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Press release from Business Wire

IFF Reports Third Quarter 2010 Results

<p class='bwalignc'> <i>Local Currency Sales Up 13%, Reported Sales Increased 10%</i> </p> <p class='bwalignc'> <i>Adjusted Operating Margin 18.3%, Reported Operating Margin 17.9%</i> </p> <p class='bwalignc'> <i>Adjusted EPS Increased 20%, Reported EPS Up 44%</i> </p>

Thursday, November 04, 2010

IFF Reports Third Quarter 2010 Results07:00 EDT Thursday, November 04, 2010 NEW YORK (Business Wire) -- International Flavors & Fragrances Inc. (NYSE: IFF), a leading global creator of flavors and fragrances for consumer products, today reported third quarter 2010 revenue of $673 million, 10 percent higher than the prior year quarter. Revenue in local currency increased 13 percent as foreign currency had a three percentage point impact on results. Reported earnings per share (EPS) were $0.95, compared to $0.66 for the third quarter 2009. EPS in 2010 included a $0.03 per share expense related to ongoing restructuring efforts in Europe, while third quarter 2009 included a $0.16 per share expense relating to restructuring and employee separation costs. Excluding these items, adjusted EPS for the third quarter increased 20 percent to $0.98 versus $0.82 in the prior year quarter. “Our third quarter performance marks the continuation of excellent results,” said IFF Chairman and Chief Executive Officer Doug Tough. “All categories performed at or above expectations, as both Flavor and Fragrance results were once again supported by strong new win performance. This outstanding top-line performance combined with our continued focus on cost discipline enabled us to deliver a margin profile that has not been achieved in over five years.” Mr. Tough continued, “As we look towards the balance of the year, we expect local currency sales in the fourth quarter to remain strong, albeit approaching more normalized levels. We believe that our teams' continued ability to win new business will be a critical driver of results going forward as it appears that the benefits of restocking are subsiding. We expect that this performance will support our efforts to drive market share improvements while also creating long-term value for our shareholders.” Flavor Business Unit Local currency sales in the third quarter increased 10 percent over the comparable 2009 period as all regions reported strong results. For the third consecutive quarter, an accelerated level of demand from existing accounts and new business wins led to double-digit growth in Europe, Africa, Middle East (EAME) and Greater Asia. Performance in North America continued to benefit from double-digit performances in both Confectionery and Beverage; while Latin America experienced strong double-digit growth in Confectionery, Savory and Dairy. Reported operating profit increased 15 percent year-over-year, or $8 million, to $63 million in the third quarter. This increase was driven by accelerated sales growth, improving input costs and our continued margin improvement initiatives. Operating profit margin in the quarter improved 100 bps to 21.0 percent versus 20.0 percent in the prior year period. Fragrance Business Unit Local currency sales in the third quarter increased 15 percent over the prior year period as all regions reported double-digit growth. New business wins and increased volumes once again drove double-digit growth in Fine Fragrance. In Beauty Care, the strong trends in Hair Care and Toiletries continued, as each category grew at a double-digit rate. Functional Fragrance results were solid, as a double-digit performance in Home Care more than offset challenging year-over-year comparison from the prior year period. In Fragrance Ingredients, local currency sales increased 18 percent as continued improvements in underlying demand aided results. Operating profit increased by $22 million to $69 million in the third quarter, including a $2 million charge related to ongoing restructuring efforts in Europe as compared to $11 million related to restructuring costs in the prior year period. Excluding these items, adjusted operating profit grew 23 percent, or $13 million to $71 million. As a result, adjusted operating profit margin for the quarter increased 190 bps to 19.0 percent, driven by strong new win performance, favorable input costs and benefits from ongoing profit improvement initiatives. Sales performance by region and product category follows:           Third Quarter 2010 vs. Third Quarter 2009Fine &Beauty Care   Functional   Ingredients   Total Frag.   