Earnings Review: International Flavors & Fragrances 2017 Q2
- IFF beat on earnings but missed revenues for the quarter.
- Although revenue was weak the company still reaffirmed its 2017 full-year guidance.
- An improvement is needed in Asia for the company to really keep on growing its revenue.
International Flavors & Fragrances (IFF) is responsible for how food and beverages taste around the world. Not only that they are also responsible for how products smell and feel. The products IFF is involved in range from soaps, and detergents to even some cosmetics products. The stock hit its all-time high three months ago, this is an alternative way to play the Consumer Packaged goods space. The company has good growth and is very shareholder-friendly (the company provides great dividend growth). IFF reported earnings of $1.50/share versus analyst expectations of $1.45/share. On the revenue side, the specialty chemical company generated $842.9 million was a slight miss but I think it was in line in terms of analyst expectations.
The revenue number was a bit of a miss for me because I hold IFF to a high standard. I estimated the company would generate at least $850 million which is close to the company’s threshold revenue growth of 6.5%. On the earnings side, IFF blew away my estimate of $1.48/share. This estimate got me a ranking of 4 out of 15 analysts following the stock on Estimize. IFF grew its revenue by 6%, which was a tad below my expectations. Looking at the two segments, the Fragrances unit posted 4% revenue growth while the Flavors unit posted 9% revenue growth. Fragrances numbers were mainly boosted by the double-digit growth from Emerging market countries and Latin America. Looking at the flavors business unit it was mainly driven by North America and additional sales from the company’s acquisitions of David Michael and PowderPure.
The area of concern for me from this report was Asia. Greater Asia’s numbers were weak as the company reported a decrease of 3% in revenue growth from that region. This is an important market for IFF and management needs to improve its execution in Asia. The CFO of IFF, Richard O’Leary on the earnings call attributed the weakness in Asia to changes in consumer behavior. On the conference call he said:
“we’re seeing a change in purchase behaviors as consumers limit spending, as cost of living has increased recently due to lower subsidies and higher taxes”
Management might need to change its strategy in Asia, the CFO did say China & India (two important markets in Asia) were performing well. I will be watching how the company does next quarter in Asia. Besides, that weakness in Asia management reaffirmed its 2017 full-year guidance in which the company expects revenue growth of between 6.5–7.5%.
Grade: This was an okay quarter for IFF, I will give it a B. I would like to see improvement in Asia next quarter besides that the business seems to be intact. The balance sheet seems intact and the company just boosted its dividend by 7.8% to $0.69/share.
Disclosure: Cresco Investments has a long position in International Flavors & Fragrances (IFF).
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.
