As an investor look at the marketing support a company gives their products. This contributes to future sales growth and helps a company, such as McCormick’s, maintain market share. It also ensures their products remain ‘household names’. In 2012, the Company continued to invest in brand marketing support with an increase of $11 million. They augmented this with higher spending behind price promotions and coupons.
Look at how a company is controlling costs. It seems prices are going up more – and faster – these days. It’s vital that companies keep control of expenses to maintain and even improve profit margins. McCormick & Company has their Comprehensive Continuous Improvement (CCI) program. They increased operating income 7 percent with higher sales and . That is significant; it sends a message to their shareholders that their commitment is to building profit margins.
Furthermore, consider a company’s cash flow. Cash flow is a business fundamental. It sounds boring, but it makes for a sound business. Good cash flow or liquidity enables a company to pay their bills. It also gives them great freedom to undertake initiatives to grow their business further. McCormick & Company generated $455 million of cash flow from operations – a record.
In addition, look at distributions; you’re an investor for a reason – that reason is money. McCormick & Company increased, by 25 percent, cash returned to shareholders via dividends and share repurchases. They returned $297 million of cash to shareholders. This brings the cumulative five-year total of cash returned to almost $1 billion. In November 2012, the Company’s Board approved a 10 percent increase in their dividend. This is their 27th consecutive annual increase. That can certainly spice up a cappuccino as you peruse stock market reports in the morning.
Finally, consider ‘projections’. Understand where the company is going, and what their plans are for getting there. For 2013, McCormick & Company expects sound sales growth. They expect it because they’ve planned and are implementing programs to achieve this goal – innovation and brand marketing initiatives.
The Company is projecting earnings per share of $3.15 to $3.23 for 2013. The basis of their 2013 earnings per share projection is an underlying double-digit growth rate driven by higher sales and a minimum of $45 million in CCI cost savings. Their earnings per share for full year 2012 came in at $3.04.
Don’t forget how others view companies you’re interested in. What’s the word on the street for McCormick & Company? Mr. Andrew Knuth and Mr. Edmund Nicklin of Connecticut’s Westport Advisors, LLC (in a 2012 article for U.S. personal finance newsletter Bottom Line Personal) named McCormick & Company one of their five favorite investments for the next 10 years (as reported in The Globe & Mail Newspaper – July 30, 2012 – Special to The Globe & Mail by David Milstead).
Mr. Knuth and Mr. Nicklin said McCormick & Company “may seem a little stodgy, but we like having this cash-generating machine in our portfolio.”
Research the ‘old guard,’ maybe even ‘perceived as stodgy,’ companies as part of your due diligence concerning equities. Consider those who make those everyday products you’ve used for years, maybe even decades. They’ve been around a long time for a reason. It only stands to reason that you consider one or more as possible additions to your stock portfolio.
The article A Spice Route for Investors? originally appeared on Fool.com and is written by Michael Ugulini.
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