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International Flavors (IFF) Tops Q3 Earnings, Maintains View

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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.

Margins

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.

Outlook

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

International Flavors & Fragrances, Inc. Price and Consensus | International Flavors & Fragrances, Inc. Quote

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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Internationa Flavors & Fragrances, Inc. (IFF): Free Stock Analysis Report

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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 Nasdaq, Inc.


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

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