A month has gone by since the last earnings report for Internationa Flavors & Fragrances, Inc. (IFF - Free Report) . Shares have lost about 1.9% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is IFF due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
First-Quarter 2018 Highlights
International Flavors & Fragrances reported better-than-expected results for the first quarter of 2018, delivering a positive earnings surprise of 7%. This was the company's fourth consecutive quarter with better-than-expected results.
Adjusted earnings in the reported quarter were $1.69 per share, surpassing the Zacks Consensus Estimate of $1.58. Also, the bottom line grew 11.2% from the year-ago tally of $1.52. On a constant-currency basis, the company's adjusted earnings increased nearly 12% year over year.
The bottom-line results benefitted from healthy sales growth as well as costs and productivity measures.
Segmental Performances Drive Net Sales
In the reported quarter, International Flavors' net sales were $930.9 million, reflecting year-over-year growth of 12.4%. On a constant-currency basis, revenues climbed 7% from the prior-year period. Also, the top line surpassed the Zacks Consensus Estimate of $910.1 million by 2.3%.
Geographically, revenues generated from the North American operations grew 10% year over year while revenues in Europe, Africa and the Middle East were up 20% or grew 7% on a constant-currency basis. Revenues from Latin American operations increased 6% year over year while that from Greater Asia increased 9% or grew 6% on a constant-currency basis.
The company operates in two segments — Flavors and Fragrances. The segmental information is briefly discussed below:
Revenues generated from the Flavors segment were $449 million, increasing 10.6% year over year. On a constant-currency basis, revenues grew 6% year over year. It represented 48.2% of the quarter's net sales.
The Fragrances segment's revenues were $481.9 million, rising 14.2% year over year. It accounted for 51.8% of net sales in the quarter under review. On a constant-currency basis, revenues grew 8% year over year.
Margin Profile Mixed
In the reported quarter, International Flavors' cost of goods sold grew 13% year over year to $525.1 million. Adjusted gross profit increased 11.4% year over year to $411.3 million while the adjusted gross margin came in at 44.2% versus 44.6% in the year-ago quarter.
Research and development expenses increased 9% year over year to $78.5 million. As a percentage of net sales, it was at 8.4%, down 30 basis points (bps) year over year. Adjusted selling and administrative expenses in the reported quarter grew 6.9% year over year to $143.2 million. It represented 15.4% of net sales versus 16.2% in the year-ago quarter.
Adjusted operating profit increased 15.9% year over year to $181 million while adjusted operating margin inched up 50 bps to 19.4%.
Balance Sheet and Cash Flow
Exiting the first quarter, International Flavors & Fragrances had cash and cash equivalents of $305.3 million, down from $368 million at the end of the preceding quarter. Long-term debt grew 2.7% sequentially to $1,676.2 million.
In the quarter under review, the company used cash of $11.4 million for its operating activities versus $18.5 million generated in the year-ago quarter. Capital invested in purchasing property, plant and equipment totaled $33.1 million, increasing 24.2% year over year. Dividend paid totaled $54.4 million while treasury stocks worth roughly $10.6 million were purchased.
For 2018, International Flavors & Fragrances anticipates gaining from its efforts to check on costs, make strategic investments and expand businesses globally.
It anticipates achieving the upper-end of its previously-issued sales and operating income growth projections of 6-8% and 6.5-8.5%, respectively. On a currency-neutral basis, sales growth is predicted to be 3-5% and operating income growth is projected to be 5-7%. Earnings per share are projected to increase 5.5-7.5% or 4-6% on a constant-currency basis.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower.
Internationa Flavors & Fragrances, Inc. Price and Consensus
At this time, IFF has a poor Growth Score of F, a grade with the same score on the momentum front. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, IFF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.