IFF Reports First Quarter 2013 Like-for-Like Sales Growth of 4% and Adjusted
EPS of $1.19 per diluted Share, Up 19%
Local Currency Sales Increase 3%; Reported Sales Increase 2%
Reported EPS of $1.10 Increases 11% versus Prior Year
NEW YORK -- May 7, 2013
International Flavors & Fragrances Inc. (NYSE:IFF), a leading global creator
of flavors and fragrances for consumer products, today reported financial
results for the first quarter ended March 31, 2013.
First Quarter 2013 Results
*Reported net sales for the first quarter totaled $727.8 million, an
increase of 2% from $710.6 million in the first quarter of 2012. Excluding
the impact of foreign currency, local currency sales increased 3%. On a
like-for-like basis, which excludes the exit of low-margin sales
activities in Flavors, local currency sales increased 4%.
*Net income totaled $90.7 million or $1.10 per diluted share for the first
quarter, compared with net income of $81.1 million or $0.99 per diluted
share in the prior year first quarter.
*Adjusted EPS, which excludes the impact of a charge related to the Spanish
Tax ruling as well as charges related to plant closings, increased 19% to
$1.19 per diluted share in the first quarter, up from an adjusted $1.00
per diluted share in the first quarter of 2012.
Please see the information and schedules at the end of this release for
reconciliations of GAAP to non-GAAP financial metrics.
“We are pleased with our performance this quarter, which resulted in an
adjusted EPS improvement of 19%. In the first quarter, we delivered
like-for-like sales growth of 4%, supported by strong underlying momentum in
both Fragrance Compounds and Flavors, reflecting the diversity and strength of
our category and geographic portfolios,” said Doug Tough, Chairman and Chief
Executive Officer of IFF.
“This quarter we achieved strong new win rates owing to the innovative
abilities of our business segments, combined with our expertise in proactively
providing customers with solutions based on the strength of our creative,
consumer insight, and research and development teams. Our overall sales were
also supported by 9% local currency growth in the emerging markets, with
double-digit sales growth in many developing countries, including Brazil and
“As expected, gross margins in the first quarter benefited from the combined
impact of previous price increases and modest raw material cost declines.
Based on our strategy of maximizing our portfolio, gross margins also
benefited from strong innovation-based wins, an improved product mix in part
due to the exit of low-margin sales activities in Flavors, as well as various
other cost savings and value-enhancing initiatives.”
Mr. Tough continued, “We took several actions during the quarter to enhance
our manufacturing efficiency and consolidate our geographic footprint. During
the quarter, we made the decision to close our Flavors facility in Knislinge,
Sweden and our Fragrances facility in Jakarta, Indonesia and transfer
production to our larger facilities in The Netherlands and Singapore,
respectively. We also announced the formal opening of our
technologically-advanced Flavors manufacturing facility in Guangzhou, China to
provide dry and liquid flavors to the Company’s regional and global food and
beverage customers, as we continue to support future growth in the region.”
“And, last week we took further steps to strengthen our innovation platform,
improve operating efficiencies and meet customers’ growing needs. On Tuesday,
we announced our multi-year collaboration with Amyris, a leading biotechnology
company, to develop and commercialize sustainable and cost-effective
ingredients using a biotechnology platform. On Friday, we announced our
intention to close our Fragrances Ingredients manufacturing facility in
Augusta, Georgia, and consolidate production into existing Ingredients plants.
The plant closure is one of several actions we are taking to ensure the
long-term profitability of our Fragrance Ingredients business and strengthen
our competitive position.”
Mr. Tough concluded, “We entered the year with increased optimism with the
expectation for an improving operating environment, a robust R&D pipeline, and
strong customer relationships and partnerships. We see solid momentum in each
of our business units, and expect to deliver stronger sales growth in the
second quarter as we continue to focus on leveraging our geographic reach,
strengthening our innovation platform and maximizing our portfolio. We believe
that by executing on these three strategic pillars, we will be able to grow
our business this year in line with our long-term targets.”
First Quarter 2013 Operating Highlights
*Local currency sales in the emerging markets accounted for 49% of total
company sales in the first quarter and experienced growth of 9%.
