UNIVERSITY OF OREGON INVESTMENT GROUP

February 25th, 2010 Consumer Goods

McCormick & Company, Inc.

HOLD
Stock Data Price (52 weeks) Symbol/Exchange Beta Shares Outstanding Average daily volume (3 month average) Current market cap Current Price Dividend Dividend Yield Valuation (per share) DCF Analysis Comparables Analysis Target Price Current Price Summary Financials Revenue Net Income Operating Cash Flow (2010) $3,336.8M $370.2M $242.3M $36.70 $47.83 MKC / NYSE 0.43 132.96M 700,491 6,113M $46.06 $1.12 2.50%

$46.13 (50%) $36.98 (50%) $41.56 $46.06

BUSINESS OVERVIEW McCormick & Company Incorporated was established in 1915 in Maryland as the descendant of a small spice and food company that was originally founded in 1889. Today, McCormick has established a respected brand name for flavor and is the global leader for manufacturing, developing and distributing high quality spices, seasonings and flavorings for a diverse selection of food found throughout the World. McCormick has an established name in the US
Covering Analyst: Michael Wolfington Email: mwolfing@uoregon.edu

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McCormick & Company, Inc.

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and various European countries which provide a bulk of its production and sales of its products. It has additional production and distribution facilities located in Thailand, China, Central America, South Africa and Australia. In 2010, 61% of sales were located within the United States. McCormick currently employs over 7,500 full time employees through the world at its various production and distribution locations and was named by Forbes as one of the top 100 companies to world for in 2010. The companys two business segments include consumer and industrial products. McCormicks consumer segment provides a majority of annual sales at 59.9% through its production of various herbs, marinades, spices, extracts, seasoning blends, sauces and specialty foods. These products are distributed globally through a number of different brands including McCormick, Old Bay, Thai Kitchen, Club House, El Guapo, Simply Asia, Lawrys and other numerous product lines. McCormicks consumer business segment has an overall higher profit margin at 79% of operating income. For the products within its consumer segment it is the category leader for spices, seasonings and herbs with 40 to 60 percent market share of sales. The industrial segment wholesales large quantities of natural blends of herbs and spices, wet flavors, coatings, seasoning blends and compound flavors to global food manufacturers. Customers space a variety of retail outlets in over 100 countries including, warehouse clubs, drug stores, grocery stores, and various distributers and wholesalers. McCormicks long standing reputation and customer relationship has helped to solidify a customer base that has been established in many cases for multiple decades. A few large corporate conglomerates account for a large bulk of net sales including Pepsi Co, Inc. and Walmart which accounted for roughly 10% and 11% of net sales respectively.

McCormick Global Locations

To provide a unique array of flavors, McCormick & Company receives various ingredients from all areas through the globe. The most important ingredients used include pepper, onion, wheat, garlic, dairy products, soybean oil and other spices and herbs. A majority of these spices and flavors are received from foreign countries outside the US and the UK. Raw materials such as dairy products and vegetables are produced and manufactured within the US from multiple suppliers. Management states that they are not aware of any government regulations or factors that would have strong impact on the availability of these ingredients. McCormick plans to continue to combatant any price fluctuations by purchasing strategic raw material purchases in the immediate and for future delivery from its many distributors to maintain a price advantage in the industry and avoid commodity price fluctuations.

McCormick & Company, Inc. BUSINESS AND GROWTH STRATEGIES

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McCormick & Companys growth strategy is to continue to increase sales and product profitability by organic growth and through funding company investments within improved margins. Management has stated that in the long-term they expect to receive one-third company growth from category growth, share gains and new distribution, one-third organic growth from product R&D and one-third from acquisitions. Continual innovation is a large focus of the company which it places a large amount of funding towards. Research and development continues to be a main focus of the company with increased investments at new locations through the world. New products from 2008 through 2010 currently account for roughly ten percent of net sales for 2010. These R&D locations are developed organically and through continual acquisitions depending on locations and scale. The diverse selection of global R&D locations allows McCormick to continually seek unique brands and flavors that extend its influence into new emerging markets. Research and development for 2010, 2009, and 2008 were $52.9 million, $48.9 million, and $51.0 million respectively. In addition to innovation, McCormick places a large emphasis on marketing of its diverse selection of flavorings. In 2010, marketing received an increase of $21 million to develop and promote the quality and diverse selection of McCormick products. MKC currently acquires a substantial market share of 40% of the spice and seasoning industry due to its ability to offer unique, high quality, and convenient products to a global customer base. Marketing expansion in 2010 allowed MKC to expand its distribution locations to new warehouse locations in the US and the UK, in addition to small street fairs in China. Lastly, through continual acquisitions McCormick & Co. plans to expands and diversify its product selection and acquire sales growth in new markets. Twenty percent of sales for 2010 were received from companies acquired within the past ten years. Partnerships provide another dimension of expansion for the company into new markets. A current partnership acquired at the end of 2010 with Eastern Condiments has expanded its reach into India. El Bravo brand is a similar partnership acquisition established in 2010 to target Hispanic customers within the US. Management expects this new product line to increase sales by over $100 million in 2011. MANAGEMENT AND EMPLOYEE RELATIONS President & CEO Alan D. Wilson Alan Wilson has been President, CEO and Chairman of McCormick & Company since being elected by the board of directors in 2008. Alan has been an employee of McCormick since 2003 and has served a variety of roles including operations management, management of multiple business units and several executive management positions both domestically and internationally. Prior to working for McCormick Alan held similar positions working for Proctor and Gamble developing his skill set. He received his education from the University of Tennessee in 1980 with a degree in communications. He currently is the President of the University of Tennessee Alumni Association and multiple boards in the greater Maryland area. His 2009 total compensation from McCormick totaled $4.844 Million. He currently owns 0.02% stock of MKC which equates to $0.7 million.

