McCormick well positioned to reward shareholders

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McCormick & Company, Inc. (NYSE: MKC) is an American food company that manufactures, markets and distributes spices, seasoning mixes, condiments and other flavoring products to food manufacturers, retailers and businesses. catering. The company operates in two segments:

  1. The consumer segment, which includes the marketing and distribution of rice, spices, herbs and seasonings, as well as desserts. The company also sells its products under private labels to supermarkets, mass distribution, warehouse clubs, pharmacies and e-commerce retailers.

  2. The flavor solutions segment, which includes the distribution of seasoning, spice and herbal blends, condiments, coating systems and compound flavors to food manufacturers and catering companies.

The company’s sales, distribution and production operations are based in North America, Europe and China, with additional locations in Australia, India, Central America, Thailand and South Africa.

The world leader in flavors and spices failed to increase sales significantly last year as restaurants around the world were temporarily closed and saw their attendance reduced due to Covid-19. However, there has been an increase in purchases of McCormick products for home use, and sales of McCormick’s flavor solutions have recovered significantly from their lows. The company has increased its dividend for 35 consecutive years and appears well positioned to generously reward its shareholders for the foreseeable future.

Summary of earnings

Demand for McCormick’s packaged food and beverage products is increasing as restaurants begin to see more traffic, and this favorable macroeconomic development has boosted the company’s third quarter results. On September 30, the company announced its third quarter results, with adjusted earnings of 80 cents per share, up 5.3% year-over-year. A

All regions saw substantial revenue growth, with sales up 8% year-on-year and 17% from the corresponding quarter in 2019. Consumer segment sales increased 1% while sales of the aromatic solutions segment grew by 21%. showing strong growth in the core business as well as contributions from the acquisitions of FONA and Cholula. Despite declining sales in 2020, McCormick acquired Cholula, a well-known spicy sauce company, in November 2020, and FONA, a leading developer of clean and natural flavors, in December 2020.

For the third quarter of 2021, home and out-of-home products contributed equally to revenue growth. The United Nations recently named McCormick as a Leading Global Compact Company for its continued commitment to the Global Compact agreement and adherence to its 10 Principles for Responsible Business during the quarter. McCormick is one of 37 companies in the world and the only American food company on this list. This global recognition then highlights the admirable business practices deployed by the company in its day-to-day business operations, which has proven to be a competitive advantage for McCormick.

Outlook

On September 29, McCormick’s board of directors declared a quarterly dividend of 34 cents per share, paving the way for the 97th year of consecutive dividend payments by the company.

McCormick enjoys competitive advantages through its diverse product offerings and focuses on strengthening its market position with strategic marketing, unique product innovations and the use of artificial intelligence tools designed by International Business Machines Corporation (NYSE: IBM) to develop new flavor experiences. Pandemic-induced changes in customer lifestyle choices are also expected to continue in the post-pandemic era, and the increase in home cooking is one of the changes expected to benefit McCormick over the course of the year. next quarter.

Although restaurants have started to reopen, customer interest in home cooking and packaged food products is still at a high level, which should help the company’s revenue growth in the years to come. The company has strengthened its annual forecasts based on these expectations.

Investors should, however, keep an eye out for the rising cost of commodities due to inflation, which continues to be the primary concern of the food industry. Food prices have experienced some of the highest inflation rates in the market over the past year, so consumers can increasingly buy cheaper food, avoiding spices.

To take with

McCormick is recovering from the woes of the recession and the company looks well positioned to deliver nice returns to value and long-term income-oriented investors, in my opinion. McCormick has a long history of distributing income to shareholders through dividends, and there is no reason to believe the company will fail to maintain this “slow but steady” history for the foreseeable future.

This article first appeared on GuruFocus.


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