TreeHouse Foods Inc. (NYSE:THS) came into existence in 2005 when Dean Foods decided to spin off its specialty foods group. In a bid to further increase the company’s revenue and earnings, TreeHouse has made moves to acquire Associated Brands, which focuses on the manufacture of specialty teas, powdered drinks, and sweeteners. The deal, which is valued at approximately $180 million, is expected to help the company gain more market share in private label dry grocery and specialty tea products. The company’s P/E ratio of 28.20 indicates it is currently trading at a premium in comparison to McCormick & Company, Incorporated (NYSE:MKC) International Flavors.
Headwinds facing the company’s business
The headwinds facing McCormick’s business include:
- Rising commodity costs
- Risk of currency fluctuation as a result of its international operations
- Few customers making up the company’s customer base
Catalysts to further drive growth
With the economic downturn, there has been a shift in consumer behavior with a lot of U.S. and international consumers cutting down on discretionary spending, which is why they are dining more at home instead of eating out. This indicates improved sales of consumer spices and seasoning products.
The company’s ability to rapidly expand into emerging markets, specifically India and China, will help to grow its market share with increased revenues. This strategy will also see the company outperforming its competitors by a high margin. For example, in fiscal year 2012, the company brought in revenue of over $4 billion, with 31% of the revenue coming from international sales.
Another catalyst is management’s strategic operations. The company’s management has been able to maintain healthy margins by minimizing costs. By doing so, the company has been able to maintain its top and bottom line growth. The company’s EPS growth in the last 8 years attests to that.
Bottom line
When a company is able to consistently maintain and expand its existing market share in the industry it operates through acquisitions and strategic expansion moves and makes the most of the growth in the industry without denting its pricing power, there is no reason not to expect increased revenue as the years go by. McCormick is doing all of these things.
McCormick is a dividend-paying company with potential to continually increase quarterly payouts in the coming years. That makes it a safe bet that should be part of a well-rounded investment portfolio.
The article An Attractive Stock to Buy and Hold in the Long-Term originally appeared on Fool.com is written by Naomi Warmate-Igwe.
Naomi Warmate-Igwe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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