Press Release

Local Currency Sales Increase by 4%; Reported Sales Increase by 5%

Adjusted Operating Profit Margins Expand 50 basis points to 19.4%

NEW YORK--(BUSINESS WIRE)--Nov. 5, 2013-- International Flavors & Fragrances Inc. (NYSE:IFF), a leading global creator of flavors and fragrances for consumer products, today reported financial results for the third quarter ended September 30, 2013.

Third Quarter 2013 Results

• Revenue for the quarter totaled $742.3 million, an increase of 5% from $709.0 million in the third quarter of 2012.
• Excluding the impact of foreign currency, local currency sales increased 4%, led by 8% growth in the emerging markets.
• Operating profit for the quarter totaled $141.5 million, compared with $134.2 million in the prior year. Excluding restructuring and other charges and operational improvement costs in the current quarter¹, adjusted operating profit increased 7% to $144.1 million, or 19.4% of sales, up from $134.2 million, or 18.9% of sales, in the prior year.
• Reported net income totaled $99.0 million, compared with $16.4 million in the third quarter of 2012. Excluding restructuring and other charges and operational improvement initiative costs from the current quarter, and a $72.4 million charge related to the Spanish tax settlement from the prior year’s results¹, adjusted net income increased 14% to $100.8 million from $88.7 million in the prior year.
• Reported earnings per share totaled $1.20 compared with earnings per share of $0.20 in the third quarter of 2012. Excluding restructuring and other charges from the current quarter and the Spanish tax charge from the prior year quarter¹, adjusted earnings per share increased 13% to $1.22 from $1.08 per share in the third quarter of 2012.

¹ Please see the information and schedules at the end of this release for reconciliations of GAAP to non-GAAP financial metrics.

Management Commentary

“In the third quarter, IFF benefited from our balanced business mix and continued focus on executing our three-pillar growth strategy,” said Doug Tough, Chairman and CEO of IFF. “We are pleased with our growth momentum on both the top and bottom lines, especially in light of a more challenging comparison to the third quarter of last year. This is the sixth consecutive quarter that our gross profit margin, adjusted operating profit margin and adjusted net income as a percent of sales have all increased versus the year-ago period.”

Mr. Tough continued, “Our consolidated local currency sales growth of 4% was led by 8% growth in the emerging markets, which continue to grow at two to three times the rate of the developed markets with strong performance across both of our business units. We are also beginning to see greater stability in our Fragrance Ingredients business. Our broad and diverse portfolio of end-use product categories combined with our diverse regional footprint continues to be a source of strength for us.

“IFF’s gross margin progression this quarter reflects a continued focus on strategic initiatives, as well as a more benign raw material cost environment. As previously communicated, we continue to reinvest in our Research & Development platforms to support future growth, and to ensure a strong innovation pipeline for the near, mid and longer-term. We believe these investments will enable us to better serve our customers and provide them with new and innovative ways to drive consumer engagement.”

Mr. Tough concluded, “Looking forward, we expect to see moderate growth in the fourth quarter, given the strong growth achieved in the prior year period. We continue to expect that the Company will deliver on its long-term growth targets for the full year 2013.”

Third Quarter 2013 Operating Highlights

• Local currency sales in the emerging markets accounted for 48% of total company sales in the quarter and delivered growth of 8%.
• Gross profit, as a percent of sales, was 43.8% compared with 42.5% in the prior year. Gross profit for the quarter includes both operational improvement costs related to a plant closing in Europe and a partial plant closing in Asia, and accelerated depreciation related to the closing of our Fragrance Ingredients plant in Augusta. Excluding these charges, adjusted gross profit was 44.2%, compared with 42.5% in the prior year. The 170 basis point gross margin improvement was due to the net impact of pricing and moderating raw material costs, ongoing cost reduction efforts in Fragrances, and volume and mix gains related to new business wins.
• Research, selling and administrative (RSA) expenses, as a percent of sales, increased 120 basis points to 24.8% compared with 23.6% in the third quarter of 2012. The RSA increase this quarter reflects higher incentive compensation costs as well as R&D costs associated with our biotechnology program for Fragrances and continued investments in technology. Excluding incentive compensation, adjusted RSA as a percentage of sales would have been constant.
• Adjusted operating profit increased 7% or $9.9 million to $144.1 million from $134.2 million in the prior year quarter. The improvement in the adjusted operating profit was due to solid sales growth combined with gross margin expansion, offset in part by higher incentive compensation accruals and R&D investments.
• The effective tax rate (ETR) for the quarter was 26.1% compared with 86.6% in the prior year quarter. Excluding the tax impact on restructuring and operational improvements costs in the current quarter, and the Spanish tax charge in the prior year quarter, the adjusted effective tax rate for the quarter was 26.2% compared with an adjusted effective tax rate of 27.2% in the prior year period. The 100 basis point reduction in the adjusted effective tax rate was primarily driven by the benefit associated with the restoration of the U.S. R&D tax credit combined with a more favorable mix of earnings, partially offset by the reduction of deferred tax assets associated with a U.K. rate change.

