International Flavors & Fragrances Beats Earnings

International Flavors & Fragrances Inc. (IFF) reported fourth-quarter 2013 adjusted earnings per share of 92 cents, up 10.8% from year-ago earnings of 83 cents. The bottom-line result was 2 cents above the Zacks Consensus Estimate.

Including one-time items, the company reported GAAP earnings per share of $0.75, down 9.6% year over year.

In 2013, adjusted earnings per share were $4.46, way above $3.98 recorded in 2012 and in line with the Zacks Consensus Estimate.

Revenue

International Flavors & Fragrances generated net sales of $725.2 million in the reported quarter, up 6.6% year over year and above the Zacks Consensus Estimate of $708.0 million. On a constant currency basis, revenue inched up 7% year over year, driven by solid growth in the emerging markets.

The company operates in two segments: Flavors and Fragrances.

In fourth-quarter 2013, revenue from the Flavors business increased 7.0% year over year, on a constant currency basis, to $343.0 million and accounted for 47.3% of total revenue. Revenue from the Fragrances business was roughly 52.7% of total revenue, amounting to $382.2 million, up 7% on a constant currency basis.

From a geographical perspective, revenue from North America decreased 5% year over year, while results from EAME were up 13% year over year or up 10% on a constant currency basis. Revenue from Latin America increased 9% year over year or 10% on a constant currency basis and from Greater Asia revenue was up 8% year over year or 12% on a constant currency basis.

In 2013, International Flavors & Fragrances generated net sales of $2,952.9 million, up 4.7% year over year and above the Zacks Consensus Estimate of $2,935.0 million. On a constant currency basis, revenue increased by 5%.

Margins

International Flavors & Fragrances’ adjusted gross margin in fourth-quarter 2013 increased by 160 basis points to 43.8% based on new business wins, effective product mix, innovations and cost reductions. Research and development expense, as a percentage of sales, increased by 60 basis points to settle at 9.7% while selling and administrative expense increased by 10 basis points to 18.6%.

Adjusted operating margin in the quarter was 15.4% compared with 14.6% in the year-ago quarter. Interest expense increased 6.8% to $11.1 million in the quarter.

Balance Sheet

Exiting the fourth quarter of 2013, International Flavors & Fragrances’ cash and cash equivalents were $405.5 million, up 18.2% from $343.1 million in third-quarter 2013. Long-term debt was at $932.7 million versus $933.5 million in the previous quarter.

Cash Flow

In 2013, International Flavors & Fragrances generated roughly $407.6 million net cash from operating activities, up 25.9% year over year. Capital spending escalated 6.4% to $134.2 million in 2013.

International Flavors & Fragrances paid cash dividends of $87.3 million to shareholders in 2013.

International Flavors & Fragrances currently has a market capitalization of $7.2 billion and carries a Zacks Rank #2 (Buy). Other similarly-ranked stocks in the industry include Globe Specialty Metals, Inc. (GSM), NewMarket Corp. (NEU) and Sensient Technologies Corp. (SXT).

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