International Flavors & Fragrances Beats on Q1 Earnings - Analyst Blog

International Flavors & Fragrances Inc. IFF reported adjusted earnings of $1.32 per share in first-quarter 2014, up from $1.19 per share recorded in the year-ago quarter. The bottom-line result also surpassed the Zacks Consensus Estimate of $1.25 per share.

Including one-time items, the company reported GAAP earnings of $1.30 per share, up 18.2% year over year.

Revenue

International Flavors & Fragrances generated net sales of $770.2 million in first-quarter 2014, up 5.8% year over year and above the Zacks Consensus Estimate of $764.0 million. On a constant currency basis, revenues inched up 7% year over year, driven by solid growth in the emerging markets. The acquired assets of Aromor contributed 1% to total revenue growth.

International Flavors & Fragrances operates in two segments: Flavors and Fragrances.

Revenues from the Flavors business were $366.5 million, up 2.8% year over year and accounting for 47.6% of total revenue. On a constant currency basis, revenues increased 5% year over year.

The Fragrances business recorded an 8.7% year over year increase in revenues that came in at $403.7 million. On a constant currency basis, revenues rose 8% year over year.

From a geographical perspective, revenues from North America increased 2% year over year, while results from Europe, Africa and the Middle East (EAME) were up 10% year over year or up 9% on a constant currency basis. Revenues from Latin America increased 1% year over year or 3% on a constant currency basis and from Greater Asia revenues were up 6% year over year or 11% on a constant currency basis.

Margins

International Flavors & Fragrances' adjusted gross margin in first-quarter 2014 was 44.7%, up 180 basis points (bps) year over year on the back of new business wins, effective product mix, innovations and cost reductions. Research and development expense, as a percentage of sales, decreased by 10 bps to settle at 8.0% while selling and administrative expense increased by 30 bps to 16.1%.

Adjusted operating margin in the quarter was 20.6% compared with 19.1% in the year-ago quarter. Interest expense increased 4.7% to $11.7 million in the quarter.

Balance Sheet

Exiting the first quarter of 2014, International Flavors & Fragrances had cash and cash equivalents of $268.6 million versus $405.5 million in the preceding quarter. Long-term debt was relatively flat sequentially at $931.6 million.

Cash Flow

Cash generated from operating activities was $35.0 million, up 87% year over year. Capital spending was at $33.8 million versus $29.9 million in the year-ago quarter. In the reported quarter, International Flavors & Fragrances paid cash dividends of $31.7 million.

Outlook

International Flavors & Fragrances maintained its guidance for 2014. Local currency sales growth is expected to be within a range of 5–7%, including roughly 1% contribution from the Aromor acquisition. Operating profit will get a boost from cost reductions and manufacturing efficiencies. Both adjusted operating profit and adjusted earnings per share will grow in a double-digit range.

International Flavors & Fragrances currently has a market capitalization of $8.0 billion and carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Globe Specialty Metals, Inc. GSM, Sensient Technologies Corporation SXT and Zep, Inc. ZEP. While Globe Specialty Metals carries a Zacks Rank #1 (Strong Buy), both Sensient Technologies and Zep hold a Zacks Rank #2 (Buy).