A month has gone by since the last earnings report for Internationa Flavors & Fragrances, Inc. (NYSE:IFF) . Shares have lost about 3.5% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is IFF due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
International Flavors & Fragrances reported impressive results for the fourth quarter of 2017, delivering a positive earnings surprise of 7.7%. This result is the company's third consecutive quarter with better-than-expected results.
Adjusted earnings in the quarter came in at $1.40 per share, surpassing the Zacks Consensus Estimate of $1.30. Also, the bottom line grew 14.8% from the year-ago tally of $1.22.
On a constant currency basis, the company's adjusted earnings increased nearly 16% year over year. The bottom-line results benefitted costs and productivity measures and synergistic benefits from acquired assets.
For 2017, the company's adjusted earnings per share were $5.89, above the Zacks Consensus Estimate of $5.78. Also, the result increased over the year-ago tally of $5.51.
Solid Segmental Results and Buyout Gains Drive Revenues
International Flavors' revenues in the fourth quarter totaled at $854.6 million, reflecting a growth of 12% over the year-ago tally. Gains from acquired assets added 3% to sales growth. On a constant currency basis, revenues climbed 10% from the prior-year period.
Also, the top line surpassed the Zacks Consensus Estimate of $832.3 million by 2.7%.
Geographically, revenues generated from the North American operations grew 17% year over year, while revenues in Europe, Africa and the Middle East were up 12% or grew 7% on a constant currency basis. Revenues from Latin American operations increased 10% year over year, while that from the Greater Asia increased 8% or grew 7% on a constant-currency basis.
The company operates in two segments: Flavors and Fragrances.
Revenues generated from the Flavors business were $401.9 million, increasing 6.4% year over year. On a constant currency basis, revenues grew 5% year over year. It represented 47% of the quarter's revenues.
The Fragrances business' revenues were $452.7 million, rising 17.6% year over year. It accounted for 53% of revenues in the quarter. On a constant currency basis, revenues grew 15% year over year.
Margins Weak
In the quarter, International Flavors' cost of sales grew 14% year over year to $496.9 million. Adjusted gross profit increased 9.3% year over year to $365.5 million, while the adjusted margin of 42.8% was below 43.9% in the year-ago quarter.
Research and development expenses, as a percentage of revenues, increased 50 bps to 8.8%, while adjusted selling and administrative expenses decreased 90 bps to 15.9%.
Adjusted operating margin was 16.9% compared with 17.8% in the year-ago quarter. Interest expenses increased 28% year over year to $15.8 million.
Balance Sheet and Cash Flow
Exiting the fourth quarter, International Flavors & Fragrances' cash and cash equivalents were $368 million, up 16.5% from $316 million in the preceding quarter-end. Long-term debt inched up 0.4% sequentially to $1,632.2 million.
In 2017, the company generated net cash of $390.8 million from its operating activities, down roughly 29% year over year. Capital spending grew 2% year over year to approximately $129 million.
During the year, the company paid dividends of approximately $206.1 million, while purchased treasury stocks worth $58.1 million.
Outlook
For 2018, International Flavors & Fragrances anticipates gaining from its acquired businesses as well as its multi-year productivity program, enabling it to check on costs, make strategic investments and expand businesses globally.
Net sales in the year are projected to grow in a range of 6-8% or increase 3-5% on a constant currency basis. Likewise, operating profit will increase within 6.5-8.5% range or 5-7% on a constant currency basis and earnings per share will grow 5.5-7.5% or 4-6% on a constant currency basis.
The tax rate for the year is predicted to be approximately 21%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.
Internationa Flavors & Fragrances, Inc. Price and Consensus
Internationa Flavors & Fragrances, Inc. Price and Consensus | Internationa Flavors & Fragrances, Inc. Quote
VGM Scores
At this time, IFF has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, IFF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Internationa Flavors & Fragrances, Inc. (IFF): Free Stock Analysis Report
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