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Why Is International Flavors (IFF) Down 0.7% Since Last Earnings Report?

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Zacks Equity Research
·4 min read
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A month has gone by since the last earnings report for International Flavors (IFF). Shares have lost about 0.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is International Flavors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

International Flavors Q4 Earnings & Sales Top Estimates

International Flavors reported adjusted earnings of $1.32 per share in fourth-quarter 2020, beating the Zacks Consensus Estimate of $1.19. The bottom-line figure however, declined 9.6% from the year-ago quarter.

Including one-time items, earnings per share in the fourth quarter came in at 57 cents per share compared with the 70 cents per share recorded in the year-ago quarter.

In the reported quarter, International Flavors’ net sales were $1,270 million, down 1% year over year. The top-line figure, nonetheless, topped the Zacks Consensus Estimate of $1,260 million. During the December-end quarter, currency neutral sales dropped 2%, including an approximately 4 percentage point negative impact associated with an additional sales week in fourth-quarter 2019.

Operational Highlights

During the October-December quarter, International Flavors’ cost of goods sold was down 3% year over year to $756 million. Adjusted gross profit climbed 2.2% year over year to $514 million. Adjusted gross margin came in at 40% compared with the 39% witnessed in the year-ago quarter.

Research and development expenses flared up 17% year over year to around $100 million. Adjusted selling and administrative expenses shot up 7.7% year on year to $210 million during the fourth quarter. Adjusted operating profit declined 10.3% year over year to $156 million. Adjusted operating margin came in at 12.3% compared with the year-earlier quarter’s 13.5%.

Segmental Performances

Revenues in the Taste segment dipped 4% year over year to $766 million during the December-end quarter. On a constant-currency basis, revenues declined 5% year over year. Food Service continued to witness pressure, declining double-digits on a reported and currency-neutral basis. Operating profit fell 9% year on year to $90 million.

Revenues generated in the Scent segment came in at $504.2 million, up 5% year over year. On a constant-currency basis, revenues were up 3% year over year. Consumer Fragrance remained solid, aided by strong growth in Home Care & Personal Wash. Fine Fragrance returned to growth on new customer wins in North America and Europe. Fragrance Ingredients was solid on double-digit growth in Cosmetic Actives. Operating profit increased 3.9% year over year to $80 million.

Financial Position

International Flavors had cash and cash equivalents of $660 million as of Dec 31, 2020, up from $624 million as of Dec 31, 2019. Long-term debt declined to $3,779 million as of Dec 31, 2020, from $3,997 million as of Dec 31, 2019.

International Flavors generated $714 million of cash from operating activities in 2020 compared with the $699 million recorded in 2019. Capital invested in purchasing property, plant and equipment totaled $192 million in 2020 compared with the prior year’s $236 million. Dividend paid summed $323 million at the end of 2020.

2020 Performance

International Flavors reported adjusted earnings per share of $5.70 for 2020 compared with the $6.17 reported in 2019. Earnings also beat the Zacks Consensus Estimate of $5.60. Including one-time items, the bottom line came in at $3.21, down 19.7% from 2019.

Sales were down 1% year over year to $5.08 billion from the prior-year figure of $5.14 billion. The top line matched the Zacks Consensus Estimate.

2021 Guidance

International Flavors expects sales of $11.5 billion in 2021, including approximately $507-million sales related to the completion of the merger deal with DuPont’s  N&B business. Moreover, adjusted EBITDA margin is projected at around 23.2%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -9.32% due to these changes.

VGM Scores

Currently, International Flavors has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, International Flavors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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