Press release from Business Wire
IFF Reports Second Quarter 2010 Results
<p class=' bwtextaligncenter'> <i>Both Local Currency Sales & Reported Sales Increased 17%</i> </p> <p class=' bwtextaligncenter'> <i>Adjusted EPS Increased 31%, Reported EPS Up 38%</i> </p>
Thursday, August 05, 2010
IFF Reports Second Quarter 2010 Results07:00 EDT Thursday, August 05, 2010 NEW YORK (Business Wire) -- International Flavors & Fragrances Inc. (NYSE: IFF), a leading global creator of flavors and fragrances for consumer products, today reported second quarter 2010 revenue of $666 million, 17 percent higher than the prior year quarter. Revenue in local currency increased 17 percent as foreign currency had a limited impact on results. Reported earnings per share (EPS) were $0.83, compared to $0.60 for the second quarter 2009. EPS in 2010 included a $0.02 per share expense related to ongoing restructuring efforts in Europe, while second quarter 2009 included a $0.05 per share expense relating to restructuring and employee separation costs. Excluding these items, adjusted EPS for the second quarter increased 31 percent to $0.85 versus $0.65 in the prior year quarter. “It is clear that the strong momentum we experienced in the beginning of the year continued into the second quarter,” said Doug Tough, Chairman and Chief Executive Officer. “We are very pleased to report strong year-over-year improvements across all our financial metrics. While we have benefited from some elements of restocking and favorable prior year comparisons, the team was successful in winning key new business that will support our efforts to drive market share improvements.” Mr. Tough added, “As we enter the second half of 2010, it is important to note that the benefits of restocking have begun to subside. When combined with stronger prior year comparisons, we expect local currency sales in the second half to return to more normalized levels, with relative strength in the third quarter versus the fourth. In addition, we continue to be mindful that foreign exchange movements may impact our results. As a result, in order for us to be successful, we must continue to execute our plans, serve customers well, anticipate challenges and win in the marketplace every day.” Flavor Business Unit Local currency sales in the second quarter increased 11 percent over the comparable 2009 period. The strong trends in Europe, Africa, Middle East (EAME) and Greater Asia continued, as strong demand and new business wins once again led to double-digit growth. In North America, sales increased seven percent as double-digit performances in both Confectionery and Beverage drove results. Performance in Latin America was solid as the company more than offset the loss of non-strategic business that began in the third quarter of 2009. Operating profit increased 18 percent, or $10 million, to $65 million in the second quarter. This increase was driven by accelerated sales growth, improving input costs and our continued margin improvement initiatives. As a result, operating profit margin improved 100 bps to 21.2 percent versus 20.2 percent in the prior year period. Fragrance Business Unit Local currency sales in the second quarter increased 23 percent over the prior-year period as all regions and nearly all categories reported double-digit growth. Trends in the Fine Fragrance and Beauty Care category continued to be robust, growing very strong double-digits, as new business wins, higher volumes, restocking and favorable comparisons benefited results. In Beauty Care, both Hair Care and Toiletries continued to perform very well, increasing at a strong double-digit rate. Functional Fragrance also performed well, driven by strong trends in Fabric Care and double-digit growth in Home Care. Fragrance Ingredients local currency sales increased 24 percent as favorable comparison versus the year-ago period, some elements of restocking and improvements in underlying demand aided results. Operating profit increased by $28 million to $65 million in the second quarter, including a $2 million charge related to ongoing restructuring efforts in Europe as compared to $5 million related to restructuring costs in the prior year period. Excluding these items, adjusted operating profit grew nearly 60 percent, or $25 million, to $67 million. As a result, adjusted operating profit margin for the quarter increased 430 bps to 18.6 percent, driven by higher volumes, reduced input costs and benefits from previous cost reduction initiatives. Sales