Shareholder letters: McCormick
This week we have only one letter - a spice company McCormick with $22B market cap. I noticed this company while reading their 2019 shareholder letter and my first impression was quite positive as management went into a great detail describing the business and all the investments they were making.
Their 2020 letter reinforced my initial impression and it seems CEO Lawrence Kurzius and his team are doing good job:
Alignment with long-term consumer trends;
Investments in IT systems, brand marketing, supply chain and new product innovation;
Cost savings through CCI program (Comprehensive Continuous Improvement), which are reinvested in business.
Over the past 5, 10 and 20 year periods MKC delivered impressive returns as for a low-growth consumer product company:
On alignment with major long-term trends:
The foundation of our sales growth is the global demand for flavor. We are capitalizing on the growing consumer interests in healthy and flavorful cooking, trusted brands and digital engagement, as well as purpose-minded practices. These long-term trends have not only remained intact during the pandemic, but have accelerated. Our alignment with them positions us well to meet increased consumer demand, both through our products and our Flavor Solutions customers’ products.
Research indicates a majority of consumers are cooking more from scratch, enjoying the cooking experience and adding flavor to their meal occasions.These behaviors are driving an increased and sustained preference for cooking at home. Many consumers are also adding flavor with spices, sauces or condiments they have at home to carryout or delivery meals. We believe these trends will continue globally and further benefit our Consumer segment.
Google trends for Cooking: if a work-from-home is a new major trend, cook-from-home should be booming too?
On investments in digital and e-commerce:
For our consumers, digital experiences were already increasingly important to them before the pandemic and we were scaling up our digital programs and activating more opportunities for them to connect with us on their digital flavor journey. Our efforts to strengthen our consumer connection and bridge their physical and digital experiences with flavor became even more relevant as they looked online for flavor inspiration.
E-commerce growth accelerated significantly in 2020 (+136%). We were well prepared for this change in consumers’ shopping behavior from our past investments as well as the opportunities we activated this year, such as continuing to make touch points “shoppable.”
On investments in brand marketing:
In 2020, we gained millions of new households and saw strong, sustained repeat purchase rates. The combination of significant increases in household penetration and repeat purchases indicates a high level of consumer usage and speaks to the strength of our products. We increased brand marketing investments this past year, as planned, with some adjustments to our messaging in light of the pandemic. We launched campaigns focused on consumer education and building confidence in the kitchen and targeted additional messaging to focus on cooking at home.
On investments in supply chain:
We are making transformative investments which will enable us to sustainably meet growing demand and enhance competitiveness for years to come. In 2020, we initiated strategic investments across all regions to expand our global infrastructure and capabilities which will further drive our momentum in delivering the base business growth to which we aspire.
Late in 2020, in the Americas, we announced plans for a new state-of-the art Northeast Distribution Center in Maryland which will optimize our distribution network by adding distribution capacity, enhancing our customer response time and driving efficiencies enabled by automation. The facility, scheduled to open in the second half of 2022, will be our largest distribution center in the world and will position us well to accommodate future growth in the Americas. In the Europe, Middle East and Africa region (EMEA), we began construction on a new Flavor Solutions manufacturing facility in the U.K. which will be completed in 2021. The new facility creates further opportunities to support the region’s strong and growing customer base.
Link to the letter: https://ir.mccormick.com/static-files/380b5a98-a576-43e4-b644-494b19e632c5
The stock had a rough patch since last August losing around 20% and is already trading below its pre-pandemic high of $86. It’s currently valued at 28 NTM P/E vs the guidance of 7-9% sales growth in 2021 (including 3.5-5% organic growth).