Tags: McCormick | pricing | pressure | MKC

McCormick Spices Faces Varying Demand, Pricing Pressures

By    |   Friday, 03 Aug 2012 10:24 AM

McCormick & Co. (MKC) faces a tough struggle, procuring and importing spices from multiple foreign locations, then seeking a profit despite varying demand, currency shifts, and pricing pressures as the global economy sputters. Nevertheless, McCormick believes it can manage the business through difficult times.

McCormick & Co. manufactures, markets and distributes spices, seasoning mixes, condiments and other flavoring products to the entire food industry, through retail outlets, food manufacturers and food service businesses. Its major sales, distribution and production facilities are located in North America and Europe. Additional facilities are based in China, Australia, Mexico, India, Singapore, Central America, Thailand and South Africa.

McCormick operates in two business segments, consumer and industrial. Consistent with market conditions in each segment, the consumer business has a higher overall profit margin than the industrial business, management reported in a recent filing.

In 2011, the consumer business contributed 59 percent of sales and 79 percent of operating income. The industrial business contributed 41 percent of sales and 21 percent of operating income.

“While the second quarter produced solid results, we continue to operate in a challenging environment with customers and consumers under pressure in many of our markets. The macroeconomic situation is also having an impact on our business and was most pronounced this period in our income from unconsolidated results, which is being impacted by the exchange rate between the U.S. dollar and the Mexican peso,” McCormick Chairman, CEO and President Alan Wilson told analysts in a recent call.

“We continue to manage through these challenges, adapting our growth initiatives and resources to maintain our momentum and effectiveness.”

McCormick & Co. has a market cap of $7.22 billion in a sector, food products, where the average company size is $8.77 billion. Its trailing 12-month P/E ratio is 21.29 and its five-year projected price-to-earnings-growth (PEG) ratio is 2.55, compared to 1.95 for the sector.

Its projected earnings per share growth for the coming year is 10.16 percent, compared to a sector average of 12.77 percent.

Cautious


Analysts are positive on MKC, with buy or outperform calls from Deutsche Bank, Jefferies and Jefferson Research.

“The company is cash rich and maintains strong international presence. McCormick also remains on track to implement a new inventory management process in order to improve inventory levels,” said the analysts at Zacks Investment Research, reiterating a hold on the stock.

“However, we remain cautious of the difficult global economy ahead and material cost pressure.”

McCormick & Co. next reports on Sept. 26.

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2012-24-03
Friday, 03 Aug 2012 10:24 AM
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