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Press release from Business Wire

IFF Reports Second Quarter 2011 Results

<p class='bwalignc'> <i>Reported Sales Increased 7%, Local Currency Sales Up 3%</i> </p> <p class='bwalignc'> <i>Reported Operating Profit Up 9%, Adjusted Operating Profit Grew 11%</i> </p> <p class='bwalignc'> <i>Reported EPS Grew 12%, Adjusted EPS Increased 14%</i> </p>

Tuesday, August 09, 2011

IFF Reports Second Quarter 2011 Results07:00 EDT Tuesday, August 09, 2011 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 2011 revenue of $716 million, seven percent higher than the prior year period. Excluding the impact of foreign currency, revenue in local currency increased three percent. Reported earnings per share (EPS) increased 12 percent to $0.93 compared to $0.83 for the second quarter 2010. EPS in 2011 included a $0.04 per share expense related to the conclusion of our restructuring efforts in Europe as compared to a $0.02 expense related to similar restructuring activities in the prior year period. Excluding these items from each period, adjusted EPS for the second quarter increased 14 percent to $0.97 versus $0.85 in the prior year quarter. “We are pleased with our second quarter performance in light of our challenging 17 percent local currency sales growth comparison and the significant increases in raw material costs,” said Doug Tough, Chairman and Chief Executive Officer. “The diversification of our product and geographic portfolio provided us the ability to deliver solid local currency sales growth. From a profitability perspective, our initial pricing actions and continued cost discipline helped mitigate raw material pressures to drive double-digit adjusted operating profit and adjusted EPS growth.” Mr. Tough continued, “While our first half performance was strong, it is worth noting that we will continue to face strong year-over-year comparables and elevated levels of raw material costs over the balance of the year. Nonetheless, we believe that by focusing on our strategy – leveraging our geographic reach, strengthening innovation and maximizing our portfolio – we can achieve our long-term targets of four to six percent local currency sales growth, seven to nine percent operating profit growth, and 10 percent plus EPS growth for the full year 2011.” SECOND QUARTER 2011Flavor Business Unit Local currency sales in the second quarter increased eight percent over the prior year period. Overall growth can once again be attributed to a double-digit performance in the emerging markets where countries such as Brazil, Russia, India and China combined grew in excess of 20 percent. In the developed markets, performance was strongest in North America as health and wellness initiatives continued to drive results. From a category perspective, growth was achieved across the entire portfolio, led by a double-digit increase in Savory and high single-digit increases in Beverage and Confectionery. Operating profit increased 10 percent, or $6 million, to $71 million in the second quarter as accelerated sales growth and continued cost discipline drove results. Operating profit margin declined 60 bps versus the prior year period to 20.6 percent as pricing initiatives lagged raw material costs as expected. Fragrance Business Unit Local currency sales in the second quarter declined two percent against a record 23 percent comparable in the prior year period. Fine Fragrance & Beauty Care results were challenged by a very strong year-ago comparison of 37 percent, as net new business was more than offset by volume declines. Functional Fragrance grew slightly supported by net new business across all categories and a solid performance in the Home Care category. Fragrance Ingredients results were down year-over-year against our strongest year-ago comparison, as lower consumption rates impacted results. Operating profit decreased by $7 million to $58 million in the second quarter, including a $4 million expense related to the conclusion of our restructuring efforts in Europe as compared to a $2 million expense related to similar restructuring activities in the prior year period. Excluding these items, adjusted operating profit declined by $5 million as double-digit increases in raw material costs and lower sales more than offset the benefits associated with the European restructuring and other profit improvement initiatives. Adjusted operating profit margin, as expected, fell 180 bps to 16.8 percent versus the year-ago period. Sales performance by region and product category follows:       Second Quarter 2011 vs. Second Quarter 2010Fine &Beauty Care   Functional   Ingredients   Total Frag.   Flavors   Total           North AmericaReported1%4%-3%1%9%5%   EAME 1Reported7%6%0%5%19%10%Local Currency-3%-3%-7%-4%9%0%   Latin AmericaReported-8%-1%-13%-5%7%-1%Local Currency-11%-1%-15%-7%4%-3%   Greater AsiaReported1%7%17%7%15%12%Local Currency-1%6%11%5%8%7%   TotalReported1%5%0%2%14%7%Local Currency-4%   1%   -5%   -2%   8%   3%¹ Europe, Africa and Middle East   Second Quarter 2011 Highlights Gross profit, as a percentage of sales, was 39.7 percent compared with 42.8 percent in the prior year period as significant raw material increases pressured results. Sales growth, including pricing, as well as margin improvement initiatives and restructuring benefits, offset the elevated levels of raw material costs in absolute terms as gross profit was effectively flat versus year-ago levels. Research, Selling and Administrative (RSA) expenses, as a percentage of sales, decreased 360 bps year-over-year to 22.7 percent reflecting lower incentive compensation accruals and continued cost discipline. Operating