International Flavor & Fragrances Boosts Inflation Outlook and Seeks Price Increases with Customers

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International Flavor & Fragrances Inc. posted first quarter profit that beat expectations, but gross margin fell from a year ago as price increases were not enough to offset higher inflation provided that.

The IFF stock of the food, perfume and food supplements company,
-2.82%
fell 3.4% on Tuesday afternoon. It is now down 5.9% in the three sessions since closing at a two-year high of $ 146.51 on May 6.

Late Monday, the company said it suffered a net loss of $ 42 million, or 21 cents per share, on net income of $ 124 million, or $ 1.15 per share, during the period of the previous year. Excluding one-time items, such as costs related to the merger with Nutrition & Biosciences, adjusted earnings per share of $ 1.60 beat the FactSet consensus by $ 1.53.

The company said it has entered into a deal to sell its fruit preparation business, which contributed around $ 70 million in sales, to Frulact for an undisclosed amount.

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

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

CFO Rustom Jilla said on a conference call with analysts after the results on Tuesday that gross margin had been affected by headwinds resulting from inflation in input costs and rising freight rates, as well as tight stocks and weather-related plant disruptions.

The larger-than-expected cost increase led Jilla to say that combined commodity and logistics inflation is now expected to be in the “single-digit” percentage range this year, against expectations of “low to low”. a number ”at the beginning of the year. As a result, Jilla said the company is looking to raise prices for its customers.

“This has forced us to come back to have further pricing discussions to cover our exposure, as we are confident that over time we can fully pass this increase on,” Jilla said, according to a FactSet transcript. “There is a delay before pricing is fully realized, which can put pressure on gross margin in the short term.”

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

International Flavors & Fragrances shares are up 26.7% year-to-date, while the S&P 500 SPX index,
-0.87%
increased by 10.5%.

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