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International Flavors (IFF) Tops Q4 Earnings, Gives '18 View

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International Flavors & Fragrances Inc. (IFF - Free Report) reported impressive results for the fourth quarter of 2017, delivering a positive earnings surprise of 7.7%. This result is the company’s third consecutive quarter with better-than-expected results.

Adjusted earnings in the quarter came in at $1.40 per share, surpassing the Zacks Consensus Estimate of $1.30. Also, the bottom line grew 14.8% from the year-ago tally of $1.22.

On a constant currency basis, the company’s adjusted earnings increased nearly 16% year over year. The bottom-line results benefitted costs and productivity measures and synergistic benefits from acquired assets.

For 2017, the company’s adjusted earnings per share were $5.89, above the Zacks Consensus Estimate of $5.78. Also, the result increased over the year-ago tally of $5.51.

Solid Segmental Results and Buyout Gains Drive Revenues

International Flavors’ revenues in the fourth quarter totaled at $854.6 million, reflecting a growth of 12% over the year-ago tally. Gains from acquired assets added 3% to sales growth. On a constant currency basis, revenues climbed 10% from the prior-year period.

Also, the top line surpassed the Zacks Consensus Estimate of $832.3 million by 2.7%.

Geographically, revenues generated from the North American operations grew 17% year over year, while revenues in Europe, Africa and the Middle East were up 12% or grew 7% on a constant currency basis. Revenues from Latin American operations increased 10% year over year, while those from Greater Asia increased 8%, 7% on a constant-currency basis.

The company operates in two segments: Flavors and Fragrances.

Revenues generated from the Flavors business were $401.9 million, increasing 6.4% year over year. On a constant currency basis, revenues grew 5% year over year. It represented 47% of the quarter’s revenues.

The Fragrances business’ revenues were $452.7 million, rising 17.6% year over year. It accounted for 53% of revenues in the quarter. On a constant currency basis, revenues grew 15% year over year.

Margins Weak

In the quarter, International Flavors’ cost of sales grew 14% year over year to $496.9 million. Adjusted gross profit increased 9.3% year over year to $365.5 million, while the adjusted margin of 42.8% was below 43.9% in the year-ago quarter.

Research and development expenses, as a percentage of revenues, increased 50 basis points (bps) to 8.8%, while adjusted selling and administrative expenses decreased 90 bps to 15.9%.

Adjusted operating margin was 16.9%, compared with 17.8% in the year-ago quarter. Interest expenses increased 28% year over year to $15.8 million.

Balance Sheet and Cash Flow

Exiting the fourth quarter, International Flavors & Fragrances’ cash and cash equivalents were $368 million, up 16.5% from $316 million in the preceding quarter-end. Long-term debt inched up 0.4% sequentially to $1,632.2 million.

In 2017, the company generated net cash of $390.8 million from its operating activities, down roughly 29% year over year. Capital spending grew 2% year over year to approximately $129 million.

During the year, the company paid dividends of approximately $206.1 million, while purchased treasury stocks worth $58.1 million.

Outlook

For 2018, International Flavors & Fragrances anticipates gaining from its acquired businesses as well as from its multi-year productivity program, enabling it to check on costs, make strategic investments and expand businesses globally.

Net sales in the year are projected to grow in a range of 6-8% or increase 3-5% on a constant currency basis. Likewise, operating profit will increase within 6.5-8.5% range or 5-7% on a constant currency basis and earnings per share will grow 5.5-7.5% or 4-6% on a constant currency basis.

The tax rate for the year is predicted to be approximately 21%.

Internationa Flavors & Fragrances, Inc. Price, Consensus and EPS Surprise
 

Internationa Flavors & Fragrances, Inc. Price, Consensus and EPS Surprise | Internationa Flavors & Fragrances, Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $11.4 billion, International Flavors & Fragrances presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are CSW Industrials, Inc. , Valvoline Inc. (VVV - Free Report) and Versum Materials Inc. (VSM - Free Report) . While CSW Industrials sports a Zacks Rank #1 (Strong Buy), both Valvoline and Versum Materials carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CSW Industrials’ earnings estimates for fiscal 2018 (ending March 2018) and fiscal 2019 (ending March 2019) improved over the last 60 days. Also, the company pulled off an average positive earnings surprise of 9.55% over the trailing four quarters.

Valvoline’s earnings estimates for both fiscal 2018 (ending September 2018) and fiscal 2019 (ending September 2019) improved in the last 60 days. Its earnings are projected to witness an increase of 12.4% in the next three to five years.

Versum Materials delivered a positive average earnings surprise of 6.03% over the last four quarters. Its earnings estimates for fiscal 2018 (ending September 2018) and fiscal 2019 (ending September 2019) were revised upward over the past 60 days.

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