McCormick & Company, Inc. RECENT NEWS

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McCormick Delivers Spicy Taste of Global Growth Forbes.com January 28th, 2010 McCormick & Co Inc. (MKC Analyst Report) recently delivered its 7th consecutive positive earnings surprise driven by strong sales growth in the Asia/Pacific region. The company expects to grow sales 5% to 7% in 2011, and analysts are calling for 7% EPS growth. McCormick has also been steadily raising its dividend. It currently yields 2.4%. McCormick recently hiked its quarterly dividend 7.7%. It has raised it at an average annual rate of 10.8% since 2008. It currently yields 2.4%. The stock is up about 20% since July 1. Despite the run up, shares are still reasonably priced, trading at 15.9x forward earnings, below the industry average of 16.5x. It is a Zacks #2 Rank (Buy) stock. Zachs.com continues to provide analysis of multiple companies their analyst are confident will continue to provide healthy returns. The following numbers show the continued success and growth of McCormick despite it already obtaining 40 to 60% of market share of the industry. Expectations for the fourth quarter and 2010 as a whole were met with impressive numbers despite a downward sloping economy. Mojave Foods Corporation Initiates Recall Business Wire December 08, 2010 Mojave Foods Corporation is initiating a recall of sixty (60) packages of El Guapo Shelled Walnuts 1 OZ, date code 5527, manufactured with walnuts supplied by Atlas Walnuts, Visalia, California, because we were advised by the supplier that the ingredient has the potential to be contaminated with Salmonella. To date, no illnesses have been associated with this Mojave product. The recalled product was distributed only in southern California and sold in retail stores. The following product is being recalled. McCormick & Co. has contracts and receives continual food ingredients from Mojave Foods in regards to a number of food products including walnuts. Fortunately, no lawsuits or wrong doing was caused by this incident however, the stock took a minor hit for a short period which is similar to previous food recalls in the past. This continues to be a risk of the company when dealing with suppliers. Beard Appointed President of McCormicks Asia/Pacific Operations Bloomberg January 07, 2011 Paul Beard, most recently Senior Vice President, Finance and Treasurer for McCormick and Company, Incorporated (NYSE:MKC) has been appointed President of McCormicks Asia Pacific Zone, effective January 1, 2011. Mr. Beard joined McCormick more than 28 years ago and spent most of his earlycareer in the accounting and finance roles in McCormicks U.S. retail business. He became Vice President Finance for McCormicks U.S. Industrial business in 1996 and was promoted to President of McCormick Canada in 1997. He was made Vice President and General Manager of the U.S. Industrial Business. In 2002, he became Vice President, Finance and Treasurer and was promoted to his most recent position five years later. Changes within McCormick Consumer Sales Organization Business Wire January 07, 2011 New appointments have been made within McCormick and Company, Incorporateds (NYSE:MKC) U.S. Consumer Products Division (USCPD). The appointments were made to align McCormicks organizational strategy, to best leverage the companys capabilities with U.S.-based and global strategic customers. Rick Morse was appointed Vice President, Global Customers USCPD. In his role, Rick will lead McCormicks initiatives to drive sales with customers based in the U.S. as they expand in International markets. Ed Landry has been promoted to Vice President, Sales
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USCPD. Ed will lead customer teams and broker partners responsible for growing McCormicks business with retail grocery customers. Both positions will report to Ken Stickevers, President U.S. Consumer Products Division. Rick and Ed are both passionate business leaders who each bring strong leadership skills to their new positions. I am excited about the growth these new roles will enable for our customers and McCormick, said Mr. Stickevers. Management has stated the importance of their sales team and marketing of the McCormick brand going into the future. This is a key core competency that has continually helped to separate MKC from its competitors allowing it to maintain 21% market share, being the industry leader. INDUSTRY Current Performance Despite the weakening global economy the spice, seasoning and sauce production industry has remained resilient for the past five years. Since 2005, the industry has received fairly consistent growth in revenues and profits despite facing a number of economic challenges including increasing commodity prices, lower consumer spending levels, evolving ethnic food preferences and a mature marketplace. These economic factors have forced consumers to place a higher emphasis on preparing and eating food at home in order to save money. This trend has favored the industry as a whole due to a majority of its products being spices, herbs, salt and seasonings are used in the consumption of home cooked meals for preparation of various meats, snacks and salads. Industrial purchases from this industry have also seen relative increases from the economy towards the production of prepared meals and introductions of new products. This increase has also been spurred by the changing ethnic makeup of the US population driving demand for new diverse flavor combinations. The industry is dominated by a few large players that obtain a large percentage of market share and control within the industry amongst distributors and producers. McCormick & Company, Incorporate currently holds 21% of the market share within the Seasoning, Sauce and Condiment Industry within the U.S. Unilever and Kraft Foods Inc hold the second and third largest market share at eight and seven percent respectively. These larger players within the industry have a large advantage within the industry to capitalize on the value added during the production process and brand loyalty provided higher margins. Despite efforts to increase margins, the five years leading up to 2010 have seen industry profits before taxes decrease by roughly 3.2% per year accounting for $2.00 billion dollars. In order for larger firms to remain competitive within the industry, it is crucial that they place a large emphasis on innovation towards new, fresh ingredients, increased branding and recipe promotion, in addition to aggressive marketing and strategic alliances with suppliers and distributors. During the five years to 2010 the industry has seen moderate expansion within the global recession. Participation and growth of establishments has increased annually by 1% during this time period to a total of 653 companies.
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Employment within the industry has follow suit growing at a rate of 0.3% to 2010 with a total of 31,200 workers nationally. Wages of employees have grown faster than the increase in employment due to a higher demand for qualified human capital investments in production and technology. Industry Outlook The Seasoning, Sauce and Condiment Production industry is expected to see similar growth during the next five years through 2015. Price sensitive consumers will continue to assist industry growth through their demand for homemade food consumption. Many of the drivers for growth seen from 2005 to 2010 will continue to promote growth through 2015. This includes an increased demand for changing ethnic flavors and ingredients, in addition to continual innovation for new tastes. Industry revenues are estimated to increase at an annual rate of 0.7% during the five years to 2015 totaling $15.90 billion dollars. Increasing technology within the production of food ingredients will increase margins in the future for larger players within the industry. Production volumes of consumer ingredients are expected to increase during the next five years. This is largely contributed to the expected 1.5% increase in price for domestic processed foods leading up to 2015. The industry as a whole is expected see estimated net profits of 14% of revenue by 2015 which equates to annual earnings growth of 2.2% per year. International growth within the industry is expected to be a positive catalyst for growth into the future. Exports within the spice and seasonings industry are expected to increase at an annual growth rate of 9.0% through 2015. Demand internationally is expected to increase most noticeably in Canada and Mexico, while demand in Australia , various European countries and Saudi Arabian is expected to increase substantially in the future beyond 2015. During this same period the supermarket and grocery store industry is expected to see a slight decrease in growth to 0.3% annually through 2015. This is largely contributed to economic expectations that the U.S. will slowly pull out of the recession and consumers will have a slightly less focus on saving money cooking from home and place a higher emphasis on takeout and restaurant meals. Due to the industry being well established and mature, a majority of the growth will come in conjunction to population increases and immigration into the U.S.

