We recently maintained a Neutral recommendation on New York-based International Flavors & Fragrances Inc. (IFF - Free Report) .
The company, a creator and manufacturer of fragrance and flavor products, has operations in the United States and internationally. With the economy reviving from the global crisis, consumer spending is seen to be gathering momentum, a positive driver for the flavors and fragrances industry.
Moreover, going forward, IFF’s success will be driven by new business wins, substantial geographical diversifications, wide product lines, continuous accomplishments in research and intense consumer insight.
The company recently came out with its second quarter financial results and reported adjusted earnings per share growth of 14% year over year. Results also surpassed the Zacks Consensus Estimate by a penny.
The company’s Flavors and Fragrances segments performed well in the quarter and registered top-line increases of roughly 14% and 2%, respectively. However, profitability at these segments were hampered by higher raw material costs, which in terms of cost of goods sold accounted for 60% of total revenue for the company as compared with 57% in the year-ago quarter.
For the fiscal year 2011, the company hopes to achieve its long-term targets of roughly 4%-6% growth in local currency sales, about 7%-9% operating profit growth and over 10% earnings per share growth. Moreover, capital spending over the years is expected to concentrate more on seizing opportunities in emerging markets. Bolt-on acquisitions will be given preferences to gain access to desirable customers, regions, or technologies.
Notwithstanding the favorable view, results in the near term are likely to be influenced by higher raw material costs; which management expects to increase in high single digits. Moreover, competition is intensifying in the industry with the company facing strong competition from its peers including Danisco A/S and Firmenich SA.
Thus, we expect the company to perform in line with the market and hence a Neutral recommendation is maintained.