Global leader in spices, McCormick & Company, Inc. (MKC) recently completed the acquisition of the assets of Chinese broth maker Wuhan Asia-Pacific Condiments Co. Ltd. (“WAPC”) for $147 million (RMB 900 million). The deal, which was announced in Aug 2012, will be funded with a combination of cash and debt.
WAPC is a privately-held company, which manufactures and markets broth brands like DaQiao and ChuShiLe. The addition of these brands will enhance McCormick’s product portfolio with new flavors. The deal will also help McCormick to expand its brand presence in the central regions of China through WAPC’s strong positioning in the country. It will also accelerate McCormick’s earnings in 2014 and will be fully accretive in 2015.
In 2013, the company anticipates the deal to be slightly dilutive to earnings per share due to integration and financing costs of $4 million, related to the acquisition. Excluding transaction costs, McCormick expects operating income margin from the WAPC business to be approximately 10%.
McCormick has been growing its business in both developed and emerging markets through acquisitions. The acquisition deals completed in 2011 (U.S.-based Kitchen Basics, Inc., Poland-based Kamis S.A. and joint venture with Kohinoor Foods Ltd in India) have contributed significantly to top-line growth. The expansion in emerging markets has increased with the rising consumer interest in new flavors and increasing demand for convenient and quality branded packaged foods.
According to Reuters, emerging markets will contribute approximately 15% of McCormick’s sales in 2013, a significant increase from 10% in 2011, owing to the recent acquisitions including WAPC. The company is thus on track toward generating 20% of sales in emerging markets by 2015. We believe the deal will help McCormick to broaden its range of flavors in China with the inclusion of broth. McCormick holds a Zacks Rank #4 (Sell).
Other diversified food makers worth considering include Flower Foods Inc (FLO), Omega Protein Corp (OME) and General Mills Inc (GIS). While Flower Foods and Omega Protein hold a Zacks Rank #1 (Strong Buy), General Mills carries a Zacks Rank #2 (Buy).
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