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Author: hamishrose One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5655  
Subject: Re: Boring Port Candidate - McCormick Date: 12/1/2002 5:43 PM
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yofluke:
For the Boring Port's next purchase, I am planning on buying McCormick in the next few weeks unless there is strong opposition expressed.

While I recognise that as the person who has stepped forward to run the show you get to make final decisions, I do not like the way this has been presented. While MKC has been mentioned here there has been little discussion yet you present the decision as a fait accompli.

Moving on, from the info you have presented this company looks pretty good. They have a good ROA and net margin and improving margins over the last few years. I agree with most of your comments about the company, especially the containers division. Look at CCK to see another company in that industry - its not a good one.

There was a huge jump in accounts receivable in 2000? or 2001? Was that to do with the acquisition? Was the acquisition a success? ie did they overpay. As they intend to do more acquisitions, this is a very important question. They appear to have had two years of FCF decreases since the acquistion. This is a worry unless it can be adequately explained. Inventory structures can explain away one year but I am suspicious if they try that for two years.

What do they do with their cash? What is the dividend yield? Are there share repurchases and if so do they reduce the shares outstanding or just counteract the ESO's? They seem to do a bit of debt repayment. What are the terms like for the debt they took on for the acquisition? I worry about companies who borrow in a low interest rate environment if they don't get long term rates. ie will they be hurt if interest rates rise.

Have the actual numbers of options outstanding changed much? I know the effect on earnings has changed but that could be due to a rising stock price affecting the number of shares included in the dilution calculation (I haven't looked at a chart.) A 10% difference is large in any case.

You haven't made any attempt to value the company, beyond a comment about the current pe. How have you valued it?

You mention several items that need watching in the coming years. This does not seem Boring to me. There seem to be several uncertainties with MKC. My initial reaction to the whole situation is "Hmm...might be worth looking at in a year to see if these uncertainties look like they will work out favourably." Especially since they have had high management/board turnover - that is most definitely not a good sign.

I oppose an immediate purchase, although I look forward to being convinced otherwise. These things don't need to be rushed.

I'm sorry if I always come across as negative here. I'm not really that much of a grump, its just that stock analysis needs a critical or even cynical eye.

Hamish Rose
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