profit increased $10 million to $118 million, including a $4 million expense related to the conclusion of our restructuring efforts in Europe as compared to a $2 million expense related to similar restructuring activities in the prior year period. Excluding these items, adjusted operating profit grew 11 percent, or $12 million, as lower incentive compensation accruals, foreign exchange benefits and continued cost discipline drove results. Adjusted operating profit margin increased 50 bps to 17.0 percent versus 16.5 percent in the year-ago period. Interest expense was constant year-over-year at $12 million. The effective tax rate was 27.4 percent compared to 28.3 percent in the comparable period last year. The year-over-year decrease reflects a $6 million write-off of deferred tax assets as a result of recent U.S. state law changes enacted during the quarter, substantially offset by several items, including reserve adjustments on uncertain tax positions and a favorable mix in earnings and remittances. The 2010 tax rate was also negatively affected by the absence of a U.S. R&D credit in the quarter. 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 33 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 2011 financial results, and third quarter and full year 2011 outlook will be held today, August 9, 2011, at 10:00 a.m. EDT. 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 for one year. Cautionary Statement Under The Private Securities Litigation Reform Act of 1995 Statements in this press 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,” “may” and similar terms or variations thereof. All information concerning future revenues, tax rates or benefits, energy costs interest and other savings, capital expenditures, earnings and other future financial results or financial position, constitutes forward-looking information. Such forward-looking statements are based on a series of expectations, assumptions, estimates and projections about the Company, are not guarantees of future results or performance, and involve significant risks, uncertainties and other factors, including assumptions and projections, for all forward periods. Actual results of the Company may differ materially from any future results expressed or implied by such forward-looking statements. Such factors include, among others, the following: General economic and business conditions in the Company's markets and demand for the Company's products, especially given the current disruption in global economic conditions, including economic and recessionary pressures; Decline in consumer confidence and spending and changes in consumer preferences; Competitive products and pricing pressures; Significant fluctuations in the value of the U.S. dollar; Population health and political uncertainties, and the difficulty in projecting the short and long-term effects of global economic conditions; Movements in interest rates; Volatility and deterioration 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, realization of price increases and growth targets; The level of success the Company achieves in developing and introducing new products and entering new markets; The impact of currency fluctuation or devaluation in the Company's principal foreign markets, especially given the current disruptions to such currency markets, and the impact on the availability, effectiveness and cost of the Company's hedging and risk management strategies; 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; 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; Federal, state, local and foreign taxes fluctuations in our tax obligations and effective tax rate; Any business disruptions due to political instability, armed hostilities, incidents of terrorism, natural disasters or the responses to or repercussion from any of these or similar events or conditions; and Adverse changes to accounting rules or regulations. The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the Company (such as in our other filings with the Securities and Exchange Commission (“SEC”) or in company press releases) for other factors that may cause actual results to differ materially from those projected by the Company. 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. The Company can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this report or included in our other periodic reports filed with the SEC on could materially and adversely impact our operations and our future financial results. Any public statements or disclosures by IFF following this release 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. 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,   2011   2010   %Change 2011   2010   %Change         Net sales $ 715,589 $ 665,800 7 $ 1,429,860 $ 1,319,710 8 Cost of goods sold   431,166   380,799 13   847,977   764,501 11 Gross margin 284,423 285,001 (0 ) 581,883 555,209 5 Research and development 56,229 55,844 1 113,685 108,475 5 Selling and administrative 106,224 119,523 (11 ) 212,843 227,532 (6 ) Restructuring and other charges 3,985 1,843 4,013 6,831 Interest expense 12,009 12,051 23,689 24,787 Other expense, net   1,055   2,107   7,111   4,871 Pretax income 104,921 93,633 12 220,542 182,713 21 Income taxes   28,733   26,481 9   60,311   51,772 16 Net income $ 76,188 $ 67,152 13 $ 160,231 $ 130,941 22     Earnings per share - basic $ 0.94 $ 0.84 12 $ 1.98 $ 1.65 20 Earnings per share - diluted $ 0.93 $ 0.83 12 $ 1.96 $ 1.63 20   Average shares outstanding Basic 80,451 79,188 80,250 78,978 Diluted 81,489 80,111 81,320 79,902   International Flavors & Fragrances Inc.Condensed Consolidated Balance Sheet(Amounts in thousands)(Unaudited)     June 30,   