International Flavors & Fragrances Inc. : IFF Reports Second Quarter 2012 Adjusted EPS Growth of 11% to $1.08 per Share
08/08/2012| 07:10am US/Eastern
Recommend:
0
Local Currency Sales Increase 4%; Reported Sales Increase 1%
Adjusted Operating Profit Margins Expand 130 basis points to 18.3%
International Flavors & Fragrances Inc. (NYSE: IFF), a leading global
creator of flavors and fragrances for consumer products, today reported
financial results for the second quarter ended June 30, 2012.
Second Quarter 2012 Results
Reported revenue for the quarter totaled $721.3 million, an increase
of 1% from $715.6 million in the second quarter of 2011. Excluding the
impact of foreign currency, local currency sales increased 4%. On a
like-for-like basis, which excludes the exit of low-margin sales
activities in Flavors, local currency sales increased 5%.
Net income totaled $88.6 million or $1.08 per diluted share for the
second quarter, compared with net income of $76.2 million or $0.93 in
the second quarter of 2011.
Excluding restructuring and other charges, which accounted for $0.04
per share in the second quarter of 2011, adjusted EPS increased 11% to
$1.08, up from $0.97 in the second quarter of 2011.
Management Commentary
"We are pleased with our performance this quarter," said Doug Tough,
Chairman and Chief Executive Officer of IFF. "We delivered solid
top-line growth and even stronger double-digit EPS growth, despite the
challenges presented by the ongoing difficulties in Western Europe and
volume declines in Fragrance Ingredients. Our performance against this
backdrop underscores the strength and diversity of our portfolio and
geographic reach, as well as our ability to drive manufacturing
efficiencies and control operating costs. As expected, increases in raw
material costs are beginning to moderate and price realization has
improved, resulting in margin expansion and operating profit growth."
"IFF's growth this quarter was driven by our Flavors business, which
achieved high single-digit local currency growth in every region and 8%
growth overall, on top of 8% growth in the prior year, reflecting the
balanced and consistent nature of this business. Our Fragrances
Compounds business increased by 6% overall, led by strong growth in
Latin America and Greater Asia, which offset continued softness in
Ingredients."
Mr. Tough concluded, "We continue to be cautiously optimistic in our
outlook, given the lagging economic growth and uneven recovery cycle.
Although we achieved solid momentum in both Flavors and Fragrance
Compounds, we believe we will continue to face a weak economic
environment in Western Europe and softness in Fragrance Ingredients.
Longer term, we see significant growth opportunities for the business
and believe we are well positioned to achieve our long-term goals."
Second Quarter 2012 Operating Highlights
Local currency sales in emerging markets, which account for 48% of
total company sales, increased 9%.
Gross profit, as a percentage of sales, was 41.8%, compared with 39.7%
in the second quarter of 2011, driven by new business wins, pricing,
and manufacturing efficiencies, which more than offset lower increases
in raw material costs.
Research, selling and administrative (RSA) expenses, as a percentage
of sales, increased 80 bps to 23.5% compared with the second quarter
of 2011. The RSA increase this quarter principally reflects higher
incentive compensation accruals and increased expenses to support our
ongoing growth initiatives.
Operating profit increased 12% to $132.3 million, from $118.0 million
in the second quarter of 2011. Adjusted Operating Profit increased 8%
to $132.3 million, from $122.0 million in the second quarter of 2011
excluding restructuring and other charges of $4.0 million in the
second quarter of 2011. The increased profitability was driven by
pricing realization, volume and mix improvements, and manufacturing
efficiencies that more than offset higher raw material costs and
incentive compensation accruals.
Interest expense declined $1.4 million year-over-year reflecting lower
levels of outstanding debt, mainly due to long-term debt repayments in
the second half of 2011.
Other (income) and expense, net, improved $1.9 million in the second
quarter of 2012 compared with the second quarter of 2011, due to
favorable foreign exchange gains/losses on outstanding working capital
balances.
The effective tax rate increased 30 basis points to 27.7% in the
second quarter from 27.4% in the second quarter of 2011. The marginal
increase reflects increased provisions related to Spanish withholding
taxes, and other provision adjustments on uncertain tax positions. The
prior year rate included an R&D tax credit in the U.S. and a write-off
related to deferred taxes caused by a change in U.S. state tax laws
enacted during the quarter.
Cash flow from operations increased by $133.2 million to $135.4
million in the first six months of 2012 compared with the first six
months of 2011, reflecting the impact of lower year-over-year
incentive compensation payments and lower tax payments made in 2012
compared to 2011, as well as improved core working capital.