McCormick & Company, Inc.

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Price of Vegetables Domestic Industry experts predict that as the economy improves over the next few years, the US government is expected to raise interest rates in 2012 to 2013 which will improve the value of the dollar, thus making imports cheaper which has the ability to decrease demand for domestic vegetable purchases. This could lower prices during this period which could also receive an additional decrease influence if the US government chooses to remove vegetable growing regulations. Demand for healthier eating habits in addition to increased desire for organic production has the ability to increase prices. Secondly, if the price of oil increases into the future as anticipated, the cost of transportation will directly increase the price of vegetable commodities. However, U.S. restrictions on imports and exports should keep prices fairly consistent with an expected annual increase rate of 0.7% through 2014.

S.W.O.T. ANALYSIS
Strengths Leading international market position at an estimated 21% market share. Large focus on R&D continues to develop new products and increase. Healthy relationship with supply partners and global distributors. Large portfolio of established brands with customer loyalty.

Weaknesses Product & ingredient recalls decrease brand image. A few key customers provide a large percentage of company sales.

Opportunities Threats Currency exchange rate fluctuations may negatively affect financial performance. Large number of competitors within the Spice, Herbs and Seasonings Industry. Increased oil prices increasing transportation costs. Increase demand toward healthy nutritional foods. Higher percentage of consumers preparing in-home meals.

McCormick & Company, Inc. PORTERS 5 FORCES ANALYSIS Supplier Power Medium

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Ingredients and materials purchased from suppliers have the ability to fluctuate in price and quantities depending on commodity price changes and location. These changes can occur due to variability in the market, political instability, weather and growth conditions, government regulations and other factors internationally beyond McCormicks control. McCormick has not used derivatives to manage risk however, as stated they continue to put forth an effort to leverage their many international distributors, in addition to purchasing large quantities for future delivery. Barriers to Entry Medium/High The food and spice industry is highly competitive with a number of large conglomerates that have obtained strategic agreements for distribution both domestically and in an international basis. Firms have generally been established for a long period of time which has allowed for developed relationships with customers. Food manufacturing for these larger firms is more cost efficient due to their increased availability of suppliers, in addition to advanced technologies to improve margins giving a higher competitive advantage. Buyer Power High The food industry is highly competitive with a number of key players providing a large bulk of sales on a national and international scale. Companies such as Walmart and large distribution chains have the ability to strategically consolidate in order to leverage their buying power from wholesalers such as McCormick and Company. Consolidating within the US and the European Union allows these companies to resist price increases, demand tailored products, decrease inventories and shift shelf space towards private labels. These factors give McCormick customers a large amount of buyer power. Threat of Substitutes High Due to the availability of many food distributors and competitors within the food industry, competition is highly based upon price, quality, product array, innovation and brand recognition. Companies continually face a large amount of pressure to provide continual product innovations for a lesser cost. In order to stay competitive, it is essential that they place an emphasis on technology and improved production techniques in order to produce foods at lesser costs yielding higher margins. Degree of Rivalry Medium Evaluation of the four factors stated above, McCormick operates in a highly competitive industry in which larger firms receive a substantial competitive advantage due to the availability of increased resources, improve production technologies and distribution channels. Buyers within the seasoning and spice industry have a large amount of purchasing power depending on their size from these producers.

McCormick & Company, Inc. COMPARABLES ANALYSIS

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To identify McCormicks competitor and comparable companies I placed a focus on identifying companies with an international focus that compete for the same shelf space of McCormicks many customers. I also placed a large focus on the similar risks of my comparables in regard to international and domestic fluctuations. The five companies I identified were Campbell Soup Company, ConAgra Foods, Inc. H.J. Heinz Company, Sara Lee Corp and J.M. Smucker Company. These companies were weighted differently based off of their similarities of margins and risks associated to McCormick and Company. Valuation Metrics For my comparable analysis I used four valuation metrics each with an equal weighting. My Metrics included EV/Revenue, EV/Operating Cash Flow, EV/Gross Profit and EV/EBITDA. I had initially hoped to evaluate EV/Free Cash Flow however, an outlier provided by Sara Lee Corp having a small amount of free cash flow provided an inaccurate projection, and therefore it was not used. My comparable analysis provides a target price of $36.84 in comparison to MKC current price of $46.06. CAMPBELL SOUP COMPANY (CPB) 25% Campbell Soup Company, together with its subsidiaries, engages in the manufacture and marketing of branded convenience food products worldwide. The companys U.S. Soup, Sauces, and Beverages segment offers condensed and ready-to-serve soups; broth, stocks, and canned poultry; pasta sauces; Mexican sauces; canned pastas, gravies, and beans; juices and beverages; and tomato juices. Its Baking and Snacking segment provides cookies, crackers, and bakery and frozen products in the United States; and biscuits in Australia and the Asia Pacific. The companys International Soup, Sauces, and Beverages segment offers soups, sauces, and beverages in Europe, Latin America, and the Asia Pacific region, as well as in the Russian Federation, China, and Canada. Its North America Foodservice segment distributes various products, such as soup, specialty entrees, beverage products, other prepared foods, and farm products through various food service channels in the United States and Canada. The company markets its products directly, as well as through broker and distributor arrangements. Its customers include retail food chains, mass discounters, mass merchandisers, club stores, convenience stores, drug stores and other retail, and commercial and non-commercial establishments. Campbell Soup Company was founded in 1869 and is headquartered in Camden, New Jersey. (Yahoofinance.com) Campbells currently has the lowest beta of the comparables at 0.27 which was received through a five year regression. Both companys betas in addition to gross and EBIT margins were very similar. In addition, the risk levels of both companies both domestically and internationally provide an accurate comparable analysis between the two. Net Margins for Campbells were roughly seven percent larger. These companies share a large number of distributors and customers internationally and deal with fluctuations in sales due to seasonality.

