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Press release from Business Wire

IFF Reports Third Quarter 2011 Results

<p class='bwalignc'> <i>Reported Sales Increased 6%, Local Currency Sales Up 1%</i> </p> <p class='bwalignc'> <i>Reported Operating Profit Increased 7%, Adjusted Operating Profit Grew 4%</i> </p> <p class='bwalignc'> <i>Reported EPS Increased 5%, Adjusted EPS Increased 2%</i> </p>

Tuesday, November 08, 2011

IFF Reports Third Quarter 2011 Results07:00 EST Tuesday, November 08, 2011 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 2011 revenue of $714 million, six percent higher than the prior year period. Excluding the impact of foreign currency, revenue in local currency increased one percent. Reported earnings per share (EPS) increased five percent to $1.00 compared to $0.95 for the third quarter 2010. EPS in 2011 included a $0.01 per share benefit associated with the reversal of restructuring liabilities, as compared to a $0.03 per share expense related to restructuring efforts in Europe in the prior year period. Excluding these items from each period, adjusted EPS for the third quarter increased two percent to $1.00 versus $0.98 in the prior year quarter. “Our category, customer and geographic diversity continued to support our financial results in the third quarter,” said Doug Tough, Chairman and Chief Executive Officer. “The Flavors business continued to gain market share led by our innovative health and wellness portfolio and double-digit growth in the emerging markets. In Fragrances, results were pressured by price-driven volume declines in Ingredients, where changes in volume are more price sensitive, and a general weakening of our more discretionary categories such as Fine Fragrance and Beauty Care. Fortunately, our emphasis on improved pricing and cost control, as well as favorable foreign exchange benefits, helped produce positive financial results on a consolidated basis.” Mr. Tough continued, “Given our year-to-date performance, plus a more cautious outlook for the fourth quarter, we now expect local currency sales growth and adjusted EPS growth to approach the low end of our long-term financial targets for the full year 2011. Despite the challenging economic conditions, we continue to believe we can deliver adjusted operating profit growth above our long-term targets driven by our efforts in pricing, the benefit of previous restructuring activities, and cost control initiatives.” THIRD QUARTER 2011Flavor Business Unit Local currency sales in the third quarter increased eight percent over the prior year period as double-digit growth in the emerging markets continued to drive results. In the developed markets, growth in North America was once again the strongest, led by several health and wellness initiatives. From a category perspective, Savory continued to grow double-digits for the fourth consecutive quarter and Beverage was up high single-digits for the eighth consecutive quarter. Operating profit increased 13 percent, or $8 million, to $71 million in the third quarter as sales growth, including pricing, and continued cost discipline drove results. Operating profit margin declined 10 bps versus the prior year period to 20.9 percent as pricing actions and cost control virtually covered the impact of higher raw material costs on operating profit margin. Fragrance Business Unit Local currency sales in the third quarter declined five percent against a 15 percent increase in the prior year period. In Fine Fragrance & Beauty Care, new business wins and price increases were more than offset by volume declines on existing business. Functional Fragrance results were similar to year-ago levels as new business wins, the realization of price increases and continued success in the Home Care category balanced volume declines. Fragrance Ingredients was most challenged, as price increases to reduce the impact of rising raw materials costs substantially impacted volumes of some lower value-added products. Operating profit decreased by $9 million to $59 million in the third quarter, including a $1 million benefit associated with the reversal of restructuring liabilities, as compared to a $2 million expense related to restructuring efforts in Europe in the prior year period. Excluding these items from each period, adjusted operating profit declined by $12 million as strong double-digit increases in raw material costs and lower sales more than offset sequential improvements in pricing, the benefits associated with the European restructuring, and disciplined cost control. Adjusted operating profit margin fell 330 bps to 15.7 percent versus the year-ago period. Sales performance by region and product category follows:     % Change in Sales- Third Quarter 2011 vs. Third Quarter 2010Fine &Beauty   Functional   Ingredients   Total Frag.   