Flavors   TotalNorth AmericaReported6%   0%   33%   11%   9%   10%   EAMEReported11%-2%0%3%4%3%Local Currency23%7%9%13%13%13%   Latin AmericaReported55%8%11%25%8%19%Local Currency54%8%12%25%7%18%   Greater AsiaReported27%8%15%14%14%14%Local Currency26%7%13%13%11%12%   TotalReported20%3%12%11%9%10%Local Currency24%   6%   18%   15%   10%   13%   Third Quarter 2010 Highlights Gross profit, as a percentage of sales, was 42.3 percent compared with 40.6 percent in the prior year period. This improvement was mainly attributable to increased sales and moderating input costs. Research, Selling and Administrative (RSA) expense, as a percentage of sales, decreased 50 bps to 24.1 percent reflecting strong operating leverage and lower costs versus the year-ago period. Excluding the impact relating to the change in CEO position in the prior year period, adjusted RSA, as a percentage of sales, increased 40 bps driven by additional incentive compensation accruals plus higher spending to support growth. Within RSA, R&D expense as a percentage of sales decreased 20 bps to 7.9 percent, although absolute levels increased approximately $4 million versus the year-ago period. Operating profit increased $33 million to $121 million, including a $2 million expense related to ongoing restructuring efforts in Europe as compared to $16 million related to restructuring and employee separation costs in the prior year period. Excluding these items, adjusted operating profit grew 18 percent, or $19 million, to $123 million. Adjusted operating profit margin increased to 18.3 percent, a 140 bps improvement versus the year-ago period. Interest expense in the quarter declined $1 million year-over-year reflecting lower levels of outstanding debt. The effective tax rate in the quarter was 27.4 percent compared to 28.9 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. Cash flow from operations improved by $8 million to $208 million for the first nine months of 2010 compared to the same period in 2009. This improvement was led by the strong profit performance and a continued focus to drive working capital efficiency. 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 Audio Webcast An audio webcast to discuss the Company's third quarter 2010 financial results and outlook will be held today at 10:00 a.m. EST November 4, 2010. Interested parties can access the webcast and accompanying slide presentation on the Company's website at 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 for one year from the date of broadcast. 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 such as our ability to satisfy our cash requirements, 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; political uncertainties; fluctuating interest rates; 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 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   Nine Months Ended September 30, September 30,         2010 2009 (¹) % Change 2010 2009 (¹) % Change   Net sales $ 673,283 $ 612,634 10 $ 1,992,993 $ 1,740,525 15 Cost of goods sold   388,235   363,780   7   1,152,737   1,041,692 11 Gross margin 285,048 248,854 15 840,256 698,833 20 Research and development 53,214 49,392 8 161,688 140,971 15 Selling and administrative 108,955 101,199 8 336,487 290,116 16 Restructuring and other charges 2,355 10,500 9,186 14,604 Interest expense 12,244 13,503 37,031 47,331 Other (income) expense, net   2,097   (24 )   6,967   383 Pretax income 106,183 74,284 43 288,897 205,428 41 Income taxes   29,145   21,484   36   80,917   57,350 41 Net income $ 77,038 $ 52,800   46 $ 207,980 $ 148,078 40     Earnings per share - basic $ 0.96 $ 0.67 $ 2.61 $ 1.88 Earnings per share - diluted $ 0.95 $ 0.66 $ 2.58 $ 1.86   Average shares outstanding Basic 79,357 78,491 1 79,078 78,346 1 Diluted 80,266 79,159 1 79,997 78,986 1 (1) Includes the following reclassifications and revision for the three and nine months ended September 30, 2009 to conform to the current year presentation: Cost of goods sold $0.1 million and $0.4 million, respectively; Research and Development (R&D) $(1.8) million and $(5.6) million, respectively; Selling and Administrative $1.7 million and $5.2 million, respectively. The adjustments to R&D above for the three and nine months ended September 30, 2009 include $(1.0) million and $(4.7) 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)       September 30,     December 31, 2010 2009 Cash & cash equivalents $ 114,885 $ 80,135 Receivables 511,973 444,265 Inventories 503,991 444,977 Other current assets   197,301   158,689 Total current assets 1,328,150 1,128,066   Property, plant and equipment, net 505,673 501,293 Goodwill and other intangibles, net 715,934 720,530 Other assets   314,550   294,885 Total assets $ 2,864,307 $ 2,644,774   Bank borrowings and overdrafts, and