5-Minute Breakdown: McCormick

Get to know a company in less than 5 minutes: That's what a 5-Minute Breakdown is all about. If you're new to McCormick (NYSE: MKC  ) , consider this your Foolish way to get introduced and in the know.

What it does
McCormick makes spices, and it sells those spices to both consumer and industrial customers. If you eat food and you at least occasionally shop for that food yourself, chances are you've encountered McCormick's products in the grocery aisles. Wal-Mart's (NYSE: WMT  ) shelves are particularly well-stocked with the company's products -- the big-box chain accounts for about 11% of McCormick's sales. In addition to McCormick-branded products, the company also sells under the Zatarain's, Old Bay, Club House, Simply Asia, and Lawry's lines, just to name a few.

On the industrial side, McCormick considers itself a "flavor partner," selling spices and ingredients to large food and beverage makers. PepsiCo (NYSE: PEP  ) is the largest customer on the industrial side, accounting for about another 11% of total sales. Given PepsiCo's dominant snack business, it's little surprise that McCormick works with the company.

What to watch out for
Price competition among McCormick's industrial clients is good news for McCormick. It works like this: Say Chipotle wants to cut prices to gain market share from competitor Qdoba. Chipotle might hire McCormick to find ways to cut costs. McCormick would run Chipotle's salsa through its "flavor spectrometer," and then highly trained McCormick "flavorists" figure out a way to produce an identical flavor with cheaper ingredients.

Why you should care
McCormick's focus in recent years has been on building its consumer business over its industrial business. The reason is simple: The consumer segment pulls in margins nearly triple those on the industrial side. Over the past decade, as both segments have grown, McCormick has managed to grow consumer revenue from 49% to 60% of total sales. This success to date has been seen in the company's financials: The overall gross margin has risen from 35% to 42% over the period.

If you want to learn more about mature, well-run companies like McCormick, check out our premium dividend newsletter, Motley Fool Income Investor.

Fool analyst Alex Pape does not own shares of any companies mentioned, but he does find many of McCormick's products delicious. McCormick and PepsiCo are Motley Fool Income Investor choices. Wal-Mart is an Inside Value recommendation. Chipotle is a Rule Breakers pick. Chipotle is a Motley Fool Hidden Gems recommendation. Motley Fool Options has recommended a position on PepsiCo. The Fool owns shares of Chipotle. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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