Morningstar | High Sales Growth Continues for Symrise, but Raw Material Inflation Takes a Bite Out of Profits. See Updated Analyst Note from 07 Nov 2018
Wide-moat Symrise reported another quarter of strong, broad-based growth. Third-quarter organic growth was 8.8%, led by double-digit growth in nutrition. With continued robust growth, Symrise increased its 2018 organic growth guidance again to “greater than 8%†from “greater than 7%,†which was put in place last quarter. However, investors should not get too excited about these rising growth expectations, as a good portion reflects pass-through of rising raw material costs. Indeed, despite nearly 9% organic growth in the third quarter, EBITDA fell by 2% over 2017 with a 170-basis-point drop in margin. Some temporary factors impacted the results, including a shutdown at one of Symrise’s plants in the U.S. due to Hurricane Florence. Still, it is clear that Symrise is swimming upstream now, and EBITDA growth will be harder to come by in the coming quarters. We expect raw material inflation to continue. Symrise stated that further price increases will be necessary to offset ongoing raw material inflation. We maintain our EUR 70 fair value estimate. At current levels, the shares look fairly valued.In the segments, third-quarter organic growth was 7.4%, 8.8%, and 10% in scent and care, flavor, and nutrition, respectively. Latin America was the strongest region with sales growth of 25% in the third quarter. In scent and care, cosmetic ingredients and aroma molecules have reported double-digit organic growth year to date. However, raw material shortages and their associated rising prices have hit the division the hardest. The segment EBITDA margin was down 220 basis points over 2017 in the third quarter. Flavor has been bolstered by strong growth in emerging markets, including double-digit growth in Latin America and Asia-Pacific year to date. In nutrition, the destocking issue at Probi normalized in the third quarter, as expected. Pet food continues to be the major driver with high-single-digit organic growth year to date.
Symrise AG develops, produces, and sells fragrances and flavors as well as active ingredients for the cosmetics industry. Co. operates in two main business segments: The Scent & Care segment, which develops, produces and sells fragrances, cosmetic ingredients, aroma molecules and mint aromas and also develops specific application processes for such substances; and The Flavor & Nutrition segment, which develops, produces and sells flavors that are used by customers in the production of food products (savory and sweet food products as well as dairy products) and beverages.
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