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CONAGRA FOODS, INC. (CAG) 15%

ConAgra Foods, Inc. operates as a food company in North America and internationally. It operates in two segments, Consumer Foods and Commercial Foods. The Consumer Foods segment provides branded, private label, and customized food products, which are sold in various retail and foodservice channels. It offers products in the categories of meals, entrees, condiments, sides, snacks, and desserts; and frozen, refrigerated, and shelf-stable temperature classes. This segment offers its products under the Alexia, ACT II, Banquet, Blue Bonnet, Chef Boyardee, DAVID, Egg Beaters, Healthy Choice, Hebrew National, Hunts, Marie Callenders, Orville Redenbachers, PAM, Peter Pan, Reddi-wip, Slim Jim, Snack Pack, Swiss Miss, Van Camps, and Wesson brands. The Commercial Foods segment provides commercially branded foods and ingredients principally to foodservice, food manufacturing, and industrial customers. Its primary products include specialty potato products, milled grain ingredients, various vegetable products, seasonings, blends, and flavors. This segment sells its products under the as ConAgra Mills, Lamb Weston, and Spicetec brands. The company was founded in 1919 and is headquartered in Omaha, Nebraska. (Yahoofinance.com) McCormick and Conagra currently compete within the same segment of sauces and condiments however, this accounts for only a percentage of ConAgras annual revenue. In addition to these products, ConAgra produces and sells various types of premade meals and frozen entrees. These products are produced, and distributed internationally as well which allows the companies to face the same risks in regard to customer relations, currency fluctuations and foreign instability and production. ConAgra has a much smaller gross margin than that of MKC in addition to its EBITDA and Net Margin. H.J. HEINZ COMPANY (HNZ) 25% H. J. Heinz Company manufactures and markets food products for consumers, foodservice, and institutional customers. It offers ketchup, condiments and sauces, frozen food, soups, desserts, entrees, snacks, frozen potatoes, appetizers, beans and pasta meals, infant nutrition, and other processed food products. The company also owns or leases office space, warehouses, distribution centers, and research and other facilities. It sells its products through its sales organizations, independent brokers, agents, and distributors to grocery accounts, convenience stores, bakeries, pharmacies, mass merchants, club stores, and foodservice distributors, as well as to institutions, including hotels, restaurants, hospitals, health-care facilities, and various government agencies. H. J. Heinz Company has operations in North America, Africa, Latin America, Europe, the Asia Pacific, and the Middle East. The company was founded in 1869 and is based in Pittsburgh, Pennsylvania. (Yahoofinance.com) H.J. Heinz Company provides similar condiments and sauce that compete with the products of McCormick and company in addition to frozen entrees and packaged foods. Both companies have production and distribution facilities internationally within many of the same geographical locations. Risks associated to fluctuations in sales and ingredient costs are also quite similar for both companies. Heinz currently has a beta of 0.56 in comparison to MKCs beta of 0.42. EBITDA margins and net margins for both companies are quite similar.

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SARA LEE CORP. (SLE) 15% Sara Lee Corporation engages in the manufacture and marketing of a range of branded packaged meat, bakery, and beverage products worldwide. Its packaged meat products include hot dogs and corn dogs, breakfast sausages, sandwiches and bowls, smoked and dinner sausages, premium deli and luncheon meats, bacon, beef, turkey, and cooked ham. It also offers fresh and frozen baked products, which comprise bread, buns, bagels, rolls, muffins, specialty bread, frozen pies, cakes, cheesecakes, pastries, and other desserts. In addition, Sara Lee provides roast, ground, and liquid coffee; cappuccinos; lattes; and hot and iced teas, as well as refrigerated dough products. The company sells its products under Hillshire Farm, Ball Park, Jimmy Dean, Sara Lee, State Fair, Earth Grains, Colonial, Rainbo, Holsum, IronKids, Mothers, Sunbeam, Sun-Maid, San Luis Sourdough, Heiners, Douwe Egberts, Senseo, Maison du Caf, Marcilla, Merrild, Pickwick, Caf Caboclo, Caf Pilo, Bimbo, CroustiPate, Ortiz, and BonGateaux brand names. Sara Lee sells its products to mass retailers, supermarkets, mass merchandisers, distributors, restaurants, hospitals, warehouse clubs, national chains, and other institutions through direct sales force and outside brokers. The company was formerly known as Consolidated Foods Corporation and changed its name to Sara Lee Corporation in 1985. Sara Lee Corporation was founded in 1939 and is based in Downers Grove, Illinois. (Yahoofinance.com) Sara Lee produces and distributes products to the many of the same companies as McCormick, however it places a higher emphasis on producing various types of bread, pastry, desserts and coffee products. These two companies do not compete directly but still face a majority of the same risks and changes within the food industry. Sara Lee has lower margins than that of McCormick with a gross margin of 37%, in addition to its net margin of 5%.