Fragrances Business Unit

• Net sales increased 7% to $392.9 million, compared with $368.3 million in the third quarter of 2012. Excluding the impact of foreign currency, local currency sales increased 5%.
• Fragrance Compounds achieved local currency sales growth of 7% in the third quarter led by double-digit growth in the emerging markets. The emerging markets accounted for 50% of Fragrance Compounds’ sales this quarter.
• Fragrance Ingredients’ local currency sales growth was flat, year-over-year, and is showing signs of stabilization. The majority of product families experienced volume growth this quarter.
• Within Fragrance Compounds, our Fine & Beauty Care category had local currency sales growth of 5% led by double-digit growth in EAME, Latin America and Greater Asia. Functional Fragrances had local currency sales growth of 8%, led by double-digit growth in Greater Asia and Latin America. This marks the 21st consecutive quarter of growth in Functional Fragrances, due to a high level of new wins with both global and regional customers.
• Gross margins in our Fragrances business unit increased over the prior year quarter, primarily due to moderating raw material costs, a strong level of new wins combined with an improved business mix, and ongoing cost reduction efforts.
• Fragrances segment profit increased $16 million, or 24%, to $81.3 million in the third quarter of 2013, up from $65.3 million in the prior year quarter. The segment profit margin increased 300 basis points to 20.7%, up from 17.7%. The segment profit improvement was the result of solid sales growth combined with gross margin expansion and ongoing productivity initiatives.

Flavors Business Unit

• Reported net sales increased 3% to $349.4 million, compared with $340.7 million in the prior year quarter. Excluding the impact of foreign currency, local currency sales also increased 3%, marking the 31^st quarter of consecutive local currency sales growth for Flavors.
• Flavors delivered growth in every region, led by high single-digit growth in Latin America and low single-digit growth in Greater Asia, EAME and North America.
• On an end-use category basis, sales growth was led by high single-digit growth in Beverage and mid-single digit growth in Savory and Sweet, partially offset by a decline in Dairy.
• Gross margins in the Flavors business increased over the prior year quarter primarily as a result of the net impact of moderating raw material costs and pricing.
• Flavors segment profit increased $5 million, or 7%, to $81.1 million in the third quarter of 2013, compared to $76.1 million the prior year quarter. The segment profit margin increased 80 basis points to 23.2%, up from 22.4% in the prior year.

Audio Webcast

A live webcast to discuss the Company's third quarter financial results and full year outlook will be held today, November 5, 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.

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, 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 5,800 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) growth in the fourth quarter of 2013; (ii) the impact of R&D investments on future growth and innovation; and (iii) its ability to execute on its long-term strategic plan and reach its long-term growth targets in 2013. 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 and ongoing profit and operational improvement initiatives, 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; (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.

Note: Local currency sales growth is calculated by translating prior year sales at the exchange rates used for the corresponding 2013 period.

(1) Local currency sales growth is calculated by translating prior year sales at the exchange rates used for the corresponding 2013 period.

(2) Like-for-like is a non-GAAP metric that excludes the impact of exiting low-margin sales activities and foreign exchange.

*Note: The exit of low-margin sales activities was substantially completed as of the second quarter.

Source: International Flavors & Fragrances Inc.

Investor Relations:
International Flavors & Fragrances Inc.
Shelley Young, 212-708-7271
Director, Investor Relations