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International Flavors and Fragrances Beat 2Q17 Estimates

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Part 3
International Flavors and Fragrances Beat 2Q17 Estimates PART 3 OF 5

Why IFF’s Fragrances Segment’s Profit Margin Fell in 2Q17

IFF’s Fragrances segment’s revenue in 2Q17

The Fragrances segment of International Flavors and Fragrances (IFF) makes the highest contribution to IFF’s overall revenue. This segment accounted for 50.80% in 2Q17, compared to 52.20% in 2Q16. The Fragrances segment reported revenue of $428.54 million, an increase of 3.50% on a year-over-year basis. In 2Q16, the segment reported revenue of $413.98 million.

Why IFF&#8217;s Fragrances Segment&#8217;s Profit Margin Fell in 2Q17

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The segment’s revenue growth was mainly driven by positive growth in all of business under this segment. The consumer fragrance business saw marginal growth, led by demand in fabric care and home care. The Fine Fragrance business grew 11%, resulting from the acquisition of fragrance resources, while the fragrance ingredients business grew 9%, led by IFF Lucas Meyer Cosmetics.

Segment’s net profit and margins

The fragrances segment reported a net profit of $84.86 in 2Q17, a decrease of 3.1% on a year-over-year basis. In 2Q16, the segment reported net profit of $87.60. The decline in net profit had an adverse impact on the segment’s margin. In 2Q17, the segment’s profit margin stood at 19.80%, compared to 21.20% in 2Q16. This margin implies a decline of 140 basis points from the previous year. The decline was mainly due to the price decline, rise in input costs, and higher acquisition costs.

Outlook

Acquisitions growth should remain a major driver for this segment, led by Fragrance resources. The trends in other businesses are expected to continue. Ongoing productivity initiatives are expected to drive profits and the segment’s margin.

The iShares U.S. Basic Materials ETF (IYM) has invested 1.80% of its portfolio in IFF.

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