J.M. SMUCKER COMPANY (SJM) 20%

The J. M. Smucker Company engages in the manufacture and marketing of branded food products in the United States and internationally. Its principal products include coffee, peanut butter, shortening and oils, fruit spreads, canned milk, baking mixes and ready-to-spread frostings, flour and baking ingredients, juices and beverages, frozen sandwiches, dessert toppings, syrups, and pickles and condiments. The company offers its products under various brands comprising Folgers, Dunkin Donuts, Smuckers, Jif, Hungry Jack, Uncrustables, Snackn Waffles, Dickinsons, Crosse & Blackwell, Adams, Laura Scudders, Goober, Golden Temple, and Magic Shell, Crisco, Pillsbury, Eagle Brand, Borden and Elsie design, and Martha White. It also provides its products under the LaPina, White Lily, Softasilk, Funfetti, Pet, Plate Scapers, Bicks, Five Roses, Robin Hood, Carnation, Europes Best, R. W. Knudsen Family, Santa Cruz Organic, Double Fruit, Recharge, and Red River brand names. The company sells its products through direct sales and brokers to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, and military commissaries; and through retail channels, and health and natural foods stores and distributors, as well as through foodservice distributors and operators, such as restaurants, schools and universities, and healthcare operators. The J. M. Smucker Company was founded in 1897 and is head quartered in Orrville, Ohio. (Yahoofinance.com)

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The beta for J.M. Smuckers was calculated similarly to MKC using a five year regression yielding a beta of 0.65. It should be noted that growth of the company has been volatile due to its large number of acquisitions in 2008 & 2009 which created a period of volatility in its metrics and sales increases of nearly fifty percent during the annual year. Net Margins for both comparable companies are the same at 11%, figures for the remaining margins were fairly correlated in addition to seasonality and sales growth internationally.

DISCOUNTED CASH FLOW ANALYSIS Within my discounted cash flow analysis I placed a focus on projections using management guidance which has historically been an accurate measure for the direction and growth of the company. I used a percentage of revenue method to evaluate these historical trends and spent time evaluating recent changes implemented by the company both in the U.S. and abroad. My projections were based off of expectations of consumer spending going into the future, company guidance, industry outlook and analysts opinions. The DFC analysis yields an implied price of $46.13 provided an undervaluation of.16% in reference to McCormicks current price of $46.06.

Beta
McCormick has historically received a low beta due to its growth receiving a minimal influence off of market and economic fluctuations. I ran both a five and ten year monthly regression based off of returns against the S&P 500. The regression for the ten year provided a 0.32 beta which I felt was too low and felt the position of the company is much more correlated to the past five years in terms of market fluctuations and growth. Industry analysts and management feel the next five year outlook should be fairly similar to the past five in regards to growth and returns. I calculated a beta of 0.43 from the five year regression for McCormick & Company and which I kept consistent for my comparables. McCormicks beta of 0.43 is similar to that of the five comparable companies.

Revenue
McCormicks revenue is shown in two separates segments as a cumulative sum of domestic and international sales. Its consumer segment has seen consistent growth over the past eight years and continue to be the bulk of its total revenue at 60%. Management feels their revenue growth should stay between five to seven percent for the next two years. This growth should receive continued support as the company continues to evaluate acquisition opportunities which have proven to add diversification of sales across regions and to customer tastes. Management has put forth an effort to be more cost sensitive towards customers needs which it has improved through restructuring changes and improvements in technology production which will have an immediate impact on both segments at an estimated 3 percent. Secondly, management feels through key growth initiatives sales should increase in 2011 by 3-4 percent. Consumer Despite receiving increased pressures from the global recession, McCormick has seen substantial growth in the past five years. Consumers demand for home cooked meals has increased as people substitute take out and restaurant visits in order to save money. Cost cautious consumers should continue this trend going into the future however, as the economy improves this demand should decrease slightly going into the terminal year. Revenue growth within McCormicks consumer segment is highly dictated by continued innovation of newer products in order to appeal to a larger customer base which should continue into the future.

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Industrial Industrial revenue should see less of an effect upon the economy going into the future in comparison to its joint segment of consumer products. As large food producers and grocery chains continue to develop their own brand name for food products and ingredients going into the future, sales should stay relatively consistent but modest for the industrial segment. McCormick also continues to develop its relationship and contracts with large food chains which should add stability and mitigate risk going into the future. Management feels its agreements with its key customers being Walmart, PepsiCo are well established and will continue to be profitable going into the future. The growth of these large conglomerates will continue to have a direct impact on the companys growth.

Cost of Revenue
A large cost of revenue for the company comes directly from pricing fluctuations of agricultural commodities and dairy ingredients. In order to mitigate risk and avoid large fluctuations in ingredient prices, McCormick purchases ingredients in bulk in order to maintain a cost of revenue which has historically stayed between 57 and 59 percent of revenue. Increases in commodity costs and transportation will be offset going into the future through increased technology improvements for production and distribution of McCormick products.

Selling and Administrative Expenses

McCormicks sales department has proven to be one of the core competencies of the company which it finances heavily in comparison to other industry competitors. Recent restructuring changes have been an example of this in order to expand this influence within both domestic and international sales. SG&A has historically been a percentage of revenue at roughly 27 percent; however going into the future management has recently stated that this has the potential to increase depending on company needs and growth.

Tax Rate

During the past 4th quarter conference call, management had stated that they expect a 31% tax rate going into the future. I continued this tax rate into perpetuity based off of their expectations for growth and continued acquisition outlook.

Net Working Capital

I projected McCormicks current assets and liabilities based off of historical ratios and recent improvements implemented by management. Current assets have historically stayed at roughly 30.5% of revenue which I have trending down into the terminal year. Short term liabilities continue at an average projection of revenue at roughly 26% which has fluctuated slightly in years past based off of short term borrowings for large acquisitions. Management has stated that this trend will continue in the future which I considered going into the terminal year. Due to large fluctuations of seasonality which is consistent with the industry due to the holiday season, management has historically increased its inventory during the third quarter. Ingredient inventory and receivables are paid for through short-term borrowings.

