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International Flavors (IFF) Down 10.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for International Flavors (IFF). Shares have lost about 10.5% 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 drivers.

International Flavors Q1 Earnings Miss, View Declines

International Flavors reported adjusted earnings of 87 cents per share in first-quarter 2023, missing the Zacks Consensus Estimate of 89 cents. The bottom line declined 49% from the year-ago quarter.

Including one-time items, the company reported a loss of 4 cents against the prior-year quarter’s earnings per share (EPS) of 96 cents.

International Flavors’ net sales were $3,027 million in the March-end quarter, decreasing 6% year over year. The downside resulted from lower volumes across most segments. The top line surpassed the Zacks Consensus Estimate of $3,016 million. In the January-March quarter, currency-neutral sales grew 1% year over year.

Operational Highlights

In the reported quarter, International Flavors’ cost of goods sold was down 0.9% year over year to $2,063 million. The gross profit fell 15.8% year over year to $964 million. The gross margin came in at 31.8% compared with 35.5% in the year-ago quarter.

Research and development expenses increased 2.5% year over year to $161 million. The selling and administrative expenses fell 1.1% year over year to $454 million in the first quarter. The adjusted operating EBITDA came in at $503 million, down 28.3% from the prior-year quarter’s $702 million. The adjusted operating EBITDA margin was 16.6% compared with the year-ago quarter’s 21.8%.

Segmental Performances

Revenues in the Nourish segment fell 4.5% year over year to $1,653 million in the March-end quarter. The adjusted operating EBITDA was $208 million, down 36.8% year over year.

Revenues generated in the Health & Bioscience segment were $513 million compared with the year-earlier quarter’s $661 million. The adjusted operating EBITDA was $131 million in the quarter compared with $192 million in the prior-year quarter.

The Scent segment’s revenues were $608 million compared with the year-ago quarter’s $585 million. The adjusted operating EBITDA declined 9.5% year over year to $105 million.

Revenues in Pharma Solutions were $253 million in the first quarter, up 1.6% year over year. The adjusted operating EBITDA fell 9.2% year over year to $59 million.

Financial Position

International Flavors had cash and cash equivalents of $617 million at the end of the first quarter, down from the $662 million witnessed at the end of first-quarter 2022. Long-term debt was $9.2 billion at the first-quarter end, down from $10.3 billion recorded as of Dec 31, 2022.

International Flavors generated $127 million in operating activities in the first quarter against a cash utilization of $4 million in the prior-year quarter. Capital invested in purchasing property, plant and equipment totaled $175 million in the quarter compared with $132 million in the year-ago quarter. Dividends paid out summed $206 million in the first quarter.

2023 Guidance

International Flavors estimates sales of $12.3 billion for 2023, down from the prior stated $12.5 billion. The updated guidance reflects the energy and raw material pass-through price adjustments and impacts of foreign exchange. Currency-neutral sales growth for the year is expected to be 5%, down from the prior stated 6%.

The adjusted EBITDA is expected to be $2.34 billion. Foreign currency translation will likely affect sales growth by 1%, and adjusted operating EBITDA growth by 3%.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -10.2% due to these changes.

VGM Scores

At this time, International Flavors has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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