IFF Stock: Solid Long Term Investment

This article was written by Anna Latini, a Financial Analyst at I Know First.

IFF Share Price Outlook


  • IFF continues to look good despite a challenging Q1
  • IFF Thinks Long Term 
  • Global Flavor & Fragrance Market shows positive growth prospect


International Flavors & Fragrances Inc. was instituted in 1958 from the merger of two well established firms: Polak & Schwarz (P&S) and van Ameringen-Haebler. The first was established back in 1889 when Leopold Schwarz funded the company together with his brother in a small Dutch town. Quickly P&S grew to more than 35 sites and hired Arnold Louis (A.L.) van Ameringen to open a US office. After losing his job with P&S van Amerigen took over Morana inc. and transformed it into van Ameringen-Haebler (VAH) a few years later, in 1929.

Both the two companies did well in the following years, surviving the hardships of WWII. Although they both operated in the same field P&S had grown to specialize in the flavors sector while van Ameringen-Haebler (VAH) built itself a reputation for its offer of fragrances. In 1958 the two firms announced their merger and in 1964 they were listed in the NYSE as IFF, International Flavors & Fragrances.

Today IFF is a market leader in the flavor and fragrance industries holding a market share of 45.59% in the flavors market and of 5.49% in the fragrance sector.

The flavors segment provides flavor compounds that are sold to food and beverage companies for use in products, such as prepared foods, beverages, dairy and sweet products. The Fragrances segment offers fragrance mixes and ingredients. Its cosmetic active ingredients comprise of active and functional ingredients, botanicals and delivery systems to support its customers’ personal care and cosmetic product lines.

As of December 31, 2016, the Company counted 42 facilities and more than 70 creative centers and application laboratories located in over 35 countries supporting above 35,000 products. Its manufacturing facilities are situated in the United States, Turkey, Brazil, Mexico, Australia, China, India the Netherlands, Spain, Great Britain, and Singapore.

 IFF Continues To Look Good Despite a Challenging 1st Quarter

Despite a net income loss of around 2% in the first quarter of 2017, IFF continues to be in a good place if compared to competitors which lost more than 7% in the same period.

Reported operating profit for the first quarter was $137.4 million versus the $169.9 million of 2016. However, if we take out the impact of foreign exchange and other factors that affect comparability, currency neutral adjusted operating profit grew 3% as acquisitions, volume growth, and cost savings more than offset negative price to input costs as well as unexpected expenses, including unfavorable manufacturing variances, bad debt, a product recall and a litigation loss of $53 million.

The fragrance division which reported an overall 3% growth in sales but a decline in profits of 8% drove the decrease in net and operating income. Sales volume increase came from Fabric Care and fragrance ingredients which experienced high single digit growth in EAME and Latin America, growing the company’s market share in the sector, despite revenue deterioration.

The flavors section performed better as both sales and profits increased, respectively by 9% and 7%. This was the result of organic growth across all areas together with sales coming from the newly acquired brand David Michael.

Operating cash flow saw a sharp decrease from last year’s 1st quarter, going from 41 to 22 millions, mainly due to investing activities amounting to 3.2% of sales and destined to new plants and improved capacity.

Although this first quarter was though, there’s confidence on improvements in performance coming especially towards the second part of the year when the effects of destocking and volume erosion should become less of a drag. IFF will be able to keep paying out to its shareholder 50-60% of net income which is an indicator of management’s confidence in stable cash flows for the future. 

IFF Thinks Long Term 

In 2015 IFF published its 2020 value strategy based on four pillars aimed at achieving higher future growth rates. Among the four guiding principles emerges the intention to “strengthen and enlarge” the portfolio, which is exactly what IFF has been doing.

Indeed, the past year saw acquisitions both on the fragrance and on the flavor side. Despite the moderate size of such operations I believe that together they have the potential to significantly impact the value of the company. For a total of  $440 million IFF acquired David Michael, Fragrance Resources and Powder Pure. These recent acquisitions contributed strongly in terms of currency neutral adjusted operating profit bringing an increase in sales of 14% in North America, driven in large part by David Michael.

IFF is going towards the right direction to grow and remain a market leader. Demand for natural, healthy ingredients is growing as people pay more and more attention to the quality of food. By acquiring Powder Pure, an innovative company that provides sustainable, organic solutions for drying food, IFF has targeted that segment. 

With the acquisition of David Michael and Fragrance Resources IFF is aiming at expanding its business in North America and Germany. Looking at sales growth during the first quarter this strategy seems off to a good start and will likely  keep delivering good results.

On February 15 2017 the company has also issued a multi-year productivity plan designed to improve overall financial performance, provide flexibility to invest in growth opportunities and drive long term value creation. With this program the company has been trying to optimize and simplify its global organizational structure. Total charges will be around $30-35 million of which more than $10 million have been recorded already in this first quarter and the remaining will be recorded in the next 7 quarters. In terms of workforce, this initiative will translate in a decrease in personnel of around 370 members globally. 

IFF Launches Tastepoint to target Mid- Tier Costumers 

A few days ago IFF announced the creation of a new brand named “Tastepoint” which is the result of the fusion of David Michael, the newly acquired brand, and Ottens Flavors. Both are well-known companies with long histories and strong reputations in the industry.  Tastepoint targets the middle market costumer in North America, in line with the “Vision 2020” plan that aims at expanding the business in the region.

IFF Stock

Global Flavor & Fragrance Market shows positive growth prospect 

Market analysis anticipates CAGR growth for the global flavors and fragrances market of above 4% during the forecast 3- year period ending in 2020. The increasing demand coming from manufacturing firms in the food, beverages, cosmetics and perfumes sectors will drive healthy growth.

One of the main factors contributing to sector growth is increasing investments by firms that aim at enhancing production capabilities and enlarge their distribution network to gain more costumers. Market players are also investing in order to access new markets that hold a big potential. In 2016, indian Parag Milk Foods for instance declared its intention to invest about $1.5 billion to expand its production capabilities and its business operation to the north of the country.

On the retail client side, the increase in awareness about personal care products and the rise in consumption of convenience food is boosting sector’s growth. Demand of cosmeceuticals, anti-aging creams, and beauty products among the aging population has indeed increased the need for fragrances to cancel the unbearable odor of such cosmetic products. 

Sector analysis identified the hispanic population as a market having still a big potential. IFF achieved a 7% growth in Latin America in the past quarter, driven by sales in Mexico. However, there is still a lot of room for expansion in the area and the company seems in the right place to exploit it. 


By looking at the company strategy, growth opportunities and industry trends I would still recommend to buy IFF shares as despite a not so brilliant first quarter, which was the result of many unfavorable factors, the company is in a good place to keep creating value. Its increasingly diversified portfolio, solid finances and long term strategy, make it a good long-term investment especially for those who also value income generation.

Current I Know First Forecast for IFF:

Below is the latest forecast released by I Know First algorithm as of today  June 28, 2017.  The algorithm predicts a positive performance both in the short and in the long-term for IFF rating it as bullish and as a buy. The future is looking good as the company is getting ready to tackle new markets and reach further in the current ones.