On May 14, 2014, we issued an updated research report on
International Flavors & Fragrances Inc.
). The company is expected to perform in line with the broad market
in the next 6−12 months.
Long-term growth prospects are bright for the flavors and
fragrances industry. Population growth and wealth creation,
especially in the emerging nations, are strengthening the demand
for consumer products and in turn, boosting the need for flavors
and fragrances used in them. International Flavors & Fragrances
hopes to achieve around 4−6% expansion in local currency sales,
about 7−9% operating profit growth and over 10% earnings per share
growth during 2013−2015.
In addition to growing demand, International Flavors &
Fragrances' diverse portfolio and product mix along with new
business wins will help it to deliver solid results in the quarters
ahead. The company anticipates deriving more than 50% of its annual
revenues from the emerging economies by 2015. Moreover, the company
maintains an exhaustive research and development wing that focuses
on the development of new and innovative compounds.
Recently, on May 6, International Flavors & Fragrances reported
an impressive result for first-quarter 2014. Adjusted earnings were
$1.32 per share, up 11% year over year and 5.6% above the Zacks
Consensus Estimate. Revenues grew by 6% or 7% on a constant
currency basis on the back of solid performance in the emerging
Aromor acquisition (completed in Jan 2014) added 1% to sales
growth. Margins benefited from cost reductions and manufacturing
efficiencies. For 2014, International Flavors & Fragrances
anticipates revenue and earnings per share growth to be in the
double-digit range. Aromor is expected to contribute 1% to local
currency sales growth and be accretive to earnings. Also,
investments are directed towards strengthening the innovation
Despite solid long-term growth aspects and the impressive
quarter-result, we remain wary of certain near-term risks,
including adverse impacts of foreign currency translation and rise
in debt levels.
International Flavors & Fragrances currently has a market
capitalization of $7.8 billion and carries a Zacks Rank #2 (Buy).
Other companies worth considering in the industry include
Sensient Technologies Corporation
). All of these companies carry the same rank as International
Flavors & Fragrances.
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