International Flavors & Fragrances Inc. (IFF – Free Report) shares have lost 24.4% in the past six months compared with the industry’s 8.3% decline. This mainly reflects the impacts of lower volumes in the Food Ingredients business and higher manufacturing expenses. Supply-chain challenges and the effects of the Pharma segment divestiture have also impacted IFF’s results.
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Low Volume, High Costs Act as Woes
International Flavors continues to incur high raw material costs and additional costs related to labor, shipping and cleaning. Despite its pricing actions and focused cost-reduction efforts, these factors are likely to dent margins for the balance of the year. International Flavors’ manufacturing costs are expected to increase to support higher demand.
The company plans to sell its Pharma segment to focus on its core business. However, the divestiture is expected to have a negative impact of five percentage points on top-line growth and a negative effect of six percentage points on adjusted EBITDA growth in 2025. Moreover, the Food Ingredients business is expected to see lower volume growth in 2025.
The company has a market capitalization of around $20 billion. It currently carries a Zacks Rank #3 (Hold). Let us discuss the factors that indicate that the stock might stage a comeback.
Demand for Flavors & Fragrances Drives IFF’s Growth
International Flavors is well-poised to benefit from the demand for a variety of consumer products containing flavors and fragrances going forward. Anticipated growth in emerging markets will likely be a key catalyst. International Flavors is focused on gaining share in emerging markets.
Backed by the company’s global presence, diversified business platform, broad product portfolio, and global and regional customer base, it will be able to capitalize on the expansion in flavors and fragrances markets and deliver long-term growth.
Focus to drive greater efficiencies throughout the business through costs and productivity initiatives, margin improvement and acquisition-related synergies continue to drive profits.
International Flavors’ Focus on Growth Strategies
In December 2022, the company announced a strategic and financial vision, which, among others, consisted of a renewed growth-focus strategy, enhanced cost and productivity initiatives, and a redesigned operating model. It intends to transform its operating model into a more customer-centric and market-backed one. To this end, it will conduct business in three core end markets — Food and Beverage, Home and Personal Care, and Health.
To drive growth, IFF plans to step up its investment in high-return businesses, such as Flavors, Fragrances, Health, Cultures and Food Enzymes. The company continues to optimize its portfolio. It completed the sale of Microbial Control, and a portion of the Savory Solutions and Flavor Specialty Ingredients businesses.
In March 2024, International Flavors announced that it entered an agreement to sell its Pharma Solutions business, which is expected to close by June 2025. These endeavors will help the company focus on its core business operations, strengthen its balance sheet and maximize shareholder returns.
IFF’s Focus on Functional Ingredients Business
International Flavors’ Functional Ingredients business is a leading global specialty food ingredients provider with a market leadership position in a broad portfolio of ingredients businesses, including Protein Solutions, Emulsifiers & Sweeteners, Core Texturant, and Cellulosic & Food Protection.
The company is taking additional actions to rapidly improve the performance of the business, which is expected to lead to low-single-digit comparable currency-neutral sales growth, in line with the market.
Stocks to Consider
Some better-ranked stocks from the basic materials space are Axalta Coating Systems Ltd. (AXTA – Free Report) , Carpenter Technology Corporation (CRS – Free Report) and SSR Mining Inc. (SSRM – Free Report) . AXTA flaunts a Zacks Rank #1 (Strong Buy), and CRS and SSRM have a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Axalta Coating has an average trailing four-quarter earnings surprise of 16.2%. The Zacks Consensus Estimate for AXTA’s 2025 earnings is pegged at $2.51 per share. Its shares gained 2.5% in the past six months.
Carpenter Technology has an average trailing four-quarter earnings surprise of 15.7%. The Zacks Consensus Estimate for the company’s 2025 earnings is pegged at $6.95 per share. CRS shares gained 13.8% in the last six months.
SSR Mining has an average trailing four-quarter earnings surprise of 155.6%. The Zacks Consensus Estimate for the company’s 2025 earnings is pegged at 85 cents per share. SSRM shares soared 84.7% in the last six months.
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