QUOTE AND NEWS
Market Intelligence Center  Nov 20  Comment 
Option-trade picking algorithms patented by MarketIntelligenceCenter.com found a trading opportunity with McCormick & Company Inc (MKC) that should provide a 2.04% return in just 211 days. Sell one Jun. '15 call at the $70.00 level for each 100...
Motley Fool  Nov 16  Comment 
While Lincoln's new ads featuring Matthew McConaughey and the all-new MKC were a hit, especially with hilarious spoofs, it might not have helped all that much -- at least, not yet.
MarketWatch  Nov 15  Comment 
Lincoln's 2015 MKC dances with stars
USAToday.com  Nov 13  Comment 
MKC offers a tidy package with an attractive price and styling but also some ride, handling disappointments.
Forbes  Nov 1  Comment 
Lincoln's new MKC compact crossover borrows design principles from high-end hotel rooms.
Forbes  Nov 1  Comment 
The Australian  Oct 30  Comment 
CASA has named former Air Vice Marshal Mark Skidmore as director of aviation safety, the regulatory hot seat vacated by John McCormick.
Southeast Farm Press  Oct 28  Comment 
Taylor McCormick, Alabama Cooperative Extension There are multiple economic factors that deter young people from the farming industry. read more
USAToday.com  Oct 27  Comment 
The comic pokes fun at the rangy ads for MKC.




 

McCormick & Company (NYSE: MKC) is the largest spice company in the world with $2.9B in sales (2007)[1], 40% of which were generated outside of the U.S.[2] It produces and supplies spices, herbs, flavorings, and seasonings to consumers and food-service providers around the world[3].

In the spice business size matters, and with twice the revenue of its next largest competitor MKC has a decided advantage over other spice companies.[4] Consumers of spice tend to be very price sensitive, and McCormick also competes with private label brands. MKC has been able to distinguish its branded offerings from those of its lower priced private label competitors by spending substantial amounts on R&D to come up with new products and by increasing spending on advertising to convince consumers that its products are worth the premium. Products introduced since 2004 contributed 10% to 2007 sales.[5] Ironically, the company is also the largest producer of private label spices and seasonings in North America. According to analysts, its large presence in this market allows it, at least to an extent, ensure that private label brands do not price their brands so low that its branded products appear overpriced by comparison. [6] Finally, the company's size means that it can fuel its growth by making frequent acquisitions. In 2008, the company announced plans to acquire Unilever's Lawry's, its last major branded competitor in the consumer seasonings market[7]. The year before, it acquired to Simply Asia, a company that specializes in Asian spices-- Asian spices are one of the fastest growing spice segments. In the short-term, however, rising prices for the raw materials and spices MKC uses for its products have decreased profitability margins and forced McCormick to raise their prices.

Business Overview

[[Image:MKCSegmentSales.PNG‎ |thumb|380px|right| MKC MKC's Consumer sales have remained constant at approximately 57% of sales over the past three years, but the Lawry's acquisition will boost Industrial sales since it has the largest industrial wet marinades market share. [8]

[[Image:MKCGeoSales.PNG‎ |thumb|380px|right| U.S. sales have decreased slightly (approximately 2%), while Europe and Other Countries' sales increased approximately 3% total.[9]

McCormick operates in three geographic segments: the U.S., Europe, and Other Countries. Europe and Other Countries represented approximately 40% of its $2.9 B in sales. MKC has production and distribution facilities on six different continents[10] to serve over 100 countries[11], such as the U.S., Australia, China, and Mexico.