performance by region and product category follows: Second Quarter 2010 vs. Second Quarter 2009Fine & Beauty Care Functional Ingredients Total Frag. Flavors Total North AmericaReported24%10%25%19%7%13% EAMEReported47%5%22%23%14%20%Local Currency55%10%29%29%18%25% Latin AmericaReported34%7%26%19%8%15%Local Currency31%7%27%18%4%13% Greater AsiaReported26%24%8%21%18%19%Local Currency23%22%7%19%12%15% TotalReported36%11%21%21%13%17%Local Currency37% 12% 24% 23% 11% 17%Second Quarter 2010 Highlights Gross profit, as a percentage of sales, was 42.8 percent compared with 40.1 percent in the prior year period. This improvement was mainly attributable to accelerated sales, moderating input costs and fixed cost leverage. Research, Selling and Administrative (RSA) expenses as a percentage of sales increased 160 bps to 26.3 percent. The increase of $35 million is mainly attributable to additional incentive compensation accruals of $18 million plus litigation related costs, investments and spending to support the higher level of business activity, reduction of R&D credits, unfavorable foreign currency movements and lower prior period base spending. Within RSA, R&D expense as a percentage of sales increased 60 bps to 8.4 percent. Operating profit increased $24 million to $108 million in the second quarter, including a $2 million charge related to ongoing restructuring efforts in Europe as compared to $5 million related to restructuring and employee separation costs in the prior year period. Excluding these items, adjusted operating profit grew 24 percent, or $21 million, to $110 million. As a result, adjusted operating profit margin increased 90 bps to 16.5 percent versus the year ago period. Interest expense decreased $2 million year-over-year reflecting lower levels of outstanding debt and lower borrowing costs. The effective tax rate in the quarter was 28.3 percent compared to 29.2 percent in the comparable period last year. The year-over-year decrease reflects the mix of earnings across the countries in which the company operates and lower repatriation costs. Cash flow from operations improved by $40 million to $128 million for six months of 2010 compared to the same period in 2009. This improvement was led by our strong profit performance as well as our continued focus to drive working capital improvement. About IFF International Flavors & Fragrances Inc. (NYSE: IFF), is a leading global creator of flavors and fragrances used in a wide variety of consumer products and packaged goods. Consumers experience these unique scents and tastes in fine fragrances and beauty care, detergents and household goods, as well as beverages, confectionery and food products. The Company leverages its competitive advantages of brand understanding and consumer insight combined with its focus on R&D and innovation, to provide customers with differentiated product offerings. A member of the S&P 500 Index, IFF has sales, manufacturing and creative facilities in 32 countries worldwide. For more information, please visit our website at www.iff.com. Audio Webcast An audio webcast to discuss the Company's second quarter 2010 financial results and outlook will be held today at 10:00 a.m. EST August 5, 2010. Interested parties can access the webcast and accompanying slide presentation on the Company's website at www.iff.com under the Investor Relations section. For those unable to listen to the live broadcast, a replay will be available on the Company's website approximately one hour after the event and will remain available on the IFF website until August 26, 2010. Cautionary Statement Under The Private Securities Litigation Reform Act of 1995 Statements in this quarterly release, which are not historical facts or information, are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's current assumptions, estimates and expectations. Certain of such forward-looking information may be identified by such terms as “expect”, “anticipate”, “believe”, “outlook”, “guidance”, “may” and similar terms or variations thereof. All information concerning future revenues, tax rates or benefits, interest and other savings, earnings and other future financial results or financial position, constitutes forward-looking information. Such forward-looking statements involve significant risks, uncertainties and other factors. Actual results of the Company may differ materially from any future results expressed or implied by such forward-looking statements. Such factors include, among