Acquisitions

Acquisitions continue to be a large focus for growth of McCormick and recent activities within the past ten years provide a large bulk of current revenues. In order to meet the evolving needs of its customers, McCormick continues to provide new flavors with a global influence which is provided through their international production facilities. Over the past ten years acquisitions have consistently been a large focus for company growth and management states that this will continue into the future. Industry experts have stated that in order for companies to stay competitive in the future, this must be an increased focus for a competitive advantage.
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Capital Expenditures
Capital expenditures have historically been a consistent percentage of revenue which I projected into the future. Going into perpetuity I increased this percentage slightly based off historical trends and to meet the needs of the company as it develops. During the past fourth quarter conference call, management stated that its capital expenditures will be between 90 to 100 million dollar range. RECOMMENDATION When evaluating potential companies, I was drawn to McCormick due to its continued growth and success despite the economic factors facing the company. Having been established since 1889, the company has a substantial market share in comparison to its competitors and is rated as one of the 100 best companies to work for by Forbes Magazine. I also placed time evaluating the returns to investors over the past ten years and evaluating analysts opinions going into the future. My comparable analysis provided an implied price of $36.98, while receiving an implied price of $46.13 from my DCF analysis. I provided an equal weighting for these two valuations due to my confidence in my comparable companies in terms of risk and growth going into the future, in addition to growth expectations for McCormick going into the terminal year. Based off of my equal 50% weighting, I arrived at an implied price of $41.56 which suggests the current price of McCormick at $46.06 to be overvalued by 9.78%. Given the reasons stated I am recommending a HOLD for all portfolios for McCormick & Company, Inc.
Analysis Comparables Price DCF Price Weighted Target Price Current Price Overvalued Weighting 50% 50% Price $36.98 $46.13 $41.56 $46.06 9.78%

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McCormick & Company, Inc.

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($ in millions, except per share data) Stock Characteristics Current Price 50 Day Moving Avg. 200 Day Moving Avg. Beta Size ST Debt (MRQ) LT Debt (MRQ) Cash and Cash Equiv. (MRQ) Minority Interest Market Value Preferred Stock Diluted Share Count Market Cap Enterprise Value Profitability Margins Gross Margin EBIT Margin EBITDA Margin Net Margin Credit Metrics Interest Expense (MRQ) Debt/Equity (MRQ) Debt/EBITDA (LTM) EBITDA/Interest Expense (LTM) Operating Results Revenue (LTM) OCF(LTM) Gross Profit (LTM) EBITDA (LTM) Free Cash Flow (LTM) Valuation EV/Revenue EV/OCF EV/Gross Profit EV/EBITDA EV/Free Cash Flow MKC 25.00% 15.00% 25.00% 15.00% 20.00% CPB CAG HNZ SLE SJM

$46.06 $45.52 $43.49 0.43

$33.58 $34.62 $35.44 0.27

$22.76 $22.83 $22.26 0.73

$47.72 $48.46 $48.10 0.56

$17.01 $17.58 $15.61 0.83

$67.33 $63.38 $62.42 0.65

$0.00 $1,134.00 $779.50 $1,946.00 $50.80 $291.00 $0.00 $0.00 $0.00 $0.00 134.8 338 $6,208.89 $11,350.04 $6,937.59 $14,139.04 Max 45% 19% 23% 18% 67.00 0.32 2.34 58.27 $12,138.00 $1,385.40 $4,030.00 $1,903.50 $525.90 Min 25% 8% 12% 5% 18.50 0.13 1.21 10.94 $3,336.90 $387.50 $1,488.00 $577.40 $110.00 Avg. 37% 15% 18% 10% 43.77 0.24 1.86 35.43 $8,167.12 $885.22 $2,858.78 $1,344.73 $296.38 Median 37% 16% 18% 10% 44.40 0.27 1.97 32.33 $9,073.30 $928.50 $3,045.65 $1,445.75 $293.55 45% 17% 17% 11% 52.8 0.13 1.35 10.94 $3,336.90 $387.50 $1,488.00 $577.40 $160.30 2.08 x 17.90 x 4.66 x 12.02 x 43.28 x Metric EV/Revenue EV/OCF EV/Gross Profit EV/EBITDA EV/Free Cash Flow Price Target Current Price Over Valued Implied Price $35.06 $35.10 $44.61 $33.16 $51.82 $36.98 $46.06 24.54% 41% 18% 21% 18% 32 0.27 1.90 50.56 $7,645.00 $1,064.00 $3,117.00 $1,618.00 $395.00 1.85 x 13.29 x 4.54 x 8.74 x 35.80 x Weight 25.00% 25.00% 25.00% 25.00%

$356.70 $898.00 $2,879.90 $3,553.40 $545.20 $665.90 -$2.50 $17.50 $0.00 $0.00 441.6 322.5 $10,050.82 $15,389.70 $12,739.72 $19,192.70 25% 10% 13% 5% 56.3 0.32 2.04 28.18 37% 15% 18% 9% 67 0.29 2.34 28.41

$584.00 $0.00 $2,432.00 $1,300.00 $1,125.00 $535.50 $7.00 $0.00 $0.00 $0.00 642 118.4 $10,920.42 $7,971.87 $12,818.42 $8,736.37 37% 8% 12% 5% 36 0.28 2.31 36.25 37% 19% 23% 11% 18.5 0.16 1.21 58.27

$12,138.00 $10,501.60 $1,134.60 $1,385.40 $2,974.30 $3,846.80 $1,586.50 $1,903.50 $328.50 $525.90 1.05 x 11.23 x 4.28 x 8.03 x 38.78 x 1.83 x 13.85 x 4.99 x 10.08 x 36.49 x

$10,780.00 $4,601.20 $793.00 $546.80 $4,030.00 $1,696.60 $1,305.00 $1,078.00 $110.00 $258.60 1.19 x 16.16 x 3.18 x 9.82 x 116.53 x 1.90 x 15.98 x 5.15 x 8.10 x 33.78 x Weighted Avg. 1.63 x 14.09 x 4.53 x 9.00 x 48.13 x

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The University of Oregon Investment Group

