Neutral Rating Affirmed for IFF - Analyst Blog

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We recently maintained a Neutral recommendation on New York-based, International Flavors & Fragrances Inc. ( IFF ).

The company is a creator and manufacturer of fragrance and flavor products. Its operations are carried out primarily in the United States and also internationally. Reviving global economy seems to spur consumer spending which we believe will be a growth driver for the flavors and fragrances industry.

Recently, IFF reported its fourth quarter financial results posting an EPS of 74 cents, up 7% year over year and 3 cents above the Zacks Consensus Estimate. The company's total revenue grew 2% to $644 million, surpassing the Consensus Estimate of $639 million. However, higher cost of sales lowered gross margin by 210 basis points in the quarter.

To combat the headwinds from rising costs, the company recently announced job cuts in the Fragrances division and other departments of the company. Through this cost cutting measure IFF aims at achieving roughly $9 million of pre-tax savings in 2012. Also, responsibilities were realigned in the Functional Fragrances division along with reallocation of resources from the developed markets to the emerging markets. In the fiscal year 2011, emerging markets grew by roughly 8% and represented 46% of the total sales.

Moreover, new business wins, substantial geographical diversifications, wide product lines, continuous accomplishments in research and intense consumer insight are added advantages for the company. In fiscal 2011, the company commenced construction of two new manufacturing facilities in Asia and opened new offices in the Middle East.

We believe IFF's results in the near term will be largely influenced by higher raw material costs as well as intensifying competition in the industry from other major players including Danisco A/S and Firmenich SA.

The Zacks Consensus Estimate for the first quarter is $1.00, representing a year-over-year decline of 2.59%. Estimates for the fiscal years 2012 and 2013 are $4.06 and $4.38, reflecting annual growth of 8.50% and 8.03%, respectively.

The company currently bears a Zacks Rank of #3, translating into a short-term Hold rating.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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