INTERNATIONAL FLAVORS & FRAGRANCES INC.

Recommendation history

• Q4 2016HoldHold: IFF delivered a strong Q4, with currency-neutral sales up 7%, Flavors up 14%, and adjusted EPS up 6%, but the 2017 outlook depends on a difficult volume recovery and substantial productivity execution. Management guides to 7.5%-8.5% currency-neutral sales growth, including 4.5 points from acquisitions, while Fine Fragrance remains weak and most earnings leverage is back-half weighted.
• Q3 2016HoldHold: Q3 currency-neutral sales rose 3% (2% organic), but adjusted operating profit fell 4% as unfavorable mix, pricing/input-cost pressure and fragrance-ingredient manufacturing yields overwhelmed productivity gains. Management lowered or reaffirmed a cautious FY2016 framework of 4%-5% sales growth, 3.5%-4.5% operating-profit growth and 5%-6% adjusted EPS growth; acquisitions add growth, but near-term earnings leverage is limited.
• Q2 2016HoldHold: IFF delivered a solid Q2, with currency-neutral sales up 4% (organic +2%), adjusted operating profit up 7%, margin up 50 bps, and adjusted EPS up 5%; first-half sales rose 5% and EPS 8%. However, management merely reiterated below-target FY2016 guidance of 3.5%-4.5% sales growth, 5%-7% operating-profit growth, and 6.5%-8.5% EPS growth, while organic North America Flavors was flat, Fine Fragrances declined, and Q3 margin is expected to be flat due to reinvestment.
• Q1 2016HoldHold: IFF delivered a strong Q1—currency-neutral sales rose 6%, adjusted operating profit 7%, and adjusted EPS 11%—but roughly 4 points of sales growth came from acquisitions and management said order timing helped the quarter. Full-year guidance was unchanged at 3.5%-4.5% currency-neutral sales growth, 5%-7% adjusted operating profit growth, and 6.5%-8.5% adjusted EPS growth; the upside from innovation and M&A is offset by weak underlying demand, China exposure, and execution uncertainty.
• Q4 2015HoldHold: IFF delivered solid FY2015 results—currency-neutral sales +5%, adjusted operating profit +8%, and adjusted EPS +11%—but Q4 exposed weaker customer ordering, China disruption, and fragrance-ingredient concentration. Management guided to only 3.5%-4.5% currency-neutral sales growth and 6.5%-8.5% EPS growth in 2016, while reported operating profit is expected to be flat to up 2% after roughly a 5-point FX headwind; the long-term innovation thesis remains credible, but near-term visibility and competitive-share questions are unresolved.
• Q3 2015HoldHOLD: IFF delivered a strong Q3—currency-neutral sales rose 7%, organic sales 4%, and adjusted operating profit 10%—but the trajectory is deteriorating into Q4. Management expects only flat to slightly positive organic sales in Q4 while reaffirming FY2015 guidance of 6% currency-neutral sales growth and approximately 9% adjusted operating-profit growth; China weakness, customer volume erosion, and reliance on acquisitions and hedging make this insufficient for a clean buy.
• Q2 2015HoldHold: IFF delivered solid Q2 execution, with currency-neutral sales up 5%, adjusted operating profit up 7%, and adjusted EPS up 10%; first-half sales, operating profit, and EPS growth were 6%, 9%, and 11%, respectively. However, FY2015 guidance is concentrated at the low end of the 4%-6% sales-growth framework, while reported sales are expected to decline about 1% and reported adjusted operating profit rise only about 4% because of FX; North American Flavors softness, China production constraints, and temporary cost benefits keep this from being a clean buy.