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May 12, 2021, 7:56 a.m. EDT

International Flavor & Fragrances boosts inflation outlook, seeks price increases from customers

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Tomi Kilgore

International Flavor & Fragrances Inc. reported first quarter earnings that beat expectations, but gross margin fell from a year ago as price increases weren’t enough to make up for higher-than-expected inflation.

The food, scent and dietary supplements company’s stock /zigman2/quotes/206698429/composite IFF +0.50% dropped 2.8% to close Tuesday at $138.68. It has pulled back 5.3% in the three sessions since closing at a two-year high of $146.51 on May 6.

Late Monday, the company reported that it swung to a net loss of $42 million, or 21 cents a share, from net income of $124 million, or $1.15 a share, in the year-ago period. Excluding nonrecurring items, such as costs related to the merger with the Nutrition & Biosciences, adjusted earnings per share of $1.60 beat the FactSet consensus of $1.53.

The company said it has entered into an agreement to sell its fruit preparation business, which contributed about $70 million in sales, to Frulact for an undisclosed sum.

Total sales rose 83% to $2.47 billion, topping the FactSet consensus of $2.45 billion.

Meanwhile, cost of goods soared 119% to $1.71 billion, knocking the gross profit as a percentage of sales, or gross margin, down to 30.6% from 42.0%.

Chief Financial Officer Rustom Jilla said on the post-earnings conference call with analysts on Tuesday that gross margin was hurt by headwinds arising from input cost inflation and higher freight rates, as well as tight inventories and weather-related plant disruptions.

The greater-than-anticipated increase in costs led Jilla to say that raw material and logistics inflation combined is now expected be in the “mid-single-digits” percentage range this year, up from expectations of “low-single-digits” at the start of the year. As a result, Jilla said the company looked to increase prices to its customers.

“This has required us to go back to have additional pricing discussions to cover our exposure, while we are confident that over time, we can fully pass along this increase,” Jilla said, according to a FactSet transcript. “There is a time lag before pricing is fully realized, which can pressure gross margin in the short term.”

He said inflation is expected to put “negative pressure” on gross margin this year: “[W]e do not expect to be able in this fiscal year to be able to recover the full extent of the raw material increases that we are seeing and we envisage.”

International Flavors & Fragrances’ stock has rallied 27.4% year to date, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.58% has advanced 10.5%.

/zigman2/quotes/206698429/composite
US : U.S.: NYSE
$ 148.42
+0.74 +0.50%
Volume: 617,915
June 24, 2021 4:00p
P/E Ratio
80.03
Dividend Yield
2.08%
Market Cap
$36.95 billion
Rev. per Employee
$371,112
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/zigman2/quotes/210599714/realtime
US : S&P US
4,266.49
+24.65 +0.58%
Volume: 1.87B
June 24, 2021 5:29p
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