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IFF Needs a Boost: Will It Post Strong 4Q16 Earnings?

PART:
1 2 3 4 5
Part 3
IFF Needs a Boost: Will It Post Strong 4Q16 Earnings? PART 3 OF 5

Will IFF’s Adjusted EPS Grow before Its 4Q16 Earnings?

Analysts’ expectations

As of February 7, 2017, Wall Street analysts expect International Flavors and Fragrances (IFF) to post adjusted EPS (earnings per share) of $1.19—growth of 13.3% year-over-year compared to $1.05 in 4Q15. In the first nine months of 2016, International Flavors and Fragrances posted an adjusted EPS of $4.28—compared to $4.20 in the first nine months of fiscal 2015.

Will IFF&#8217;s Adjusted EPS Grow before Its 4Q16 Earnings?

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Driving factors

With expected revenue growth, it’s natural that International Flavors and Fragrances’ earnings are also expected to rise provided that operating expenses don’t increase exponentially. In 3Q16, International Flavors and Fragrances’ operating expenses rose. As a result, it missed analysts’ expectations. However, International Flavors and Fragrances’ cost savings and productivity measure might help it meet analysts’ expectations in 4Q16. International Flavors and Fragrances’ interest expense is expected to come down because it retired a $125 million note that carried a coupon rate of 6.1%. It also repaid a portion of the loan under the credit facility.

On the other hand, the strong dollar could be a spoil sport because International Flavors and Fragrances earns more than 70% of its revenue outside the US.

Share repurchases

Along with the above factors, share repurchases will also help boost International Flavors and Fragrances’ EPS. In 3Q16, International Flavors and Fragrances repurchased 167,307 shares for $22.4 million. In the first nine months, International Flavors and Fragrances repurchased 789,531 shares. The company still had $142 million under its share repurchase program. The program authorizes International Flavors and Fragrances to repurchase shares until December 2017. With International Flavors and Fragrances’ stock price on a falling trend since its 3Q16 earnings, the company might repurchase stock more aggressively in 4Q16.

Investors can indirectly hold International Flavors and Fragrances by investing in the iShares U.S Basic Materials ETF (IYM). IYM invested 1.50% of its holdings in International Flavors and Fragrances as of February 7, 2017. IYM’s top holdings include Dow Chemical (DOW), Dupont (DD), and Monsanto (MON) with weights of 10.9%, 10.8%, and 7.7%, respectively.

In the next part, we’ll look into analysts’ recommendations and the consensus price target for International Flavors and Fragrances before its 4Q16 earnings.

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