Flavors   TotalNorth AmericaReported-2%   3%   -10%   -3%   9%   3%   EAME 1Reported5%11%-8%4%15%8% Local Currency -6%0%-16%-6%5%-2%   Latin AmericaReported-2%1%-15%-2%9%2% Local Currency -4%1%-16%-3%6%0%   Greater AsiaReported1%0%-12%-2%17%10% Local Currency -2%-3%-15%-4%10%4%   TotalReported1%5%-10%0%13%6% Local Currency -4%   0%   -15%   -5%   8%   1%¹ Europe, Africa and Middle EastThird Quarter 2011 Highlights Gross profit, as a percentage of sales, was 39.0 percent compared with 42.3 percent in the prior year period as double-digit increases in raw material costs more than offset the benefits of increased pricing. Research, selling and administrative (RSA) expenses, as a percentage of sales, decreased 300 bps year-over-year to 21.1 percent reflecting lower incentive compensation accruals and cost control. Within RSA, research and development expense increased slightly driven by investments to support strategic growth initiatives. Operating profit increased $8 million to $129 million, including a $1 million benefit associated with a reversal of restructuring liabilities, as compared to a $2 million expense related to restructuring efforts in Europe in the prior year period. Excluding these items from each period, adjusted operating profit grew four percent, or $5 million, to $128 million as pricing actions, lower incentive compensation accruals, foreign exchange benefits, and cost control drove results. Adjusted operating profit margin decreased 40 bps to 17.9 percent versus 18.3 percent in the year-ago period. Interest expense declined $2 million year-over-year reflecting lower levels of outstanding debt. The effective tax rate was 26.9 percent as compared to 27.4 percent in the prior year period primarily reflecting a U.S. Research and Development credit in the 2011 period. 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. 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 consumer insight, research and development, creative expertise, and customer intimacy to provide customers with innovative and differentiated product offerings. A member of the S&P 500 Index, IFF has more than 5,500 employees working 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 third quarter 2011 financial results, and fourth quarter and full year 2011 outlook will be held today, November 8, 2011, at 10:00 a.m. EST. 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”, “estimate” and “predict” 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 or settlement, including pending patent 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; Changes in federal, state, local and foreign tax legislation or the results of tax audits, assessments, or disputes may result in fluctuations in our tax obligations, effective tax rate or results of our operations; 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 due 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 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 Nine Months Ended September 30, September 30,         2011 2010 %Change 2011 2010 %Change   Net sales $ 713,775 $ 673,283 6 $ 2,143,635 $ 1,992,993 8 Cost of goods sold   435,400     388,235 12   1,283,377   1,152,737 11 Gross profit 278,375 285,048 (2 ) 860,258 840,256 2 Research and development 53,637 53,214 1 167,322 161,688 3 Selling and administrative 96,783 108,955 (11 ) 309,626 336,487 (8 ) Restructuring and other charges (645 ) 2,355 3,368 9,186 Interest expense 10,280 12,244 33,969 37,031 Other expense, net   5,846     2,097   12,957   6,967 Income before taxes on income 112,474 106,183 6 333,016 288,897 15 Income taxes   30,233     29,145 4   90,544   80,917 12 Net income $ 82,241   $ 77,038 7 $ 242,472 $ 207,980 17       Earnings per share - basic $ 1.01 $ 0.96 $ 3.00 $ 2.61 Earnings per share - diluted $ 1.00 $ 0.95 $ 2.96 $ 2.58   Average shares outstanding Basic 80,644 79,357 2 80,381 79,078 2 Diluted 81,628 80,266 2 81,422 79,997 2     International Flavors & Fragrances Inc.Condensed Consolidated Balance Sheet(Amounts in thousands)(Unaudited)       September 30, September 30, 2011 2010 Cash & cash equivalents $ 107,283 $ 131,332 Receivables 518,967 451,804 Inventories 534,765 531,675 Other current assets   222,422   210,384 Total current assets 1,383,437 1,325,195   Property, plant and equipment, net 563,691 538,118 Goodwill and other intangibles, net 709,863 714,416 Other assets   296,538   294,726 Total assets $ 2,953,529 $ 2,872,455   Bank borrowings and overdrafts, and current portion of long-term debt $ 154,652 $ 133,899 Other current liabilities   420,610   527,052 Total current liabilities 575,262 660,951   Long-term debt 757,070 787,668 Non-current liabilities 422,733 420,681   Shareholders' equity   1,198,464   1,003,155 Total liabilities and shareholders' equity $ 2,953,529 $ 2,872,455     International Flavors & Fragrances Inc.Consolidated Statement of Cash Flows(Amounts in thousands)(Unaudited)         Nine Months Ended September 30, 2011 2010 Cash flows from operating activities:   Net income $ 242,472 $ 207,980 Adjustments to reconcile to net cash provided by operations: Depreciation and amortization 56,245 60,137 Deferred income taxes 25,672 (40,720 ) Gain on disposal of assets (2,365 ) (2,960 ) Stock-based compensation 19,456 16,708 Pension settlement/curtailment 3,583 - Changes in assets and liabilities Current receivables (71,928 ) (60,926 ) Inventories (6,949 ) (53,155 ) Current payables (125,030 ) 92,841 Changes in other