International Flavors & Fragrances Inc. (IFF) reported first-quarter 2013 adjusted earnings per share of $1.19, up 19.0% from a year-ago earnings of $1.00. Results beat the Zacks Consensus Estimate of $1.13 by 5.3%.
During the quarter, IFF engaged in a restructuring of its business activities, with the intention to close the Flavors facility in Knislinge, Sweden and the Fragrances facility in Jakarta, Indonesia, along with the opening of a technologically-advanced Flavors manufacturing facility in Guangzhou, China.
Net sales in the reported quarter were approximately $727.8 million, up 2.4% year over year but below the Zacks Consensus Estimate of $752.0 million. On a constant currency basis, revenue inched up 3.0% year over year. Adjusted for the discontinuation of low-margin sales operations of the Flavors segment, sales grew 4.0% in constant currency.
The company operates in two segments: Flavors and Fragrances.
In the first quarter, revenue from the Flavors business increased 1.9% year over year to $356.4 million with a negligible impact from the foreign currency exchange and accounted for 49.0% of total revenue. Excluding the impact of the discontinuation, sales in this segment grew 6.0% in the quarter as compared to the year-ago quarter.
Revenue from the Fragrances business was roughly 51.0% of total revenue amounting to $371.5 million, up 3.0% on a constant currency basis.
From a geographical perspective, revenue from North America decreased 5.0% year over year, while results from EAME increased by 2.0%, or up 1.0% on a constant currency basis. Revenue from Latin America increased 9.0% or 11.0% on a constant currency basis and from Greater Asia revenue was up 6.0% or 8.0% on a constant currency basis.
Adjusted gross margin in the first quarter increased by 270 basis points to 42.9% based on lower raw material costs, improved sales mix and new business wins. Research and development expense, as a percentage of sales, increased by 5 basis points to settle at 8.1% while selling and administrative expense, as a percentage of sales, increased by 92 basis points to 15.8%.
Adjusted operating margin in the quarter was 19.1%, increasing 190 basis points from the year-ago quarter.
Exiting the first quarter, International Flavors & Fragrances’ cash and cash equivalents stood at $300.0 million compared with $324.4 million in the previous quarter. Long-term debt, net of current portion, was at $915.8 million, up from $881.1 million in the previous quarter.
In first quarter 2013, cash flow from operating activities was $18.7 million versus $52.6 million in the previous year quarter. The company spent $29.9 million on addition of property, plant and equipment against $28.8 million in the first quarter of 2012.
International Flavors & Fragrances is one of the leading companies engaged in the creation and manufacturing of fragrance and flavoring products in the United States and internationally.
The stock currently carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Nu Skin Enterprises Inc. (NUS) which carries a Zacks Rank #1 (Strong Buy); while Avon Products Inc. (AVP) and Methanex Corporation (MEOH) each carry a Zacks Rank #2 (Buy).
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