McCormick Spicing Up Sales With Brand Marketing and Global Expansion

McCormick has begun to reassess its approach and how it can better appeal to new and changing consumers.

Author:: Richard Saintvilus
Publish date:: Mar 20, 2015 5:15 PM EDT

NEW YORK (TheStreet) -- With better-than-expected results in hand from cereal maker General Mills (GIS) - Get Report, the packaged food sector appears to be rebounding. Stocks within the sector have now posted 3% gains in 2015, adding to 24% gains over the past 12 months, according to Morningstar.

And this momentum bodes well for spice and seasoning company McCormick & Company (MKC) - Get Report, which is enjoying higher sales by improving its marketing and developing a better understanding of its customers. The company has benefitted from consumers' changing taste buds that have welcomed more flavor and spice in their foods.

With shares down 2% in 2015, lagging the broader indexes in the past three months, investors should pay attention to McComick ahead of its fiscal first-quarter results Tuesday. The stock is underpriced.

Headquartered in Sparks, Md., McCormick is a global leader in providing spices, seasoning mixes and various condiments to retailers likeWal-Mart (WMT) - Get Report and other grocery store chains. The 120-year-old company also distributes its spices to food manufacturers and food service businesses. Its business is divided into two segments: Consumer and Industrial.

Over the past decade, these businesses have grown revenue at an average annual rate of around 5%, from $2.5 billion in 2004 to current sales levels around $4.3 billion for full year 2014. Moreover, McCormick has put a sound plan in motion for the next several years.

For the quarter ended February, the company is projected to earn 64 cents per share on revenue of $984 million. For the full year, ending in November, earnings are projected to grow 5% above last year to $3.54, while revenue is projected to grow roughly 1% to $4.27 billion.

At a Barclays conference last September, the company acknowledged the shift in the packaged food industry. McCormick made note than new and expanding cultures combined with an ethnically diverse population are drivers of its future products.

While citing market projections by the Euromonitor, McCormick projects the pace of growth in developed markets to be 4% annually. It is projecting a 10% annual growth rate in emerging markets. Globally, the company expects the market for its business to grow to $14 billion by 2018, up from about $10 billion.

In emerging markets, where McCormick has an increasing presence, the company projects its recipe mixes business -- its second largest growth platform -- to grow at an annual rate of 13% in the next five years. This means that by 2020 the business will grow from $5 billion to more than $9 billion in revenue.

To be sure, competitors like Kraft (KRFT) and Campbell Soup (CPB) - Get Report, which have their own global expansion plans, won't just let McCormick run away with everything. McCormick will need to execute its plans.

But McCormick should benefit from rising consumer demand for more flavor in developing and traditional markets.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.