Six takeaways from McCormick's 2019 shareholders' meeting

Fresh off a solid first quarter, with a new Hunt Valley headquarters and more than $5 billion in sales last year for the first time, McCormick & Co. Inc. briefed a packed ballroom of shareholders Wednesday on its new products, its plans to court Generation Z and its outlook for the upcoming year.

Here are six takeaways from McCormick’s 2019 shareholders’ meeting:

1. Corporate growth

With $5.3 billion in 2018 sales, McCormick increased its dividend and delivered a 50 percent total return for its shareholders, far outperforming the S&P 500, which saw a 6 percent return, and competitors, whose return was negative, said Mike Smith, the company’s chief financial officer.

The spice maker’s adjusted operating income increased 18 percent, and a cost-savings initiative led to $118 million in savings, Smith said, allowing the company to continue its spending in marketing and other areas. McCormick expects to grow sales between 1 percent and 3 percent this year.

“We are confident that initiatives we have underway position 2019 to be another year of strong financial performance,” Smith said. “We are confident that the momentum of our business is sustainable and will continue to build value.”

2. New products — but nothing marijuana-infused

The company’s biggest news of 2018, and part of what drove its record sales, was its $4.2 billion acquisition of Reckitt Benckiser, the former parent company of Frank’s RedHot and French’s mustard — and McCormick plans to continue its rapid expansion of its offerings, said Lawrence E. Kurzius, McCormick’s chairman, president and CEO.

The spice maker has turned those condiments into dry seasonings, recipe mixes and frozen chicken wings. Taking note of the growing market trends toward health-conscious and environmentally-friendly ingredients, it is also growing its list of organic spices and herbs. One of its newest offerings in Mexico, a guacamole mayonnaise, has been performing well and could make a debut in U.S. grocery stores soon, Kurzius said.

But no marijuana- or CBD-infused spices, sauces or other offerings are in the works, he said.

“We’re not getting into cannabis, but we enjoy making complementary products,” Kurzius said, drawing laughter from the crowded ballroom.

3. Increased marketing to Generation Z: ‘Their phones eat first’

The 130-year-old spice company has focused on its internet and mobile marketing with an eye on Generation Z, the largest group of U.S. consumers, who were born from the mid-1990s to mid-2000s and have never known a world without the web.

“We like to say their phones eat first,” Kurzius said, “so helping them create a fabulous dish that looks shareable, in addition to tasting great, is a growing focus for us.”

Those efforts have been rewarded: McCormick’s website has won awards and e-commerce sales grew 41 percent last year.

A partnership with the wildly popular BuzzFeed Tasty, an online food-preparation video series, has produced 2 billion views per month. Later this year, McCormick will launch a new “FlavorMaker” app, which will allow users to scan packaging labels, keep inventory of their kitchen cupboards with a digital spice rack and find recipe suggestions.

4. Effects of corporate tax reform

The 2017 Republican tax overhaul, which lowered the corporate tax rate from 35 percent to 21 percent, allowed the company to give three years’ worth of wage increases to non-union, hourly employees in the U.S., along with $1,000 end-of-year bonuses, Kurzius said.

“We wanted to make sure everyone felt like they got a share of it,” he said.

The tax breaks also increased McCormick’s spending in the U.S., and “leveled the playing field” with international competitors that are based in countries with even lower taxes.

“Our biggest competitors are not U.S. companies,” Kurzius said. “It actually just brought us to even with some of those competitors.”

5. International volatility

Since McCormick sources its ingredients from all over the world, a shareholder asked Kurzius to address the effects of tariffs, a potential trade deal with China, Brexit and the strength of the dollar.

Kurzius said a “rational” trade agreement between the U.S., Canada and Mexico will help McCormick, which built its supply chain around the North American Fair Trade Agreement. Moving products across the Mexican and Canadian border are key to that supply chain.

Tariffs have not yet had much of an impact on McCormick, and while it does “big business in China,” Kurzius said, “the main thing I like to say we import from China is money.”

The U.K.’s plan to leave the European Union “has the potential to be disruptive,” he said, especially in the case of a “Hard Brexit” — if no plan is put in place to govern travel and trade across the border. McCormick has stockpiled its key materials and spare parts for its manufacturing operations to prepare for such an event.

The strength of the dollar is a headwind, he said, but it “really isn’t important as stability. Volatility is the part that’s hard to manage.”

6. Setting sights on $10 billion in sales?

While McCormick has doubled its corporate value every 7 years and is on track to do it again quicker, Kurzius said, reaching $10 billion in sales “is a tall order.”

"I don't know when we'll get to that, but in terms of market capitalization this year, we crossed the $20 billion market cap level,” Kurzius said. "I am confident we’re going to continue to grow and be successful.”