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International Flavors & Fragrances: Is Rising Debt Good or Bad?

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Jan. 3 2018, Published 9:11 a.m. ET

International Flavors & Fragrances’ debt

International Flavors & Fragrances’ (IFF) debt has been on an upward trend in the past five years. At the end of 3Q17, it was reported at $1.6 billion. The debt includes long-term debt, bank borrowings, overdrafts, and the current portion of long-term debt. Since 2012, its debt has grown at a CAGR (compound annual growth rate) of 10.8%.

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Debt-to-equity ratio

Since IFF’s debt has grown over the years, let’s look at its debt-to-equity ratio. Let’s see if it’s above the industry standard and compare it to its peer group. IFF’s present debt-to-equity ratio is 0.95x, which is marginally above the industry standard of 0.92x. Its peers Clorox (CLX), Church & Dwight (CHD), and Sensient Technologies (SXT) have debt-to-equity ratios of 3.72x, 1.24x, and 0.71x, respectively.

Although IFF’s debt has shown an upward trend, it may not be alarming since its debt-to-equity ratio is on par with the industry and better than its peers, with the exception of Sensient Technologies.

Free cash flow

IFF’s free cash flow has grown at a CAGR of 20% from 2012 to 2016. It has prioritized its free cash flow to pay dividends and buy back shares. Currently, IFF isn’t looking to repay its debt.

Investors can indirectly hold IFF by investing in the Guggenheim S&P 500 Equal Weight Materials ETF (RTM), which has 3.9% of its portfolio in IFF as of December 28, 2017.

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