Subsequent Events
On July 24, 2012, the Company announced that its Board of Directors
authorized a quarterly dividend of $0.34, an increase of $0.03 from
the current quarter dividend of $0.31. The quarterly dividend will be
distributed October 3, 2012 to shareholders of record at the close of
business on September 19, 2012.
On August 2, the Company announced that it had reached an overall
agreement with the Spanish tax authorities regarding tax disputes for
the years 2004 through 2010. The Company will pay Euro 86.0 million
and take an after-tax charge to net income of $72.4 million, or $0.88
per share in the third quarter of 2012 as a result of the settlement.
IFF also reached an agreement in principle regarding its tax position
in Spain for 2012 and going forward.
Flavors Business Unit
Reported revenue increased 5% to $361.4 million, compared with $345.4
million in the second quarter of 2011. Excluding the impact of foreign
currency, local currency sales increased 8% on top of the 8% growth
reported in the second quarter of 2011. This marks the 26th
quarter of consecutive local currency sales growth for Flavors.
On a like-for-like basis, which excludes the exit of low-margin sales
activities, local currency sales increased 9% in the quarter, led by
North America, which achieved like-for-like growth of 12%, and Greater
Asia, which achieved like-for-like growth of 10%.
The North America and EAME regions achieved local currency sales
growth of 8% and 7% respectively, due in part to the Company's focus
on health and wellness initiatives, which increased sales.
On a category basis, Beverage achieved double-digit local currency
sales growth, with more than half of the growth coming from the North
American region. Dairy, Sweet and Savory also achieved overall growth.
Segment profit increased 14% to $80.6 million in the second quarter of
2012, up from $71.0 in the prior year quarter, driven by strong volume
growth, price realization and favorable sales mix, that more than
offset higher raw material costs and investments in R&D. Operating
profit margin increased 170 basis points to 22.3% from 20.6%,
reflecting improved operating leverage.
Fragrances Business Unit
Reported revenue decreased 3% to $359.9 million, compared with $370.2
million in the second quarter of 2011. Excluding the impact of foreign
currency, local currency sales were flat, with growth in Fine and
Beauty Care and Functional Fragrance offset by volume declines in
Fragrance Ingredients.
Local currency sales growth in Fragrance Compounds, which includes
Fine and Beauty Care and Functional, increased 6% in the second
quarter. Fine and Beauty Care had local currency sales growth of 4%,
driven by double-digit growth in Latin America and Greater Asia.
Functional had local currency sales growth of 7%, due to strong growth
in Latin America, EAME and Greater Asia.
Segment profit increased 2% to $63.6 million in the second quarter, up
from $62.3 in the prior year quarter. The improvement in segment
profit is due to ongoing cost discipline, improved mix and pricing,
combined with benefits from the strategic realignment plan announced
in the first quarter of 2012.
Audio Webcast
A live webcast to discuss the Company's second quarter 2012 financial
results, and second half and full year 2012 outlook will be held today,
August 8, 2012, 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 5,600 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 outlook for its performance and the
growth opportunities for the business, the term and impact of the
Western European economic slowdown and the sales reductions in Fragrance
Ingredients on the Company's performance and the Company's belief that
it is well positioned, in the longer-term, to 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 28, 2012. 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) 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 recent
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, especially in Western
Europe; (7) movements in interest rates; (8) the Company's ability to
implement its business strategy, including the achievement of
anticipated cost savings, profitability, realization of price increases
and growth targets; (9) the Company's ability to successfully develop
new and competitive products and enter and expand its sales in new and
other emerging markets; (10) the impact of currency fluctuations or
devaluations in the Company's principal foreign markets; (11) any
adverse impact on the availability, effectiveness and cost of the
Company's hedging and risk management strategies; (12) 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 2002-2003 fiscal years; (13) the Company's ability to execute an
agreement with the Spanish tax authorities for the tax treatment of its
Spanish operations in 2012 and future years on the terms and conditions
contemplated; (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) 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; and (18) 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.
Consolidated Income Statement
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2012
2011
% Change
2012
2011
% Change
Net sales
$
721,317
$
715,589
1
$
1,431,933
$
1,429,860
0
Cost of goods sold
419,774
431,166
(3
)
844,991
847,977
(0
)
Gross margin
301,543
284,423
6
586,942
581,883
1
Research and development
56,400
56,229
0
113,809
113,685
0
Selling and administrative
112,835
106,224
6
218,249
212,843
3
Restructuring and other charges
-
3,985
1,668
4,013
Interest expense
10,613
12,009
21,423
23,689
Other (income) expense, net
(845
)
1,055
(1,088
)
7,111
Pretax income
122,540
104,921
17
232,881
220,542
6
Income taxes
33,944
28,733
18
63,230
60,311
5
Net income
$
88,596
$
76,188
16
$
169,651
$
160,231
6
Earnings per share - basic
$
1.09
$
0.94
$
2.08
$
1.98
Earnings per share - diluted
$
1.08
$
0.93
$
2.06
$
1.96
Average shares outstanding
Basic
81,095
80,451
80,938
80,250
Diluted
81,782
81,489
81,727
81,320
International Flavors & Fragrances Inc.
