International Flavors & Fragrances Inc. (IFF) reported fiscal first quarter EPS of 85 cents, up from the Zacks Consensus Estimate of 83 cents. Reported EPS was also above 65 cents in the year-ago quarter.
Net earnings were $68.2 million, up 44.5% from $47.2 million in the corresponding period of the previous year based on improvements in economic conditions.
During the quarter, net sales moved up by 16.9% year over year to reach $653.9 million from $559.3 million. Revenue in the Flavor Business unit grew 12.8% to reach $300.2 million. In the Fragrances Business unit, revenue advanced 20.5% to reach $353.7 million.
The increase in revenue was driven by new product launches and higher sales volumes in Europe, Africa, the Middle East (EAME) and Greater Asia.
Geographically, revenue from North America grew 5% and increased 22% from EAME. Revenue from emerging economies like Latin America and Greater Asia increased 16% and 23%, respectively.
During the quarter, the company maintained strict cost control. Gross margin moved up by 160 basis points based on higher revenue and lower costs. During the quarter, research, selling and administrative expense as a percentage of revenue dropped by 50 basis points. Operating profit increased 27.9% to reach $104.6 million.
As at March 31, 2010, net debt decreased to $925.1 million from $931.4 million at the end of the previous quarter. This was due to the increase in cash & cash equivalents of $9.7 million during the quarter.
During the reported quarter, the company generated $32.4 million as cash from operations compared to negative $14.4 million during the same period of the previous year.
International Flavors & Fragrances is the leading creator and manufacturer of flavor and fragrance compounds. The company’s success is driven by its huge geographical diversification and product mix. IFF’s accomplishments in research and intense consumer insight support its growth momentum.
However, the cyclical nature of the flavors and fragrances industry acts as a hindrance to the company’s growth. Moreover, the intense competition within the industry reduces both top-line and bottom-line results. Nevertheless, the company’s strategy to reduce operating costs might enhance margin levels in the coming years. Thus, we reiterate our Neutral recommendation on the stock.
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