IFF Reports 1% Growth in Flavor Revenues in Q4

International Flavors & Fragrances Inc. (IFF), a leading global creator of flavors and fragrances for consumer products, has reported financial results for the fourth quarter and full year ended December 31, 2012.

8 Feb 2013 --- Reported revenue increased $37 million or 6% to $681 million from $644 million in the prior year quarter. Excluding the impact of foreign currency (by translating current and prior year sales at the same exchange rates), local currency sales increased 8% reflecting a high level of new wins and positive volume on existing business. The company’s expanding footprint in emerging markets accounted for 49% of fourth quarter sales. On a like-for-like (LFL) basis, which excludes the exit of Flavors low-margin sales activities, local currency sales increased 10%. Net income for the quarter totaled $68.1 million, or $0.83 per share, compared with net income of $24.4 million or $0.30 per share in the prior year quarter. Net income in the fourth quarter of 2011 included an aggregate charge of $36.8 million, or $0.44 per share, related to a patent litigation settlement and restructuring and other charges.

Excluding the patent litigation settlement and restructuring charges from the prior year’s results, adjusted net income increased 11% to $68.1 million from $61.1 million in the prior year quarter, and adjusted earnings per share (EPS) increased 12% to $0.83 per share from $0.74 per share in the prior year quarter.

Reported revenue for the full year increased 1% to $2.8 billion. Local currency sales increased 4% for the full year, reflecting accelerated momentum throughout the year. On a like-for-like basis, sales increased 5%. The emerging markets accounted for 47% of full year sales.

Net income for the full year totaled $254.1 million, or $3.09 per share, compared with net income of $266.9 million or $3.26 per share in the prior year. Net income for the full year includes special charges of $73.4 million, or $0.89 per share, almost all of which is related to the previously-announced Spanish tax settlement. Net income for the prior year included an aggregate charge of $39.3 million, or $0.47 per share, related to a patent litigation settlement and restructuring and other charges.

Excluding these charges from operating results, adjusted net income increased 7% to $327.5 million from $306.2 million and full year adjusted EPS increased 6% to $3.98 from $3.74.

Cash flows from operations for the full year were $333.1 million, or 11.8% of sales, compared with $189.2 million, or 6.8% of sales in the prior year. Cash flow from operations for 2012 includes a $105.5 million cash outflow arising from the Spanish tax settlement, and for 2011 includes a $40 million payment for a patent litigation settlement. Excluding these items, the Company’s cash flow from operations nearly doubled in 2012.

Doug Tough, Chairman and CEO, said, “We had a strong finish to the year, driven by our diverse product portfolio, expanding geographic footprint and commitment to providing customers with innovative and superior products that are desired and enjoyed by consumers all around the world. This diversification allowed us to achieve strong broad-based growth in the fourth quarter, led by double-digit growth in the emerging markets. Both business units contributed to our gross margin performance, reflecting strong new wins from our continued focus on innovation, ongoing manufacturing leverage, and the impact of exiting lower margin sales activities. Our strong top-line performance enabled us to achieve local currency sales, operating profit and EPS growth in line with our long-term targets.”

“For the full year we delivered local currency sales growth of 4%, marking the third consecutive year of top-line growth in line with our long-term growth targets. We made targeted investments to expand our footprint in the growing markets of Greater Asia, which included opening a new manufacturing facility in Singapore and a creative center in India, continuing construction on our facility in China, and initiating investments behind our recently-announced capacity expansion project in Turkey. Based on our consumer insights and market knowledge, our research programs are aligned under our key R&D platforms, which are designed to meet the consumer needs of today while anticipating the consumer preferences of tomorrow. We announced earlier this week that we are have made further progress with our biotechnology partner, Evolva, on creating an alternative route for vanillin, which we believe will provide us with a sustainable source for this key flavoring ingredient and give us a strong competitive advantage.”

“We are very well positioned in the market, and enter 2013 with a strong R&D pipeline and solid growth momentum. We have confidence in our strengths and will continue to focus on excellence in execution of our strategies.”

Reported revenue for the Flavors Business Unit increased 1% to $326 million in the fourth quarter from $323 million in the prior year quarter. Local currency sales increased 3% in the fourth quarter fueled by stronger growth in the emerging markets of Southeast Asia and Latin America combined with steady growth in the developed markets of North America and Western Europe. On a like-for-like basis, local currency sales increased 7% over the prior year quarter, led by 15% LFL growth in North America. From an end-use category perspective, local currency sales growth was fueled by double-digit growth in Beverages, particularly in North America, followed by solid growth in Savory and Dairy, primarily in Greater Asia. Flavors gross margins increased over the prior year quarter primarily due to favorable category mix, the impact of exiting low-margin sales activities, and the continued benefits of previous pricing to help offset the continued high level of input costs. Segment profit totaled $62 million in the fourth quarter of 2012, compared with $63 million in the fourth quarter of 2011. Overall sales growth and expanded gross margins due to favorable category mix and pricing realization were more than offset by higher RSA expenses, including increased incentive compensation expense. Segment profit margin decreased 60 basis points to 19.0% from 19.6%.