McCormick & Company operates in two segments:

  • Consumer (57% of Revenue): MKC's Consumer segment offers spices, seasonings, marinades, extracts, herbs, and sauces for the everyday consumer. The Consumer segment generates approximately 57% of MKC's sales (U.S. (39%), Europe (16%), and Other Countries (2%))[12] and has a higher profit margin than its Industrial segment[13]. Brands that operate under its consumer segment include McCormicks, Zatarains, Old Bay, Simply Asia, and Thai Kitchen.
  • Industrial (43% of Revenue): MKC's Industrial segment supplies seasoning blends, wet and compound flavors, and herbs and spices to food manufacturers, restaurants, and other food service outlets. It generates the remaining 43% of sales, with 30% of sales concentrated in the U.S. (9% in Europe, 4% in Other Countries)[14]
Annual income data, in millions 2003 2004 2005 2006 2007
Net Sales[15] $2,269.6 $2,526.2 $2,592.0 $2,716.4 $2,916.2
Operating Income[16] $295.5 $332.7 $343.5 $269.6 $354.2
Net Income[17] $210.8 $214.5 $214.9 $202.2 $230.1
Gross Profit[18] $799.5 $898.6 $1,007.9 $1,114.6 $1,191.8
Earnings Per Share (basic)[19] $1.51 $1.57 $1.60 $1.53 $1.78

Customers

McCormick & Company has a broad range of customers and buyers because it serves both everyday consumers and the industrial food market. Examples of its customers by segment include[20]:

  • Consumer: Grocery stores, drug stores, warehouse clubs, mass merchandise, and discount stores
  • Industrial: Food manufacturers and restaurants. In 2007, MKC's five largest customers accounted for nearly 29% of sales[21], and Pepsico (PEP) accounted for 10% of those sales[22].

Trends and Forces

Acquisitions Drive Growth and Take Over Competitors

To maintain its market share in the spice and seasonings market, MKC is constantly acquiring new brands and developing new products. Recent acquisitions include:

  • Simply Asia Foods was acquired in June 2006[23] and is an easy-to-prepare Asian food company that operates under the Simply Asia and Thai Kitchen brands. The acquisition has since increased MKC's sales by 2.8%[24]. Simply Thai has a 59% market share in the Thai packed food segment.[25], so its acquisition would eradicate its last branded competitor. About 67% of Lawry's sales are to consumers[26] and 12% are from industrial, or food-service industry sales[27]. MKC will benefit from Lawry's industrial wet marinade products since it holds the largest market share in the U.S.[28] Morningstar analysts expect Lawrys to immediately add to MKC sales and increase margins[29]. MKC's agreement to buy Lawry's from Unilever is expected to close at the end of 2008.
  • Billy Bee Honey Products Ltd is the top honey brand in Canada. It sells a variety of honey products under branded, private, and industrial labels. It generated $37 M in revenue (2007)[30] and has a 60% share of the branded honey market[31].

New Product Development and Advertising

[[Image:MKCNewGraph.PNG‎ |thumb|375px|left| MKC has increased Research and Development costs 57% since 2002. This graph demonstrates the increase over the past three years[32].

McCormick & Company has maintained its majority market share on the consumer spice and seasonings market by acquiring rival brands, developing new products, and advertising effectively. In order to differentiate itself from private, unbranded, and cheaper products, MKC has made an effort to focus on advertising and research & development (R&D) for new products. The spice and seasonings market is extremely price sensitive, especially on the consumer side. With MKC products side-by-side with similar, cheaper products, MKC must distinguish itself as a premium brand. In order to do so, MKC spent $55M in 2007 on advertising[33], compared to just $27M in 2002. Also, 10% of its $2.9 B in sales was attributed to new products launched within the past three years[34] and contributed to a 6% increase in U.S. consumer sales[35].


Competitors

McCormick and Company does not directly compete with any one company, and its main competitors are mostly private label brands who compete with low prices. MKC is the largest company in both the consumer and industrial spice markets, and has built a wide economic moat. MKC is at least two times larger than its next largest competitor[36], so pricing pressure does not pose a problem for MKC because it competes on sheer volume of products sold. MKC has a strong, reputable brand name over its unbranded competitors and has the majority of the consumer and industrial spice markets.

