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International Flavors (IFF) Beats Q2 Earnings, Keeps View

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International Flavors & Fragrances Inc. (IFF - Free Report) reported better-than-expected results for second-quarter 2016, recording earnings surprise of 5% as the company’s adjusted earnings of $1.47 per share exceeded the Zacks Consensus Estimate of $1.40. Also, the bottom line was 8.1% above the year-ago tally of $1.40 per share.
 
Excluding the negative 3% impact from unfavorable foreign currency movements, the company’s adjusted earnings grew roughly 5% year over year. The improvement was driven by positive impacts of lower share count, offset by adverse impacts of higher interest expense and tax rate.

International Flavors & Fragrances Inc. (IFF - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Talking about International Flavors & Fragrances’ top-line, net sales totaled $793.5 million, below the Zacks Consensus Estimate of $796.1 million. Compared with the year-ago quarter, the company’s net sales increased 3% year over year. On a constant currency basis, revenues climbed 4% year over year.

From a geographical perspective, revenues in North America increased 5% year over year; while revenues in Europe, Africa and the Middle East were up 5% year over year or up 4% on a constant currency basis. Revenues from Latin American operations decreased 5% year over year or fell 3% on a constant currency basis; while that in Greater Asia were up 6% year over year or up 8% on a constant currency basis.

Segmental Details

International Flavors & Fragrances operates in two segments: Flavors and Fragrances.

Revenues generated from the Flavors business increased 2% year over year to $379.5 million. It accounted for nearly 47.8% of net sales. On a constant currency basis, Flavors revenues rose 3% year over year.

The Fragrances business’ revenues in the quarter were $414 million, up 5% year over year. It represented 52.1% of net sales in the quarter. On a constant currency basis, revenues grew 5% year over year.

Margins

In the quarter, International Flavors & Fragrances’ gross profit increased 6% year over year. Gross margin in the quarter was 46.1% up from 45% in the year-ago quarter. Research and development expenses, as a percentage of sales, inched down 10 basis points (bps) to 8%; while selling and administrative expense declined 40 bps to 16.7%.

Adjusted operating margin was 20.9% compared with 20.2% in the year-ago quarter. Interest expense grew 32% year over year to $15.1 million.
 
Balance Sheet and Cash Flow

Exiting second-quarter 2016, International Flavors & Fragrances had cash and cash equivalents of $540 million, above $528.9 million in the preceding quarter. Long-term debt inched down 0.9% sequentially to $1,357.7 million.

In the first half of 2016, International Flavors & Fragrances generated net cash of $154.6 million from its operating activities, down from $166.3 million in the year-ago comparable period. Capital spending amounted to $43.2 million, up from $37.9 million spent in the first half of 2015.

During the period, International Flavors & Fragrances paid cash dividends of $89.5 million to its shareholders; while using $71.7 million for the purchase of treasury stocks.

Outlook

For 2016, International Flavors & Fragrances reiterated its guidance, including roughly 3.5−4.5% growth in net sales, on a currency neutral basis. Organic revenue growth is anticipated to be within 2−3% while 1.5% gain is predicted from acquisitions.  

Adjusted operating profit is likely to grow within 5−7%; while adjusted earnings are predicted to grow in a 6.5−8.5% range. The above projections include 1.5% positive contribution from acquired assets.

Adverse foreign currency movements are likely to negatively impact both sales and earnings per share by 2% and operating profit by 3%.

INTL F & F Price, Consensus and EPS Surprise

INTL F & F Price, Consensus and EPS Surprise | INTL F & F Quote

Zacks Rank & Other Stocks to Consider

With a market capitalization of $1.7 billion, International Flavors & Fragrances presently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the chemical industry include Green Plains Inc. (GPRE - Free Report) , Ferro Corporation and Ingevity Corporation (NGVT - Free Report) . While Green Plains sports a Zacks Rank #1 (Strong Buy), both Ferro Corporation and Ingevity Corporation carry the  same Zacks Rank as International Flavors & Fragrances.

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