International Flavors & Fragrances Inc.IFF reported better-than-expected results for third-quarter 2017. The quarter's adjusted earnings were $1.47 per share, beating the Zacks Consensus Estimate of $1.42 by 3.5%. Also, the bottom line increased 9.7% from the year-ago tally of $1.34.
Excluding the impact from foreign currency movements, the company's adjusted earnings increased nearly 5% year over year. The bottom-line growth was driven by improved revenue generation.
Segmental Performance Drives Revenues
In the quarter, International Flavors generated revenues of $872.9 million, up roughly 12.3% year over year. Gains from acquired assets added 6% to sales growth. On a constant currency basis, revenues climbed 12% from the prior-year period.
Also, the top line surpassed the Zacks Consensus Estimate of $852.7 million by 2.4%.
Geographically, revenues in North America grew 18% year over year while revenues in Europe, Africa and the Middle East were up 17%, or rose 15% on a constant currency basis. Revenues from Latin American operations grew 9% year over year while that from Greater Asia increased 4%.
The company operates in two segments: Flavors and Fragrances.
Revenues generated from the Flavors business were $409.8 million, increasing 11.7% year over year. It represented 46.9% of the quarter's net sales.
The Fragrances business' revenues were $463.1 million, rising 12.9% year over year. It accounted for 53.1% of net sales in the quarter. On a constant currency basis, revenues grew 12% year over year.
In the quarter, International Flavors & Fragrances' adjusted gross profit grew 11.7% year over year, representing 44.4% of net sales versus 44.7% in the year-ago quarter. Fall in gross margin was due to 12.9% rise of cost of sales.
Research and development expenses, as a percentage of sales, declined 20 basis points (bps) to 8.1% while selling and administrative expenses decreased 10 bps to 16.1%.
Adjusted operating margin was 19.2% compared with 19.4% in the year-ago quarter. Interest expenses increased 47% year over year to $19.2 million.
Balance Sheet and Cash Flow
Exiting the third quarter, International Flavors & Fragrances had cash and cash equivalents of $316 million, down from $491.4 million in the preceding quarter-end. Long-term debt was $1,625.5 million versus $1,636.3 million in the previous quarter.
In the first nine months of 2017, the company generated net cash of $199.5 million from its operating activities, down 41.6% from the year-ago period. Capital spending jumped 10.2% to $77.3 million.
During the period, the company paid dividends of approximately $151.7 million while purchased treasury stocks worth $53.2 million.
For 2017, International Flavors & Fragrances reaffirmed its net sales growth projection in a range of 7.5-8.5%. Also, it maintained its operating profit and earnings per share growth predictions within 5.5-6.5% and 6.5-7.5%, respectively.
However, the company now projects that forex woes will not impact sales growth versus an adverse impact of 1% expected earlier. Similarly, it expects negative impact from forex woes of 1% and 2% on operating profit and earnings per share, down from the earlier projection of 1.5% and 2.5%, respectively.
In the quarters ahead, the company anticipates gaining from its acquired businesses as well as from its multi-year productivity program, enabling it to check on costs, make strategic investments and expand businesses globally.
International Flavors & Fragrances, Inc. Price and Consensus
Zacks Rank & Key Picks
With a market capitalization of $11.6 billion, International Flavors & Fragrances presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry are Kraton Corporation KRA , Ashland Global Holdings Inc. ASH and Ferro Corporation FOE . While Kraton Corporation sports a Zacks Rank #1 (Strong Buy), both Ashland Global and Ferro Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Kraton Corporation's bottom-line estimates for 2017 and 2018 improved over the last 60 days. Also, the company pulled off an average positive earnings surprise of 32.88% over the trailing four quarters.
Ashland Global witnessed upward earnings estimate revisions for fiscal 2018, over the past 60 days. The company delivered an average positive earnings surprise of 8.65% over the trailing four quarters.
Ferro Corporation delivered a positive average earnings surprise of 17.79% over the last four quarters. Its earnings estimates for 2017 and 2018 were revised upward over the past 60 days.
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