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International Flavors (IFF) Lags Q3 Earnings, View Revised

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International Flavors & Fragrances Inc. (IFF - Free Report) reported lower-than-expected results for third-quarter 2016. The company’s adjusted earnings came in at $1.34 per share, lagging the Zacks Consensus Estimate of $1.41. Also, the bottom line was 3.6% below the year-ago tally of $1.39 per share.
Excluding the negative 3% impact from unfavorable foreign currency movements, International Flavors & Fragrances’ adjusted earnings fell nearly 1% year over year. The decline was triggered by poor operating profit performance, offsetting the positive impacts of lower share count and favorable tax rate.

International Flavors & Fragrances’ net sales totaled $777 million, below the Zacks Consensus Estimate of $783.1 million. Compared with the year-ago quarter, the company’s net sales increased 2% year over year. On a constant currency basis, revenues climbed 3% year over year.

From a geographical perspective, revenues in North America increased 2% year over year; while revenues in Europe, Africa and the Middle East were up 1% year over year or up 3% on a constant currency basis. Revenues from Latin American operations decreased 6% year over year or fell 4% on a constant currency basis; while that in Greater Asia were up 7% year over year or up 7% on a constant currency basis.


Segmental Details

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

Revenues generated from the Flavors business increased 2.2% year over year to $366.9 million. It accounted for nearly 47.2% of net sales. On a constant currency basis, Flavors revenues rose 3% year over year.

The Fragrances business’ revenues in the quarter were $410.1 million, up 1% year over year. It represented 52.8% of net sales in the quarter. On a constant currency basis, revenues grew 2% year over year.


In the quarter, International Flavors & Fragrances’ gross profit was approximately flat year over year. Gross margin in the quarter was 44.6% down from 45.4% in the year-ago quarter. Research and development expenses, as a percentage of sales, inched up 10 basis points (bps) to 8.3%, while selling and administrative expenses increased 360 bps to 19.6%.

Adjusted operating margin was 19.4% compared with 21.4% in the year-ago quarter. Interest expense grew 11% year over year to $13.1 million.
Balance Sheet and Cash Flow

Exiting the third quarter, International Flavors & Fragrances had cash and cash equivalents of $498.7 million, below $540 million in the preceding quarter. Long-term debt decreased 18.2% sequentially to $1,110.2 million.

In the first nine months of 2016, International Flavors & Fragrances generated net cash of $329.4 million from its operating activities, up from $294.7 million in the year-ago comparable period. Capital spending amounted to $70.2 million, up from $66.6 million spent in the first nine of 2015.

During the period, International Flavors & Fragrances paid cash dividends of $134.1 million to its shareholders; while using $94.1 million for the purchase of treasury stocks.


For 2016, International Flavors & Fragrances anticipates net sales to grow 4−5% on a currency neutral basis, up from the previous expectation of 3.5−4.5%. Organic revenue growth is anticipated to be within 2−3%, while roughly 2% (previous forecast was 1.5%) gain is predicted from acquisitions.  

Adjusted operating profit is likely to grow within 3.5−4.5% lower than the earlier prediction of 5−7%; while adjusted earnings are predicted to grow in the 5−6% range versus 6.5−8.5% expected earlier. The above projections include 1.5% positive contribution from acquired assets.

Adverse foreign currency movements are likely to negatively impact International Flavors & Fragrances' sales by 1.5%, while operating profit and earnings per share by 2%.

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 $10.4 billion, International Flavors & Fragrances presently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the chemical industry include NewMarket Corporation , BioAmber Inc. and Ferro Corporation (FOE - Free Report) . While NewMarket Corporation sports a Zacks Rank #1 (Strong Buy), both BioAmber Inc. and Ferro Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NewMarket Corporation has witnessed upward earnings estimate revisions for 2016 over the past 60 days. Also, the company performed well in the last four quarters, with an average positive earnings surprise of 10.54%.

BioAmber Inc.’s bottom-line estimates for 2016 and 2017 represent year-over-year growth of 53.2% and 53.1%, respectively.
Ferro Corporation has a positive average earnings surprise of 10.61%, while its earnings estimates for 2017 has been revised upward over the past 60 days.

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