Updated Research Report on International Flavors & Fragrances (IFF) - Analyst Blog

On May 14, 2014, we issued an updated research report on International Flavors & Fragrances Inc. IFF. The company is expected to perform in line with the broad market in the next 6−12 months.

Long-term growth prospects are bright for the flavors and fragrances industry. Population growth and wealth creation, especially in the emerging nations, are strengthening the demand for consumer products and in turn, boosting the need for flavors and fragrances used in them. International Flavors & Fragrances hopes to achieve around 4−6% expansion in local currency sales, about 7−9% operating profit growth and over 10% earnings per share growth during 2013−2015.

In addition to growing demand, International Flavors & Fragrances' diverse portfolio and product mix along with new business wins will help it to deliver solid results in the quarters ahead. The company anticipates deriving more than 50% of its annual revenues from the emerging economies by 2015. Moreover, the company maintains an exhaustive research and development wing that focuses on the development of new and innovative compounds.

Recently, on May 6, International Flavors & Fragrances reported an impressive result for first-quarter 2014. Adjusted earnings were $1.32 per share, up 11% year over year and 5.6% above the Zacks Consensus Estimate. Revenues grew by 6% or 7% on a constant currency basis on the back of solid performance in the emerging markets.

Aromor acquisition (completed in Jan 2014) added 1% to sales growth. Margins benefited from cost reductions and manufacturing efficiencies. For 2014, International Flavors & Fragrances anticipates revenue and earnings per share growth to be in the double-digit range. Aromor is expected to contribute 1% to local currency sales growth and be accretive to earnings. Also, investments are directed towards strengthening the innovation platforms.

Despite solid long-term growth aspects and the impressive quarter-result, we remain wary of certain near-term risks, including adverse impacts of foreign currency translation and rise in debt levels.

International Flavors & Fragrances currently has a market capitalization of $7.8 billion and carries a Zacks Rank #2 (Buy). Other companies worth considering in the industry include Novozymes A/S (NVZMY), Sensient Technologies Corporation SXT and Zep, Inc. ZEP. All of these companies carry the same rank as International Flavors & Fragrances.


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