McCormick (NYSE:MKC) this morning turned in fiscal third-quarter (ended August 31) financial results, reporting strong year-over-year sales, operating and net income growth, as well as improved gross margins a fleck above 38%.
All in all, it appears to be a strong quarter from a company that's working hard to keep growing in a slow-growth environment through acquisitions, process improvements, and other moves. (Jeff Fischer took a look at the company's second-quarter results in June.)
Among the "other moves" worth examining is the August sale of the company's packaging division. Sales for the business, which marketed plastic tubes and bottles, fell in fiscal 2002 amid flagging demand, and yet the division remained highly dependent on new product development to maintain revenue numbers.
McCormick, as a whole, is well run and has proven itself capable of increasing operating margins through cost controls and other measures. McCormick's main driver of gross-profit growth, however, was always its product (read: spices, where it's the world's market-share leader) division.
That's where a focus on "value-added" products hooked to the rising star of increased kitchen convenience -- specialized rubs and so on -- is key to the company's 40% gross-margin goal. As a result, the packaging division was seen as surplus to requirements and sold to Kerr Group for just under $143 million, mostly in cash -- a welcome addition to the balance sheet.
With dominant positioning and a history of generating cash flow, McCormick has long been admired by investors who've thought to wonder who makes all those cans cluttering up the kitchen. Unfortunately for investors looking for shares to buy today, the market has long taken notice of its prowess, as it's beaten the S&P 500 over the last 10 years.
Still, with the shares trading at right around the middle of their five-year high and low on a price-to-earnings basis, now may be as good a time as any to add this spicy little company to your watch list. At very least, you can begin conducting further research and wait for your price.