IFF Profits Drop in Q4, Remains Confident on Outlook
11 Feb 2016 --- International Flavors And Fragrances Inc (IFF) has released earnings for fourth quarter that fell compared to the same period last year. The company said its earnings came in at $84.48 million, or $1.05 per share. This was down from $87.31 million, or $1.07 per share, in last year's fourth quarter.
“2015 was a successful year for IFF as we embarked on a new chapter in our 126 year journey of discovery and pioneering firsts,” said Chairman and CEO Andreas Fibig. “I am pleased with the progress we’ve made in terms of our financial performance and strategic execution. From a strategic perspective, since the initiation of our Vision 2020 strategy we believe we have taken the right steps in our ambition to build greater differentiation, accelerate profitable growth and increase shareholder value. In the Middle East & Africa, one of our targeted areas of focus in the emerging markets, we saw a 14% increase for 2015 with strong growth across flavors and fragrances on a currency neutral basis. In Latin America, Flavors grew 16% on a currency neutral basis, driven in part by key customers and our proprietary delivery system. We also fortified our market share in North America – achieving the number two position in Flavors – with the successful acquisition of Ottens Flavors.”
“Delivery systems across both flavors and fragrances continued to drive solid results. In Fragrances, encapsulation-related sales grew mid-teens, led by Fabric Care and Home Care, while in Flavors, sweetness & savory modulation portfolio sales grew strong double-digits, led by Savory, Dairy and Beverage. We also commercialized four captive fragrance ingredients in 2015 – doubling IFF’s historical annual output. These accomplishments are a testament to our continued commitment to advance our innovation and R&D capabilities.
“Financially, we delivered solid growth across all our key financial metrics with sales improving 5%, adjusted operating profit growing 8%, and adjusted EPS increasing 11%, all on a currency neutral basis. In the fourth quarter, we experienced softness in our year-over-year organic top-line growth, which included an additional week of sales in 2014. In addition, our performance was also impacted by increased economic pressures in key emerging markets, a more pronounced portfolio rationalization by one of our largest Fragrance Ingredients customers, and efforts by some of our larger customers to manage their inventories. Despite these fourth quarter challenges, we delivered positive currency neutral sales growth, including M&A, and solid improvements in profitability and EPS.
“As we look ahead to 2016, we are preparing ourselves for even more challenging conditions given a higher level of economic uncertainty and the more cautious volume outlook of consumer packaged goods companies. We remain confident in our ability to navigate through these uncertain times as we strive to deliver between 3.5% and 4.5% sales growth, between 5% and 7% adjusted operating profit growth and between 6.5% and 8.5% adjusted EPS growth, all on a currency neutral basis. Inclusive in our guidance is approximately 1.5% contribution related to our two acquisitions.”
For the Flavors Business Unit, currency neutral sales grew 6%, including approximately 3 percentage points related to the acquisition of Ottens Flavors. All categories and regions delivered broad-based growth, with the strongest results in Beverage and Latin America.
EAME improved 4% as all categories reported growth, led by a mid-single-digit increase in Savory and mid-single-digit growth in Beverage. Within the EAME region, the Middle East and Africa grew fastest, improving 14%, driven by strong new wins. North America improved 11%, reflecting the contribution of additional sales related to the acquisition of Ottens Flavors, double-digit growth in Dairy and mid-single-digit growth in Sweet.
Latin America increased 16% as all categories reported growth; Beverage, Savory and Dairy all reported double-digit growth. Greater Asia grew 2% led by new win performance in Savory, Dairy and Beverage.
Flavors currency neutral segment profit improved approximately 4% as sales growth and productivity initiatives more than offset higher raw material costs. Segment profit margin on a currency neutral basis decreased 60 basis points to 22.1% in the prior year quarter.
On a reported basis, sales decreased 1%, or $14.1 million, to $1.44 billion. Flavors segment profit decreased 4% to $318.5 million from $331.3 million.
During the fourth quarter, the Company established a series of initiatives that are expected to streamline the management structure, simplify decision-making and accountability, better leverage and align our capabilities across the organization and improve the efficiency of our global manufacturing and operations network. As a result, the Company recorded a pre-tax charge of approximately $8 million to cover severance and related costs associated with expected terminations, a portion of which are subject to consultation processes. The Company expects to realize pre-tax savings of $7-9 million once fully implemented in the second half of 2017, half of which is expected to be realized in 2016.
Separately, the Company recorded a charge of approximately $7 million associated with the acceleration from 2016 to 2015 of contingent consideration payments from the Aromor acquisition that were triggered by certain of the affected positions noted above.
