International Flavors & Fragrances Inc. (IFF Quick QuoteIFF - Free Report) reported better-than-expected results for third-quarter 2017. The quarter’s adjusted earnings were $1.47 per share, beating the Zacks Consensus Estimate of $1.42 by 3.5%. Also, the bottom line increased 9.7% from the year-ago tally of $1.34.

Excluding the impact from foreign currency movements, the company’s adjusted earnings increased nearly 5% year over year. The bottom-line growth was driven by improved revenue generation.

Segmental Performance Drives Revenues

In the quarter, International Flavors generated revenues of $872.9 million, up roughly 12.3% year over year. Gains from acquired assets added 6% to sales growth. On a constant currency basis, revenues climbed 12% from the prior-year period.

Also, the top line surpassed the Zacks Consensus Estimate of $852.7 million by 2.4%.

Geographically, revenues in North America grew 18% year over year while revenues in Europe, Africa and the Middle East were up 17%, or rose 15% on a constant currency basis. Revenues from Latin American operations grew 9% year over year while that from Greater Asia increased 4%.

The company operates in two segments: Flavors and Fragrances.

Revenues generated from the Flavors business were $409.8 million, increasing 11.7% year over year. It represented 46.9% of the quarter’s net sales.

The Fragrances business’ revenues were $463.1 million, rising 12.9% year over year. It accounted for 53.1% of net sales in the quarter. On a constant currency basis, revenues grew 12% year over year.

Margins

In the quarter, International Flavors & Fragrances’ adjusted gross profit grew 11.7% year over year, representing 44.4% of net sales versus 44.7% in the year-ago quarter. Fall in gross margin was due to 12.9% rise of cost of sales.

Research and development expenses, as a percentage of sales, declined 20 basis points (bps) to 8.1% while selling and administrative expenses decreased 10 bps to 16.1%.

Adjusted operating margin was 19.2% compared with 19.4% in the year-ago quarter. Interest expenses increased 47% year over year to $19.2 million.

Balance Sheet and Cash Flow

Exiting the third quarter, International Flavors & Fragrances had cash and cash equivalents of $316 million, down from $491.4 million in the preceding quarter-end. Long-term debt was $1,625.5 million versus $1,636.3 million in the previous quarter.

In the first nine months of 2017, the company generated net cash of $199.5 million from its operating activities, down 41.6% from the year-ago period. Capital spending jumped 10.2% to $77.3 million.

During the period, the company paid dividends of approximately $151.7 million while purchased treasury stocks worth $53.2 million.

Outlook

For 2017, International Flavors & Fragrances reaffirmed its net sales growth projection in a range of 7.5-8.5%. Also, it maintained its operating profit and earnings per share growth predictions within 5.5-6.5% and 6.5-7.5%, respectively.

However, the company now projects that forex woes will not impact sales growth versus an adverse impact of 1% expected earlier. Similarly, it expects negative impact from forex woes of 1% and 2% on operating profit and earnings per share, down from the earlier projection of 1.5% and 2.5%, respectively.

In the quarters ahead, the company anticipates gaining from its acquired businesses as well as from its multi-year productivity program, enabling it to check on costs, make strategic investments and expand businesses globally.

International Flavors & Fragrances, Inc. Price and Consensus