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International Flavors (IFF) Bets on Strong Demand Amid High Costs

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International Flavors & Fragrances (IFF - Free Report) will continue to benefit from strong demand across all of its segments. Pricing actions, focus on driving greater efficiencies across the business through costs and productivity initiatives, and acquisition-related synergies will help negate costs and drive its margins. The company continues to maintain a disciplined approach to capital allocation even as it focuses on accelerating growth through organic investments and strategic acquisitions while returning significant capital to shareholders.

International Flavors’ largest segment, Nourish, continues to deliver strong results primarily aided by the Flavors unit and Ingredients. The segment has been gaining on the rebound in Food Design and improved demand in Food Service. The Scent segment has been performing well, courtesy of continued strengths in Cosmetic Actives and Consumer Fragrances. The segment has been witnessing a significant rebound in Fine Fragrance driven by volume recovery and new business win as restrictions continue to ease and consumer behavior returns to normal levels. In the Health & Biosciences segment, the Home & Personal Care business remains strongly supported by evolving consumer buying trends related to the pandemic. Growth in Grain Processing and Cultures & Food Enzymes has been witnessed. For the Pharma Solutions segment, growth has been witnessed in Industrials.

International Flavors estimates sales to be around $12.3-$12.7 billion in 2022. Adjusted EBITDA is expected between $2.5 billion and $2.6 billion, higher than the adjusted EBITDA of $2.4 billion in 2021. The adjusted EBITDA margin is projected to grow 4-8% on a currency-neutral basis.

However, the company continues to incur high raw material costs and additional costs related to labor, shipping, and cleaning, due to COVID-19 supply chain disruptions. Energy costs are expected to be higher in 2022. Nevertheless, focus on driving greater efficiencies throughout the business via costs and productivity initiatives, margin improvement and acquisition-related synergies will support margins in this scenario.

Backed by its global presence, diversified business platform, broad product portfolio, global and regional customer base, the company will be able to capitalize on the growth in demand in flavors and fragrances markets and deliver long-term growth.

Over time, the company has made meaningful acquisitions, which have helped expand offerings and, in turn, profitability. The acquisition of Frutarom in 2018 was the largest in its history, which created a global leader in natural taste, scent and nutrition with a broader customer base, more diversified product offerings and more exposure to end markets, including those with a focus on naturals and health and wellness. IFF has recently entered into an agreement to acquire Health Wright Products, LLC (“HWP”), a leader in formulation and capsule manufacturing for the dietary supplement industry. The sale is anticipated to close in the first quarter of 2022, subject to customary closing conditions. The acquisition will bring formulation and finished format capabilities to IFF’s Health & Biosciences probiotics, natural extracts and botanicals businesses, allowing for innovation in custom formulation and combination products through joint capabilities.

International Flavors has officially completed its merger with DuPont de Nemours, Inc.’s (DD - Free Report) Nutrition & Biosciences ("N&B") business. The new entity is anticipated to be a global leader in high-value ingredients and solutions for food and beverage, home and personal care, and health & wellness markets. IFF’s net sales were $3,031 million in the December-end quarter, soaring 139% year over year. This was driven by the additional sales related to the merger.

Price Performance

Zacks Investment Research
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In the past year, International Flavors’ shares have lost 11.8% compared with the industry’s decline of 29.3%.

Zacks Rank & Key Picks

International Flavors currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Consumer Staples sector include Inter Parfums (IPAR - Free Report) and Tyson Foods (TSN - Free Report) , both sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inter Parfums has an expected earnings growth rate of 9.8% for fiscal 2022. The Zacks Consensus Estimate for IPAR’s fiscal 2022 earnings has been revised upward by 6% to $3.02 in the past 60 days.

Inter Parfums’ earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 46.7%. The stock has gained 13% in the past year.

Tyson Foods has an expected earnings growth rate of 5.66% for the current year. The Zacks Consensus Estimate for TSN’s 2022 earnings has been revised upward by 22% to $8.74 in the past 60 days.

Tyson Food’s bottom line beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 32.2%. Its shares have appreciated 13% in the past year.