Companies invested in the spice and seasonings market include:

  • International Flavors & Fragrances (IFF) is a New York based producer of different flavors and fragrances. It had $2.3 B in sales over 2007[37], and 70% of its sales were generated overseas[38]. IFF competes with McCormick on the Industrial side of the market with its seasonings and extracts[39].
  • Associated British Foods (LON: ABF) is a $13.5 B[40] international food giant based in London that owns ACH Food Companies and Tone Brothers, two subsidiaries that compete with MKC. ACH operates in the U.S. and Europe and specializes in oils, syrups, and spices. Tone Brothers is a subsidiary of ACH[41] and had $61.3 M in sales for 2007[42]. Tone Brothers specializes in manufacturing herbs, seasonings, and spices.


Company Revenue Net Income Profit Margin Operating Margin
McCormick & Company[43] $2.9 B$230 M 7.21%12.15%
International Flavors & Fragrances (IFF) [44] $2.3B$240.4 10.42%15.99%
ACH Food Companies (Private) - - - -
Tone Brothers (Private) [45] $61.3 M - - -




References

  1. McCormick & Company 2007 Annual Report, Consolidated Income Statement, p. 39
  2. McCormick & Company, 6/27/2008 Morningstar Analyst Report, "McCormick Reports 2Q Earnings", p. 2
  3. McCormick & Company 2007 Annual Report, "Business Segments at a Glance", p. 17
  4. McCormick & Company, 6/27/2008 Morningstar Analyst Report, "McCormick Reports 2Q Earnings", p. 2
  5. McCormick & Company 2007 Annual Report: Letter to Shareholders, "Positioned for the future", p. 3
  6. Morningstar Analyst Report 6/27/08, Thesis
  7. McCormick & Company, 6/27/2008 Morningstar Analyst Report, "McCorick Reports 2Q Earnings", p. 2
  8. McCormick & Company 2007 Annual Report, 14. Business Segments and Geographic Areas, p. 58
  9. McCormick & Company 2007 Annual Report, 14. Business Segments and Geographic Areas, "Geographic Areas", p. 58
  10. | Reuters: McCormick & Co Inc, "Overview"
  11. McCormick & Company 2007 Annual Report, "Business Segments at a Glance", p. 17
  12. McCormick & Company 2007 Annual Report, Business Overview, p. 15
  13. | McCormick & Company 2007 Annual Report, Business Overview: Business Description, p. 17
  14. McCormick & Company 2007 Annual Report, Business Overview, p. 15
  15. McCormick & Company 2007 Annual Report, "Historical Financial Summary", p. 60
  16. McCormick & Company 2007 Annual Report, "Historical Financial Summary", p. 60
  17. McCormick & Company 2007 Annual Report, "Historical Financial Summary", p. 60
  18. | Google Finance: MKC, "Financial Statements"
  19. McCormick & Company 2007 Annual Report, "Historical Financial Summary", p. 60
  20. McCormick & Company 2007 Annual Report, Part I: Business, Customers", p. 2
  21. McCormick & Company 2007 Annual Report, Part I: Business, Customers", p. 2
  22. McCormick & Company 2007 Annual Report, Part I: Business, Customers", p. 2
  23. | FoodProcessing.com, "McCormick ropes in Thai Kitchen, Simply Asia brands" (6/28/2006)
  24. McCormick & Company 2007 Annual Report, "Consumer Business", pp. 19-21
