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Pricing Actions, Acquisitions to Aid International Flavors (IFF)

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·4 min read
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International Flavors & Fragrances IFF will continue to benefit from strong demand across all segments. The company’s pricing actions, productivity initiatives and acquisition-related synergies will help negate the inflationary cost pressures and drive its margins. The company continues to invest in organic investments and strategic acquisitions, while returning significant capital to shareholders.

Pricing & Acquisitions to Aid 2022 Results

International Flavors estimates sales of $12.6-$13 billion for 2022. The company has raised the guidance from the previous range of $12.3-$12.7, factoring in additional pricing actions to counter inflationary pressure, the expected completion of the microbial control business divestiture and the acquisition of Health Wright Products.

Higher pricing will help offset the impacts of lower volumes for the year, given a more challenging environment, including loss of revenues as a result of the Russia-Ukraine war and ongoing global supply-chain issues.

Adjusted EBITDA is expected between $2.5 billion and $2.6 billion, suggesting a rise from the adjusted EBITDA of $2.4 billion reported in 2021. The adjusted EBITDA margin is projected to grow 4-8% on a currency-neutral basis.

International Flavors also continues to incur high raw material costs and additional costs related to labor, shipping and cleaning due to COVID-led supply-chain disruptions. Energy costs are expected to be higher in 2022. Nevertheless, focus on driving greater efficiencies throughout the business through costs and productivity initiatives, margin improvement, and acquisition-related synergies will support margins.

Solid End-Market Demand Bodes Well

International Flavors’ largest segment, Nourish, continues to deliver strong results, primarily aided by the Flavors, Ingredients and Food Design businesses.

The Scent segment has been performing well, courtesy of continued strengths in Cosmetic Actives and Consumer Fragrances. The segment has been witnessing a significant rebound in Fine Fragrance, driven by volume recovery and business wins, as restrictions continue to ease and consumer behavior returns to normal levels.

In the Health & Biosciences segment, the Home & Personal Care business remains strongly supported by evolving consumer buying trends related to the pandemic. Growth in Grain Processing, Cultures, Food Enzymes and Animal Nutrition has been witnessed. The Pharma Solutions segment is witnessing growth in Industrials and recovery in demand in Pharma.

Backed by its global presence, diversified business platform, broad product portfolio, and global and regional customer base, the company will be able to capitalize on the growth in demand in flavors and fragrances markets and deliver long-term growth.

Acquisitions Remain a Key Catalyst

Over time, the company has made meaningful acquisitions, which have helped expand offerings and, in turn, profitability. The acquisition of Frutarom in 2018 was the largest in its history, which created a global leader in natural taste, scent and nutrition, with a broader customer base, more diversified product offerings and exposure to end markets, including those with a focus on naturals, and health and wellness.

IFF has recently acquired Health Wright Products, a leader in formulation and capsule manufacturing for the dietary supplement industry. The buyout will bring formulation and finished format capabilities to IFF’s Health & Biosciences probiotics, natural extracts and botanicals businesses, allowing for innovation in custom formulation and combination products through joint capabilities.

International Flavors has officially completed its merger with DuPont de Nemours, Inc.’s DD Nutrition & Biosciences ("N&B") business. It will command leading positions in core categories in nutrition, cultures, enzymes, probiotics, soy proteins, flavors and fragrances.

This, coupled with a diverse and broad customer base, and about 48% of annual sales from small, medium and private-label customers, positions the company well for growth. Revenue synergies have already begun to contribute to the company’s top-line performance. The company realized $60 million of merger-related cost synergies in fiscal 2021, ahead of its targeted $45 million. The company has a three-year run-rate cost synergy target of around $300 million.

Price Performance

 

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In the past year, International Flavors’ shares have lost 19.1% compared with the industry’s decline of 37.4%.

Zacks Rank & Other Key Picks

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

Some other top-ranked stocks in the Consumer Staples sector are Pilgrim’s Pride PPC and Medifast MED.

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank #1 (Strong Buy). PPC has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial year earnings per share (EPS) suggests year-over-year growth of 43%.

Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2. MED has a trailing four-quarter earnings surprise of 12.9%, on average.

The Zacks Consensus Estimate for Medifast’s current financial year’s sales and EPS suggests growth of almost 19% and 13.4%, respectively, from the year-ago reported figure.


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