Even in a market plagued with increasing input costs and ever-shifting consumer loyalty, spice maker McCormick
A look at the quarter
Revenue for the quarter climbed 11% year on year, to $883.7 million, beating the Street's estimates of $855.4 million. Improved pricing initiatives, in response to higher input costs, contributed around 5% to the sales growth this quarter. Cereal flavors and new sauces did pretty well, too. Moreover, the relaunch of an old product line, Zatarain's, led to a 16% increase in units sold in the United States. The company surely knows how to score brownie points.
Operating income for its consumer business saw a 13% increase, to $77 million, while the industrial segment rose 10%, to $32.3 million. The company is doing what it can to stay ahead of accelerating costs of an inflationary food market -- and doing a pretty good job of it, too.
The company's capital position is getting even more attractive. The company ended the quarter with cash and equivalents of $65.6 million, up 67% from the year-ago quarter. As a result, the debt-to-capital ratio dropped to 37.6%, down from 43.8%.
Clearly, surviving in the packaged food industry is quite daunting, as reflected by recent quarterly results from General Mills
Another consumer-goods player, Treehouse Foods (NYSE: THS), narrowed its outlook for the next quarter on cost issues. McCormick, however, appears to be on a different track. With the purchase of Kamis, a leading Polish spice maker, the company now has access to 45% of the Polish spice and seasoning market and 30% share of the mustard market.
Kamis also has a presence in other parts of Europe and Russia, which helps boost McCormick's expansion strategies.
The Foolish bottom line
With prices of ingredients like dairy, wheat, and soybean oil likely to go up this year, the food packaging industry will have to put up with such turmoil. But McCormick's improved numbers and prudent price adjustments suggest that this company may go a long way. There is potential for increasing sales with increased geographic reach, and the company's products are high on the customer likeability scale. These factors compel me to take a bullish stance on this stock.
Debarati Bose does not own shares of any of the companies mentioned in the article. Motley Fool newsletter services have recommended buying shares of McCormick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.