current portion of long-term debt $ 137,872 $ 76,780 Other current liabilities   505,725   407,674 Total current liabilities 643,597 484,454   Long-term debt 810,719 934,749 Non-current liabilities 459,119 453,661   Shareholders' equity   950,872   771,910 Total liabilities and shareholders' equity $ 2,864,307 $ 2,644,774   International Flavors & Fragrances Inc.Consolidated Statement of Cash Flows(Amounts in thousands)(Unaudited)       Nine Months Ended September 30, 2010     2009 Cash flows from operating activities:   Net income $ 207,980 $ 148,078 Adjustments to reconcile to net cash provided by operations: Depreciation and amortization 60,137 58,074 Deferred income taxes (40,720 ) 2,421 Gain on disposal of assets (2,960 ) (2,366 ) Equity based compensation 16,708 15,065 Changes in assets and liabilities Current receivables (60,926 ) (56,280 ) Inventories (53,155 ) 61,310 Current payables 92,841 15,647 Changes in other assets/liabilities   (11,580 )   (41,877 ) Net cash provided by operations   208,325     200,072     Cash flows from investing activities: Additions to property, plant and equipment (53,597 ) (29,755 ) Purchase of investments (3,592 ) (3,288 ) Termination of net investment hedge 1,668 (13,604 ) Proceeds from disposal of assets   1,541     1,192   Net cash used in investing activities   (53,980 )   (45,455 )   Cash flows from financing activities: Cash dividends paid to shareholders (59,605 ) (78,441 ) Net change in bank borrowings and overdrafts (76,086 ) (48,318 ) Repayments of long-term debt - (52,800 ) Proceeds from issuance of stock under stock plans 17,105 2,103 Purchase of treasury stock   -     (1,967 ) Net cash used in financing activities   (118,586 )   (179,423 ) Effect of exchange rates changes on cash and cash equivalents (1,009 ) 911 Net change in cash and cash equivalents 34,750 (23,895 ) Cash and cash equivalents at beginning of year   80,135     178,467   Cash and cash equivalents at end of period $ 114,885   $ 154,572   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     Nine Months Ended September 30, September 30, 2010   2009 2010   2009 Net Sales Flavors $ 300,540 $ 275,421 $ 905,032 $ 811,310 Fragrances   372,743       337,213     1,087,961       929,215   Consolidated 673,283 612,634 1,992,993 1,740,525   Operating Profit Flavors 62,980 54,981 189,064 162,415 Fragrances (1) 68,611 47,268 190,000 121,803 Global Expenses   (11,067 )     (14,486 )   (46,169 )     (31,076 ) Consolidated 120,524 87,763 332,895 253,142   Interest Expense (12,244 ) (13,503 ) (37,031 ) (47,331 ) Other income (expense), net   (2,097 )   24     (6,967 )   (383 ) Income before taxes $ 106,183   $ 74,284   $ 288,897   $ 205,428   (1) Includes $(1.0) million for the three months and $(4.7) million for the nine months ended September 30, 2009 related to the revision 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.     Third Quarter 2010Items Impacting ComparabilityReported(GAAP)     RestructuringCharges     Adjusted (Non-GAAP)   Net Sales $673,283 - Cost of goods sold 388,235 - Gross Profit285,048- Research and development 53,214 - Selling and administrative 108,955 - RSA Expense 162,169 - Restructuring and other charges 2,355 2,355 (a) - Operating Profit120,524 2,355 122,879 Net Interest Exp. 12,244 - Other (income)/expense, net 2,097 - Pretax income 106,183 2,355 108,538 Income taxes 29,145 (306 ) 29,451 Net income   77,038       2,049           79,087   Earnings per share - diluted$0.95 $ 0.03 $0.98   (a) Entirely related to the Fragrance European facilities rationalization     Third Quarter 2009Items Impacting ComparabilityReported(GAAP)     RestructuringCharges     EmployeeSeparation Costs     Adjusted (Non-GAAP)   Net Sales $612,634 - - Cost of goods sold 363,780 170 (b) - 363,610 Gross Profit248,854 - - Research and development 49,392 (a) - - Selling and administrative 101,199 (a) - 5,400 (c) 95,799 RSA Expense 150,591 - 5,400 145,191 Restructuring and other charges 10,500 10,500 (b) - - Operating Profit87,763 10,670 5,400 103,833 Net Interest Exp. 13,503 - - Other (income)/expense, net (24 ) - - Pretax income 74,284 10,670 5,400 90,354 Income taxes 21,484 (1,447 ) (2,052 ) 24,983 Net income   52,800           9,223           3,348           65,371   Earnings per share - diluted$0.66$0.12(b)$0.04(c)$0.82   (a) Certain reclassifications have been made to 2009 amount in order to confirm with 2010 presentation(b) Entirely related to the Fragrance European facilities rationalization(c) Employee separation costs associated with the change in the Chief Executive Officer position which were recorded in Global expenses International Flavors & Fragrances Inc.Michael DeVeau, 212-708-7164