IFF’s interest expense
International Flavors & Fragrances’ (IFF) increased debt has resulted in higher interest expense. Although it repaid some of its high coupon rate notes, additional borrowing has resulted in increased interest expense. For the first nine months of 2017, its interest expense was reported at $49.6 million compared to $40.6 million, an increase of 22% on a year-over-year basis.
Interest coverage ratio
Interest coverage ratio indicates how well a company can service its debt. It’s determined by dividing the company’s EBIT (earnings before interest and tax) by its interest expense. The higher the multiple, the better it is for the company since it can easily service its debt.
International Flavors & Fragrances’ interest coverage ratio at the end of 3Q17 was 9.5x. Its interest coverage ratio since 2012 has been on a declining trend, primarily due to increased interest expenses. At the same time, its EBIT growth has been very low. But its interest coverage ratio, despite the decline, is still higher than the industry average of 6.4x, which could mean that IFF is able to comfortably service its debt.
IFF’s peers Sensient Technologies (SXT), Clorox (CLX), and Church & Dwight (CHD) have interest coverage ratios of 10.6x, 14.3x, and 16.4x, respectively. IFF’s interest coverage ratio is the lowest among its peers.
Investors can indirectly hold IFF by investing in the PowerShares DWA Basic Materials Momentum ETF (PYZ), which has invested 2.1% of its portfolio in IFF as of December 28, 2017.
In the next part, we’ll look at analysts’ views and recommendations for IFF.