IFF Reports 6% Sales Increase

Operating profit increased 13 percent, or $8 million, to $71 million in the third quarter as sales growth, including pricing, and continued cost discipline drove results.

Nov 9 2011 --- International Flavors & Fragrances Inc., a leading global creator of flavors and fragrances for consumer products, reported third quarter 2011 revenue of $714 million, six percent higher than the prior year period. Excluding the impact of foreign currency, revenue in local currency increased one percent. Reported earnings per share (EPS) increased five percent to $1.00 compared to $0.95 for the third quarter 2010. EPS in 2011 included a $0.01 per share benefit associated with the reversal of restructuring liabilities, as compared to a $0.03 per share expense related to restructuring efforts in Europe in the prior year period. Excluding these items from each period, adjusted EPS for the third quarter increased two percent to $1.00 versus $0.98 in the prior year quarter.

"Our category, customer and geographic diversity continued to support our financial results in the third quarter," said Doug Tough, Chairman and Chief Executive Officer. "The Flavors business continued to gain market share led by our innovative health and wellness portfolio and double-digit growth in the emerging markets. In Fragrances, results were pressured by price-driven volume declines in Ingredients, where changes in volume are more price sensitive, and a general weakening of our more discretionary categories such as Fine Fragrance and Beauty Care. Fortunately, our emphasis on improved pricing and cost control, as well as favorable foreign exchange benefits, helped produce positive financial results on a consolidated basis."

Mr. Tough continued, "Given our year-to-date performance, plus a more cautious outlook for the fourth quarter, we now expect local currency sales growth and adjusted EPS growth to approach the low end of our long-term financial targets for the full year 2011. Despite the challenging economic conditions, we continue to believe we can deliver adjusted operating profit growth above our long-term targets driven by our efforts in pricing, the benefit of previous restructuring activities, and cost control initiatives."

Flavor Business Unit

Local currency sales in the third quarter increased eight percent over the prior year period as double-digit growth in the emerging markets continued to drive results. In the developed markets, growth in North America was once again the strongest, led by several health and wellness initiatives. From a category perspective, Savory continued to grow double-digits for the fourth consecutive quarter and Beverage was up high single-digits for the eighth consecutive quarter.

Operating profit increased 13 percent, or $8 million, to $71 million in the third quarter as sales growth, including pricing, and continued cost discipline drove results. Operating profit margin declined 10 bps versus the prior year period to 20.9 percent as pricing actions and cost control virtually covered the impact of higher raw material costs on operating profit margin.

Fragrance Business Unit

Local currency sales in the third quarter declined five percent against a 15 percent increase in the prior year period. In Fine Fragrance & Beauty Care, new business wins and price increases were more than offset by volume declines on existing business. Functional Fragrance results were similar to year-ago levels as new business wins, the realization of price increases and continued success in the Home Care category balanced volume declines. Fragrance Ingredients was most challenged, as price increases to reduce the impact of rising raw materials costs substantially impacted volumes of some lower value-added products.

Operating profit decreased by $9 million to $59 million in the third quarter, including a $1 million benefit associated with the reversal of restructuring liabilities, as compared to a $2 million expense related to restructuring efforts in Europe in the prior year period. Excluding these items from each period, adjusted operating profit declined by $12 million as strong double-digit increases in raw material costs and lower sales more than offset sequential improvements in pricing, the benefits associated with the European restructuring, and disciplined cost control. Adjusted operating profit margin fell 330 bps to 15.7 percent versus the year-ago period.

Third Quarter 2011 Highlights

* Gross profit, as a percentage of sales, was 39.0 percent compared with 42.3 percent in the prior year period as double-digit increases in raw material costs more than offset the benefits of increased pricing.
* Research, selling and administrative (RSA) expenses, as a percentage of sales, decreased 300 bps year-over-year to 21.1 percent reflecting lower incentive compensation accruals and cost control. Within RSA, research and development expense increased slightly driven by investments to support strategic growth initiatives.
* Operating profit increased $8 million to $129 million, including a $1 million benefit associated with a reversal of restructuring liabilities, as compared to a $2 million expense related to restructuring efforts in Europe in the prior year period. Excluding these items from each period, adjusted operating profit grew four percent, or $5 million, to $128 million as pricing actions, lower incentive compensation accruals, foreign exchange benefits, and cost control drove results. Adjusted operating profit margin decreased 40 bps to 17.9 percent versus 18.3 percent in the year-ago period.
* Interest expense declined $2 million year-over-year reflecting lower levels of outstanding debt.
* The effective tax rate was 26.9 percent as compared to 27.4 percent in the prior year period primarily reflecting a U.S. Research and Development credit in the 2011 period.