($ in millions, except per share data) 2007 2008 2009 Total Company Revenue $2,916.20 $3,176.60 $3,192.10 % Y/Y Growth 8.20% 0.49% Cost of Revenue $1,724.40 $1,888.40 $1,864.90 % Revenue 59.13% 59.45% 58.42% Gross Profit $1,191.80 $1,288.20 $1,327.20 Gross Margin 40.87% 40.55% 41.58% Operating Expenses SG&A $806.90 $870.60 $846.60 % Revenue 27.67% 27.41% 26.52% Impairment Charge $0.00 $29.00 $0.00 % Revenue 0.00% 0.91% 0.00% Restructuring Charges $0.00 $12.10 $13.70 % Revenue 0.00% 0.38% 0.43% Total Operating Expenses $806.90 $911.70 $860.30 % Revenue 27.67% 28.70% 26.95% Operating Profit $384.90 $376.50 $466.90 % Revenue 13.20% 11.85% 14.63% Other (Expense) Income $28.70 $18.00 $2.40 % Revenue 0.98% 0.57% 0.08% Interest Expense $60.60 $56.70 $52.80 % Revenue 2.08% 1.78% 1.65% Pre-tax Income $353.00 $337.80 $416.50 % Revenue 12.10% 10.63% 13.05% Less Taxes (Benefit) $92.20 $100.60 $133.00 Tax Rate 26.12% 29.78% 31.93% Net Income $260.80 $237.20 $283.50 Net Margin 8.94% 7.47% 8.88% Add Back Depreciation and Ammortization $82.60 $85.60 $94.30 % Revenue 2.83% 2.69% 2.95% Add Back Interest Expense*(1-Tax Rate) $44.77 $39.81 $35.94 % Revenue 1.54% 1.25% 1.13% Operating Cash Flow $388.17 $362.61 $413.74 % Revenue 13.31% 11.42% 12.96% Current Assets $983.10 $968.30 $970.50 % Revenue 33.71% 30.48% 30.40% Current Liabilities $861.30 $1,034.10 $818.20 % Revenue 29.54% 32.55% 25.63% Net Working Capital $121.80 -$65.80 $152.30 % Revenue 4.18% -2.07% 4.77% Change in Net Working Capital $2.90 -$187.60 $218.10 Capital Expenditures $78.50 $85.80 $82.40 % Revenue 2.69% 2.70% 2.58% Acquistions $15.90 $693.30 $0.00 % Revenue 0.55% 21.83% 0.00% Unlevered Free Cash Flow $290.87 -$228.89 $113.24 Discounted Unlevered Free Cash Flows 1 2 3 4 5 6 2010 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E $3,336.80 $3,538.99 $3,714.54 $3,879.21 $4,037.65 $4,191.23 $4,342.28 4.34% 6.06% 4.96% 4.43% 4.08% 3.80% 3.60% $1,919.10 $2,063.23 $2,161.86 $2,254.60 $2,343.86 $2,430.91 $2,516.35 57.51% 58.30% 58.20% 58.12% 58.05% 58.00% 57.95% $1,417.70 $1,475.76 $1,552.68 $1,624.61 $1,693.79 $1,760.31 $1,825.93 42.49% 41.70% 41.80% 41.88% 41.95% 42.00% 42.05% $907.90 $943.14 $993.64 $1,039.63 $1,088.15 27.21% 26.65% 26.75% 26.80% 26.95% $0.00 $0.00 $0.00 $0.00 $0.00 0.00% 0.00% 0.00% 0.00% 0.00% $0.00 $7.17 $5.94 $2.72 $2.02 0.00% 0.20% 0.16% 0.07% 0.05% $907.90 $950.31 $999.58 $1,042.34 $1,090.17 27.21% 26.85% 26.91% 26.87% 27.00% $509.80 $525.45 $553.10 $582.27 $603.63 15.28% 14.85% 14.89% 15.01% 14.95% $2.20 $10.62 $11.14 $13.58 $16.15 0.07% 0.30% 0.30% 0.35% 0.4000% $49.30 $0.00 $0.00 $0.00 $0.00 1.48% 0.00% 0.00% 0.00% 0.00% $462.70 $536.07 $564.24 $595.85 $619.78 13.87% 15.15% 15.19% 15.36% 15.35% $118.00 $166.18 $174.91 $184.71 $192.13 25.50% 31.00% 31.00% 31.00% 31.00% $344.70 $369.89 $389.32 $411.13 $427.65 10.33% 10.45% 10.48% 10.60% 10.59% $95.10 $100.15 $105.12 $109.78 $114.27 2.85% 2.83% 2.83% 2.83% 2.83% $36.73 $0.00 $0.00 $0.00 $0.00 1.10% 0.00% 0.00% 0.00% 0.00% $476.53 $470.04 $494.45 $520.92 $541.91 14.28% 13.28% 13.31% 13.43% 13.42% $1,015.90 $1,098.86 $1,153.74 $1,197.90 $1,234.71 32.00% 31.05% 31.06% 30.88% 30.58% $834.80 $924.38 $975.07 $1,017.91 $1,061.90 29.00% 26.12% 26.25% 26.24% 26.30% $181.10 $174.47 $178.67 $180.00 $172.81 5.43% 4.93% 4.81% 4.64% 4.28% $28.80 -$6.63 $4.20 $1.33 -$7.18 $89.00 $95.55 $102.15 $106.68 $111.04 2.67% 2.70% 2.75% 2.75% 2.75% $46.90 $88.47 $102.15 $106.68 $121.13 1.41% 2.50% 2.75% 2.75% 3.00% $311.83 $292.64 $285.95 $306.23 $316.93 $275.24 $252.95 $254.78 $248.00 $1,133.73 27.05% $0.00 0.00% $1.26 0.03% $1,134.98 27.08% $625.33 14.92% $16.76 0.4000% $0.00 0.00% $642.10 15.32% $199.05 31.00% $443.05 10.57% $119.03 2.84% $0.00 0.00% $562.08 13.41% $1,280.84 30.56% $1,104.39 26.35% $176.45 4.21% $3.64 $115.26 2.75% $146.69 3.50% $296.49 $218.21 $1,183.27 27.25% $0.00 0.00% $0.00 0.00% $1,183.27 27.25% $642.66 14.80% $17.37 0.4000% $0.00 0.00% $660.03 15.20% $204.61 31.00% $455.42 10.49% $123.32 2.84% $0.00 0.00% $578.74 13.33% $1,323.09 30.47% $1,146.80 26.41% $176.30 4.06% -$0.15 $121.58 2.80% $160.66 3.70% $296.65 $205.34

