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IFF Reports Strong First Quarter 2015 Results

Currency Neutral Sales Grew 6%; Currency Neutral Adjusted EPS Increased 13%

NEW YORK--(BUSINESS WIRE)--May 12, 2015-- 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, 2015.

First Quarter 2015 Results

  • Currency neutral sales increased 6% reflecting broad-based growth in both businesses and across all regions. Sales to the emerging markets, which now represent 51% of total company sales, grew 9% on a currency neutral basis.
  • Currency neutral adjusted operating profit increased 10% versus the prior year quarter driven by strong sales growth, and manufacturing and RSA cost leverage. The net impact on adjusted earnings per share (EPS) was positive, increasing 13% on a currency neutral basis to $1.45 per share in the quarter.
  • Reported sales increased $4.7 million, or 1%, to $774.9 million from $770.2 million in the prior year quarter. On a reported basis, operating profit rose $5.7 million, or 4%, to $161.8 million from $156.1 million in the prior year quarter and reported diluted EPS rose 21% to $1.57 from $1.30.

Schedules at the end of this release contain reconciliations of reported GAAP to non-GAAP financial metrics.

Beginning this quarter, we refer to “currency neutral,” instead of “local currency.” The change is solely a change in terminology and the underlying calculation of the measure remains the same.

Management Commentary

“We are pleased with our performance in the first quarter.” said IFF Chairman and CEO Andreas Fibig. “Financially, we delivered mid-single-digit sales growth, and double-digit increases in both adjusted operating profit and adjusted EPS, all on a currency neutral basis. At the same time, we continued to invest in the business to support our goal of Winning Where We Compete by bolstering our Flavors business with the acquisition of Ottens, the opening of a new sales and creative facility near Chicago, and the expansion of our creative center in South Africa.”

First Quarter 2015 Segment Results

Fragrances Business Unit

  • Currency neutral sales growth was 5% as nearly all regions delivered mid to high single-digit growth.
  • Fine Fragrances currency neutral sales declined by 2%, against very strong 10% growth reported in the year-ago period. A double-digit increase in Greater Asia was more than offset by softness in North America and EAME, both of which compared to double-digit growth in the prior-year period.
  • Consumer Fragrances delivered strong currency neutral sales growth of 9% led by double-digit growth in Fabric Care and Home Care, as well as mid-single digit growth in Hair Care.
  • Fragrance Ingredients currency neutral sales declined 2% compared to high double-digit gains in the prior year quarter.
  • Reported sales decreased 1% to $397.8 million in the first quarter of 2015 compared with $403.7 million in the prior year quarter.
  • Fragrances segment profit decreased 6%, or $5.6 million, to $81.6 million in the first quarter of 2015. Segment profit margin decreased to 20.5%, down 110 basis points from 21.6% in the prior year quarter as unfavorable net impact of price to input costs and a negative impact from currency more than offset continued cost control discipline and productivity programs.

Flavors Business Unit

  • Currency neutral sales grew 9% in the first quarter, against a 5% year-ago comparison, with growth across all regions led by double-digit growth in Latin America and North America and high single-digit growth in EAME.
  • On a category basis, Beverages grew high double-digits with growth across all regions driven by new win performance and strong innovative solutions for better-for-you products. Growth was also achieved in all other categories including Dairy, Sweet and Savory.
  • Reported sales increased 3%, or $10.6 million, to $377.1 million from $366.5 million in the prior year quarter.
  • Flavors segment profit increased 5%, or $4.7 million, to $92.7 million in the first quarter of 2015. Segment profit margin improved 60 basis points to 24.6% from 24.0% in the prior year quarter, reflecting topline growth, mix benefits, productivity initiatives and disciplined cost control that more than offset the negative impact of currency.