December 31, 2011 2010 Cash & cash equivalents $ 123,431 $ 131,332 Receivables 545,550 451,804 Inventories 568,162 531,675 Other current assets   202,087   210,384 Total current assets 1,439,230 1,325,195   Property, plant and equipment, net 564,693 538,118 Goodwill and other intangibles, net 711,381 714,416 Other assets   293,297   294,726 Total assets $ 3,008,601 $ 2,872,455   Bank borrowings and overdrafts, and current portion of long-term debt $ 216,345 $ 133,899 Other current liabilities   412,307   527,052 Total current liabilities 628,652 660,951   Long-term debt 767,353 787,668 Non-current liabilities 423,882 420,681   Shareholders' equity   1,188,714   1,003,155 Total liabilities and shareholders' equity $ 3,008,601 $ 2,872,455   International Flavors & Fragrances Inc.Consolidated Statement of Cash Flows(Amounts in thousands)(Unaudited)     Six Months Ended June 30, 2011   2010 Cash flows from operating activities: Net income $ 160,231 $ 130,941 Adjustments to reconcile to net cash provided by operations: Depreciation and amortization 37,356 40,221 Deferred income taxes 27,215 (14,737 ) Gain on disposal of assets (1,580 ) (1,845 ) Stock-based compensation 15,912 10,780 Pension settlement/curtailment 3,583 - Changes in assets and liabilities Current receivables (73,172 ) (53,766 ) Inventories (14,098 ) (30,384 ) Current payables (137,545 ) 58,580 Changes in other assets/liabilities   (15,757 )   (12,150 ) Net cash provided by operations   2,145     127,640     Cash flows from investing activities: Additions to property, plant and equipment (45,699 ) (37,013 ) Purchase of investments (1,371 ) (2,444 ) Maturities of net investment hedge 976 1,668 Proceeds from disposal of assets   399     1,438   Net cash used in investing activities   (45,695 )   (36,351 )   Cash flows from financing activities: Cash dividends paid to shareholders (43,349 ) (39,631 ) Net change in bank borrowings and overdrafts 59,083 (33,637 ) Proceeds from issuance of stock under stock plans 13,155 14,674 Excess tax benefits on stock-based payments   5,075     -   Net cash provided by (used in) financing activities   33,964     (58,594 ) Effect of exchange rates changes on cash and cash equivalents 1,685 (2,278 ) Net change in cash and cash equivalents (7,901 ) 30,417 Cash and cash equivalents at beginning of year   131,332     80,135   Cash and cash equivalents at end of period $ 123,431   $ 110,552     International Flavors & Fragrances Inc.Business Unit Performance(Amounts in thousands)(Unaudited)       Three Months Ended     Six Months Ended June 30, June 30, 2011   2010 2011   2010 Net Sales Flavors $ 345,407 $ 304,323 $ 683,994 $ 604,492 Fragrances   370,182       361,477     745,866       715,218   Consolidated 715,589 665,800 1,429,860 1,319,710   Operating Profit Flavors 71,003 64,507 149,957 126,084 Fragrances 58,275 65,374 126,951 121,389 Global Expenses   (11,293 )     (22,090 )   (25,566 )     (35,102 ) Consolidated 117,985 107,791 251,342 212,371   Interest Expense (12,009 ) (12,051 ) (23,689 ) (24,787 ) Other expense, net   (1,055 )   (2,107 )   (7,111 )   (4,871 ) Income before taxes $ 104,921   $ 93,633   $ 220,542   $ 182,713     International Flavors & Fragrances Inc.Reconciliation of Income(Amounts in thousands except per share data)(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 2011Items Impacting ComparabilityReported(GAAP)     RestructuringCharges     Adjusted (Non-GAAP)   Net Sales $715,589 - Cost of goods sold 431,166 - Gross Profit284,423- Research and development 56,229 - Selling and administrative 106,224 - RSA Expense 162,453 - Restructuring and other charges 3,985 3,985 (a) - Operating Profit117,985 3,985 121,970 Interest expense 12,009 - Other expense, net 1,055 - Pretax income 104,921 3,985 108,906 Income taxes 28,733 (998 ) 29,731 Net income   76,188   2,987       79,175   Earnings per share - diluted$0.93 $ 0.04 $0.97   (a) Entirely related to the Fragrance European facilities rationalization     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 Interest expense 12,051 - Other 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   International Flavors & Fragrances Inc.Reconciliation of Income(Amounts in thousands except per share data)(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 Year-to-Date 2011Items Impacting ComparabilityReported(GAAP)     RestructuringCharges     Adjusted (Non-GAAP)   Net Sales $1,429,860 - Cost of goods sold 847,977 - Gross Profit581,883- Research and development 113,685 - Selling and administrative 212,843 - RSA Expense 326,528 - Restructuring and other charges 4,013 4,013 (a) - Operating Profit251,342 4,013 255,355 Interest expense 23,689 - Other expense, net 7,111 - Pretax income 220,542 4,013 224,555 Income taxes 60,311 (993 ) 61,304 Net income   160,231   3,020       163,251   Earnings per share - diluted$1.96 $ 0.04 $2.00   (a) Entirely related to the Fragrance European facilities rationalization     Second Quarter Year-to-Date 2010Items Impacting ComparabilityReported(GAAP)RestructuringChargesAdjusted (Non-GAAP)   Net Sales $1,319,710 - Cost of goods sold 764,501 - Gross Profit555,209 - Research and development 108,475 - Selling and administrative 227,532 - RSA Expense 336,007 - Restructuring and other charges 6,831 6,831 (a) - Operating Profit212,371 6,831 219,202 Interest expense 24,787 - Other expense, net 4,871 - Pretax income 182,713 6,831 189,544 Income taxes 51,772 (829 ) 52,601 Net income   130,941   6,002       136,943   Earnings per share - diluted$1.63 $ 0.07 $1.70   (a) Entirely related to the Fragrance European facilities rationalization International Flavors & Fragrances Inc.Investor Relations:Michael DeVeau, 212-708-7164