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International Flavors & Fragrances Inc. (IFF - Analyst Report) reported third-quarter 2013 adjusted earnings per share of $1.22, up 13.0% from the year-ago earnings of $1.08. Results were 4 cents above the Zacks Consensus Estimate of $1.18.

Including one-time items, the company reported GAAP earnings per share of $1.20, up from 20 cents in the year-ago quarter.

Revenues

International Flavors & Fragrances generated net sales of $742.3 million in the reported quarter, a 4.7% year-over-year growth driven by increased demand in emerging markets. However, revenues marginally missed the Zacks Consensus Estimate of $744.0 million. On a constant currency basis, revenues inched up 4% year over year.

By segments, in third-quarter 2013, revenues from the Flavors business increased 3% year over year to $349.4 million and accounted for 47% of total revenue. Revenues from the Fragrances business were roughly 53.0% of total revenue amounting to $392.9 million, up 7% year over year.

On a geographical basis, revenues from North America were flat year over year, while results from Europe, Africa and Middle East (EAME) rose 7% (up 3% on a constant currency basis). Revenues from Latin America increased 6% (up 8%) and Greater Asia revenues were up 6% (up 8%).

Costs/Margins

International Flavors & Fragrances’ gross profit margin in the third quarter increased 131 basis points (bps) to 43.8% based on new strategies, favorable volume, sales mix and raw material costs. Research and development (R&D) expense, as a percentage of sales, expanded 72 bps to settle at 8.9%. Selling and administrative expense, as a percentage of sales, increased 46 bps to 15.9%.

Adjusted operating margin in the quarter was 19.4% compared with 18.9% in the year-ago quarter. Interest expense shot up 17.3% to $11.6 million in the quarter.

Balance Sheet

Exiting the third quarter of 2013, International Flavors & Fragrances’ cash and cash equivalents stood at $343.1 million, down 6.2% from $365.9 million in the previous quarter. Long-term debt increased marginally to $933.5 million compared with the previous quarter.

Cash Flow

In the nine months ended Sep 30, 2013, the company generated cash from operating activities of $257.3 million, up from $137.6 million in the year-ago comparable period. Capital spending also widened and totaled $86.4 million in the first nine months of 2013 versus $84.2 million in the prior-year period.

Going forward, the company expects to witness moderate year-over-year growth in the fourth quarter of 2013. Continued investments in R&D are expected to boost margins in the coming quarters.

International Flavors & Fragrances is one of the leading companies engaged in the creation and manufacture of fragrance and flavoring products in the United States and internationally. The company currently has a $6.8 billion market capitalization.

The stock currently carries a Zacks Rank #4 (Sell). Other stocks to watch out for in the industry include Ecolab Inc. (ECL - Analyst Report), Ferro Corporation (FOE - Snapshot Report) and HB Fuller Co. (FUL - Snapshot Report). All of these stocks carry a Zacks Rank #2 (Buy).

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