Management Commentary

Mr. Fibig continued, “Looking to the balance of year, we continue to believe we can deliver attractive returns to our shareholders. On a currency neutral basis, we expect all of our key financial metrics to be in line with our long-term targets in 2015. Yet, if global currencies remain where they are today throughout the rest of the year, we expect adjusted operating profit and adjusted EPS to grow low to mid-single-digits.”

Audio Webcast

A live webcast to discuss the Company's first quarter 2015 financial results will be held today, May 12, 2015, at 10:00 a.m. EST. 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 6,200 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 our outlook for the second quarter and full year 2015, and our ability to generate shareholder returns and sustain our long-term growth performance. 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 March 2, 2015. The Company wishes to caution readers that certain important factors may have affected 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) volatility and increases in the price of raw materials, energy and transportation; (2) the economic and political risks associated with the Company’s international operations; (3) the Company’s ability to benefit from its investments and expansion in emerging markets; (4) fluctuations in the quality and availability of raw materials; (5) changes in consumer preferences and demand for the Company’s products or a decline in consumer confidence and spending; (6) the Company’s ability to implement its business strategy, including the achievement of anticipated cost savings, profitability, realization of price increases and growth targets; (7) the Company’s ability to successfully develop new and competitive products that appeal to its customers and consumers; (8) the impact of a disruption in the Company’s supply chain or its relationship with its suppliers; (9) the impact of currency fluctuations or devaluations in the Company’s principal foreign markets; (10) any adverse impact on the availability, effectiveness and cost of the Company’s hedging and risk management strategies; (11) the effects of any unanticipated costs and construction or start-up delays in the expansion of the Company’s facilities; (12) the Company’s ability to successfully execute acquisitions, collaborations and joint ventures; (13) 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; (14) adverse changes in federal, state, local and foreign tax legislation or adverse results of tax audits, assessments, or disputes; and (15) changes in market conditions or governmental regulations relating to our pension and postretirement obligations. 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 revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

International Flavors & Fragrances Inc.

Consolidated Income Statement

(Amounts in thousands except per diluted share data)

(Unaudited)

     
Three Months Ended March 31,
 
  2015     2014 % Change
 
Net sales $ 774,907 $ 770,224 1 %
Cost of goods sold   428,630     428,812 (0 )%
Gross profit 346,277 341,412 1 %
Research and development 63,462 61,504 3 %
Selling and administrative 120,835 123,733 (2 )%
Restructuring and other charges   187     122
Operating Profit 161,793 156,053
Interest expense 11,095 11,677

Other (income) expense, net

  (5,710 )   1,443
Pretax income 156,408 142,933 9 %
Income taxes   28,150     36,226 (22 )%
Net income $ 128,258   $ 106,707 20 %
 
 
 
Earnings per share - basic $ 1.58 $ 1.31
Earnings per share - diluted $ 1.57 $ 1.30
 
Average shares outstanding
Basic 80,654 81,053
Diluted 81,195 81,732
 

 

International Flavors & Fragrances Inc.

Condensed Consolidated Balance Sheet

(Amounts in thousands)

(Unaudited)

   
March 31, December 31,
2015 2014
Cash & cash equivalents $ 443,689 $ 478,573
Receivables 525,260 493,768
Inventories 536,465 568,729
Other current assets   249,696   168,957
Total current assets 1,755,110 1,710,027
 
Property, plant and equipment, net 692,008 720,268
Goodwill and other intangibles, net 750,201 752,041
Other assets   309,853   312,285
Total assets $ 3,507,172 $ 3,494,621
 
Bank borrowings and overdrafts, and
current portion of long-term debt $ 8,379 $ 8,090
Other current liabilities   478,941   510,718
Total current liabilities 487,320 518,808
 
Long-term debt 935,170 934,232
Non-current liabilities 512,585 518,892
 
Shareholders' equity   1,572,097   1,522,689
Total liabilities and shareholders' equity $ 3,507,172 $ 3,494,621
 

 

International Flavors & Fragrances Inc.

