McCormick (MKC) Stock Gains on $100 Million Purchase of Barbecue Sauce Maker Stubb's

NEW YORK (TheStreet) -- McCormick & Co (MKC) shares are up 2.02% to $81.88 in early market trading on Wednesday after the food seasoning and condiment manufacturer acquired barbecue sauce maker Stubb's for $100 million in cash.

The Sparks, MD-based company purchased Stubb's from privately held One World Foods and expects the company to report annual sales of $30 million this year.

McCormick doesn't expect today's purchase to impact its earnings this year, but  the company expects incremental EBITDA of at least $10 million by 2017.

"Through marketing and innovation, we intend to build this base, increase household penetration and expand retail distribution in the U.S. and internationally. The Stubb's products round out the range of grilling products currently marketed by McCormick under the Grill Mates, Lawry's and McCormick brands. We look forward to working with the Stubb's employees to drive increased sales and profit for this business," said CEO Alan Wilson

TheStreet Ratings team rates MCCORMICK & CO INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate MCCORMICK & CO INC (MKC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 10.9%. Since the same quarter one year prior, revenues slightly increased by 1.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Food Products industry and the overall market, MCCORMICK & CO INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Net operating cash flow has increased to $95.90 million or 25.03% when compared to the same quarter last year. Despite an increase in cash flow of 25.03%, MCCORMICK & CO INC is still growing at a significantly lower rate than the industry average of 81.00%.
  • The debt-to-equity ratio is somewhat low, currently at 0.79, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.38 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • You can view the full analysis from the report here: MKC Ratings Report

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