Why International Flavors' (IFF) Stock is Down 27% in a Year
International Flavors & Fragrances IFF shares have lost 26.5% so far this year compared with the industry’s 21.8% decline. This mainly reflects the company’s low volume trends witnessed since last year. The company has been bearing the brunt of low consumer spending and customer destocking for the past few quarters.
Low Volumes to Hurt FY23 Results
International Flavors had witnessed lower volumes through fiscal 2022 as customer spending was muted amid the inflationary scenario and elevated interest rates. The volume decline became more aggravated in the fourth quarter of 2022 due to significant customer destocking actions. These conditions have persisted in the first half of fiscal 2023 as well. This impact has mainly been seen in the Functional Ingredients business, which falls under the Nourish segment.
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The company had earlier anticipated volumes to pick up in the second half of the year. However, it now expects a slower recovery and the weakness in the Functional Ingredients business to continue. Volumes are expected to be down mid to high- single digits (on a comparable basis) in 2023, which will offset a favorable mid-single digit impact from pricing.
International Flavors currently projects sales to be $11.3-$11.6 billion for 2023, down from the prior-stated $12.3 billion, reflecting the low demand. The company had reported sales of $12.4 billion in fiscal 2022.
High Costs Add to The Woes
International Flavors also continued to incur high raw material costs and additional costs related to labor, shipping, and cleaning. Despite its pricing actions and focused cost-reduction efforts, these factors are likely to dent margins for the balance of the year. The company has experienced disruption in the supply of raw materials and transport logistics.
IFF expects adjusted operating EBITDA to be in the range of $1.85 billion to $2.0 billion, lower than the prior projection of $2.34 billion for the year. On a comparable basis, adjusted operating EBITDA was roughly $2.37 billion in fiscal 2022, excluding approximately $85 million related to the impact of divestitures and acquisitions in current and prior-year periods. Foreign currency translation will likely affect sales growth by 2% and adjusted operating EBITDA growth by 6%.
The company has a market capitalization of around $16.7 billion. It currently carries a Zacks Rank #3 (Hold). Let’s discuss the factors that indicate that the stock might stage a comeback.
Demand to Pick up Eventually
Despite the ongoing weakness, International Flavors is well-poised to benefit from the demand for a variety of consumer products containing flavors and fragrances going forward. The anticipated growth in emerging markets will be a key catalyst.
Backed by its global presence, diversified business platform, broad product portfolio, global and regional customer base, the company will be able to capitalize on the expansion in flavors and fragrances markets and deliver long-term growth. Focus to drive greater efficiencies throughout the business through costs and productivity initiatives, margin improvement, acquisition-related synergies will continue to drive profits. Also, the company has made meaningful acquisitions over time, which have helped expand offerings and, in turn, will boost profitability.
Strategic Actions to Aid Growth
International Flavors & Fragrances continues to maintain a disciplined approach to capital allocation even as it focuses on accelerating growth through organic investments and strategic acquisitions, while returning significant capital to shareholders. It continues to effectively manage its balance sheet by taking necessary actions to generate strong cash flow and maintain ample liquidity by reducing operational and capital expenses.
The company recently provided details of its updated strategic plan and new operating model. It intends to transform its operating model into a more customer-centric and market-backed one. To this end, it will conduct business in three core end markets, which are Food and Beverage, Home and Personal Care and Health. IFF anticipates the new operating model to be completely operational by the end of 2023.
To drive growth, IFF plans to step up its investment in high-return businesses such as Cosmetic Ingredients, Fine Fragrance, Flavors, Cultures & Food Enzymes, Health, Food Design, Fragrance Ingredients and Consumer Fragrance. It continues to optimize its portfolio. These endeavors will help International Flavors focus on its core business operations, strengthen its balance sheet and maximize shareholder return.
Stocks to Consider
Some better-ranked stocks in the Consumer Staples sector are Ollie's Bargain Outlet Holdings, Inc. OLLI, Inter Parfums IPAR and e.l.f. Beauty, Inc. ELF. OLLI sports a Zacks Rank #1 (Strong Buy) at present, while IPAR and ELF have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ollie's Bargain Outlet’s current fiscal-year earnings per share is currently pegged at $2.71, which suggests growth of 67.3% from the year-ago reported figures. OLLI has a trailing four-quarter earnings surprise of 1.3%, on average. OLLI’s shares have gained 74% in a year.
Inter Parfums has an average trailing four-quarter earnings surprise of 45.9%. The Zacks Consensus Estimate for IPAR’s fiscal 2023 earnings is pegged at $4.56 per share. It suggests year-over-year growth of 14.9%. The consensus estimate for 2023 earnings has moved 2% north in the past 60 days. Its shares have gained 74% in the last year.
e.l.f. Beauty has an average trailing four-quarter earnings surprise of 108%. The Zacks Consensus Estimate for ELF’s fiscal 2024 earnings is pegged at $2.44 per share. This indicates a 47% increase from the prior-year reported figure. The consensus estimate for fiscal 2024 earnings has moved 1% north in the past 60 days. ELF’s shares have gained 155% in the past year.
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International Flavors & Fragrances Inc. (IFF) : Free Stock Analysis Report
Inter Parfums, Inc. (IPAR) : Free Stock Analysis Report
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
e.l.f. Beauty (ELF) : Free Stock Analysis Report
