Business is simmering nicely over at McCormick (NYS: MKC) . The company just reported third-quarter earnings up from a year ago and raised guidance. That must not have been enough, though, because the market shaved off 2.5% in pre-market trading. A SWOT review -- a look at the company's strengths, weaknesses, opportunities, and threats -- should tell us something about what's happening in the spice rack.
- Dominant market position.
- Twenty-six consecutive years of adding more flavor to the dividend. Plus, projected growth and a reasonable payout ratio point to the streak continuing.
- The company's Comprehensive Continuous Improvement program is expected to generate $50 million in savings for 2012.
- The business is diversified between consumer and industrial segments and diversified globally. Nearly 30% of revenue comes from outside the Americas.
- At nearly 21 times earnings, the stock is at a premium to the S&P 500's (INDEX: ^GSPC) 16.5, but in line with the consumer goods sector.
- Not much else.
- Recent acquisitions are expanding the company's markets in Europe, Russia, India, and China. Plans are to generate 20% of revenue from emerging markets by 2015.
- Spice and flavor isn't a dead market: McCormick introduced 37 new products last year in Canada alone.
- Rising commodities costs will threaten margins if the costs can't be passed on to consumers. The company's outlook expects high-single-digit increases in material cost.
- The global expansion plans mean exposure to currency risks and some soft economies.
Nothing stands out as a reason for the stock's fall. McCormick offers investors a steady, slow-growth company, a reasonable dividend, and good prospects for dividend growth. It is priced at a premium to the broad market, but the stable business and dividend track record justify the premium.
Investors interested in a company in the same sector with more focus on North American markets might want to look at J.M. Smucker (NYS: SJM) . It trades at similar multiples, has a similar dividend, and has "an emphasis on North America while embracing a global perspective."
For a bigger company in the world of food, General Mills (NYS: GIS) is a good starting place. It has a higher dividend than McCormick, trades at a little cheaper valuation, but has lower growth projections.
I own shares of McCormick and have CAPScalls on McCormick, Smucker, and General Mills. Any one of the three is a good candidate for someone looking for a core holding with a stable business model that's not too spicy.
The article McCormick: Strengths, Weaknesses, Opportunities, and Threats originally appeared on Fool.com.Fool contributor Russ Krull has some McCormick spice in his portfolio and in his kitchen. You can follow his stock picks here. Motley Fool newsletter services have recommended buying shares of McCormick. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.