Givaudan SA, maker of the fragrances for Marc Jacobs’s Lola and Paco Rabanne’s 1 Million perfumes, said it’s budgeting for a “strong” increase in raw-material costs this year and will look to raise prices.
The cost of some soft commodities and feedstocks, including menthol, citrus orange and turpentine, have spiraled to “very high levels,” Chief Executive Officer Gilles Andrier said in an interview today after the company reported earnings. The stock dropped as much as 2.8 percent.
“Overall, we’re talking high single-digit to low, low double-digit growth in terms of raw materials,” the CEO said. “It’s a bit like the scenario we saw in 2008.”
Andrier said he’s confident price increases will compensate for higher input costs. The Swiss company is seeking to defend profitability, which declined after its $2.3 billion purchase of Quest International in 2007. The full-year margin for earnings before interest, taxes, depreciation and amortization compared with sales improved to 22.7 percent last year from 20.7 percent in 2009.
“Givaudan is working with customers to increase prices but this could take up to six months,” Deutsche Bank analysts including Virginie Boucher-Ferte wrote in a note today. That could lead to a “short-term margins squeeze,” they said.
Shares of the Vernier, Switzerland-based company dropped 2.3 percent to 936 francs as of 10:59 a.m. in Zurich. Givaudan has slipped 7 percent this year, valuing the company at 8.6 billion francs ($9 billion). New York-based International Flavors & Fragrances Inc. has added 6 percent.
Net income in 2010 advanced to 340 million francs from 199 million francs. That compared with an average forecast of 327 million francs in a Bloomberg survey of seven analysts. Givaudan proposed a dividend of 21.50 francs.
Sales rose 7 percent to 4.2 billion francs. Ebitda excluding restructuring expenses increased to 963 million francs from 820 million francs.
The company has added a facility in Mexico and is building a low-labor cost flavors factory in Hungary to absorb production lines currently in the U.K. and Switzerland.
Expansion in Asia and Latin America is part of Andrier’s strategy to generate half of sales in faster-growing emerging markets by 2015. Givaudan aims to expand at about double the pace of the 2 percent to 3 percent growth expected for the wider market, by taking customers from smaller rivals.
Givaudan has a 25 percent global market share, followed by closely held Swiss competitor Firmenich International SA with 17 percent, IFF at 16 percent and Germany’s Symrise AG at 12 percent, according to estimates by Jon Cox, an analyst at Kepler Capital Markets.