Analyst Downgrades IFF: Cites Concerns Over Volume Trends And Management Credibility

Stifel analyst Mark S. Astrachan downgraded International Flavors & Fragrances, Inc. IFF from Buy to Hold, lowering the price target to $85 from $123.

The analyst cautioned that the downgrade mainly reflects the lack of visibility into improving volume trends, the company’s competitive position relative to peers, and the lack of management credibility.

IFF reported disappointing 2Q23 results, reduced its 2023 sales, and adjusted EBITDA guidance by 7% and 18%, respectively, at the midpoint. 

The miss and lowered guidance largely reflect ongoing customer destocking, hurting volumes and resulting in more significant manufacturing absorption costs related to improving inventories/cash flow, the analyst notes.

The company has reduced 2023 guidance thrice since its December 2022 investor meeting.

The revised guidance is relatively significant, mainly as 2Q23 adjusted EBITDA was pretty consistent with prior guidance, excluding the LBK write-down, suggesting a more meaningful cut and hopefully conservative outlook for 2H23, notes the analyst.

Additionally, CPG volumes are likely to remain challenged through at least year-end 2023, with 2024 volume improvement likely gradual, assuming the current global consumer environment remains constant, Astrachan notes.

The company announced a sale process for the beauty ingredient business Lucas Meyer and will explore additional divestiture actions., notes the analyst.

Astrachan believes IFF can only achieve its <3.0x year-end 2024 leverage target by undertaking larger-scale divestitures.

Price Action: IFF shares are trading lower by 19.57% to $64.62 on the last check Tuesday.