Consolidated Statement of Cash Flows

(Amounts in thousands)

(Unaudited)

 
Three Months Ended March 31,
2015     2014  
Cash flows from operating activities:
Net income $ 128,258 $ 106,707
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization 19,985 22,830
Deferred income taxes 13,932 8,246
(Gain) loss on disposal of assets 34 (811 )
Stock-based compensation 5,387 4,695
Pension contributions (54,048 ) (5,316 )
Changes in assets and liabilities, net of Aromor acquisition:
Current receivables (62,891 ) (41,569 )
Inventories 13,172 (591 )
Accounts payable (3,061 ) (11,989 )
Accruals for incentive compensation (27,675 ) (62,282 )
Other current payables and accrued expenses 20,264 1,096
Changes in other assets/liabilities   (21,881 )   13,977  
Net cash provided by operating activities   31,476     34,993  
 
Cash flows from investing activities:

Cash paid for acquisition, net of cash received
(including $15 million of contingent consideration)

(102,400 )
Additions to property, plant and equipment (19,381 ) (33,836 )
Proceeds from life insurance contracts 12,308
Maturity of net investment hedges (472 )
Proceeds from disposal of assets   1,450     2,042  
Net cash used in investing activities   (17,931 )   (122,358 )
 
Cash flows from financing activities:
Cash dividends paid to shareholders (37,971 ) (31,743 )
Net change in revolving credit facility borrowings and overdrafts 265 1,309
Proceeds from issuance of stock under stock plans 227 913
Excess tax benefits on stock-based payments 8,597 315
Purchase of treasury stock   (10,660 )   (20,122 )
Net cash used in financing activities   (39,542 )   (49,328 )
Effect of exchange rates changes on cash and cash equivalents (8,887 ) (228 )
Net change in cash and cash equivalents (34,884 ) (136,921 )
Cash and cash equivalents at beginning of year   478,573     405,505  
Cash and cash equivalents at end of period $ 443,689   $ 268,584  
 

 

International Flavors & Fragrances Inc.

Business Unit Performance

(Amounts in thousands)

(Unaudited)

   
Three Months Ended March 31,
  2015       2014  
Net Sales
Flavors $ 377,108 $ 366,505
Fragrances   397,799     403,719  
Consolidated 774,907 770,224
 
Segment Profit
Flavors 92,727 88,063
Fragrances 81,598 87,166
Global Expenses (11,564 ) (16,435 )
Restructuring and other charges, net (187 ) (122 )
Acquisition and related costs (500 )
Operational improvement initiative costs   (281 )   (2,619 )
Operating profit 161,793 156,053
 
Interest Expense (11,095 ) (11,677 )
Other income, net   5,710     (1,443 )
Income before taxes $ 156,408   $ 142,933  
 
Operating Margin
Flavors 24.6 % 24.0 %
Fragrances 20.5 % 21.6 %
Consolidated 20.9 % 20.3 %
 

 

International Flavors & Fragrances Inc.

Sales Performance by Region and Category

(Unaudited)

             
First Quarter 2015 vs. 2014
Percentage Change in Sales by Region of Destination

Fine
Fragrances

 

Consumer
Fragrances

  Ingredients   Total Frag.   Flavors   Total
   
North America Reported -14% 5% -20% -6% 10% 2%
 
EAME Reported -13% -1% -8% -7% -4% -6%
Currency Neutral -1% 13% 0% 6% 9% 7%
 
Latin America Reported -1% 13% 1% 9% 15% 11%
Currency Neutral 2% 16% -4% 11% 21% 14%
 
Greater Asia Reported 36% 2% 8% 3% 0% 2%
Currency Neutral 38% 3% 17% 6% 4% 5%
 
Total Reported -10% 4% -8% -1% 3% 1%
Currency Neutral -2%   9%   -2%   5%   9%   6%
 

Note: Beginning this quarter, we refer to “currency neutral,” instead of “local currency.” The change is solely a change in terminology and the underlying calculation of the measure remains the same.

