McCormick & Company, Incorporated (MKC), CARBO Ceramics Inc. (CRR), International Flavors & Fragrances Inc (IFF): A Special Source of Pricing Power

As a result of selling products with significant pricing power derived from a durable competitive advantage, McCormick and International Flavors & Fragrances Inc (NYSE:IFF) have a great deal of control over their profitability. Over the last decade, both companies’ operating margins have remained remarkably stable.

While it is true that neither company can charge anything it wants, both can easily pass on higher input costs to customers — something that less established rivals may be unable to do. This is a powerful tool that will power value creation at both companies for years to come.

Bottom line

McCormick & Company, Incorporated (NYSE:MKC), CARBO Ceramics Inc. (NYSE:CRR), and International Flavors & Fragrances Inc (NYSE:IFF) do not derive pricing power from having the far-and-away best products on the market; their pricing power comes from selling products that have small costs relative to the expense of complimentary products (e.g., the cost of seasoning is small compared to the cost of a steak). In addition, all three companies sell products that greatly enhance their customers’ products. Keep an eye out for this kind of pricing power — it is extremely valuable to investors. However, always make sure the pricing power is durable.

The article A Special Source of Pricing Power originally appeared on Fool.com and is written by Ted Cooper.

Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends McCormick. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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