International Flavors (IFF) Beats Q4 Earnings & Revenues
International Flavors & Fragrances Inc.IFF reported better-than-expected results for fourth-quarter 2016. The company's adjusted earnings came in at $1.22 per share, surpassing the Zacks Consensus Estimate of $1.16 by 5.2%. Also, the bottom line was 16.2% above the year-ago tally of $1.05.
Excluding the positive 11% impact from foreign currency movements, the company's adjusted earnings increased nearly 6% year over year. The bottom-line growth came on the back of volume growth, benefits from costs reduction & productivity enhancement initiatives, and investments to leverage new business opportunities.
For 2016, the company's adjusted earnings were $5.51 per share, above the Zacks Consensus Estimate of $5.43 and the year-ago tally of $5.25.
In the quarter, International Flavors & Fragrances' net sales totaled $762.6 million, above the Zacks Consensus Estimate of $760.2 million. The company's net sales increased 7% year over year. On a constant currency basis, revenues climbed 7% from the prior-year period. New business wins as well as synergistic benefits from the acquired David Michael (in Oct 2016) primarily attributed to the sales growth.
From a geographical perspective, revenues in North America increased 10% year over year; while revenues in Europe, Africa and the Middle East were up 8% or rose 10% on a constant currency basis. Revenues from Latin American operations decreased 2% year over year or fell 3% on a constant currency basis; while that in Greater Asia were up 7% year over year or up 7% on a constant currency basis.
International Flavors & Fragrances operates in two segments: Flavors and Fragrances.
Revenues generated from the Flavors business increased 13% year over year to $377.7 million. It accounted for nearly 49.5% of net sales. On a constant currency basis, Flavors revenues rose 14% year over year.
The Fragrances business' revenues in the quarter were $384.9 million, up 1% year over year. It represented 50.5% of net sales in the quarter. On a constant currency basis, revenues grew 1% year over year.
For 2016, the company's net sales totaled $3,116.4 million, in line with the Zacks Consensus Estimate but up 3% year over year.
In the quarter, International Flavors & Fragrances' gross profit increased 5.5% year over year. Gross margin in the quarter was 43.8% down from 44.3% in the year-ago quarter. Research and development expenses, as a percentage of sales, inched up 30 basis points (bps) to 8.3%, while selling and administrative expenses decreased 60 bps to 16.8%.
Adjusted operating margin was 17.8% compared with 18.2% in the year-ago quarter. Interest expenses grew 5% year over year to $12.3 million.
Balance Sheet and Cash Flow
Exiting the fourth quarter, International Flavors & Fragrances had cash and cash equivalents of approximately $324 million, down from $498.7 million in the preceding quarter. Long-term debt decreased 3.9% sequentially to $1,066.9 million.
In 2016, the company generated net cash of $535.4 million from its operating activities, up 23.5% year over year. Capital spending amounted to $126.4 million, up from $101 million spent in 2015.
During the year, the company paid cash dividends of approximately $184.9 million to its shareholders, while using $127.4 million for the purchase of treasury stocks.
For 2017, International Flavors & Fragrances anticipates net sales to grow 7.5−8.5% on a currency neutral basis. Organic revenue growth is anticipated to be within 3−4%, while roughly 4.5% gain is predicted from acquisitions. Adverse foreign currency movements are likely to negatively impact sales by 2.5%.
Operating profit is likely to grow within 5.5−6.5%, including organic growth of 4−5% and acquisition gain of 1.5%. Excluding the impact of 2% forex woes, adjusted operating profit will increase 3.5−4.5%.
Earnings per share will likely increase 6.5−7.5%. Excluding 2.5% negative forex impact, adjusted earnings will likely rise 4−5%.
The company anticipates its acquired businesses, David Michael and Fragrance Resources (Jan 2017) to contribute incremental revenues of $85 million and $75 million, respectively.
Also, the company has initiated a new multi-year productivity program that will enable it to check on costs, make strategic investments and expand businesses globally. It intends to reduce its workforce by 5% globally. By 2019-end, the company anticipates this productivity program to yield annualized savings in the range of $40−$45 million. Related pre-tax charges are predicted to be $35 million in 2017, including $10 million in the first quarter. Charges of $40 million are expected in 2018.
Internationa Flavors & Fragrances, Inc. Price and Consensus
Zacks Rank & Other Stocks to Consider
With a market capitalization of $9.5 billion, International Flavors & Fragrances presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the chemical industry include Valvoline Inc. VVV , Versum Materials, Inc. VSM and Ingevity Corporation NGVT . While both Valvoline and Versum Materials sport a Zacks Rank #1 (Strong Buy), Ingevity Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Valvoline Inc. has witnessed upward earnings estimate revisions for fiscal 2017 and fiscal 2018, over the past 60 days. Also, the company performed well in the last quarter, with a positive earnings surprise of 16.67%.
Versum Materials, Inc.'s bottom-line estimates for fiscal 2017 and fiscal 2018 improved over the last 60 days. In the last quarter, the company reported better-than-expected results, with a positive earnings surprise of 17.50%.
Ingevity Corporation has a positive average earnings surprise of 19.81% for the last four quarters. Its earnings estimates for 2017 have been revised upward over the past 60 days.
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