Currency neutral sales growth is calculated by translating prior year sales at the exchange rates used for the corresponding 2015 period.

 

International Flavors & Fragrances Inc.

GAAP to Non-GAAP Reconciliation

Foreign Exchange Impact

(Unaudited)

       
Sales  

Operating
Profit

  EPS
% Change - Reported (GAAP) 1% 4% 21%
Items Impacting Comparability 0% -2% -11%
% Change - Adjusted (Non-GAAP) 1% 2% 10%
Currency Impact 5% 7% 3%
% Change - Currency Neutral (Adjusted) 6%   10%*   13%
 
* The sum of these items do not foot due to rounding.
 

Note: Beginning this quarter, we refer to “currency neutral,” instead of “local currency.” The change is solely a change in terminology and the underlying calculation of the measure remains the same.

Currency neutral sales growth is calculated by translating prior year sales at the exchange rates used for the corresponding 2015 period.

 

International Flavors & Fragrances Inc.

GAAP to Non-GAAP Reconciliation

(Amounts in thousands)

(Unaudited)

 

The following information and schedules provide reconciliation information between reported GAAP amounts and non-GAAP certain adjusted amounts. This information and schedules are 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.

             
First Quarter 2015
Items Impacting Comparability
                                 

Reported
(GAAP)

 

Restructuring
and Other
Charges

Operational
Improvement
Initiative
Costs

Tax
Settlements

Acquisition
and Related
Costs

Adjusted
(Non-GAAP)

 
Net Sales 774,907
Cost of Goods Sold 428,630 (281 ) (b)
Gross Profit 346,277 281 346,558
Research and Development 63,462
Selling and Administrative 120,835 (500 ) (d) 120,335
RSA Expense 184,297
Restructuring and other charges, net 187 (187 ) (a)
Operating Profit 161,793 187 281 500 162,761
Interest Expense 11,095
Other Income, net (5,710 )
Income before taxes 156,408 187 281 500
Taxes on Income 28,150 66 70 10,478 (c) 175 38,939
Net Income   128,258         121         211         (10,478 )       325         118,437  
 
Earnings per share - diluted $ 1.57 $ $ $ (0.13 ) $ $ 1.45 (e)
 
(a) Costs related to the Fragrance Ingredients Rationalization.
(b) Related to a partial plant closing in Asia.
(c)

Settlements due to favorable tax rulings in jurisdictions for which reserves were previously
recorded for ongoing tax disputes.

(d) Related to the acquisition of Henry H. Ottens Manufacturing Co., Inc. Ottens Flavors.
(e) The sum of these items do not foot due to rounding.
           
First Quarter 2014
Items Impacting Comparability
                   

Reported
(GAAP)

Restructuring
and Other
Charges

Operational
Improvement
Initiative
Costs

Adjusted
(Non-
GAAP)

 
Net Sales 770,224
Cost of Goods Sold 428,812 (2,250 ) (a) (369 ) (b)
Gross Profit 341,412 2,250 369 344,031
Research and Development 61,504
Selling and Administrative 123,733
RSA Expense 185,237
Restructuring and other charges, net 122 (122 )
Operating Profit 156,053 2,372 369 158,794
Interest Expense 11,677
Other Income, net 1,443
Income before taxes 142,933 2,372 369
Taxes on Income 36,226 831 90 37,147
Net Income   106,707       1,541         279         108,527
 
Earnings per share - diluted $ 1.30 $ 0.02 $ $ 1.32
 
(a) Costs related to the Fragrance Ingredients Rationalization.
(b) Related to plant closing in Europe and partial closing in Asia.

Source: International Flavors & Fragrances Inc.

International Flavors & Fragrances Inc.
VP, Global Corporate Communications & Investor Relations:
Michael DeVeau, 212-708-7164

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