IFF Net Profits Up in Q4

The 2008 fourth quarter reported EPS includes a $.22 benefit related to prior years’ tax settlements and a $.10 restructuring charge pertaining to a performance improvement plan initiated during the quarter.

06/02/09 International Flavors & Fragrances Inc., a leading global creator of flavors and fragrances for the consumer staples and products industry, announced results for the fourth quarter and full year 2008. Earnings per share (EPS) on a reported basis were $.62 in the 2008 fourth quarter versus $.58 in the prior year quarter. For the full year, reported earnings per share were $2.87, compared to $2.82 in 2007.

Excluding items affecting comparability, fourth quarter adjusted EPS (“Adjusted EPS”) were $.50 in 2008 versus $0.53 in the fourth quarter 2007. The 2008 fourth quarter reported EPS includes a $.22 benefit related to prior years’ tax settlements and a $.10 restructuring charge pertaining to a performance improvement plan initiated during the quarter. The 2007 fourth quarter reported EPS included a $.05 gain on an asset sale.

On a comparable basis, excluding items from both periods, 2008 full year Adjusted EPS of $2.76 represents a 4% improvement over the prior year Adjusted EPS of $2.66. Full year 2008 Adjusted EPS excludes restructuring charges, employee separation costs, implementation costs related to our global shared service center, an insurance recovery and benefits from prior years’ tax settlements. Adjusted EPS for the year 2007 excludes a pension curtailment loss, gains on asset sales and benefits from prior years’ tax settlements. The reconciliation of adjusted items including Adjusted EPS for the fourth quarter and full year is set forth in the table included in this release.

“I am generally pleased with our 2008 financial performance, especially in light of the challenging economic and market conditions we faced this year," said Robert M. Amen , Chairman and Chief Executive Officer. “Our Flavors business continues to outperform our competition and is well-positioned for future growth. Our Fragrances business improved its performance in the fourth quarter but ended the year slightly below 2007 results. Excellent progress was made in some areas of the Fragrances business, especially in Greater Asia and Fragrance Ingredients, but we have additional opportunities to improve.”

Mr. Amen continued, “Margin pressure increased through most of 2008 as a result of higher input costs and weaker sales mix. In the fourth quarter, we were able to largely mitigate these factors and reduce the year-over-year gap in operating margins through internal improvements and cost recovery initiatives. Importantly, we made good progress against many of our strategic initiatives. I remain cautiously optimistic about 2009.”

In the fourth quarter of 2008 sales in local currency increased 2% versus the comparable period in 2007, whereas reported sales of $539 million were down 3% due to the strengthening U.S. dollar. Net income in 2008 was $49 million compared to $47 million in 2007. The 2008 results include $17 million of tax benefits related to prior years’ tax settlements and an $8 million after-tax restructuring charge related to the performance improvement plan. The 2007 results include a $4 million after-tax gain on the sale of assets. Excluding these items, adjusted net income decreased $3 million to $40 million in 2008. The decline is mainly attributable to interest expense ($3 million) and unfavorable exchange rate impacts, partially offset by margin improvement efforts.

Local currency sales were up 3% in the 2008 quarter, driven by growth in Greater Asia and North America. Sales in Latin America were flat, reflecting a significant weakening of these currencies as well as lower volumes. Reported sales worldwide declined 1%, reflecting the stronger U.S. dollar. Operating profit declined by $9 million to $32 million in 2008. The decline reflects unfavorable exchange rate impacts, rising input costs and allocated expenses (including incentive compensation expense), offset in part by higher volumes and pricing. Additionally, the results include $3 million of restructuring costs associated with the performance improvement plan.

Fragrances Business Unit

Fragrance sales in local currency were flat versus the comparable period last year. Lower Fine and Beauty Care sales in Europe were offset by strong growth in Greater Asia and 2% growth in the Fragrance Ingredients business. Reported sales were down 4% as a result of a stronger U.S. dollar. Operating profit was $41 million, an increase of $4 million versus the comparable period last year. Lower incentive compensation expense ($10 million), and pricing and margin improvement efforts more than offset the effect of unfavorable exchange rates, higher input costs and a less favorable sales mix. The 2008 period also included $2 million of restructuring costs associated with the performance improvement plan.

* Gross profit, as a percentage of sales, was 39.8% compared with 40.7% in the prior year quarter, a marked improvement from the year-over-year comparison in the second and third quarters.

* Research and Development expense decreased approximately 3% to $52 million, largely due to a stronger U.S. dollar. As a percentage of sales, it remained flat versus 2007 at 9.7%.

* Selling and Administrative expense, as a percentage of sales, decreased slightly to 17.5% versus 17.8% in 2007. The improvement reflects lower incentive compensation expense ($6 million) and cost containment efforts offset by planned increases to support growth.
 
* We initiated a performance improvement plan that will affect approximately 90 positions globally that resulted in a $12 million restructuring charge for severance.
 
* Other income, net in 2008, decreased $5 million from the prior year quarter, mainly due to a gain on asset sales in 2007.

* Interest expense totaled $19 million, increasing $3 million compared to the 2007 quarter, primarily due to the cost of a U.S. LIBOR-EURIBOR interest rate swap.
 
* The effective tax rate was a 26.4% benefit compared to a 26.2% expense in 2007. Excluding $20 million of benefits in 2008, mainly related to tax settlements, the current quarter effective tax rate would have been 25.3% compared to 25.7% in 2007 excluding the gain on asset sales ($6 million pre-tax, $4 million after-tax).

Reported sales totaled $2,389 million for the full year 2008, up 5% from 2007; Flavor and Fragrance sales increased 9% and 2%, respectively. 2008 sales benefited from the weaker U.S. dollar for most of the year. At comparable exchange rates, sales would have increased 2% over the prior year. Net Income was $230 million versus $247 million in 2007. The change is mainly attributable to $32 million of higher interest expense in 2008, partially offset by higher volume and favorable currency impacts.

Flavors delivered reported sales growth in all regions—most notably in Latin America and Greater Asia. We had good results across most categories, with beverages and confectionary the strongest. For the year, sales in local currency increased 6% driven by new wins, strong volume gains in the emerging markets and price increases. Reported sales increased 9% to $1.1 billion. Operating profit increased $11 million to $198 million despite higher input costs, investments in strategic initiatives and restructuring charges.