International Flavors & Fragrances Inc. (IFF - Free Report) reported better-than-expected results for second-quarter 2017. Its adjusted earnings came in at $1.50 per share, surpassing the Zacks Consensus Estimate of $1.44 by 4.2%. Also, the bottom line grew 2% from the year-ago tally of $1.47.
Excluding the negative 6% impact from foreign currency movements, the company’s adjusted earnings increased nearly 8% year over year. The bottom-line growth was driven by improved revenue generation and lower shares outstanding.
The quarter’s net sales totaled $842.9 million, marginally below the Zacks Consensus Estimate of $843.3 million. However, the top line surpassed the year-ago quarter’s tally by 6% on the back of improved segmental performance and roughly 6% gains from acquired assets. On a constant currency basis, revenues climbed 8% from the prior-year period.
From a geographical perspective, revenues in North America increased 19% year over year while revenues in Europe, Africa and the Middle East were up 6% or rose 11% on a constant currency basis. Revenues from Latin American operations grew 3% year over year or inched up just 1% on a constant currency. Sales in Greater Asia were down 3% or slipped roughly 1% on a constant currency basis.
Segmental Revenues
International Flavors & Fragrances operates in two segments: Flavors and Fragrances.
Revenues generated from the Flavors business totaled $414.3 million, rising 9.2% year over year. It accounted for nearly 49.2% of net sales. On a constant currency basis, Flavors revenues rose 11% year over year.
The Fragrances business’ revenues were $428.5 million, up 3.5% year over year. It represented 50.8% of net sales in the quarter. On a constant currency basis, revenues grew 5% year over year.
Margins
International Flavors & Fragrances’ adjusted gross profit increased 4.8% year over year, representing 45.6% of net sales versus 46.2% in the year-ago quarter. Fall in gross margin was due to 9% rise of cost of sales more than offsetting growth in revenues.
Research and development expenses, as a percentage of sales, inched up 30 basis points (bps) to 8.3% while selling and administrative expenses decreased 80 bps to 15.9%.
Adjusted operating margin was 20.4% compared with 20.9% in the year-ago quarter. Interest expenses grew 17% year over year to $17.6 million.
Balance Sheet and Cash Flow
Exiting the second quarter, International Flavors & Fragrances’ cash and cash equivalents increased to $491.4 million from $300.1 million recorded in the preceding quarter. Also, long-term debt was $1,636.3 million, down 37.9% from $1,186.4 million in the previous quarter.
In the first half 2017, the company’s net cash from operating activities totaled $57.9 million, down 66.4% from the year-ago period. Capital spending grew 6.7% year over year to $46.2 million.
Roughly $101.2 million were paid as dividends in the first half while $53.2 million were spent for repurchasing treasury stocks.
Outlook
For 2017, International Flavors & Fragrances anticipates net sales to grow 7.5−8.5% on a currency neutral basis. Adverse foreign currency movements are likely to negatively impact sales by 1%.
Operating profit is likely to grow 5.5−6.5%. Excluding the impact of 1.5% forex woes, adjusted operating profit will increase 4.0−5.0%.
Earnings per share will likely increase 6.5−7.5%. Excluding 2.5% negative forex impact, adjusted earnings will likely rise 4−5%.
In the quarters ahead, the company anticipates gaining from its acquired businesses as well as from its multi-year productivity program, enabling the company to check on costs, make strategic investments and expand businesses globally.
Zacks Rank & Key Picks
With a market capitalization of $10.63 billion, International Flavors & Fragrances presently carries a Zacks Rank #2 (Buy). Others stocks worth considering in the industry include Kraton Corporation , KMG Chemicals, Inc. and Ferro Corporation . While Kraton Corporation sports a Zacks Rank #1 (Strong Buy), both KMG Chemicals and Ferro Corporation carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Kraton Corporation’s bottom-line estimates for 2017 and 2018 improved over the last 60 days. In the last quarter, the company reported better-than-expected results, with a positive earnings surprise of 49.09%.
KMG Chemicals witnessed upward earnings estimate revisions for fiscal 2018, over the past 60 days. The company posted an average positive earnings surprise of 12.54% for the trailing four quarters.
Ferro Corporation delivered a positive average earnings surprise of 16.17% for the last four quarters. Its earnings estimates for 2017 and 2018 were revised upward over the past 60 days.
More Stock News: Tech Opportunity Worth $386 Billion in 2017
From driverless cars to artificial intelligence, we've seen an unsurpassed growth of high-tech products in recent months. Yesterday's science-fiction is becoming today's reality. Despite all the innovation, there is a single component no tech company can survive without. Demand for this critical device will reach $387 billion this year alone, and it's likely to grow even faster in the future.
