IFF’s restructuring has strengthened earnings as the company looks to double its sales through acquisitions and product innovation..
INTERNATIONAL FLAVORS & FRAGRANCES INC. (New York symbol IFF; www.iff.com) makes over 38,000 compounds that improve the taste of food and the smell of consumer products.
IFF’s sales rose 10.8%, from $2.8 billion in 2011 to $3.1 billion in 2014. Sales then fell 2.1%, to $3.0 billion, in 2015. However, it gets 75% of its sales from overseas markets. If you exclude the negative impact of currency rates, sales rose 5% in 2015.
The company’s overall earnings gained 39.3%, from $306.2 million in 2011 to $426.6 million in 2015. Due to fewer shares outstanding, earnings per share rose 40.4%, from $3.74 to $5.25.
In the second quarter of 2016, IFF’s sales rose 3.4%, to $793.5 million from $767.5 million a year earlier. Earnings gained 6.1%, to $117.8 million from $111.0 million; earnings per share rose 8.1%, to $1.47 from $1.36.
Part of this growth is due to acquisitions. Under its current strategy, IFF expects buying related companies will boost its annual sales by $500 million to $1 billion by 2020.
In 2015, IFF completed two acquisitions. It paid $304.9 million for Quebec-based Lucas Meyer Cosmetics. This firm supplies ingredients to makers of cosmetics and personal care products. The company also purchased Henry H. Ottens Manufacturing, a Philadelphia-based maker of flavourings for major food companies. It paid $188.5 million for Ottens.
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IFF also fuels its growth with new products; it devotes a high 8% of its sales to research. As well, the company works closely with its clients to anticipate changing consumer preferences. In addition to developing innovative new products, this collaborative approach makes it harder for clients to switch to other ingredient suppliers.
The company’s strong balance sheet will continue to support its growth plans. As of June 30, 2016, it held cash of $540.0 million, or $6.78 a share. Its long-term debt of $1.4 billion is a low 13% of its market cap.
IFF is also in the midst of restructuring. This includes consolidating plants and cutting jobs. It expects to spend $10.5 million on severance and other costs. However, the plan should save the company $8 million a year, starting in 2017.
The savings will help fund IFF’s share repurchases; it has budgeted up to $165.0 million for share buybacks before the end of 2017. The company also recently increased its dividend by 14.3%. The new annual rate of $2.56 a share yields 1.9%. IFF has now raised the payment each year since 2003.
The company will probably earn $5.60 a share in 2016; IFF trades at 24.6 times that forecast. That’s a high p/e, but still reasonable, in light of the company’s research spending and growth prospects.
Recommendation in Wall Street Stock Forecaster: BUY
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