Local Currency Sales Increase 3%; Reported Sales Increase 2%
Reported EPS of $1.10 Increases 11% versus Prior Year
NEW YORK--(BUSINESS WIRE)--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
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 China.”
“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
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
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 high levels.
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
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
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 category growth.
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
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
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
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 1995
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.
Source: International Flavors & Fragrances Inc.
International Flavors & Fragrances Inc.
Director, Investor Relations