in Baltimore, Maryland, McCormick has grown to become a prominent player in the food industry, offering a wide range of innovative and high-quality seasoning solutions. As of 2023, McCormick holds a 20% position in the global spice and seasonings market. McCormick is 4 times the size of the next-largest competitor. The company’s product portfolio spans across various categories, including spices and herbs, flavor extracts, condiments, and recipe mixes, catering to both consumer and industrial markets.

Headquartered in Hunt Valley, Maryland, McCormick operates globally. It serves customers in over 160 countries. McCormick’s portfolio of brands  include iconic names, such as, French’s, Frank’s Red Hot, Thai Kitchen, Lawry’s, and Old Bay. have become household names, reflecting the company’s impact on shaping the flavors of meals around the world.

Over 40% of McCormick’s sales are derived overseas. McCormick also offers private label services to the likes of Dollar General and Family Dollar.

McCormick Segment Analysis

At the end of fiscal year 2022, the company operated in two segments – Consumer +/- 60% and Flavor Solutions +/- 40%.

McCormick Wide Moat Source

The primary source of McCormick’s wide moat is the strength of its brand(s) that helps make the company a valued partner with retailers. With the size and depth of its relationships with raw material providers, the company can exert/negotiate pricing power that smaller players cannot match. In addition, the company’s size affords significant investments in R&D. New, differentiated offerings help with stickiness of retailer relationships.

McCormick Growth Outlook

McCormick continues to face some cost headwinds related to raw materials, packaging and freight. The pandemic ushered in supply chain challenges that the company is still shaking off. In addition, global conflicts in Eastern Europe and the Middle East are lending to supply chain disruptions. 

Regardless of challenges, the company has been able to increase prices with success. McCormick sits in a unique position to hold relatively steady in sales as it has considerable exposure to the plates of retail consumers and restaurants alike. In good economic environments consumers spend on dining out and other prepared meals. McCormick holds 9 of the top 10 food and beverage companies as customers. Further, it also holds 9 of the 10 top foodservice and restaurant chains as customers. 

Conversely, in tough economic times people look to McCormick products to enhance their cooking from home. Bad economy sales are bolstered further through the private label relationships with Dollar General and Family Dollar.

I think further profits will be driven from the company’s CAPEX spending. McCormick is updating its disparate enterprise resource planning system with a new SAP system. The new system should save the company both time and money through streamlining its current inefficient systems. 

Lastly, the company’s constant cash flow generation allows it to selectively add valuable brands to the portfolio. Complimentary additions to the portfolio reinforces customer trust in a single source for flavor.

McCormick By The Numbers

Consistent positive free cash flow and ROIC yields a company that has no trouble achieving a positive return above the cost of capital. McCormick is a steady grower with a strong gross profit margin for a company that needs volume of sales. With very reasonable debt and low debt expenses the company is on solid financial footing.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing, the author holds a position in McCormick & Co.

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