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It has been about a month since the last earnings report for International Flavors (IFF). Shares have added about 2.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is International Flavors due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
International Flavors Q3 Earnings & Sales Lag Estimates
International Flavors reported adjusted earnings of $1.40 per share in third-quarter 2020, missing the Zacks Consensus Estimate of $1.45. The bottom-line figure also declined 8.5% from the year-ago quarter.
Including one-time items, earnings per share in the third quarter came in at 75 cents per share compared with the $1.13 per share recorded in the year-ago quarter.
In the reported quarter, International Flavors’ net sales were $1.27 billion, flat year over year. The top-line figure missed the Zacks Consensus Estimate of $1.28 billion. During the September-end quarter, currency neutral sales inched up 1%, reflecting year-over-year growth in Scent division.
During the July-September quarter, International Flavors’ cost of goods sold was up 1% year over year to $744 million. Adjusted gross profit edged down 1.1% year over year to $524 million. Adjusted gross margin came in at 41% compared with the 42% witnessed in the year-ago quarter.
Research and development expenses flared up 6% year over year to around $90 million. Adjusted selling and administrative expenses slid 1% year on year to $194 million during the third quarter. Adjusted operating profit declined 3.8% year over year to $193 million. Adjusted operating margin came in at 15.2% compared with the year-earlier quarter’s 15.8%.
Revenues in the Taste segment dipped 2.2% year over year to $765 million during the September-end quarter. On a constant-currency basis, revenues declined 1% year over year. Food Service continued to witness pressure, declining double-digits on a reported and currency neutral basis. Operating profit fell 15.7% year on year to $102 million.
Revenues generated in the Scent segment came in at $503 million, up 3.7% year over year. On a constant-currency basis, revenues were up 4% year over year. Growth in Consumer Fragrance remained solid, while Fine Fragrance declined in mid-teens on a reported and currency neutral basis, thanks to the temporary disruptions of consumer access to retail markets due to the pandemic. Operating profit increased 14.8% year over year to $101 million.
International Flavors had cash and cash equivalents of $483 million as of Sep 30, 2020, down from $624 million as of Dec 31, 2019. Long-term debt declined to $3,891 million as of Sep 30, 2020, from $3,997 million as of Dec 31, 2019.
International Flavors generated $415 million of cash from operating activities during the nine-month period of the current year compared with the $383 million recorded in the prior-year period. Capital invested in purchasing property, plant and equipment totaled $124 million in the first nine months of the ongoing year compared to $160 million in the prior-year comparable period. Dividend paid summed $240 million in the first nine months of 2020.
International Flavors has not provided any guidance for the current year on account of the pandemic’s uncertain impact. Moreover, the company is facing a 400-basis-point sales headwind due to an additional sales week in fourth-quarter 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -9.96% due to these changes.
Currently, International Flavors has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise International Flavors has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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