It has been about a month since the last earnings report for International Flavors (IFF). Shares have lost about 5.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is International Flavors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
International Flavors Q4 Earnings & Sales Lag Estimates
International Flavors & Fragrances reported adjusted earnings of $1.22 per share in fourth-quarter 2018, missing the Zacks Consensus Estimate of $1.34. The bottom line declined 19% from the year-ago tally of $1.51.
Including one-time items, earnings per share in the quarter was 9 cents compared with 51 cents in the year-ago quarter.
In the reported quarter, International Flavors’ net sales were $1.22 billion, reflecting year-over-year growth of 43%. Further, the top line missed the Zacks Consensus Estimate of $1.23 billion by 1%.
Revenues at Taste segment remained constant at $401.6 million from fourth quarter of 2017. On a constant-currency basis, revenues grew 2% year over year. Operating profit declined 5% year over year to $77.5 million.
Revenues generated from the Scent segment came in at $457.9 million, up 1% year over year. On a constant-currency basis, revenues improved 3% year over year. Operating profit declined 4% year over year to $68 million.
In Oct 2018, International Flavors completed the acquisition of Frutarom Industries Ltd. Revenues at the Frutarom segment were $359.5 million and operating profit was $27.4 million during the fourth-quarter.
In the fourth quarter, International Flavors’ cost of goods sold rose 49% year over year to $742 million. Adjusted gross profit increased 37% year over year to $499 million. Adjusted gross margin came in at 41% compared with 42% in the year-ago quarter.
Research and development expenses flared up 8% year over year to $83 million. Adjusted selling and administrative expenses in the fourth quarter rose 49% year over year to $206 million. Adjusted operating profit increased 16% year over year to $162 million. Adjusted operating margin came in at 13.3% compared with 16.3% in the year-ago quarter.
Balance Sheet and Cash Flow
As of Dec 31, 2018, International Flavors had cash and cash equivalents of $648.5 million, showing a significant improvement from $368 million cash held at the end of 2017. Long-term debt grew to $4,504 million as of Dec 31, 2018, from $1,632 million in 2017.
International Flavors generated $436.7 million of cash from operating activities during the 12-month period ended Dec 31, 2018, compared with $390.8 million reported in the comparable period last year.
Capital invested in purchasing property, plant and equipment totaled $170 million as of Dec 31, 2018, surging 32% from the comparable period last year. Dividend paid totaled $230 in 2018.
International Flavors reported adjusted earnings per share of $6.28 in 2018, up 0.8% from $6.23 in the prior year. Earnings beat the Zacks Consensus Estimate of $6.12.
Sales increased 17% year over year to $3.98 billion, driven by mid-single digit growth in the both Taste and Scent segments and contribution from Frutarom-related sales. The top line beat the Zacks Consensus Estimate of $3.94 billion.
For 2019, International Flavors provides sales guidance of $5.2-$5.3 billion. Adjusted earnings per share are expected in the band of $4.90-$5.10 and adjusted earnings excluding amortization are anticipated in the range of $6.30-$6.50. The company expects raw material cost inflation in 2019.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -5.75% due to these changes.
At this time, International Flavors has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
International Flavors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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