  25. McCormick & Company, 6/27/2008 Morningstar Analyst sumer spice company for MKC<ref>McCormick & Company, 6/27/2008 Morningstar Analyst Report, "McCormick Reports 2Q Earnings", p. 2</li> <li id="_note-25">[[#_ref-25|↑]] [http://www.bizjournals.com/baltimore/stories/2007/11/12/daily18.html?ana=from_rss | Baltimore Business Journal: Sams, Rachel, "McCormick to acquire spice maker Lawry's in $605M deal" (11/14/2007)]</li> <li id="_note-26">[[#_ref-26|↑]] [http://www.bizjournals.com/baltimore/stories/2007/11/12/daily18.html?ana=from_rss | Baltimore Business Journal: Sams, Rachel, "McCormick to acquire spice maker Lawry's in $605M deal" (11/14/2007)]</li> <li id="_note-27">[[#_ref-27|↑]] [http://www.bizjournals.com/baltimore/stories/2007/11/12/daily18.html?ana=from_rss | Baltimore Business Journal: Sams, Rachel, "McCormick to acquire spice maker Lawry's in $605M deal" (11/14/2007)]</li> <li id="_note-28">[[#_ref-28|↑]] McCormick & Company Morningstar Analyst Report, "McCormick Reports 2Q Earnings", p. 3 (6/24/2008)</li> <li id="_note-29">[[#_ref-29|↑]] [http://investing.businessweek.com/research/stocks/transactions/transactions.asp?symbol=MKC | Business Week, "76.00M for Billy Bee Honey Products Ltd." (2/20/2008)]</li> <li id="_note-30">[[#_ref-30|↑]] [http://www.flex-news-food.com/pages/14422/McCormick/mccormick-acquires-billyused by Canadian food manufacturers<ref>[http://www.flex-news-food.com/pages/14422/McCormick/mccormick-acquires-billy-bee-honey-products-ltd.html | FlexNews, "McCormick Acquires Billy Bee Honey Products Ltd" (2/21/2008)]</li> <li id="_note-31">[[#_ref-31|↑]] [[stock:McCormick_&_Company_(MKC)/Sustainable%20Strategy | McCormick & Company 2007 Annual Report, Business Overview, "A Sustainable Strategy", p. 16]]</li> <li id="_note-32">[[#_ref-32|↑]] [[stock:McCormick_&_Company_(MKC)/Sustainable%20Strategy | McCormick & Company 2007 Annual Report, Business Overview, "A Sustainable Strategy", p. 16]]</li> <li id="_note-33">[[#_ref-33|↑]] [[stock:McCormick_&_Company_(MKC)/Positioned%20Future | McCormick & Company 2007 Annual Report: Letter to Shareholders, "Positioned for the future", p. 3]]</li> <li id="_note-34">[[#_ref-34|↑]] [[stock:McCormick_&_Company_(MKC)/Growth%20Global%20Markets | McCormick & Company 2007 Annual Report: Letter to Shareholders, "Growth in global markets", p. 2]]</li> <li id="_note-35">[[#_ref-35|↑]] McCormick & Company, 6/27/2008 Morningstar Analyst Report, "McCormick Reports 2Q Earnings", p. 2</li> <li id="_note-36">[[#_ref-36|↑]] [http://ir.iff.biz/phoenix.zhtml?c=65743&p=irol-IRHome | International Flavors & Fragrances Company Info, "Overview"]</li> <li id="_note-37">[[#_ref-37|↑]] [http://ir.iff.biz/phoenix.zhtml?c=65743&p=irol-IRHome | International Flavors & Fragrances Company Info, "Overview"]</li> <li id="_note-38">[[#_ref-38|↑]] [http://finance.yahoo.com/q/pr?s=IFF | Yahoo Finance: International Flavors & Fragrances: Profile]</li> <li id="_note-39">[[#_ref-39|↑]] [http://www.abf.co.uk/investors/index.asp | Associated British Foods, Investors: Financial Summary]</li> <li id="_note-40">[[#_ref-40|↑]] [http://www.achfood.com/news.html | ACH Food Company News: "ACH Food Companies, Inc. Announces Acquisition of Tone Brothers, Inc." (7/22/04)]</li> <li id="_note-41">[[#_ref-41|↑]] [http://biz.yahoo.com/ic/114/114451.html | Yahoo Finance: Tone Brothers, Inc.]</li> <li id="_note-42">[[#_ref-42|↑]] [http://finance.google.com/finance?q=MKC&hl=en&meta=hl%3Den | Google Finance: McCormick & Company, "Financials"]</li> <li id="_note-43">[[#_ref-43|↑]] [http://finance.yahoo.com/q/ks?s=IFF | Yahoo Finance: International Flavors & Fragrances, "Key Statistics"]</li> <li id="_note-44">[[#_ref-44|↑]] [http://finance.yahoo.com/q/co?s=MKC | Yahoo Finance: McCormick & Company, "Competitors"]</li></ol></ref>
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