Performance in 1Q17
International Flavors & Fragrances’ (IFF) Flavors Business Segment contributed 49% of the company’s total revenue in 1Q17. The segment reported revenue of $406.2 million in 1Q17—an increase of 9.0% compared to $372.50 million in 1Q16.
The segment’s higher revenue was primarily driven by good organic volume growth across all of the regions. The North American region grew 27% due to the acquisition of David Michael and good performances in the dairy and savory businesses. Sales in the Latin American region rose 9% due to increased demand in Mexico. Greater Asia sales rose 2% due to higher demand in India, Thailand, and the Philippines. However, the EMEA (Europe, the Middle East and African) region remained flat.
Segment’s net income and margin
International Flavors & Fragrances’ Flavors Business segment reported net income of $98 million in 1Q17 compared to $91.8 million in 1Q16—an increase of 6.8% YoY (year-over-year). The segment reported a net income margin of 24.10% in 1Q17 compared to 24.6% in 1Q16—a decrease of 50 basis points YoY. The segment’s net income was impacted negatively by the increase in raw material prices and the reserve for sales allowances.
The segment’s revenue will likely continue to grow due to the increased sales volume in North America. The sales volume increased due to the acquisition of David Michael. Cost and productivity benefits are expected to drive the segment’s net income.
Investors can indirectly hold International Flavors & Fragrances by investing in the iShares U.S. Basic Materials ETF (IYM). IYM has invested 1.20% of its holdings in International Flavors & Fragrances. The fund’s top holdings include Dow Chemical (DOW), DuPont (DD), and Monsanto (MON) with weights of 11.7%, 11.7%, and 8.5% as of May 8, 2017.
In the next part, we’ll look at analysts’ recommendations for International Flavors & Fragrances.