Condensed Consolidated Balance Sheet
(Amounts in thousands)
(Unaudited)
June 30,
December 31,
2012
2011
Cash & cash equivalents
$
104,637
$
88,279
Receivables
516,598
472,346
Inventories
539,267
544,439
Other current assets
203,751
212,156
Total current assets
1,364,253
1,317,220
Property, plant and equipment, net
604,022
608,065
Goodwill and other intangibles, net
705,307
708,345
Other assets
351,725
331,951
Total assets
$
3,025,307
$
2,965,581
Bank borrowings and overdrafts, and
current portion of long-term debt
$
87,478
$
116,688
Other current liabilities
419,945
447,878
Total current liabilities
507,423
564,566
Long-term debt
777,404
778,248
Non-current liabilities
513,969
515,360
Shareholders' equity
1,226,511
1,107,407
Total liabilities and shareholders' equity
$
3,025,307
$
2,965,581
International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
Six Months Ended
June 30,
2012
2011
Cash flows from operating activities:
Net income
$
169,651
$
160,231
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization
37,094
37,356
Deferred income taxes
(13,786
)
27,215
Gain on disposal of assets
(1,525
)
(1,580
)
Stock-based compensation
11,272
13,089
Pension settlement/curtailment
874
3,583
Changes in assets and liabilities
Current receivables
(58,035
)
(73,172
)
Inventories
(5,643
)
(14,098
)
Accounts payable
(36,253
)
(39,728
)
Accruals for incentive compensation
2,019
(51,057
)
Other current payables and accrued expenses
41,562
(46,760
)
Changes in other assets/liabilities
(11,864
)
(12,934
)
Net cash provided by operating activities
135,366
2,145
Cash flows from investing activities:
Additions to property, plant and equipment
(53,833
)
(45,699
)
Purchase of insurance contracts
(1,035
)
(1,371
)
Maturities of net investment hedge
1,960
976
Proceeds from disposal of assets
124
399
Net cash used in investing activities
(52,784
)
(45,695
)
Cash flows from financing activities:
Cash dividends paid to shareholders
(50,206
)
(43,349
)
Net change in revolving credit facility borrowings and overdrafts
(26,034
)
59,083
Proceeds from issuance of stock under stock plans
5,400
13,155
Excess tax benefits on stock-based payments
6,513
5,075
Net cash (used in) provided by financing activities
(64,327
)
33,964
Effect of exchange rates changes on cash and cash equivalents
(1,897
)
1,685
Net change in cash and cash equivalents
16,358
(7,901
)
Cash and cash equivalents at beginning of year
88,279
131,332
Cash and cash equivalents at end of period
$
104,637
$
123,431
International Flavors & Fragrances Inc.
Business Unit Performance
(Amounts in thousands)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2012
2011
2012
2011
Net Sales
Flavors
$
361,371
$
345,407
$
711,258
$
683,994
Fragrances
359,946
370,182
720,675
745,866
Consolidated
721,317
715,589
1,431,933
1,429,860
Segment Profit
Flavors
80,633
71,003
160,313
149,957
Fragrances
63,635
62,260
119,716
130,964
Global Expenses
(11,960
)
(11,293
)
(25,145
)
(25,566
)
Restructuring and other charges, net
-
(3,985
)
(1,668
)
(4,013
)
Operating profit
132,308
117,985
253,216
251,342
Interest Expense
(10,613
)
(12,009
)
(21,423
)
(23,689
)
Other income (expense), net
845
(1,055
)
1,088
(7,111
)
Income before taxes
$
122,540
$
104,921
$
232,881
$
220,542
Operating Margin
Flavors
22.3
%
20.6
%
22.5
%
21.9
%
Fragrances
17.7
%
16.8
%
16.6
%
17.6
%
Consolidated
18.3
%
16.5
%
17.7
%
17.6
%
International Flavors & Fragrances Inc.
Sales Performance by Region and Category
(Unaudited)
% Change in Sales- Second Quarter 2012 vs. Second Quarter 2011
Fine & Beauty Care
Functional
Ingredients
Total Frag.
