IFF Reports 17% Increase in Sales
Operating profit increased 18 percent, or $10 million, to $65 million in the second quarter. This increase was driven by accelerated sales growth, improving input costs and our continued margin improvement initiatives.
Aug 6 2010 --- International Flavors & Fragrances Inc., a leading global creator of flavors and fragrances for consumer products, reported second quarter 2010 revenue of $666 million, 17 percent higher than the prior year quarter. Revenue in local currency increased 17 percent as foreign currency had a limited impact on results. Reported earnings per share (EPS) were $0.83, compared to $0.60 for the second quarter 2009. EPS in 2010 included a $0.02 per share expense related to ongoing restructuring efforts in Europe, while second quarter 2009 included a $0.05 per share expense relating to restructuring and employee separation costs. Excluding these items, adjusted EPS for the second quarter increased 31 percent to $0.85 versus $0.65 in the prior year quarter.
“It is clear that the strong momentum we experienced in the beginning of the year continued into the second quarter,” said Doug Tough, Chairman and Chief Executive Officer. “We are very pleased to report strong year-over-year improvements across all our financial metrics. While we have benefited from some elements of restocking and favorable prior year comparisons, the team was successful in winning key new business that will support our efforts to drive market share improvements.”
Mr. Tough added, “As we enter the second half of 2010, it is important to note that the benefits of restocking have begun to subside. When combined with stronger prior year comparisons, we expect local currency sales in the second half to return to more normalized levels, with relative strength in the third quarter versus the fourth. In addition, we continue to be mindful that foreign exchange movements may impact our results. As a result, in order for us to be successful, we must continue to execute our plans, serve customers well, anticipate challenges and win in the marketplace every day.”
Flavor Business Unit
Local currency sales in the second quarter increased 11 percent over the comparable 2009 period. The strong trends in Europe, Africa, Middle East (EAME) and Greater Asia continued, as strong demand and new business wins once again led to double-digit growth. In North America, sales increased seven percent as double-digit performances in both Confectionery and Beverage drove results. Performance in Latin America was solid as the company more than offset the loss of non-strategic business that began in the third quarter of 2009.
Operating profit increased 18 percent, or $10 million, to $65 million in the second quarter. This increase was driven by accelerated sales growth, improving input costs and our continued margin improvement initiatives. As a result, operating profit margin improved 100 bps to 21.2 percent versus 20.2 percent in the prior year period.
Fragrance Business Unit
Local currency sales in the second quarter increased 23 percent over the prior-year period as all regions and nearly all categories reported double-digit growth. Trends in the Fine Fragrance and Beauty Care category continued to be robust, growing very strong double-digits, as new business wins, higher volumes, restocking and favorable comparisons benefited results. In Beauty Care, both Hair Care and Toiletries continued to perform very well, increasing at a strong double-digit rate. Functional Fragrance also performed well, driven by strong trends in Fabric Care and double-digit growth in Home Care. Fragrance Ingredients local currency sales increased 24 percent as favorable comparison versus the year-ago period, some elements of restocking and improvements in underlying demand aided results.
Operating profit increased by $28 million to $65 million in the second quarter, including a $2 million charge related to ongoing restructuring efforts in Europe as compared to $5 million related to restructuring costs in the prior year period. Excluding these items, adjusted operating profit grew nearly 60 percent, or $25 million, to $67 million. As a result, adjusted operating profit margin for the quarter increased 430 bps to 18.6 percent, driven by higher volumes, reduced input costs and benefits from previous cost reduction initiatives.
Second Quarter 2010 Highlights
* Gross profit, as a percentage of sales, was 42.8 percent compared with 40.1 percent in the prior year period. This improvement was mainly attributable to accelerated sales, moderating input costs and fixed cost leverage.
* Research, Selling and Administrative (RSA) expenses as a percentage of sales increased 160 bps to 26.3 percent. The increase of $35 million is mainly attributable to additional incentive compensation accruals of $18 million plus litigation related costs, investments and spending to support the higher level of business activity, reduction of R&D credits, unfavorable foreign currency movements and lower prior period base spending. Within RSA, R&D expense as a percentage of sales increased 60 bps to 8.4 percent.
* Operating profit increased $24 million to $108 million in the second quarter, including a $2 million charge related to ongoing restructuring efforts in Europe as compared to $5 million related to restructuring and employee separation costs in the prior year period. Excluding these items, adjusted operating profit grew 24 percent, or $21 million, to $110 million. As a result, adjusted operating profit margin increased 90 bps to 16.5 percent versus the year ago period.
* Interest expense decreased $2 million year-over-year reflecting lower levels of outstanding debt and lower borrowing costs.
* The effective tax rate in the quarter was 28.3 percent compared to 29.2 percent in the comparable period last year. The year-over-year decrease reflects the mix of earnings across the countries in which the company operates and lower repatriation costs.
* Cash flow from operations improved by $40 million to $128 million for six months of 2010 compared to the same period in 2009. This improvement was led by our strong profit performance as well as our continued focus to drive working capital improvement.
