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International Flavors' (IFF) Q3 Earnings & Sales Lag Estimates

Zacks Equity Research

International Flavors & Fragrances Inc. IFF reported adjusted earnings of $1.53 per share in third-quarter 2019, missing the Zacks Consensus Estimate of $1.54. Also, the bottom-line figure declined 5.6% from the year-ago quarter’s $1.62. Growth in adjusted operating profit was more than offset by shares outstanding and higher interest expense related to the Frutarom acquisition.

Including one-time items, earnings per share in the quarter came in at $1.13 per share compared with the $1.17 recorded in the year-ago quarter.

In the reported quarter, International Flavors’ net sales were $1.27 billion, reflecting a year-over-year jump of 40%. The top-line figure, however, missed the Zacks Consensus Estimate of $1.28 billion.

Operational Highlights

In the third quarter, International Flavors’ cost of goods sold surged 45% year over year to $734.3 million. Adjusted gross profit increased 35.6% year over year to $530.6 million. Adjusted gross margin came in at 41.8% compared with the 43.1% witnessed in the year-ago quarter.

Research and development expenses flared up 13% year over year to $85 million. Adjusted selling and administrative expenses in the September-end quarter rose 37.8% year over year to $196.4 million. Adjusted operating profit increased 22.2% year over year to $201 million. Adjusted operating margin came in at 15.8% compared with the year-ago quarter’s 18.1%.

International Flavors & Fragrances Inc. Price, Consensus and EPS Surprise

International Flavors & Fragrances Inc. Price, Consensus and EPS Surprise

International Flavors & Fragrances Inc. price-consensus-eps-surprise-chart | International Flavors & Fragrances Inc. Quote

Segmental Performances

Revenues in the Taste segment decreased 3%, year over year, to $423.3 million during the July-September quarter. On a constant-currency basis, revenues slipped 2% year over year. Operating profit inched up 1% year over year to $97.5 million. Despite strong business win, the segment’s performance was adversely impacted by volume erosion.

Revenues generated in the Scent segment came in at $480.4 million, up 2% year over year. On a constant-currency basis, revenues improved 3% year over year. Operating profit declined 4.5% year over year to $83.5 million.

Last October, International Flavors completed the acquisition of Frutarom Industries Ltd. The Frutarom segment’s revenues came in at $363.7 million and operating profit was $28 million during the quarter.

Financial Position

International Flavors had cash and cash equivalents of $504 million as of Sep 30, 2019, significantly down from the $5,274 million as of Sep 30, 2018.

Long-term debt fell to $4,008 million as of Sep 30, 2019, from $4,504 million as of Dec 31, 2018.

International Flavors generated $383 million of cash from operating activities during the nine-month period ended Sep 30, 2019, compared with the $202 million reported in the comparable period last year.

Capital invested in purchasing property, plant and equipment totaled $160.4 million during the nine-month period ended Sep 30, 2019. Dividend paid totaled $233.4 million during this period.

Outlook
 
International Flavors has reiterated its guidance for 2019. Sales are projected at $5.15-$5.25 billion. Adjusted earnings per share are expected in the band of $4.85-$5.05. Adjusted earnings excluding amortization are anticipated between $6.15 and $6.35. The company expects to achieve cost savings of $50 million this year.

The company is focused on delivering solid top- and bottom-line results by creating value for shareholders through growth acceleration, margin expansion and integration.

Share Price Performance

Over the past year, International Flavors’ shares have lost 16.6%, compared with the industry’s loss of 17.4%.



Zacks Rank & Key Picks

International Flavors currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Consumer Staples space are e.l.f. Beauty, Inc. ELF, Helen of Troy Limited HELE and The Procter & Gamble Company PG.

e.l.f. Beauty sports a Zacks Rank #1 (Strong Buy) at present and has a long-term EPS growth rate of 3.8%. The company has appreciated 39.1% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Helen of Troy, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 6.7%. The stock has gained 15.6% over the past year.
 
Procter & Gamble, with a long-term earnings growth rate of 7.2%, currently carries a Zacks Rank of 2. Shares of the company have rallied 30.2% over the past year.

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