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International Flavors' Prospects Solid, Runs Near-Term Risks
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We issued an updated research report on International Flavors & Fragrances Inc. (IFF - Free Report) on Aug 16, 2016. The company, currently has a $10.7 billion market capitalization, offers solid long-term growth potential but faces restrictions from near-term headwinds.
International Flavors & Fragrances’ financial performance in second-quarter 2016 has been impressive, with earnings surpassing the Zacks Consensus Estimate by 4.26%. Post the results release on Aug 8, the Zacks Consensus Estimate on the stock increased 0.9% for 2016 and 0.7% for 2017, while the same for the third quarter declined 4.1%.
Below we briefly discuss International Flavors & Fragrances’ tailwinds and headwinds.
Growth Drivers
Diversities: International Flavors & Fragrances has expanded its business in a large number of industries. 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. A diversified end-market and a large customer base has been the company’s strength over time.
Organic & Inorganic Growth & Shareholders’ Return: International Flavors & Fragrances consistently tries to innovate and develop new products in order to satisfy its customers’ product preferences as well as new customers. Also, the company believes in acquiring meaningful businesses for business expansion. In second-quarter 2016, the acquired assets contributed roughly 2% to sales growth and 3% to earnings per share growth.
We believe such organic and inorganic growth strategies, enable International Flavors & Fragrances to improve its profitability and increase returns to the shareholders. Share buybacks and dividend payments are the prime means of returning value to shareholders. In the first half of 2016, the company paid cash dividends of $89.5 million to its shareholders; while using $71.7 million for the purchase of treasury stocks. Recently, the company announced a 15% increase in its quarterly dividend rate. Over 2016–2020, the company anticipates cash returned to shareholders to come within 50–60% of the net income.
Promising ’16 Guidance & Long-Term Targets: International Flavors & Fragrances anticipates net sales, on a currency neutral basis to grow roughly 3.5−4.5% in 2016. Adjusted operating profit is likely to grow 5−7% while adjusted earnings are predicted to grow in a 6.5−8.5% range.
Over 2016–2020 timeframe, International Flavors & Fragrances 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. Acquisitions are anticipated to generate approximately $500 million to $1 billion in sales.
Near-Term Headwinds
Risks Related to International Operations: International Flavors & Fragrances is exposed to risks arising from international expansion of businesses. Unfavorable movements in foreign currencies have negatively impacted the company’s top and bottom-line results in the second-quarter while the headwinds are likely to persist in the quarters ahead. For 2016, the company predicts a negative foreign currency impact of 2% on both revenue and earnings per share growth while 3% on operating profit. Also, the company faces risks from geopolitical issues.
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.
Stiff Competition & Others: International Flavors & Fragrances is also exposed to risks arising from stiff industry rivalry and volatilities in input price & supply. We believe increased competition from the existing or future rivals, combined with aggressive price competition, might force the company to reduce prices or increase spending, which would negatively impact its sales and profits.
Zacks Rank & Stocks to Consider
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 the company and have gained high investment value. They include Green Plains Inc. (GPRE - Free Report) , NL Industries Inc. (NL - Free Report) and AgroFresh Solutions, Inc. . While both Green Plains and NL Industries sport a Zacks Rank #1 (Strong Buy), AgroFresh Solutions carries a Zacks Rank #2 (Buy).
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International Flavors' Prospects Solid, Runs Near-Term Risks
We issued an updated research report on International Flavors & Fragrances Inc. (IFF - Free Report) on Aug 16, 2016. The company, currently has a $10.7 billion market capitalization, offers solid long-term growth potential but faces restrictions from near-term headwinds.
International Flavors & Fragrances’ financial performance in second-quarter 2016 has been impressive, with earnings surpassing the Zacks Consensus Estimate by 4.26%. Post the results release on Aug 8, the Zacks Consensus Estimate on the stock increased 0.9% for 2016 and 0.7% for 2017, while the same for the third quarter declined 4.1%.
Below we briefly discuss International Flavors & Fragrances’ tailwinds and headwinds.
Growth Drivers
Diversities: International Flavors & Fragrances has expanded its business in a large number of industries. 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. A diversified end-market and a large customer base has been the company’s strength over time.
Organic & Inorganic Growth & Shareholders’ Return: International Flavors & Fragrances consistently tries to innovate and develop new products in order to satisfy its customers’ product preferences as well as new customers. Also, the company believes in acquiring meaningful businesses for business expansion. In second-quarter 2016, the acquired assets contributed roughly 2% to sales growth and 3% to earnings per share growth.
We believe such organic and inorganic growth strategies, enable International Flavors & Fragrances to improve its profitability and increase returns to the shareholders. Share buybacks and dividend payments are the prime means of returning value to shareholders. In the first half of 2016, the company paid cash dividends of $89.5 million to its shareholders; while using $71.7 million for the purchase of treasury stocks. Recently, the company announced a 15% increase in its quarterly dividend rate. Over 2016–2020, the company anticipates cash returned to shareholders to come within 50–60% of the net income.
Promising ’16 Guidance & Long-Term Targets: International Flavors & Fragrances anticipates net sales, on a currency neutral basis to grow roughly 3.5−4.5% in 2016. Adjusted operating profit is likely to grow 5−7% while adjusted earnings are predicted to grow in a 6.5−8.5% range.
Over 2016–2020 timeframe, International Flavors & Fragrances 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. Acquisitions are anticipated to generate approximately $500 million to $1 billion in sales.
Near-Term Headwinds
Risks Related to International Operations: International Flavors & Fragrances is exposed to risks arising from international expansion of businesses. Unfavorable movements in foreign currencies have negatively impacted the company’s top and bottom-line results in the second-quarter while the headwinds are likely to persist in the quarters ahead. For 2016, the company predicts a negative foreign currency impact of 2% on both revenue and earnings per share growth while 3% on operating profit. Also, the company faces risks from geopolitical issues.
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.
Stiff Competition & Others: International Flavors & Fragrances is also exposed to risks arising from stiff industry rivalry and volatilities in input price & supply. We believe increased competition from the existing or future rivals, combined with aggressive price competition, might force the company to reduce prices or increase spending, which would negatively impact its sales and profits.
Zacks Rank & Stocks to Consider
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 the company and have gained high investment value. They include Green Plains Inc. (GPRE - Free Report) , NL Industries Inc. (NL - Free Report) and AgroFresh Solutions, Inc. . While both Green Plains and NL Industries sport a Zacks Rank #1 (Strong Buy), AgroFresh Solutions carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>