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Pricing, Demand Up International Flavors (IFF) Despite Cost Woes

·4 min read

International Flavors & Fragrances IFF will benefit from pricing actions, productivity initiatives and acquisition-related synergies that will help it negate the inflationary cost pressures and drive its margins. IFF continues to invest in organic investments and strategic acquisitions, while returning significant capital to its shareholders.

Pricing & Acquisitions to Offset Cost Impact in 2022

International Flavors estimates sales of $12.6-$13 billion for 2022. The guidance factors in additional pricing actions to counter inflationary pressure, impact of the divestiture of the microbial control business and the acquisition of Health Wright Products. Also, higher pricing will help offset the impacts of lower volumes for the year amid a more challenging environment, including the loss of revenues as a result of the Russia-Ukraine war and the 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 in 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 for a while, courtesy of continued strengths in Cosmetic Actives and Consumer Fragrances. The segment is consistently witnessing a significant rebound in Fine Fragrance, driven by volume recovery and business wins.

The Health & Biosciences segment’s performance was supported by growth in Health, Cultures & Food Enzymes, Microbial Control and Animal Nutrition. In the Pharma Solutions segment, growth was witnessed in Industrials and demand recovery in Pharma.

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

Acquisitions Remain a Key Catalyst

Over time, International Flavors has made meaningful acquisitions, which helped expand its offerings and in turn, boosted profitability. The acquisition of Frutarom in 2018 was the biggest in its history, which made it 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 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 innovation in custom formulation and combination products through joint capabilities.

International Flavors merged with DuPont de Nemours, Inc.’s DD Nutrition & Biosciences (N&B) business. IFF now holds leading positions in the core categories of nutrition, cultures, enzymes, probiotics, soy proteins, flavors and fragrances.

Additionally, a diverse and broad customer base, and about 48% of annual sales from small, medium and private-label customers, position International Flavors well for growth. Revenue synergies already began to contribute to IFF’s top-line performance. It realized $60 million of merger-related cost synergies in fiscal 2021, ahead of its $45-million target. IFF has a three-year run-rate cost synergy target of around $300 million.

Price Performance

 

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Zacks Investment Research


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In the past year, International Flavors’ shares have fallen 25.4% compared with the industry’s decline of 35.5%.

Zacks Rank & Key Picks

International Flavors currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Consumer Staples sector are The Chef's Warehouse CHEF and General Mills, Inc. GIS.

Chef’s Warehouse, a distributor of specialty food products in the United States, currently flaunts a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chef Warehouse’s current financial-year sales suggests growth of 40.7%from the year-ago reported number. The estimate for earnings is currently pegged at $1.36. A loss of 5 cents per share was reported in fiscal 2021.

General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for General Mills’ current financial-year sales and EPS suggests growth of almost 2% and 1.5%, respectively, from the corresponding year-ago reported figures.


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