othersthe following: general economic and business conditions in the Company's markets, including economic and recessionary pressures; energy and commodity prices; decline in consumer confidence and spending; the impact of currency fluctuation or devaluation in the Company's principal foreign markets and the impact on the availability, effectiveness and cost of the Company's hedging and risk management strategies; population health and political uncertainties; fluctuating interest rates; continued volatility of the capital and credit markets and any adverse impact on our cost of and access to capital and credit; fluctuations in the price, quality and availability of raw materials; the Company's ability to implement its business strategy, including the achievement of anticipated cost savings, profitability and growth targets; the outcome of uncertainties related to litigation; the impact of possible pension funding obligations and increased pension expense on the Company's cash flow and results of operations; and the effect of legal and regulatory proceedings, as well as restrictions imposed on the Company, its operations or its representatives by U.S. and foreign governments. The Company intends its forward-looking statements to speak only as of the time of such statements and does not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results. Any public statements or disclosures by IFF following this report that modify or impact any of the forward-looking statements contained in or accompanying this report will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this report. Certain other factors which may impact our financial results or which may cause actual results to differ from such forward-looking statements are also discussed in the Company's periodic reports filed with the Securities and Exchange Commission and available on the IFF website at www.iff.com under “Investor Relations”. You are urged to carefully consider all such factors. International Flavors & Fragrances Inc.Consolidated Income Statement(Amounts in thousands except per share data)(Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2010 2009 (¹) % Change 2010 2009 (¹) % Change Net sales $665,800 $568,261 17 $1,319,710 $1,127,891 17 Cost of goods sold 380,799 340,347 12 764,501 677,912 13 Gross margin 285,001 227,914 25 555,209 449,979 23 Research and development 55,844 44,248 26 108,475 91,578 18 Selling and administrative 119,523 96,032 24 227,532 188,918 20 Restructuring and other charges 1,843 4,104 6,831 4,104 Interest expense 12,051 14,047 24,787 33,828 Other (income) expense, net 2,107 1,569 4,871 406 Pretax income 93,633 67,914 38 182,713 131,145 39 Income taxes 26,481 19,831 34 51,772 35,866 44 Net income $ 67,152 $ 48,083 40 $ 130,941 $ 95,279 37 Earnings per share - basic $0.84 $0.61 $1.65 $1.21 Earnings per share - diluted $0.83 $0.60 $1.63 $1.20 Average shares outstanding Basic 79,188 78,352 1 78,978 78,273 1 Diluted 80,111 79,050 1 79,902 78,898 1 (1) Includes the following reclassifications and revision for the three and six months ended June 30, 2009 to conform to the current year presentation: Cost of goods sold $0.2 million and $0.3 million, respectively; Research and development (R&D) $(4.5) million and $(7.4) million, respectively; Selling and administrative $1.5 million and $3.4 million, respectively. The adjustments to R&D above for the three and six months ended June 30, 2009 include $(2.8) million and $(3.7) million, respectively, related to the revision of excess foreign R&D credits from income tax expense. International Flavors & Fragrances Inc.Condensed Consolidated Balance Sheet(Amounts in thousands)(Unaudited) June 30, December 31, 2010 2009 Cash & cash equivalents $ 110,552 $ 80,135 Receivables 475,996 444,265 Inventories 454,608 444,977 Other current assets 182,464 158,689 Total current assets 1,223,620 1,128,066 Property, plant and equipment, net 482,041 501,293 Goodwill and other intangibles, net 717,452 720,530 Other assets 303,769 294,885 Total assets $ 2,726,882 $ 2,644,774 Bank borrowings and overdrafts, and current portion of long-term debt $ 48,739 $ 76,780 Other current liabilities 446,620 407,674 Total current liabilities 495,359 484,454 Long-term debt 934,600 934,749 Non-current liabilities 448,892 453,661 Shareholders' equity 848,031 771,910 Total liabilities and shareholders' equity $ 2,726,882 $ 2,644,774 International Flavors & Fragrances Inc.Consolidated Statement of Cash Flows(Amounts in thousands)(Unaudited) Six