International Flavors & Fragrances (IFF Quick QuoteIFF - Free Report) has been witnessing weak volumes lately mainly due to low consumer spending owing to persisting inflationary pressures. The company has been able to counter this setback through pricing actions, productivity initiatives and acquisition-related synergies. Demand for consumer products will eventually pick up steam as the situation normalizes.  With IFF’s global presence, diversified business platform, broad product portfolio and solid customer base, the company will be able to capitalize on the demand of the flavors and fragrances markets and deliver growth.

Volume Recovery Expected in the Second Half of 2023

Consumer spending has been weak due to the overall inflationary scenario which in turn has weighed on demand for International Flavors’ ingredients and solutions. The company reported a 6% year-over-year decline in net sales to $3,027 million in the first quarter of 2023, reflecting lower volumes across most segments. IFF expects volumes to pick up in the second half of 2023.

International Flavors estimates sales of $12.3 billion for 2023. Comparable currency-neutral sales growth for 2023 is expected to be approximately 5%. Adjusted operating EBITDA is estimated at approximately $2.34 billion for the year. Foreign currency translation will likely affect sales growth by 1% and adjusted operating EBITDA growth by 3%. On a comparable basis, adjusted operating EBITDA was roughly $2.37 billion in fiscal 2022.

Demand in Emerging Markets to Aid Growth

Despite the current weakness, demand for consumer products containing flavors and fragrances will eventually pick up as inflationary pressures abate. Also, demand in emerging markets has been strong for these products and has been identified as a key growth driver for the company.

Consequently, International Flavors is focused on gaining shares in emerging markets. Backed by its global presence, diversified business platform, broad product portfolio and global and regional customer base, the company will be able to capitalize on the expansion in flavors and fragrances markets and deliver long-term growth.

Acquisitions a Key Catalyst

Over time, International Flavors has made meaningful acquisitions, which have helped expand its offerings. The acquisition of Frutarom in 2018, which was the biggest in its history, made it a global leader in natural taste, scent and nutrition, with a broader customer base, more diversified product offerings and exposure to end markets, including those with a focus on naturals, and health and wellness.

Following International Flavors’ merger with DuPont de Nemours, Inc.’s (DD Quick QuoteDD - Free Report) Nutrition & Biosciences (N&B) business in 2021, the company now holds leading positions in the core categories of nutrition, cultures, enzymes, probiotics, soy proteins, flavors and fragrances. IFF has a three-year run-rate cost synergy target of around $300 million originating from the merger with DD’s unit.

In 2022, IFF acquired Health Wright Products, a leader in formulation and capsule manufacturing for the dietary supplement industry. The buyout will bring formulation and finished format capabilities to IFF’s Health & Biosciences probiotics, natural extracts and botanicals businesses, allowing innovation in custom formulation and combination products through joint capabilities.

Strategic Plan to Aid Growth

In December 2022, International Flavors provided details of its new strategic plan that entails enhanced cost & productivity initiatives, operating model overhaul and portfolio optimization, to name a few. It intends to transform its operating model into a more customer-centric and market-backed one.

To drive growth, IFF plans to step up its investment in high-return businesses such as Cosmetic Ingredients, Fine Fragrance, Flavors, Cultures & Food Enzymes, Health, Food Design, Fragrance Ingredients and Consumer Fragrance. The company has identified certain businesses which it will either exit or take initiatives to improve their results. In sync with this, International Flavors has divested the Savory Solutions Group.

In 2022, International Flavors implemented several productivity and cost reduction efforts and has further set a target to realize net annual savings of approximately $350 million to $400 million between 2023 and 2025. The company is targeting sales growth of 4% to 6% and adjusted operating EBITDA growth of 8% to 10% on a comparable currency-neutral basis over 2024, 2025 and 2026.

Price Performance

In the past year, International Flavors’ shares have fallen 33.2%, compared with the industry’s 17.2% decline.

Image Source: Zacks Investment Research

Zacks Rank & Key Picks

International Flavors currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Consumer Staples sector are Lamb Weston (LW Quick QuoteLW - Free Report) and e.l.f. Beauty (ELF Quick QuoteELF - Free Report) . Each of these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Lamb Weston, a frozen potato product company, has a trailing four-quarter earnings surprise of 47.6%, on average. The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year sales and earnings suggests increases of 29.6% and 117%, respectively, from the year-ago reported numbers. The earnings estimate has been revised upward by 15.6% over the past 90 days. LW’s shares have surged 61% in the past year.

The Zacks Consensus Estimate for e.l.f. Beauty’s current fiscal-year sales and earnings suggest year-over-year growth of 25.6% and 9.6%, respectively. The earnings estimate has moved up 15% over the past 90 days. ELF has a trailing four-quarter earnings surprise of 103%, on average. Shares of this cosmetic company have soared 270% in a year’s time.