Tickers in this Article: MKC, KR, SVU, WMT, KFT, DRI
McCormick (NYSE:MKC) is the market leader in selling spices, seasonings and related food flavorings to individuals and businesses across the globe. It reported first-quarter earnings on April 1 that demonstrated it is dealing quite well with rising commodity prices. This comes as no surprise to investors, who have come to count on this company's ability to leverage modest sales growth into double-digit profit growth.

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First-Quarter Recap
In the first quarter, McCormick's sales increased 2% and reached $782.8 million as the company took action to increase prices and offset rising commodity prices. Management stated it is "operating effectively in a tough environment" and is using higher pricing to offset increased input costs. This is also offsetting flat volume and product mix, though these two items fell 2% in the consumer business where McCormick sells its seasonings and spices to consumers through retail channels such as grocery store chains like Kroger (NYSE:KR), Supervalu (NYSE:SVU) and Wal-Mart (NYSE:WMT).

McCormick also operates an industrial business that sells its products to food manufacturers, restaurants and food service distributors. This includes potential clients such as Kraft (NYSE:KFT), Darden Restaurants (NYSE:DRI) and Supervalu's distribution segment. The industrial business posted solid 6% growth during the first quarter on higher pricing, volumes and favorable product mix.

The consumer business is quite profitable, with operating margins of 19.1%. The industrial business posted an operating margin of only 7.2%. Total company operating margins rose 9.7% to reach 14.1%. Net income rose 11.8% on slower income tax expense growth and reached $76.8 million, or 57 cents per diluted share.

McCormick's Outlook
For the full year, analysts project sales growth of 6% and total sales to reach just over $3.5 billion. The consensus earnings estimate is $2.83 per share.

The Bottom Line
McCormick is dealing with short-term cost pressures on the commodities it must buy to make its spices, herbs, blends and sauces, but this has done little to dent near-term share price performance. The stock is still trading at its highs over the last year and currently trades at a rather rich forward P/E of approximately 16.9.

The company has no close rivals and possesses a stellar track record of leveraging mid-single-digit sales growth into double-digit earnings growth. Over the past five years, sales have increased marginally on an annual basis, but profits are up just over 12% each year over this period. Given the high earnings valuation, there isn't much potential for multiple expansion, but investors should be able to count on low double-digit stock gains over the long haul given projected profit growth and a current dividend yield of 2.3%. (These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance sheet. Check out Using Porter's 5 Forces To Analyze Stocks.)

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