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International Flavors (IFF) Q3 Earnings In Line, Sales Beat

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International Flavors & Fragrances Inc. (IFF - Free Report) reported adjusted earnings of $1.54 per share in third-quarter 2018, which came in line with the Zacks Consensus Estimate. However, the bottom line improved 5% from the year-ago tally of $1.47. On a constant-currency basis, the company’s adjusted earnings increased nearly 12% year over year aided by strong performance at its segments, new wins and pricing actions. These factors mitigated rising raw material costs.
 
Including one-time items, International Flavors posted earnings per share of $1.17 in the quarter compared with $1.39 reported in the year-ago quarter.
 
Internationa Flavors & Fragrances, Inc. Price, Consensus and EPS Surprise
 
 
Internationa Flavors & Fragrances, Inc. Price, Consensus and EPS Surprise

Internationa Flavors & Fragrances, Inc. price-consensus-eps-surprise-chart | Internationa Flavors & Fragrances, Inc. Quote

Segmental Performances Drive Net Sales

In the reported quarter, International Flavors’ net sales were $908 million, reflecting year-over-year growth of 4%. Further, the top line surpassed the Zacks Consensus Estimate of $891 million by 2%.

Geographically, revenues generated from Latin American operations increased 12% year over year while North American operations rose 10% year over year. Revenues in Europe, Africa and the Middle East were up 6% while that from Greater Asia increased 4%.
 
Revenues generated from the Flavors segment came in at $436 million, increasing 6% year over year. On a constant-currency basis, revenues grew 7% year over year. The Fragrances segment’s revenues were $471 million, rising 2% year over year. On a constant-currency basis, revenues grew 2% year over year.
 
Higher Costs and Expenses Affect Margins
 
In the quarter under review, International Flavors’ cost of goods sold rose 3% year over year to $507 million. Adjusted gross profit inched up 1% year over year to $391 million. Adjusted gross margin came in at 43.1% compared with 44.2% witnessed in the year-ago quarter.
 
Research and development expenses flared up 3% year over year to $75.3 million. Adjusted selling and administrative expenses in the quarter ended September rose 2% year over year to $142 million. Adjusted operating profit increased 4% year over year to $164 million, while adjusted operating margin shrunk 10 basis points to 18.1%.
 
Balance Sheet and Cash Flow
 
Exiting the third quarter, International Flavors had cash and cash equivalents of $5,274 million, a significant improvement from $368 million cash held at the end of 2017. Long-term debt grew to $4,331 million as of Sep 30, 2018 from $1,632 million as of Dec 31, 2017.
 
International Flavors generated $202 million of cash from operating activities during the nine-month period ended Sep 30, 2018, compared with $199 million reported in the comparable period last year.
 
Capital invested in purchasing property, plant and equipment totaled $102 million during the nine-month period ended Sep 30, 2018, surging 32% from the comparable period last year. Dividend paid totaled $163 million in the nine-month period ended Sep 30, 2018.
 
Frutarom Update
 
In Oct 2018, International Flavors completed the acquisition of Frutarom Industries Ltd. The combined business will lead all players dealing with scent, natural taste and nutrition, globally. The acquisition will augment segment International Flavors’ exposure to small and mid-sized customers, as well as increasing business scope in new categories, including natural colors, antioxidants, health ingredients and enzymes.
 
Outlook
 
Frutarom is expected to be accretive to International Flavors fourth-quarter 2018 top and bottom-line results. The company provided sales guidance of $3.95 billion-$4.05 billion and earnings per share guidance of $6.25-$6.45 for fiscal 2018.
 
Share Price Performance
 
 
Over the past six months, International Flavors has gained 15%, against the industry’s decline of 1%.
 
Zacks Rank & Key Picks
 
International Flavors currently carries a Zacks Rank #3 (Hold).
 
A few better-ranked stocks in the basic materials space are CF Industries Holdings, Inc. (CF - Free Report) , KMG Chemicals, Inc. and The Mosaic Company (MOS - Free Report) .
 
CF Industries has an expected long-term earnings growth rate of 6% and a Zacks Rank #1 (Strong Buy). The company’s shares have gained 32% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
KMG Chemicals has an expected long-term earnings growth rate of 28.5% and a Zacks Rank #2 (Buy). Its shares have risen 20% in the past six months.
 
Mosaic has an expected long-term earnings growth rate of 7% and a Zacks Rank #2. The company’s shares have rallied 20% in the past six months.
 
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