McCormick's Spice Road to Foreign Riches

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Last week I wrote about U.S. consumer companies performing poorly in the Chinese market. There are some notable exceptions, of course, like Yum! Brands (NYS: YUM) . Its KFC unit has a 40% market share among fast-food chains in China, compared with 16% at McDonald's (NYS: MCD) .

But -- as a vigilant reader pointed out to me -- there is another American company that has penetrated the vast potential of the Chinese marketplace and its 1.3 billion consumers. And this company turns out to be headquartered right under my nose, only 58.1 miles away. (I checked on Google maps.)

I'm talking about McCormick (NYS: MKC) , the Maryland-based seller of such brands as Lawry's, Zatarain's, and Old Bay. McCormick came to Shanghai in 1989 in a joint venture with a Chinese company. After learning the ins and outs of the Chinese business world, it started its wholly owned subsidiary in Guangzhou, China, in 1996. That plant produces condiments, toppings, jams, and syrups and also exports goods such as garlic to Asia, America, and Europe.

Today Canton, tomorrow Transylvania
McCormick's foreign expansion is not limited to China. Last month, the company announced that it's purchasing Polish spice company Kamis, a leading consumer company that holds 45% of the Polish spice and seasoning market. Kamis also has distribution subsidiaries in Russia, Romania, and Ukraine, which open up even more Central and Eastern European markets.

But its recent joint venture with India-based Kohinoor Foods may prove to have the most upside. Kohinoor's network of 350,000 retailers will open up the ever-expanding population of India for McCormick. Compare that with the company's 30,000 to 35,000 distribution points in the United States. McCormick will hold an 85% interest in that venture.

McCormick's healthy financials

TTM Revenue Growth
(Year-Over-Year)
4.9%
Earnings Growth
(Year-Over-Year)
18.7%
Free Cash Flow (TTM)$268.6 million
Gross Profit Margin (TTM)42.2%
Up from 42.1%
Operating Profit Margin (TTM)15.4%
Up from 15.3%
Net Profit Margin (2010)11.2%
Up from 9.9%

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

A bonus for investors is a dividend yield of 2.3% and just a 37% payout ratio. The company has increased dividends for 19 years in a row.

Emerging markets are tough customers
One American processed-food company that hasn't had such good fortune in the emerging-markets world is Campbell Soup (NYS: CPB) .  After four years trying to sell soup in Russia, a famously soup-loving country, Campbell has decided to throw in the ladle. Sales just never reached expectations. Ever optimistic, the company will refocus its international aspirations on China. But "Campbell's Won Ton Soup?" I don't know.

Tastes great!
But emerging markets have been good for McCormick. They accounted for about 9% of its total sales in 2010, and the company expects those markets to account for more than 12% in 2012. This is one company that's embracing the global market and has the right recipe to take advantage of it. I'll be following McCormick closely, and I think you should, too: Put it on your Watchlist.

At the time this article was published Fool contributorDan Radovskyhas no financial interest in the above companies.Motley Fool newsletter serviceshave recommended buying shares of McDonald's, McCormick, and Yum! Brands. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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