We issued an updated research report on International Flavors & Fragrances Inc. (IFF Quick QuoteIFF - Free Report) on Jun 13, 2016. The company is recognized for the manufacture of fragrance and flavor products. The company offers solid long-term growth potential, but certain near-term risks might restrict its growth momentum.

Below we briefly discuss International Flavors & Fragrances’ tailwinds and headwinds.

Growth Drivers  

End-Market Diversification: One of the most striking features of International Flavors & Fragrances is its diversified customer base in various end markets. The company offers flavor compounds to the food and beverage industries while providing fragrances to the cosmetics industry such as perfume and toiletry manufacturers, and to household products industry comprising manufacturers of soaps, detergents, fabric care, household cleaners and air fresheners.

Growth Strategies & Long-Term Targets: International Flavors & Fragrances constantly strives to expand its product portfolio through innovation as well as acquisitions of other businesses. In first-quarter 2016, the acquired assets contributed roughly 4% to sales growth and 3% to earnings per share growth. Based by its organic and inorganic growth potential, the company hopes to achieve around 4–6% expansion in local currency sales, about 7–9% operating profit growth and over 10% rise in earnings per share in the 2016–2020 timeframe. Acquisitions are anticipated to generate approximately $500 million to $1 billion in sales.

Shareholders’ Return: International Flavors & Fragrances remains committed toward rewarding its shareholders with dividend payments and share buybacks. In first-quarter 2016, the company paid cash dividends of $44.8 million to its shareholders while using $40 million for the purchase of treasury stocks. Over 2016–2020, the company anticipates cash returned to shareholders to come within 50–60% of the net income.

Promising ’16 Guidance: International Flavors & Fragrances’ first-quarter 2016 results were impressive, with a positive earnings surprise of 4.26%. For 2016, the company anticipates net sales, on a currency neutral basis to grow roughly 3.5−4.5%. Adjusted operating profit is likely to grow 5−7% while adjusted earnings are predicted to grow in a 6.5−8.5% range. The above projections include 1.5% positive contribution from acquired assets.

Near-Term Headwinds

Risks Associated with International Operations: International expansion of businesses has exposed International Flavors & Fragrances to risks arising from foreign currency translations and other geopolitical issues. In first-quarter 2016, forex losses negatively impacted the company’s revenues and earnings per share by 5% and 10% respectively. For 2016, the company predicts a negative foreign currency impact of 2% on revenue growth and 3% on earnings per share.

Relation to Global Uncertainties: Difficult macro conditions might influence International Flavors & Fragrances’ business operations. Global uncertainties might reduce or alter consumer spending which may cause a change in customer order pattern, even cancellations.

Other Headwinds: International Flavors & Fragrances is also exposed to risks arising from stiff industry rivalry and volatilities in input price & supply.

Conclusion

International Flavors & Fragrances currently carries a Zacks Rank #3 (Hold). We believe the above-mentioned pros and cons clearly justify the company’s investment value.

However, there are certain stocks in the chemical industry that have been performing better than International Flavors & Fragrances and have gained high investment value. They include Chemtura Corporation , Daqo New Energy Corp. (DQ Quick QuoteDQ - Free Report) and Ferro Corporation . All these stocks carry a Zacks Rank #2 (Buy).

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