Zacks has released a brand-new Special Report to help you take advantage of this exciting investment opportunity. Most importantly, it reveals 4 stocks with massive profit potential. See these stocks now>>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
International Flavors & Fragrances Inc. (IFF - Free Report) reported better-than-expected results for second-quarter 2017. Its adjusted earnings came in at $1.50 per share, surpassing the Zacks Consensus Estimate of $1.44 by 4.2%. Also, the bottom line grew 2% from the year-ago tally of $1.47.
Excluding the negative 6% impact from foreign currency movements, the company’s adjusted earnings increased nearly 8% year over year. The bottom-line growth was driven by improved revenue generation and lower shares outstanding.
The quarter’s net sales totaled $842.9 million, marginally below the Zacks Consensus Estimate of $843.3 million. However, the top line surpassed the year-ago quarter’s tally by 6% on the back of improved segmental performance and roughly 6% gains from acquired assets. On a constant currency basis, revenues climbed 8% from the prior-year period.
From a geographical perspective, revenues in North America increased 19% year over year while revenues in Europe, Africa and the Middle East were up 6% or rose 11% on a constant currency basis. Revenues from Latin American operations grew 3% year over year or inched up just 1% on a constant currency. Sales in Greater Asia were down 3% or slipped roughly 1% on a constant currency basis.
Segmental Revenues
International Flavors & Fragrances operates in two segments: Flavors and Fragrances.
Revenues generated from the Flavors business totaled $414.3 million, rising 9.2% year over year. It accounted for nearly 49.2% of net sales. On a constant currency basis, Flavors revenues rose 11% year over year.
The Fragrances business’ revenues were $428.5 million, up 3.5% year over year. It represented 50.8% of net sales in the quarter. On a constant currency basis, revenues grew 5% year over year.
Margins
International Flavors & Fragrances’ adjusted gross profit increased 4.8% year over year, representing 45.6% of net sales versus 46.2% in the year-ago quarter. Fall in gross margin was due to 9% rise of cost of sales more than offsetting growth in revenues.
Research and development expenses, as a percentage of sales, inched up 30 basis points (bps) to 8.3% while selling and administrative expenses decreased 80 bps to 15.9%.
Adjusted operating margin was 20.4% compared with 20.9% in the year-ago quarter. Interest expenses grew 17% year over year to $17.6 million.
Balance Sheet and Cash Flow
Exiting the second quarter, International Flavors & Fragrances’ cash and cash equivalents increased to $491.4 million from $300.1 million recorded in the preceding quarter. Also, long-term debt was $1,636.3 million, down 37.9% from $1,186.4 million in the previous quarter.
In the first half 2017, the company’s net cash from operating activities totaled $57.9 million, down 66.4% from the year-ago period. Capital spending grew 6.7% year over year to $46.2 million.
Roughly $101.2 million were paid as dividends in the first half while $53.2 million were spent for repurchasing treasury stocks.
Outlook
For 2017, International Flavors & Fragrances anticipates net sales to grow 7.5−8.5% on a currency neutral basis. Adverse foreign currency movements are likely to negatively impact sales by 1%.
Operating profit is likely to grow 5.5−6.5%. Excluding the impact of 1.5% forex woes, adjusted operating profit will increase 4.0−5.0%.
Earnings per share will likely increase 6.5−7.5%. Excluding 2.5% negative forex impact, adjusted earnings will likely rise 4−5%.
In the quarters ahead, the company anticipates gaining from its acquired businesses as well as from its multi-year productivity program, enabling the company to check on costs, make strategic investments and expand businesses globally.
Zacks Rank & Key Picks
With a market capitalization of $10.63 billion, International Flavors & Fragrances presently carries a Zacks Rank #2 (Buy). Others stocks worth considering in the industry include Kraton Corporation , KMG Chemicals, Inc. and Ferro Corporation . While Kraton Corporation sports a Zacks Rank #1 (Strong Buy), both KMG Chemicals and Ferro Corporation carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Kraton Corporation’s bottom-line estimates for 2017 and 2018 improved over the last 60 days. In the last quarter, the company reported better-than-expected results, with a positive earnings surprise of 49.09%.
KMG Chemicals witnessed upward earnings estimate revisions for fiscal 2018, over the past 60 days. The company posted an average positive earnings surprise of 12.54% for the trailing four quarters.
Ferro Corporation delivered a positive average earnings surprise of 16.17% for the last four quarters. Its earnings estimates for 2017 and 2018 were revised upward over the past 60 days.
More Stock News: Tech Opportunity Worth $386 Billion in 2017
From driverless cars to artificial intelligence, we've seen an unsurpassed growth of high-tech products in recent months. Yesterday's science-fiction is becoming today's reality. Despite all the innovation, there is a single component no tech company can survive without. Demand for this critical device will reach $387 billion this year alone, and it's likely to grow even faster in the future.
Zacks has released a brand-new Special Report to help you take advantage of this exciting investment opportunity. Most importantly, it reveals 4 stocks with massive profit potential. See these stocks now>>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
Get the latest research report on IFF - FREE