The Geneva flavors and fragrances group lost momentum in the third quarter. With the price increases in the currently highly inflationary environment, the company sees itself fully on course.
In Swiss francs, sales from January to September rose by 7.7 percent to 5.46 billion francs. Organic, i.e. without acquisitions and sales and adjusted for currency effects, growth was 6.1 percent, as the manufacturer of flavors and fragrances for edibles, household and care items announced on Tuesday.
Givaudan does not present profit figures after nine months.
“We are very satisfied with the continued solid growth in all our business areas in what remains a difficult environment,” said CEO Gilles Andrier in the statement. He sees this as a further strengthening of Givaudan’s leading position in the industry.
Flavor Division remains growth driver
The most important growth driver was once again the Flavors division. In Swiss francs, growth was 9.3 percent and organically 6.4 percent. The growth was broad-based. Beverages and dairy products, but also snacks, culinary flavors and confectionery contributed to the strong growth.
In the fragrances business, the increase was 5.9 percent in Swiss francs and 5.8 percent organically. As recently, growth was particularly strong in the luxury perfumes business. The division grew organically by almost 15 percent. In contrast, organic growth in the consumer goods segment was only 2.2 percent.
Lost momentum
For the third quarter alone, Givaudan grew organically by 5.8 percent. The industry leader clearly lost momentum compared to the previous quarter. In the second quarter, the corresponding mark was still 7.9 percent.
The expectations of the analysts were also missed. According to the AWP consensus, they had previously assumed organic growth of 7.3 percent for the third quarter.
Price transfers on course
Nonetheless, Givaudan remains comfortably above its mid-term target range. This envisages organic growth of 4 to 5 percent and was confirmed as a target. In addition, the group intends to continue generating free cash flow of at least 12 percent of sales in the future.
However, the fact that Givaudan continues to grow well above its own target range is probably not only due to increased volumes, but also to a considerable extent to price increases. Because Givaudan continuously passes the increased raw material prices on to its customers.
As a rule, the group, which is known for its pricing power, compensates for increased costs within 12 to 18 months. And even now, the company sees itself as “fully on course” to fully offset the increased costs by passing on prices, as they say.
Here’s how Givaudan stock is reacting
Givaudan shares are clearly in the red on Tuesday after figures for the first nine months. The flavors and fragrances maker missed expectations for sales growth. At times, Givaudan shares lost 7.69 percent to CHF 2,797.00.
Givaudan lost momentum in organic growth in the third quarter, missing consensus expectations. However, with growth of 5.8 percent, the Group was still above the medium-term target range of 4 to 5 percent. Although sales were good, a touch more was expected, according to ZKB, for example.
Givaudan does not present profit figures after nine months. Nevertheless, analysts are wondering how the company is doing in view of the currently highly inflationary environment. The Geneva-based group still sees itself on course when it comes to passing on the increased input costs to customers. Nonetheless, looking ahead to 2022 as a whole, margins are likely to be diluted.
The margin dilution will hit Givaudan in the 2022 and 2022 financial years, according to a comment from Bank Vontobel. The responsible analyst is therefore wondering whether the cash flow will be sufficient to continue increasing the dividend annually. For 2022 and 2023, however, he assumes that there will still be enough cash available.
Some analysts also highlight Givaudan’s strong defensive qualities in the current challenging environment. Baader Helvea, for example, assumes that the share will still do better than most others in a recessionary environment. However, there are also many analysts who expect a volatile or even significantly declining price development for the time being.
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Geneva (awp)