assets/liabilities   (24,430 )   (11,580 ) Net cash provided by operations   116,726     208,325     Cash flows from investing activities:     Additions to property, plant and equipment (74,743 ) (53,597 ) Purchase of investments (1,733 ) (3,592 ) Maturities of net investment hedge (2,220 ) 1,668 Proceeds from disposal of assets   469     1,541   Net cash used in investing activities   (78,227 )   (53,980 )   Cash flows from financing activities: Cash dividends paid to shareholders (65,174 ) (59,605 ) Net change in bank borrowings and overdrafts 83,292 (76,086 ) Repayments of long-term debt (100,000 ) - Proceeds from issuance of stock under stock-based plans 14,319 17,105 Excess tax benefits on stock-based payments   5,223     -   Net cash used in financing activities   (62,340 )   (118,586 ) Effect of exchange rates changes on cash and cash equivalents (208 ) (1,009 ) Net change in cash and cash equivalents (24,049 ) 34,750 Cash and cash equivalents at beginning of year   131,332     80,135   Cash and cash equivalents at end of period $ 107,283   $ 114,885       International Flavors & Fragrances Inc.Business Unit Performance(Amounts in thousands)(Unaudited)             Three Months Ended Nine Months Ended September 30, September 30, 2011 2010 2011 2010 Net Sales Flavors $ 340,610 $ 300,540 $ 1,024,604 $ 905,032 Fragrances   373,165       372,743     1,119,031       1,087,961   Consolidated 713,775 673,283 2,143,635 1,992,993   Operating Profit Flavors 71,162 62,980 221,119 189,064 Fragrances 59,315 68,611 186,266 190,000 Global Expenses   (1,877 )     (11,067 )   (27,443 )     (46,169 ) Consolidated 128,600 120,524 379,942 332,895   Interest Expense (10,280 ) (12,244 ) (33,969 ) (37,031 ) Other expense, net   (5,846 )   (2,097 )   (12,957 )   (6,967 ) Income before taxes on income $ 112,474   $ 106,183   $ 333,016   $ 288,897       International Flavors & Fragrances Inc.Reconciliation of Income(Amounts in thousands)(Unaudited)   The following information and schedules provide reconciliation information between reported GAAP amounts and certain adjusted amounts. This information and schedules 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 2011Items Impacting ComparabilityReported     Restructuring     Adjusted (Non-(GAAP)ChargesGAAP)   Net Sales $713,775 - Cost of goods sold 435,400 - Gross Profit278,375- Research and development 53,637 - Selling and administrative 96,783 - RSA Expense 150,420 - Restructuring and other charges (645 ) (645 ) (a) - Operating Profit128,600 (645 ) 127,955 Interest expense 10,280 - Other expense, net 5,846 - Income on taxes before income 112,474 (645 ) 111,829 Income taxes 30,233 166 30,067 Net income   82,241         (479 )         81,762   Earnings per share - diluted$1.00 $ (0.01 ) (b)$1.00(a)   A reversal of restructuring liabilities associated with the Fragrance European facilities rationalization(b)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.     Third Quarter 2010Items Impacting ComparabilityReported     Restructuring     Adjusted (Non-(GAAP)ChargesGAAP)   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 Interest expense 12,244 - Other expense, net 2,097 - Income on taxes before 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)   Related to the Fragrance European facilities rationalization completed in 2010International Flavors & Fragrances Inc.Reconciliation of Income(Amounts in thousands)(Unaudited)   The following information and schedules provide reconciliation information between reported GAAP amounts and certain adjusted amounts. This information and schedules 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.     Nine Months Ended September 30, 2011Items Impacting ComparabilityReported     Restructuring     Adjusted (Non-(GAAP)ChargesGAAP)   Net Sales $2,143,635 - Cost of goods sold 1,283,377 - Gross Profit860,258 - Research and development 167,322 - Selling and administrative 309,626 - RSA Expense 476,948 - Restructuring and other charges 3,368 3,368 (a) - Operating Profit379,942 3,368 383,310 Interest expense 33,969 - Other expense, net 12,957 - Income on taxes before income 333,016 3,368 336,384 Income taxes 90,544 (827 ) 91,371 Net income   242,472       2,541           245,013   Earnings per share - diluted$2.96 $ 0.03 $2.99(a)   Related to the Fragrance European facilities rationalization completed in 2010     Nine Months Ended September 30, 2010Items Impacting ComparabilityReported     Restructuring     Adjusted (Non-(GAAP)ChargesGAAP)   Net Sales $1,992,993 - Cost of goods sold 1,152,737 - Gross Profit840,256 - Research and development 161,688 - Selling and administrative 336,487 - RSA Expense 498,175 - Restructuring and other charges 9,186 9,186 (a) - Operating Profit332,895 9,186 342,081 Interest expense 37,031 - Other expense, net 6,967 - Income on taxes before income 288,897 9,186 298,083 Income taxes 80,917 (1,135 ) 82,052 Net income   207,980       8,051           216,031   Earnings per share - diluted$2.58 $ 0.10 $2.68(a)   Related to the Fragrance European facilities rationalization completed in 2010 International Flavors & Fragrances Inc.Investor Relations:Michael DeVeau, 212-708-7164