Months Ended June 30, 2010 2009 Cash flows from operating activities: Net income $ 130,941 $ 95,279 Adjustments to reconcile to net cash provided by operations: Depreciation and amortization 40,221 38,263 Deferred income taxes (14,737 ) 7,165 Gain on disposal of assets (1,845 ) (1,487 ) Equity based compensation 10,780 10,136 Changes in assets and liabilities Current receivables (53,766 ) (61,681 ) Inventories (30,384 ) 47,268 Current payables 58,580 (27,461 ) Changes in other assets/liabilities (12,150 ) (19,945 ) Net cash provided by operations 127,640 87,537 Cash flows from investing activities: Additions to property, plant and equipment (37,013 ) (18,545 ) Purchase of investments (2,444 ) (1,882 ) Termination of net investment hedge 1,668 (13,604 ) Proceeds from disposal of assets 1,438 835 Net cash used in investing activities (36,351 ) (33,196 ) Cash flows from financing activities: Cash dividends paid to shareholders (39,631 ) (39,338 ) Net change in bank borrowings and overdrafts (33,637 ) (25,878 ) Proceeds from issuance of stock under stock plans 14,674 1,507 Purchase of treasury stock - (1,967 ) Net cash used in financing activities (58,594 ) (65,676 ) Effect of exchange rates changes on cash and cash equivalents (2,278 ) (3,317 ) Net change in cash and cash equivalents 30,417 (14,652 ) Cash and cash equivalents at beginning of year 80,135 178,467 Cash and cash equivalents at end of period $ 110,552 $ 163,815 Certain reclassifications have been made to the prior year's operating activities to conform to the 2010 presentation. International Flavors & Fragrances Inc.Business Unit Performance(Amounts in thousands)(Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2010 2009 2010 2009 Net Sales Flavors $ 304,323 $ 269,768 $ 604,492 $ 535,889 Fragrances 361,477 298,493 715,218 592,002 Consolidated 665,800 568,261 1,319,710 1,127,891 Operating Profit Flavors 64,507 54,594 126,084 107,434 Fragrances (1) 65,374 37,743 121,389 74,535 Global Expenses (22,090 ) (8,807 ) (35,102 ) (16,590 ) Consolidated 107,791 83,530 212,371 165,379 Interest Expense (12,051 ) (14,047 ) (24,787 ) (33,828 ) Other income (expense), net (2,107 ) (1,569 ) (4,871 ) (406 ) Income before taxes $ 93,633 $ 67,914 $ 182,713 $ 131,145 (1) Includes $(2.8) million for the three months and $(3.7) million for the six months ended June 30, 2009 related to the reclass of excess foreign R&D credits from income tax expense to conform to current year presentation. International Flavors & Fragrances Inc.Reconciliation of Income(Amounts in thousands)(Unaudited) The following information and schedule provides reconciliation information between reported GAAP amounts and certain adjusted amounts. This information and schedule is not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP. Second Quarter 2010Items Impacting ComparabilityReported(GAAP) RestructuringChargesAdjusted(Non-GAAP) Net Sales $665,800 - Cost of goods sold 380,799 - Gross Profit285,001- Research and development 55,844 - Selling and administrative 119,523 - RSA Expense 175,367 - Restructuring and other charges 1,843 1,843 (a) - Operating Profit107,791 1,843 109,634 Net Interest Exp. 12,051 - Other (income)/expense, net 2,107 - Pretax income 93,633 1,843 95,476 Income taxes 26,481 (249 ) 26,730 Net income 67,152 1,594 68,746 Earnings per share - diluted$0.83 $ 0.02 $0.85 (a) Entirely related to the Fragrance European facilities rationalization Second Quarter 2009Items Impacting ComparabilityReported(GAAP) RestructuringCharges EmployeeSeparation Costs Adjusted(Non-GAAP) Net Sales $ 568,261 - - Cost of goods sold 340,347 - - Gross Profit227,914 - - Research and development 44,248 (a) - - Selling and administrative 96,032 (a) - 920 (b) 95,112 RSA Expense 140,280 - 920 139,360 Restructuring and other charges 4,104 4,104 (b) - - Operating Profit83,530 4,104 920 88,554 Net Interest Exp. 14,047 - - Other (income)/expense, net 1,569 - - Pretax income 67,914 4,104 920 72,938 Income taxes 19,831 (1,419) (240) 21,490 Net income48,083 2,685 680 51,448 Earnings per share - diluted$ 0.60$ 0.03(c)$ 0.01(c)$ 0.65(a) Certain reclassifications have been made to 2009 amount in order to confirm with 2010 presentation(b)Restructuring and employee separation costs were related to our performance improvement plan were recorded as: Fragrances $4M and Corp $1M(c)The sum of EPS Reported, plus the per share effects of items added back to reconcile to EPS as Adjusted, may not equal the total EPS as Adjusted, due to rounding differences.