Flavors
Total
North America
Reported
-6%
1%
-13%
-5%
8%
2%
EAME
Reported
-12%
1%
-29%
-11%
-1%
-7%
Local Currency
-4%
8%
-24%
-5%
7%
0%
Latin America
Reported
27%
11%
-14%
15%
3%
10%
Local Currency
29%
11%
-13%
16%
6%
12%
Greater Asia
Reported
9%
5%
-20%
2%
7%
5%
Local Currency
11%
6%
-19%
3%
9%
7%
Total
Reported
0%
4%
-21%
-3%
5%
1%
Local Currency
4%
7%
-19%
0%
8%
4%
% Change in Sales- Six Months 2012 vs. Six Months 2011
Fine & Beauty Care
Functional
Ingredients
Total Frag.
Flavors
Total
North America
Reported
-2%
1%
-6%
-2%
5%
2%
EAME
Reported
-11%
2%
-23%
-9%
-1%
-6%
Local Currency
-6%
7%
-20%
-5%
5%
-1%
Latin America
Reported
15%
8%
-12%
9%
3%
7%
Local Currency
16%
8%
-12%
9%
5%
8%
Greater Asia
Reported
2%
-2%
-22%
-4%
7%
3%
Local Currency
3%
-2%
-23%
-4%
9%
4%
Total
Reported
-2%
2%
-17%
-3%
4%
0%
Local Currency
1%
4%
-15%
-1%
6%
2%
International Flavors & Fragrances Inc. Reconciliation
of Income (Amounts in thousands) (Unaudited)
The following information and schedules provide reconciliation
information between reported GAAP amounts and certain adjusted amounts.
This information and schedules is 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.
Second Quarter 2012:
In the second quarter of 2012 there were no items impacting
comparability.
Second Quarter 2011:
Second Quarter 2011
Items Impacting Comparability
Reported (GAAP)
Restructuring & Other Costs
Adjusted (Non-GAAP)
Net Sales
715,589
-
Cost of Goods Sold
431,166
-
Gross Profit
284,423
-
Research and Development
56,229
-
Selling and Administrative
106,224
-
RSA Expense
162,453
-
Restructuring and other charges, net
3,985
(3,985)
(a)
-
Operating Profit
117,985
3,985
121,970
Interest Income
12,009
-
Other (income) expense, net
1,055
-
Income before taxes
104,921
3,985
108,906
Taxes on Income
28,733
(998)
29,731
Net Income
76,188
2,987
79,175
Earnings per share - diluted
$0.93
$0.04
$0.97
(a) Related to restructuring program announced in Q3 2009
International Flavors & Fragrances Inc. Reconciliation
of Income (Amounts in thousands) (Unaudited)
The following information and schedules provide reconciliation
information between reported GAAP amounts and certain adjusted amounts.
This information and schedules is 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.
Second Quarter Year-to-Date 2012
Items Impacting Comparability
Reported (GAAP)
Restructuring & Other Costs
Adjusted (Non-GAAP)
Net Sales
1,431,933
-
Cost of Goods Sold
844,991
-
Gross Profit
586,942
-
Research and Development
113,809
-
Selling and Administrative
218,249
-
RSA Expense
332,058
-
Restructuring and other charges, net
1,668
(1,668)
(a)
-
Operating Profit
253,216
1,668
254,884
Interest Income
21,423
-
Other (income) expense, net
(1,088)
-
Income before taxes
232,881
1,668
234,549
Taxes on Income
63,230
(621)
63,851
Net Income
169,651
1,047
170,698
Earnings per share - diluted
$2.06
$0.01
(b)
$2.08
(a) Related to restructuring program announced in Q1 2012
(b) The sum of these items may not tie due to rounding
Second Quarter Year-to-Date 2011
Items Impacting Comparability
Reported (GAAP)
Restructuring & Other Costs
Adjusted (Non-GAAP)
Net Sales
1,429,860
-
Cost of Goods Sold
847,977
-
Gross Profit
581,883
-
Research and Development
113,685
-
Selling and Administrative
212,843
-
RSA Expense
326,528
-
Restructuring and other charges, net
4,013
(4,013)
(a)
-
Operating Profit
251,342
4,013
255,355
Interest Income
23,689
-
Other (income) expense, net
7,111
-
Income before taxes
220,542
4,013
224,555
Taxes on Income
60,311
(993)
61,304
Net Income
160,231
3,020
163,251
Earnings per share - diluted
$1.96
$0.04
$2.00
(a) Related to restructuring program announced in Q3 2009
International Flavors & Fragrances Inc. Investor Relations: Shelley
Young Director, Investor Relations 212-708-7271
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