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International Flavors Unveils 2021 Vision, Reaffirms Guidance

Zacks Equity Research

International Flavors & Fragrances Inc. IFF recently rolled out its latest strategy to drive the company’s top and bottom lines on successful implementation of the 2020 Vision and the Frutarom acquisition.
International Flavors, a leading innovator of taste, scent and nutrition, recently came up with four strong key growth strategies for 2021, including accelerating business transformation, driving innovation, unlocking growth opportunities and managing the portfolio.

Strategies for Vision 2021: Key Growth Catalysts

Through the Accelerating Business Transformation initiative, the company will successfully integrate Frutarom while delivering synergy targets of $145 million and achieving productivity gains across its business. For driving innovation, International Flavors will invest in high-return and high-growth platforms to aid its R&D pipeline and accelerate long-term growth.

Moreover, the unlocking growth opportunities strategy will capitalize on expanded product portfolio, extensive geographic reach and a broader customer base. Benefits from cross-selling and integrated solutions will likely generate revenues of $100 million during the 2019-2021 period. Finally, it’s managing the portfolio technique will focus on enhancing the portfolio to maximize return.

Restructuring Initiatives to Drive Synergies

In a bid to capitalize on expanded portfolio and align with the Vision 2021 strategy, the company is planning a new organizational structure. This will likely be fully implemented over the next 12 months. Following the restructuring, International Flavors will be organized intro three business segments: Taste, Scent and Nutrition & Ingredients. The Taste segment will include legacy Frutarom’s Taste, Savory Solutions and Inclusions businesses.

Furthermore, the newly-designed organization will focus on accelerating high-growth and high-margin platforms. Also, the company will benefit from the combined capabilities to drive revenue synergies and efficiencies, in a bid to better serve customers globally.

Geared Up for Better 2019 Performance

International Flavors has reaffirmed its long-term financial targets for 2019-2021. On a currency neutral sales basis, it projects sales growth between 5% and 7% and earnings per share (EPS) growth of 10%, excluding amortization. The company remains committed to bringing its net debt to EBITDA to less than 3.0x by the end of 2020 and more than 12% total shareholder return by 2021.
For 2019, the company has also reconfirmed its sales and adjusted EPS guidance. Sales are projected in the range of $5.2-$5.3 billion, adjusted EPS is projected at $4.90-$5.10 and adjusted EPS, excluding amortization, is forecast in the $6.30-$6.50 band.

Share Price Performance

Over the past year, International Flavors & Fragrances' shares have gained 15.3%, outperforming growth of 3.6% recorded by the industry.

Acquisitions to Stoke Growth

Last October, International Flavors completed the acquisition of Frutarom, an Israeli company which develops, produces and markets flavors and fragrances, with expansion into fast-growing categories, like savory solutions, natural colors, natural food protection and health ingredients. Together, International Flavors and Frutarom created a global leader in natural taste, scent and nutrition, with a broader customer base, more diversified product offerings and increased exposure to end markets, including those with a focus on naturals, and health and wellness. Recently, the Frutarom division also acquired 70% stake in San Marino, Italy-based Leagel, a leading producer of ice cream and gelato ingredients. Through the deal, International Flavors will create a global platform for the ice-cream ingredients business, expand geographical presence and leverage cross-selling opportunities.

Robust Prospects for Flavors and Fragrances Markets

The global market for flavors and fragrances continues to grow, propelled by the rising demand for a variety of consumer products containing flavors and fragrances, which bodes well for the company's growth. The market, which was valued at around $24.8 billion in 2017, is projected to be up roughly 2-3% by 2021, primarily driven by anticipated growth in emerging markets.  Moreover, International Flavors will gain on cost-cutting efforts, productivity initiatives, acquisitions despite input-cost inflation, unfavorable foreign currency and high debt levels.

Zacks Rank & Other Stocks to Consider

International Flavors currently carries a Zacks Rank #2 (Buy).

Some other similarly-ranked stocks in the Basic Materials space are Israel Chemicals Ltd. ICL, Arconic Inc. ARNC and Air Products and Chemicals, Inc. APD. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Israel Chemicals has an expected earnings growth rate of 13.51% for 2019. The company’s shares have gained 8.4% in the past year.

Arconic has an estimated earnings growth rate of 31.62% for the current year. The stock has appreciated 29.8% in a year’s time.

Air Products has a projected earnings growth rate of 10.3% for the ongoing year. Its shares have rallied 33.1% over the past year.

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