International Flavors (IFF) Up 5.4% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for International Flavors (IFF). Shares have added about 5.4% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
International Flavors Q3 Earnings Beat Estimates, Decline Y/Y
International Flavors reported adjusted earnings of 89 cents per share in third-quarter 2023, beating the Zacks Consensus Estimate of earnings of 76 cents per share. The bottom line declined 35% from the year-ago quarter.
Including one-time items, the company reported earnings of 10 cents per share against the prior-year quarter’s loss of $8.60 per share.
International Flavors’ net sales declined 8% year over year to $2,820 million but surpassed the Zacks Consensus Estimate of $2,765 million. On a comparable basis, currency-neutral sales were down 3% compared with last year’s quarter.
Growth in Scent and Health & Biosciences was offset by weakness in the Nourish & Pharma Solutions segments. Pricing remained strong while volumes were down year over year. On a sequential basis, the company witnessed improvement in volumes across all segments.
Operational Highlights
In the reported quarter, International Flavors’ cost of goods sold was down 8% year over year to $1,896 million. The gross profit fell 8% year over year to $924 million. The gross margin was 32.8% compared with 32.7% in the year-ago quarter.
Research and development expenses increased 8% year over year to $157 million. The selling and administrative expenses rose 8% year over year to $444 million in the second quarter.
The adjusted operating EBITDA was $506 million, down 14% from the prior-year quarter’s $587 million. On a comparable basis, currency-neutral adjusted operating EBITDA declined 10% year over year as strong pricing and productivity gains were offset by lower volumes and unfavorable manufacturing absorption. The adjusted operating EBITDA margin was 17.9% compared with the year-ago quarter’s 19.2%.
Segment Performances
Revenues in the Nourish segment fell 15% year over year to $1,449 million in the September-end quarter. On a comparable basis, currency-neutral sales were down 9%. The figure came in higher than our estimate of segment sales of $1,395 million.
The segment’s adjusted operating EBITDA was $178 million, down 38% year over year. On a comparable basis, currency-neutral adjusted operating EBITDA declined 26%. Gains from price increases and productivity gains were more than offset by lower volumes and unfavorable manufacturing absorption related to the company's inventory reduction program. Our estimate for the segment’s adjusted EBITDA was $184 million.
Revenues generated in the Health & Bioscience segment were $518 million compared with the year-earlier quarter’s figure of $512 million. Currency-neutral sales rose 2% on a comparable basis. Growth was aided by Cultures & Food Enzymes, Grain Processing, Home & Personal Care and Animal Nutrition. Our estimate was $471 million for the same.
The adjusted operating EBITDA was $150 million in the quarter compared with $137 million in the prior-year quarter. Price increases and productivity gains led to the improvement. Our model had projected EBITDA of $114 million for the segment.
The Scent segment’s revenues were $615 million compared with the year-ago quarter’s $591 million. Currency-neutral sales improved 7%, led by double-digit growth in Consumer Fragrance and a high-single-digit increase in Fine Fragrance. Volumes and prices were favorable. The figure was lower than our estimate of $623 million.
The adjusted operating EBITDA increased 10% year over year to $131 million. On a comparable basis, currency-neutral adjusted operating EBITDA improved 19% thanks to favorable price and productivity gains. The figure was higher than our projection of $93 million.
Revenues in Pharma Solutions were $238 million in the third quarter, down 7% year over year. The segment’s sales, as per our model, were $276 million. The adjusted operating EBITDA plunged 32% year over year to $47 million as lower volumes negated the gains from higher pricing and productivity gains. The figure came in line with our expectation.
Financial Position
International Flavors had cash and cash equivalents of $639 million at the end of the third quarter of 2023, up from the $493 million held at the end of 2022. Long-term debt was at around $9.2 billion at the third-quarter end, down from $10.4 billion recorded as of Dec 31, 2022.
International Flavors generated $795 million in operating activities in the first nine-month period of fiscal 2023 against $189 million in the prior year’s comparable period, due to solid improvement in inventories.
2023 Guidance
International Flavors maintains sales guidance at $11.3-$11.6 billion for 2023. The adjusted EBITDA is now expected to be at the mid to high end of its stated range of $1.85 billion to $2.00 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, International Flavors has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, International Flavors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
International Flavors is part of the Zacks Consumer Products - Staples industry. Over the past month, Newell Brands (NWL), a stock from the same industry, has gained 15.9%. The company reported its results for the quarter ended September 2023 more than a month ago.
Newell Brands reported revenues of $2.05 billion in the last reported quarter, representing a year-over-year change of -9.1%. EPS of $0.39 for the same period compares with $0.53 a year ago.
For the current quarter, Newell Brands is expected to post earnings of $0.17 per share, indicating a change of +6.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.3% over the last 30 days.
Newell Brands has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
International Flavors & Fragrances Inc. (IFF) : Free Stock Analysis Report
Newell Brands Inc. (NWL) : Free Stock Analysis Report
