ZURICH (Reuters) - Givaudan (GIVN.S) beat first-half sales expectations on Thursday but margins at the Swiss fragrance and flavour maker shrank, knocking its shares.
The maker of flavours for foods and drinks and fragrances for toothpaste and perfumes has benefited as big consumer goods companies try to innovate faster and use more natural ingredients.
But raw material costs, and lower margins from recently acquired Naturex, cut its gross margins to 41.2% from 44.2% a year earlier.
Givaudan shares were down 3.3% at 0850 GMT as analysts pointed to little evidence that expected pricing gains had kicked in to offset rising input costs, and a dearth of cash.
“It looks as if 2019 could become the second year in a row with declining underlying margins and the third with free cash flow as a percentage of sales levels at the low end of the target range,” Baader Helvea analyst Andreas von Arx wrote in a note. “Hence investors might start to question the qualities of the, in our view attractive, long-term model.”
“Our strong performance for the first half of 2019 confirms the resilience of our business and our ability to consistently deliver industry leading financial performance,” Chief Executive Gilles Andrier said in a statement.
Net profit rose to 380 million Swiss francs (£309 million) from 371 million francs a year earlier. Like-for-like sales rose 6.3% to 3.094 billion francs.
The group aims to outpace the market with 4-5% sales growth and a free cash flow of 12-17% of sales, both measured as an average over a five-year strategy cycle.
Reporting by Brenna Hughes Neghaiwi and Silke Koltrowitz; editing by Michelle Martin and Jason Neely