7 8 9 10 2017 E 2018 E 2019 E 2020 E $4,484.84 $4,619.38 $4,757.96 $4,900.70 3.28% 3.00% 3.00% 3.00% $2,596.72 $2,673.24 $2,750.10 $2,832.61 57.90% 57.87% 57.80% 57.80% $1,888.12 $1,946.14 $2,007.86 $2,068.10 42.10% 42.13% 42.20% 42.20% $1,226.60 27.35% $0.00 0.00% $0.00 0.00% $1,226.60 27.35% $661.51 14.75% $17.94 0.4000% $0.00 0.00% $679.45 15.15% $210.63 31.00% $468.82 10.45% $127.37 2.84% $0.00 0.00% $596.19 13.29% $1,359.80 30.32% $1,181.75 26.35% $178.05 3.97% $1.75 $125.58 2.80% $179.39 4.00% $289.47 $188.46

McCormick & Company, Inc.

$1,268.02 27.45% $0.00 0.00% $0.00 0.00% $1,268.02 27.45% $678.13 14.68% $19.63 0.4250% $0.00 0.00% $697.76 15.11% $216.30 31.00% $481.45 10.42% $131.19 2.84% $0.00 0.00% $612.64 13.26% $1,397.36 30.25% $1,218.13 26.37% $179.23 3.88% $2.78 $131.65 2.85% $184.78 4.00% $293.43 $179.68

$1,313.20 27.60% $0.00 0.00% $0.00 0.00% $1,313.20 27.60% $694.66 14.60% $20.22 0.4250% $0.00 0.00% $714.88 15.03% $221.61 31.00% $493.27 10.37% $135.60 2.85% $0.00 0.00% $628.87 13.22% $1,439.28 30.25% $1,256.10 26.40% $183.18 3.85% $6.88 $135.60 2.85% $202.21 4.25% $284.17 $163.66

$1,352.59 27.60% $0.00 0.00% $0.00 0.00% $1,352.59 27.60% $715.50 14.60% $20.83 0.4250% $0.00 0.00% $736.33 15.03% $228.26 31.00% $508.07 10.37% $139.67 2.85% $0.00 0.00% $647.74 13.22% $1,482.46 30.25% $1,293.78 26.40% $188.68 3.85% $10.63 $139.67 2.85% $208.28 4.25% $289.16 $156.63

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APPENDIX 3 DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS

Assumptions for Discounted Free Cash Flows Model Tax Rate 31% Terminal Growth Rate Risk-Free Rate 3.62% Terminal Value Beta 0.430 PV of Terminal Value Market Risk Premium 7% Sum of PV Free Cash Flows % Equity 88.85% Firm Value % Debt 11.15% LT Debt Cost of Debt 5.62% Cash CAPM 6.630% Equity Value WACC 6.32% Diluted Share Count Implied Price Current Price Under Valued

3% $8,962.76 $4,854.78 $2,142.94 $6,997.72 779.5 50.8 $6,218.22 134.8 $46.13 $46.06 -0.15%

APPENDIX 4 BETA SENSITIVITY ANALYSIS

Beta 0.649730146 0.595 0.539865073 0.484932537 0.43 0.375 0.320134927 0.265 0.210269854

St. Deviation 2.00 1.50 1.00 0.50 0.00 -0.50 -1.00 -1.50 -2.00

Implied Price Under (Over) Valued $34.29 $35.68 $37.31 $39.24 $41.56 $44.40 $47.99 $52.63 $58.89 -25.54% -22.53% -19.00% -14.82% -9.78% -3.59% 4.18% 14.27% 27.86%

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($ in millions, except per share data)

(in thousands) Consumer Food % Growth % Revenue Industrial Food % Growth % Revenue Total Sales % Growth

McCormick & Company, Inc.

2006A 2007A 2008A 2009A 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E $1,556.40 $1,671.30 $1,850.80 $1,911.20 $1,999.00 $2,124.94 $2,239.68 $2,348.31 $2,451.63 $2,549.70 $2,646.59 $2,736.57 $2,818.67 $2,903.23 $2,990.33 11.00% 7.38% 18.92% 3.26% 4.59% 6.30% 5.40% 4.85% 4.40% 4.00% 3.80% 3.40% 3.00% 3.00% 3.00% 57.30% 57.31% 58.26% 59.87% 59.91% 60.04% 60.30% 60.54% 60.72% 60.83% 60.95% 61.02% 61.02% 61.02% 61.02% $1,160.00 $1,244.90 $1,325.80 $1,280.90 $1,337.80 $1,414.05 $1,474.86 $1,530.90 $1,586.02 $1,641.53 $1,695.70 $1,748.26 $1,800.71 $1,854.73 $1,910.37 -2.50% 7.32% 6.50% -3.39% 4.44% 5.70% 4.30% 3.80% 3.60% 3.50% 3.30% 3.10% 3.00% 3.00% 3.00% 42.70% 42.69% 41.74% 40.13% 40.09% 39.96% 39.70% 39.46% 39.28% 39.17% 39.05% 38.98% 38.98% 38.98% 38.98% $2,716.40 $2,916.20 $3,176.60 $3,192.10 $3,336.80 $3,538.99 $3,714.54 $3,879.21 $4,037.65 $4,191.23 $4,342.28 $4,484.84 $4,619.38 $4,757.96 $4,900.70 4.80% 7.36% 8.93% 0.49% 4.53% 6.06% 4.96% 4.43% 4.08% 3.80% 3.60% 3.28% 3.00% 3.00% 3.00%

APPENDIX 5 REVENUE PROJECTIONS

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McCormick & Company, Inc. APPENDIX 6 SOURCES MKC 10-K, 10-Q, Conference call Yahoo! Finance Google Finance Reuters Bloomberg SEC.gov McCormick website Adam Vinton CNN Money Fox News Business Week Smuckers.com Heinz website FactSet

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