*Gross profit, as a percent of sales, was 42.8% compared with 40.2% in the
prior year. Excluding the impact of plant closings in the current quarter,
the adjusted gross profit was 42.9%, compared with 40.2% in the first
quarter of 2012. The 270 basis point adjusted gross margin improvement was
due to modest declines in raw material costs, residual pricing, our cash
flow hedging activities, strong new wins owing in part to our innovations,
improved mix due to the exit of low-margin sales activities in Flavors, as
well as ongoing cost reduction efforts. Although raw material prices have
experienced a modest decline this quarter, they remain near historically
*Research, selling and administrative (RSA) expenses, as a percent of
sales, increased 100 basis points to 23.9% compared with 22.9% in the
first quarter of 2012. The RSA increase this quarter primarily reflects
higher incentive compensation costs, adjustments to deferred compensation
plan assets, and increased pension expenses.
*Operating profit increased 14% or $16.7 million to $137.6 million from
$120.9 million. Excluding the $1.2 million cost related to closing two
smaller facilities in Europe and Asia this quarter, and a $1.7 million
restructuring charge in the prior year quarter, adjusted operating profit
increased $16.2 million, or 13% to $138.8 million, from $122.6 million in
the first quarter of 2012. The improvement in adjusted operating profit
was principally due to volume growth combined with gross margin expansion,
offset in part by higher incentive compensation charges. Adjusted
operating profit margin increased 190 basis points to 19.1% from 17.2% in
the prior year.
*The effective tax rate for the quarter was 28.9% compared with 26.5% in
the prior year quarter, and includes a tax charge relating to the Spanish
tax ruling. Excluding the impact of the Spanish tax charge and taxes
related to the plant closings in the current quarter, as well as taxes
related to restructuring costs from the prior year’s quarter, the adjusted
effective tax rate was 24.0%, or 270 basis points below the prior year
adjusted effective tax rate of 26.7%. The decrease was primarily driven by
the benefit associated with the U.S. tax legislation enacted in the first
quarter of 2013, which includes the R&D tax credit.
*Cash flow from operations for the three months ended March 31, 2013 was
$18.7 million, or $33.9 million lower than the prior year quarter of $52.6
million. The decrease primarily reflects higher year-over-year incentive
compensation payments and additional pension contributions in the U.S..
*On April 4, the Company issued $300.0 million of 10-year 3.2% Senior Notes
due 2023, marking our first offering in the U.S. public bond markets in
more than 10 years. This public debt diversifies our sources of funding as
well as our debt investor base.
*On April 29, 2013, the Company entered into a multi-year collaboration
with Amyris to jointly develop and commercialize a sustainable,
cost-effective and reliable source of fragrance ingredients.
*On May 3, 2013, IFF announced its intention to close its Fragrance
Ingredients manufacturing facility in Augusta, Georgia by July 2014, and
consolidate production into existing IFF facilities. The closing of the
Augusta plant will improve efficiencies within its Ingredients
manufacturing network and is in keeping with the Company’s objective to
ensure its operations are cost-efficient and competitive.
Fragrances Business Unit
*Reported sales increased 3% to $371.5 million, compared with $360.7
million in the first quarter of 2012. The foreign currency impact was
negligible this quarter.
*Fragrance Compounds experienced local currency sales growth of 7% in the
first quarter, which more than offset an 11% sales decline in Fragrance
*Within Fragrance Compounds, our Fine and Beauty Care category had local
currency sales growth of 4%, driven by double-digit growth in Latin
America and Greater Asia. Functional Fragrances had local currency sales
growth of 9% owing to positive growth in all regions, led by double-digit
growth in Latin America and Greater Asia and high single digit growth in
EAME. This marks the 19th consecutive quarter of growth in Functional
Fragrances, due to increased new wins, including those using our
encapsulation technology, and increased core list participation.
*The emerging markets represented 54% of Fragrances Compounds sales. Within
Fragrance Compounds, the emerging markets grew at 18% in the first quarter
over the prior year quarter, reflecting broad-based geographic and
*Gross margins from our Fragrances business unit increased over the prior
year quarter, primarily due to favorable raw material costs combined with
residual pricing, ongoing cost savings initiatives and improved mix.
*Fragrances segment profit increased 22% to $68.4 million in the first
quarter of 2013, up from $56.1 million in the first quarter of 2012. The
segment profit improvement is the result of volume growth from new wins
combined with gross margin improvements and ongoing cost discipline. The
segment profit margin increased 290 basis points to 18.4% from 15.5%.
Flavors Business Unit
*Reported sales increased 2% to $356.4 million, compared with $349.9
million in the first quarter of 2012. The foreign currency impact was
negligible this quarter.
*On a like-for-like (LFL) basis, which excludes the exit of low-margin
sales activities, local currency sales increased 6% in the quarter, driven
by strong new wins and residual benefits of previously taken pricing.
