IFF Beats Q2 Profit Forecasts, Ottens Boosts Flavors North America Growth
11 Aug 2015 --- International Flavors & Fragrances Inc. (IFF), a leading global creator of flavors, fragrances and cosmetic actives for consumer products, reported financial results and strategic progress for the second quarter ended June 30, 2015. For emerging markets, +7% on a currency neutral basis, while for the Middle East and Africa currency neutral sales +22%. Flavors North America grew +5%, including the acquisition of Ottens Flavors, while Home Care increased high-single-digits globally on a currency neutral basis.
“Strategically, we initiated the implementation of Vision 2020, which centers on building greater differentiation, accelerating profitable growth and increasing shareholder value,” said Chairman and CEO Andreas Fibig. “While still in the early days of execution, we are seeing that our identified strategic imperatives are the right ones.”
“In the areas where we are targeting a market leadership position – Africa, the Middle East, and North America – we are seeing accelerated growth. We continue to leverage our long-standing presence in the emerging markets as they grew 7% on a currency neutral basis led by a 22% increase in the Middle East and Africa and strong growth in India, Brazil and Argentina. We also fortified our market share in North America – achieving the number two position in Flavors – as we successfully closed the acquisition of Ottens Flavors.
“Delivery systems across both flavors and fragrances continue to be a driver of results, proof that our focus on differentiating technology is correct. The strong trends in Fabric Care and Beverage continued in the second quarter, led by our encapsulation technology in fragrances and proprietary delivery system in flavors. In addition, we are very pleased that our sales of sweetness and savory modulation portfolio improved strong double-digits in the second quarter – an example that we are providing our customers with innovative solutions that win in the marketplace.
“Our continued commitment to provide our customers with in-depth local consumer understanding, superior innovation, outstanding service, and the highest quality products allowed us to capture the growth potential of faster-growing regional accounts, most noticeably in Flavors in the second quarter. We also broadened our product offerings – expanding into the more rapidly growing cosmetic actives industry with the recent acquisition of Lucas Meyer Cosmetics – offering our customers greater options to support their strategic growth initiatives.
“In line with our focus on strengthening and expanding our portfolio, we diligently pursued value-creation opportunities in partnerships and collaborations. We recently signed a partnership with Duke University focusing on finding effective flavor modulators that are novel to our industry. In addition, we are collaborating with the University of Liverpool to enhance our delivery system capabilities in fragrances.
“Leveraging our strong cash flow generation and commitment to Vision 2020, we increased our dividend by 20% for the third quarter and authorized an additional $250 million share repurchase – bringing our payout ratio to about 55% of our estimated adjusted net income in 2015.
“In the second quarter, we delivered financial results in line with the guidance we provided at our recent Investor Day. Currency neutral sales improved 4% on an organic basis or 5% including the acquisition of Ottens Flavors. Overall top-line performance continues to be driven by new wins – which remain solid – with growth balanced across both business units. Adjusted operating profit, on a currency neutral basis, grew 7% as a result of currency neutral gross margin expansion and lower RSA expenses. This solid operational performance, combined with a lower effective tax rate and a year-over-year decrease in average shares outstanding, drove currency neutral adjusted EPS higher by 10%.
“For the full year 2015, we expect currency nautral sales to grow about 6%, including approximately 2 percentage points related to the acquisitions of Ottens Flavors and Lucas Meyer Cosmetics. We expect this growth, combined with our continued cost control, should lead to approximately 9% adjusted operating profit growth and about 10% adjusted EPS growth, all on a currency nautral basis. Like many U.S. multinational companies, foreign exchange will continue to impact our financial results throughout the balance of the year. Based on where exchange rates are today, we would expect full year sales to be down approximately 1% and adjusted operating profit to rise 4% including the impact of currency.”
For the Flavors Business Unit, currency neutral sales grew 7%, including approximately 3 percentage points related to the acquisition of Ottens Flavors. All categories experienced broad-based growth, with the strongest results in Beverage and Savory.
Greater Asia increased 6% driven by mid-single-digit gains in Savory, Beverage and Dairy. On a country perspective, strong growth was achieved in India, Indonesia and the Philippines, which more than offset a slight decline in China.
EAME improved 6% led by a double-digit gain in Savory and mid-single-digit growth in Beverage. The Middle East and Africa reported the highest growth, improving over 20%, driven by strong new win performance.
North America grew 5% reflecting additional sales related to the acquisition of Otten Flavors and high-double-digit growth in Dairy. As the Company explained at its Investor Day, the core business was soft principally due to underlying trends with select customers.
Latin America increased 14% as all categories reported positive growth. The double-digit trend in Beverage continued for the seventh consecutive quarter. Savory and Dairy also grew double-digits as a result of strong new win performance.
Flavors currency neutral segment profit improved approximately 1% as the benefit of topline growth, productivity and cost control initiatives was reduced by a year-over-year increase in incentive compensation expense and the inclusion of amortization of intangibles related to the acquisition of Ottens Flavors. Segment profit margin on a currency nautral basis decreased 140 basis points to 22.6% from 23.9% in the prior year quarter.
On a reported basis, sales decreased 1%, or $3.0 million, to $372.5 million from $375.5 million in the prior year quarter. Flavors segment profit decreased 7%, or $6.8 million, to $84.0 million.
