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Can IFF Meet Adjusted Earnings Expectations?

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IFF’s 1Q18 earnings estimates

International Flavors and Fragrances (IFF) is expected to report adjusted earnings per share (or EPS) of $1.59 in 1Q18, an increase of 4.6% over its adjusted earnings per share of $1.52 in 1Q17. If IFF can meet expectations, it would be record adjusted EPS for the first quarter.

The projected adjusted earnings per share could face some challenges in terms of increased cost of goods sold (or COGS) and selling, general, and administrative (or SG&A) expenses as a percentage of expected sales. IFF’s 1Q18 cost of goods sold (or COGS) is projected to be at $513.20, which is 56.0% of the expected sales. In 1Q17, IFF’s COGS as a percentage of sales stood at 55.3% of the sales, an increase of 75 basis points on a year-over-year basis. The rise in IFF’s COGS can primarily be attributed to the increase in the cost of raw materials.

Similarly, IFF’s SG&A expenses are expected to increase as a percentage of sales. IFF could see SG&A expenses at $169.1, which is 18.5% of the anticipated sales. In 1Q17, the SG&A expenses stood at 15.8%, an increase of 270 basis points on a year-over-year basis.

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Share repurchases

In November 2017, IFF had approved a $300 million share repurchase program, indicating IFF’s intention to reduce outstanding shares. IFF’s common outstanding shares at the end of 1Q18 are expected to be at ~79.3 million as compared to 79.4 million in 1Q17. This expected fall could help to improve the adjusted earnings per share.

Investors can indirectly hold IFF by investing in the Materials Select Sector SPDR Fund (XLB), which invests 1.8% of its portfolio in IFF. The fund also provides exposure to Monsanto (MON), Praxair (PX), and LyondellBasell (LYB), which have weights of 8.7%, 7.0%, and 5.4%, respectively, as of May 2, 2018.

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