*On a regional basis, Greater Asia, Latin America and EAME delivered LFL
local currency sales growth of 6%, and North America delivered LFL local
currency sales growth of 4%.
*On an end-use category basis, LFL local currency sales growth was led by
high single digit growth in Dairy and Beverage due to increased sales
using our modulation technologies. Savory increased mid-single digits, and
Sweet also had positive growth this quarter.
*Gross margins in the Flavors business increased over the prior year
quarter primarily as a result of the benefit of favorable raw material
costs and residual pricing, as well as mix improvements including the
continued exit of low-margin sales activities. The Company expects to have
one additional quarter that will be impacted by the exit of low-margin
sales activities. Starting with the third quarter of 2013, the Company
will have largely completed this effort.
*Flavors segment profit increased 4% to $83.0 million in the first quarter
of 2013, up from $79.7 million in the prior year quarter. Segment profit
margin increased 50 basis points to 23.3% from 22.8%, as a result of
volume growth from new wins combined with the gross margin improvement.
A live webcast to discuss the Company's first quarter financial results and
full year outlook will be held today, May 7, 2013, at 10:00 a.m. ET. Investors
may 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 recorded version of the webcast will be
made available on the Company's website approximately one hour after the event
and will remain available on IFF’s website for one year.
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, sweet goods
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 5,700 employees
working in 32 countries worldwide. For more information, please visit our
website at www.iff.com.
Cautionary Statement Under The Private Securities Litigation Reform Act of
This press release includes “forward-looking statements” under the Federal
Private Securities Litigation Reform Act of 1995, including statements
regarding the Company’s expectations concerning (i) its results, performance
and the growth opportunities for the business in 2013; (ii) the completion of
its exit of low-margin sales activities; (iii) its product portfolio and R&D
pipeline; (iv) the expected development of commercialization of sustainable,
cost-effective fragrance ingredients in collaboration with Amyris; (v)
expected improvement in efficiencies within the fragrance ingredients
manufacturing network resulting from the closing of its Augusta, Georgia
manufacturing facility; and (vi) its ability to execute on its long-term
strategic plan and reach its long-term goals. These forward-looking statements
are qualified in their entirety by cautionary statements and risk factor
disclosures contained in the Company’s Securities and Exchange Commission
filings, including the Company’s Annual Report on Form 10-K filed with the
Commission on February 26, 2013. The Company wishes to caution readers that
certain important factors may affect and could in the future affect the
Company’s actual results and could cause the Company’s actual results for
subsequent periods to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. With respect
to the Company’s expectations regarding these statements, such factors
include, but are not limited to: (1) the economic climate for the Company’s
industry and demand for the Company’s products; (2) the ability of the Company
to successfully implement its restructuring initiative and achieve the
estimated savings; (3) fluctuations in the price, quality and availability of
raw materials; (4) decline in consumer confidence and spending; (5) changes in
consumer preferences; (6) the Company’s ability to predict the short and
long-term effects of global economic conditions; (7) movements in interest
rates; (8) the effects of any unanticipated costs and construction or start-up
delays in the expansion of any of the Company’s facilities; (9) the Company’s
ability to implement its business strategy, including the achievement of
anticipated cost savings, profitability, realization of price increases and
growth targets; (10) the Company’s ability to successfully develop new and
competitive products and enter and expand its sales in new and other emerging
markets; (11) the impact of currency fluctuations or devaluations in the
Company’s principal foreign markets; (12) any adverse impact on the
availability, effectiveness and cost of the Company’s hedging and risk
management strategies; (13) uncertainties regarding the outcome of, or funding
requirements, related to litigation or settlement of pending litigation,
uncertain tax positions or other contingencies, including the final assessment
for the Company’s Spanish subsidiaries’ 2011 tax return and appeal regarding
the tax assessments for the 2002 fiscal years; (14) the impact of possible
pension funding obligations and increased pension expense, particularly as a
result of changes in asset returns or discount rates, on the Company’s cash
flow and results of operations; (15) 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; (16) adverse changes in
federal, state, local and foreign tax legislation or adverse results of tax
audits, assessments, or disputes; (17) the direct and indirect costs and other
financial impact that may result from 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; (18) the Company’s ability to quickly and effectively
implement its disaster recovery and crisis management plans; and (19) adverse
changes due to accounting rules or regulations. New risks emerge from time to
time and it is not possible for management to predict all such risk factors or
to assess the impact of such risks on the Company’s business. Accordingly, the
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
International Flavors & Fragrances Inc.
Shelley Young, 212-708-7271
Director, Investor Relations
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