International Flavors & Fragrances Completes Frutarom Buy
International Flavors & Fragrances, Inc. IFF has completed the previously announced acquisition of Frutarom. This catapults International Flavors & Fragrances to the position of a global leader in taste, scent and nutrition. The company will also have a broader customer base, more diversified product offerings and an increased market penetration.
With the addition of Frutarom, International Flavors & Fragrances will have a differentiated portfolio with an increased focus on naturals and health and wellness, and more comprehensive solutions. It also opens avenues of expansion into attractive and fast-growing categories, such as savory solutions, natural colors, natural food protection and health ingredients. The acquisition broadens International Flavors’ customer base, including enhanced exposure to the fast-growing small and mid-sized customers, such as private label.
The Frutarom acquisition will accelerate top and bottom-line growth for International Flavors & Fragrances. The company anticipates generating an average sales growth of 5-7%, and 10% adjusted cash EPS growthover the 2019 to 2021 timespan. The company envisions realizing $145 million in cost synergies. This will be achieved through rationalizing procurement, optimizing global footprint and streamlining overhead expenses by the third full year after the completion of the merger. Meanwhile, the company will focus on lowering debt and targets less than 3X net debt to EBITDA in 18-24 months.
In lieu of each Frutarom ordinary share, holder of Frutarom ordinary shares will receive $71.19 in cash and 0.249 of a share of International Flavors & Fragrances’ shares. Frutarom shareholders will also receive a special dividend, on per share basis, equal to 0.249 of the per share value in dividends.
Over time, the company has reinforced its product portfolio and leveraged business opportunities through the addition of assets. The buyouts of David Michael & Company in October 2016, Fragrance Resources in January 2017 and PowderPure in April 2017 are worth mentioning in this regard.
The global market for flavors and fragrances continues to grow spurred by increasing demand for a variety of consumer products containing flavors and fragrances. The market which was around $24.8 billion in 2017 is projected to grow approximately 2-3% by 2021, primarily driven by anticipated growth in emerging markets. Growing economy in these countries bolsters demand for consumer products, and in turn the demand for flavors and fragrances used in them. Consequently, International Flavors & Fragrances is focused on gaining share in emerging markets. Notably, sales from these emerging markets accounted for around 48% of the company’s 2017 sales.
In the last year, International Flavors & Fragrances' shares have declined 7.4%, against growth of 4.3% recorded by the industry. Over time, the company has been grappling with the adverse impacts of rising costs and expenses.
International Flavors & Fragrances currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Stocks to Consider
Some other top-ranked stocks within the sector include Quaker Chemical Corporation KWR, Cleveland-Cliffs Inc. CLF and Orion Engineered Carbons S.A OEC. While Quaker Chemical sports a Zacks Rank #1, Cleveland-Cliffs and Orion Engineered Carbons S.A carry a Zacks Rank #2.
Quaker Chemical has an average earnings surprise of 5.18% in the last four quarters. The stock has gained 35% over the past year.
Cleveland-Cliffs has an average earnings surprise of 47.74% in the last four quarters. Its shares have gone up 72% in a year’s time.
Orion Engineered Carbons S.A has an average earnings surprise of 6.17% in the trailing four quarters. The stock has rallied 42% in a year’s time.
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