Success Lingers for International Flavors & Fragrances

The company is benefiting from acquisition synergies and is executing productivity programs

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Aug 14, 2017
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International Flavors & Fragrances Inc. (

IFF, Financial),a manufacturer of flavors and fragrances for various industires, posted strong second-quarter results on Aug. 8, including a 6.22% increase in net sales. Net sales for the first six months increased 5.7%.

The company creates, manufactures and supplies flavors and fragrances for the food, beverage, personal care and household products industries. As of June 30, the company had 42 manufacturing facilities, six research and development centers and 70 creative and application centers located in over 35 countries.

International Flavors’ reportable operating segments are:

  • Flavors
  • Fragrances

Second-quarter results

During the second quarter ended June 30, the company’s net sales increased 6.22% to $842.86 million, compared to $793.48 million for the comparable prior-year period. Net sales for the flavors and fragrances segments increased 9.17% to $414.32 million and 3.52% to $428.54 million, compared to $379.5 million and $413.97 million a year ago.

Gross profit for the quarter increased 2.45% to $374.59 million, which was $365.64 million in the prior-year period. The gross profit margin decreased to 44.44% from 46.08% in the same period last year. Adjusted gross profit was $384.24 million.

The company's operating profit was $159.14 million, a 3.36% decrease from $164.67 million in the comparable quarter of 2016. Operating profit as a percentage of net sales decreased to 18.88% from 20.75%. Adjusted operating profit was $171.8 million, up 3.71% from $165.66 million.

Net income decreased 5.94% to $109.79 million, or $1.38 per diluted share, compared to $116.73 million, or $1.46 per diluted share, for the comparable prior-year period. Net income as a percentage of net sales decreased to 13.02% from 14.71% in the prior-year period. Adjusted net income increased 1.26% to $119.14 million, or $1.5 per diluted share, compared to $117.66 million, or $1.47 per diluted share, in the prior-year period.

The company’s cost of goods sold increased 9.45% to $468.27 million from $427.84 million. Cost of goods sold as a percentage of net sales increased 55.56% compared to 53.92% in the prior-year period. Selling and administrative expenses increased 2.36% to $135.91 million from $132.78 million in the same period last year. Net interest expense for the reported quarter increased 16.6% to $17.56 million compared to $15.06 million.

International Flavors ended the quarter with cash and cash equivalents of $491.39 million, an increase of 51.67%, compared to $323.99 million in December 2016. Inventories and long-term debt for the reported quarter increased 5.36% to $623.76 million and 53.27% to $1.64 billion, compared to $592.02 million and $1.63 billion in December 2016.

Attributes of the quarter

The fragrance segment's sales increased due to the benefit of acquisitions as well as growth in fine fragrances, fabric care and fragrance ingredients. Sales in the flavors segment improved due to organic growth from three of the four operating regions.

First six months results overview

The following chart shows the company's financial results for first six months of 2017.


Six months ended June 2017

Six months ended June 2016

% change

Net sales

$1.67 billion

$1.58 billion


Gross profit

$739.25 million

$725.85 million


Operating profit

$296.58 million

$334.6 million


Net income

$225.56 million

$235.34 million


Cost of goods sold

$931.90 million

$850.94 million


Selling and administrative expenses

$276.24 million

$256.33 million


Net interest expense

$30.36 million

$27.54 million


Net cash provided by operating activities

$57.92 million

$172.3 million


International Flavors’ operating cash flows decreased due to a litigation settlement with ZoomEssense.


For fiscal 2017, the company expects an increase in net sales and adjusted net sales in the range of 7.5% to 8.5% and 6.5% to 7.5%. Operating profit is expected to increase 5.5% to 6.5%. Excluding the impact of foreign currency, adjusted operating profit will be in the range of 4% to 5%. Further, the company expects EPS to increase 6.5% to 7.5% and adjusted EPS to increase 4% to 5%.

Growth strategies

To drive growth, improve efficiency and improve customer experience, International Flavors is investing in workforce planning and leadership development. Further, the company is implementing a more simplified organizational structure and is strengthening its R&D and innovation platforms.

For maximum value creation, the company has initiated a strong capital allocation strategy and plans to use its cash on capital expenditures, acquisitions and dividends.

In the long term, the company plans to develop products based on the future needs of its customers. The company also plans to become its customers’ partner of choice and to strengthen and expand its portfolio.


International Flavors appointed Stephen Williamson to its board of directors on Aug. 1. According to the company, Williamson’s extensive international senior management experience will help with the execution of the long-term strategy.


On Apr. 10, International Flavors announced the acquisition of Columbia Phytotechnology LLC, which is also known as PowderPure. This acquisition will help the company create minimally processed products from natural ingredients.

On a concluding note

International Flavors is a rock-solid company with a strong financial profile, remarkable white space opportunities and an experienced management team. From 2011 to 2016, the company’s fragrance delivery systems swelled at a compound annual growth rate (CAGR) of more than 31%. Further, from 2014 until second-quarter 2017, International Flavors’ consolidated company sales increased at a CAGR of more than 6%.

The company estimated the market size in 2016 was approximately $2 billion, and it will be growing 2% to 3% per year until 2020. Therefore, it has mammoth growth potential. With its recent quarterly report, the company is headed toward a bright future and is set to deliver greater shareholder returns.

Disclosure: I do not hold any positions in the company.

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