McCormick & Company, Inc. (MKC) recently announced key initiatives at an investor conference that will accelerate its business going forward.
The company will focus on enhancement of brands, cost savings, product innovation, improving core platforms globally, understanding customer sentiments and expansion in emerging markets.
Emerging Markets: McCormick, through acquisitions, is increasing its global presence to meet the growing demand for spices. The completion of acquisition of Kamis S.A. of Poland and joint venture with India based Kohinoor Foods Ltd. in fiscal 2011 accelerated total sales growth by 7% in 2011.
Further, McCormick expects to capitalize on the growing interest of the middle class of fast growing emerging markets in the quality of branded packaged spices and seasonings. The company expects emerging markets to contribute 20% of total sales by 2015.
Product Innovation: In 2011, McCormick introduced more than 200 consumer products, and launched a pipeline of new products in the industrial business segment.
The company has entered into new categories like mustards and basmati rice; and has introduced innovations like Recipe Inspirations, a product which has a collection of recipes for novice cooks. The company expects to improve its portfolio of spices going forward, and expects at least 10% of annual sales to come from new products by 2015.
Cost Savings: McCormick is also making progress in saving costs through its Comprehensive Continuous Improvement (‘CCI’) program. In fiscal 2012, the company expects to generate cost savings of at least $45 million under the CCI program.
Enhancement of brands: The company has been improving its brands through increased brand marketing which will fuel sales growth. The company has increased its sales in China through brand support, product innovation and distribution expansion. The company also expects to invest in brand marketing support in fiscal 2012. The company expects sales to grow in the range of 4% – 6%, operating income in the range of 7% – 9% and earnings per share to grow in the range of 9% – 11% over the long-term.
Our Recommendation
McCormick experienced a difficult macro-economic environment in 2011, and expects the same to persist in 2012. Moreover, a sharp rise in material costs and low disposable income of consumers has hurt the profitability of the company.
The company has started offering small sachets for certain spices and herbs to encourage consumers with low disposable income to purchase the brand. We believe that the company is making efforts to address these challenges and expects the above mentioned initiatives to drive future performance.
McCormick, which competes with ConAgra Foods, Inc. (CAG) and Kraft Foods Inc. (KFT), currently holds a Zacks #3 Rank (a short-term Hold rating). Over the long term, we provide a Neutral recommendation on the stock.
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