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Once Again, the Market Likes What McCormick Is Cooking

By Motley Fool Staff - Oct 3, 2017 at 6:56PM

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The spice giant had a solid third quarter, and there’s no reason to expect its growth trend to change.

In this segment of the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Aaron Bush of Supernova and Rule Breakers check in on McCormick (MKC -0.70%), the leader in the spice space.

Once again, sales rose 9%, and the company beat on profitability. Though there have been concerns about the balance sheet in the wake of a recent big acquisition, the Fools are fairly enthusiastic about the company's value proposition.

A full transcript follows the video.

This video was recorded on Sept. 29, 2017.

Chris Hill: Solid third quarter report from McCormick, the spice maker. Sales rose 9%, and profits were higher than expected. Pretty good guidance, too, Jason.

Jason Moser: Hey, I just used McCormick spices last night, Chris, as I was making pizza at home for the kids. I mean, I love the value proposition these guys communicate in their products. They basically say that their products represent 10% of the cost of the food that you're eating, yet 90% of the flavor. That right there tells you everything. They really are responsible for pretty much everything that's going on your table, or that stuff you're buying in the restaurant. I think what we've seen in the past few months, there was a lot of concern with McCormick because they announced the acquisition of RB Foods, which was the French's and Frank's properties. They've closed that acquisition and everything has gone through relatively smoothly. There are some downsides in the near term. It has added some debt to the company's balance sheet. It dings their credit rating a little bit. And I think that's where the concern maybe came in. Bigger picture, though, I think the acquisition made perfect sense. It's right in their wheelhouse. I think it helps them gain more of a global presence and lever to that cost structure, which will ultimately help boost margins down the line. You're looking at a market that's going to continue to grow slowly but steadily. Euromonitor projects 5% growth in the space into 2021, and McCormick is always getting a pretty good share of that year-in and year-out. I defy you to look in your pantry at home and not find at least one or two McCormick products in there. So, all in all, a very well-run business, a good track record of growing earnings and dividends. It's one we have on the watch list in MDP. We're really a little bit more concerned with the valuation than anything.

Hill: You've got it on the watch list, so I'm guessing you were hoping for a bad quarter, because the stock bumped up about 5% on this report.

Moser: I'm not going to lie, Chris, I was hoping it would go in the other direction.

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