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International Flavors (IFF) Issues Guidance on DuPont Integration

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Zacks Equity Research
·4 min read
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International Flavors & Fragrances Inc. IFF has announced its long-term financial outlook as well as cost and revenue synergy related to the company’s ongoing integration plan with DuPont’s DD Nutrition & Biosciences business (N&B). The company expects to close the integration process on Feb 1.

In December 2019, International Flavors entered into a definitive merger agreement with DuPont’s N&B business unit to form a new entity, focused on creating a leading global integrated solution. Per the deal, DuPont shareholders will own 55.4% of the newly-formed company, while International Flavors shareholders will hold the remaining. The new entity is anticipated to be a global leader in high-value ingredients and solutions for food and beverage, home and personal care, and health & wellness markets. With an expanded global reach and enhanced capabilities, the company will be able to meet customers’ increasing preference for natural and healthier products.

The new International Flavors will be able to create value for shareholders with market leadership across all categories, a robust EBITDA margin and solid free cash flow. The company expects to achieve run rate revenue synergies of $400 million by the end of 2023 from the integration plan. These are expected to contribute at least $145 million of EBITDA net of reinvestments. The revenue synergies are expected to stem from robust cross-selling opportunities through International Flavors’ extended capabilities across a larger customer base.

The company expects to achieve run-rate cost synergies of at least $300 million by the end of 2023. Around $120 million of run-rate cost synergies will likely be realized by the end of 2021, of which roughly $45 million will be realized on a full-year basis.

International Flavors projects organic currency neutral sales growth of 4-5% per year through 2023. Adjusted EBITDA margin of approximately 26% is expected by the end of 2023. The company anticipates to generate free cash flow of $2 billion during the same time frame. Net debt to EBITDA is expected to be less than 3.0x in two to three years after the deal’s closure.

Given the pandemic-induced crisis, International Flavors is witnessing significant demand for packaged food, beverage and hygiene and disinfection, which represents approximately 85% of its total 2019 revenues. Moreover, as restrictions and closures have been eased, it is optimistic for further market improvements as the company is showing signs of stabilization in its business. Focus to boost efficiency throughout the business on cost and productivity initiatives, margin improvement, acquisition-related synergies and favorable taxes continue to drive overall profits. Apart from this, International Flavors will benefit from robust growth in Taste and Scent, propelled by the demand spike for a variety of consumer products containing flavors and fragrances.

Price Performance

The company’s shares have gained 4.5% over the past three months, as against the industry’s loss of 5.8%.

Zacks Rank & Stocks to Consider

International Flavors currently carries a Zacks Rank of 4 (Sell).

Some better-ranked stocks in the Consumer Staples sector include B&G Foods BGS and Estee Lauder EL. While B&G Foods sports a Zacks Rank #1 (Strong Buy), Estee Lauder carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

B&G Foods has an expected earnings growth rate of 2.6% for 2021. The stock has gained 9.8% in six months’ time.

Estee Lauder has a projected earnings growth rate of 27.2% for fiscal 2021. Shares of the company have appreciated 36% over the past six months.

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