International Flavors & Fragrances Q2 Earnings Beat Estimates

Zacks

International Flavors & Fragrances Inc’s (IFF) adjusted earnings came in at $1.37 per share in second-quarter 2014, reflecting an increase of 20.2% from $1.14 earned in the year-ago quarter. The bottom-line result surpassed the Zacks Consensus Estimate of $1.35 per share.

Including one-time items, the company reported Generally Accepted Accounting Principles (:GAAP) earnings of $1.35 per share, up 8.9% year over year.

Revenues

International Flavors & Fragrances generated net revenues of $788.4 million, up 4.1% year over year, but below the Zacks Consensus Estimate of $795.0 million. On a constant currency basis, revenues climbed 4% year over year.
 
The company operates in two segments: Flavors and Fragrances.

Revenues from the Flavors business grew marginally by 0.4% year over year to $375.5 million, accounting for 47.6% of total revenue. On a constant currency basis, revenues increased 1% year over year.

The Fragrances business, comprising 52.4% of total revenue, generated $412.9 million revenues, up 7.6% year over year. On a constant currency basis, revenues rose 6% year over year.

From a geographical perspective, International Flavors & Fragrances' revenues from North America inched up 1% year over year; while revenues from Europe, Africa and the Middle East (:EAME) were up 7% year over year or 2% on a constant currency basis. Revenue from Latin American operations increased 4% year over year or 7% on a constant currency basis; while from Greater Asia, revenue was up 3% year over year or 6% on a constant currency basis.

Margins

International Flavors & Fragrances’ adjusted gross margin was 45.1%, up 90 basis points (bps) year over year on the back of new business wins, effective product mix, innovations and cost reductions. Research and development expense, as a percentage of sales, was at 8.4%, down 10 bps year over year, while selling and administrative expenses increased by 40 bps to 16.9%.

Adjusted operating margin was 19.8% versus 19.2% in the year-ago quarter. Interest expense came down by 11.3% to $11.4 million.

Balance Sheet

Exiting second-quarter 2014, International Flavors & Fragrances’ cash and cash equivalents were $326.9 million, up 21.7% from $268.6 million in the preceding quarter. Long-term debt inched up 0.11% sequentially at $932.6 million.

Cash Flow

International Flavors & Fragrances generated cash of $154.0 million from its operating activities in the first-half 2014 as compared with $118.0 million in the year-ago comparable period. Capital spending was $60.2 million, relatively flat year over year.

Cash dividends paid totalled $63.4 million in the first half of 2014, significantly above $27.7 million paid in the year-ago period.

Along with the earnings release, International Flavors & Fragrances announced that its board of directors, on Aug 4, had authorized an increase of 8 cents or 21% in the quarterly dividend rate. The revised rate now stands at 47 cents per share versus the earlier 39 cents and will be paid on Oct 7 to shareholders of record as on Sep 25.  

Outlook

International Flavors & Fragrances anticipates lower volume in North America for its Flavors business in third-quarter 2014. Taking this into account, the company lowered its 2014 sales growth guidance to the range of 4–6% from 5–7% projected earlier. The revised forecast includes 1% contribution from the Aromor acquisition.

Operating profit will be boosted by cost reductions and manufacturing efficiencies. International Flavors & Fragrances expects double-digits growth for both adjusted operating profit and adjusted earnings per share.

With a market capitalization of $7.8 billion, International Flavors & Fragrances presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Green Plains Inc. (GPRE), Minerals Technologies Inc. (MTX) and Globe Specialty Metals, Inc. (GSM). While Green Plains and Minerals Technologies sport a Zacks Rank #1 (Strong Buy), Globe Specialty Metals holds a Zacks Rank #2 (Buy).
 

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