IFF Reports First Quarter 2009 Results
Gross profit, as a percentage of sales, was 39.7 percent compared with 41.1 percent last year, reflecting lower volumes, unfavorable currency impacts and weak Fine Fragrance sales performance.
01/05/09 International Flavors & Fragrances Inc., a leading global creator of flavors and fragrances for consumer products, announced results for the first quarter 2009. Earnings per share on a reported basis were $.60 in the 2009 first quarter versus $.69 in the prior year quarter. Sales were $560 million in the current year quarter compared to $597 million in the prior year period. The stronger U.S. dollar accounted for $27 million of the decline in sales.
“In light of current global turmoil, I believe that IFF’s first quarter results were good,” said Robert M. Amen, Chairman and Chief Executive Officer. “We faced multiple challenges during the quarter – economic contractions in North America and Europe, higher input costs and currency parity changes. We managed some of these issues well but we have opportunities to improve.”
Mr. Amen continued, “I am pleased with the performance of our Flavors business as it continues to grow and strengthen. Our Fragrances business was confronted with a sharp decline in Fine Fragrance and Beauty Care in Europe, Africa and Middle East (EAME) and North America, as well as margin erosion. The Fragrance team continues to win key projects and is building core capabilities that we expect will lead to future growth. This is reflected in the fact that all of the regions, except EAME, had growth in local currency versus last year.”
Flavors Business Unit
Local currency sales in the 2009 quarter were up 2 percent from a strong prior year period. The growth was driven by higher volumes and wins in North America as well as growth in Greater Asia. Reported sales worldwide were down 3 percent as cost recovery and new product introductions were more than offset by a stronger U.S. dollar. Sales in Latin America were down, reflecting a significantly stronger dollar that reduced reported sales and depressed short-term demand. The Latin America comparison to first quarter 2008 sales needs to be seen in light of last year’s 37 percent growth rate. Europe was the weakest region, reflecting the economic slowdown as well as customer inventory corrections. Operating profit declined by $4 million to $53 million in 2009, principally reflecting unfavorable exchange rate impacts and higher input costs, which were partially offset by price recovery.
Fragrances Business Unit
Fragrance sales were down 5 percent in local currency. This decline reflects both a drop in consumption of Fine Fragrances and a significant inventory correction by our Fine Fragrance customers in EAME and North America. Functional Fragrances sales were equal to first quarter 2008 in local currency. Operating profit decreased by $11 million to $36 million in the current quarter. The decline reflects lower volumes, higher input costs, weak sales mix and unfavorable exchange rate impacts of $5 million that was only partially offset by price increases, lower overhead and operating expenses.
First Quarter 2009 Highlights
* Gross profit, as a percentage of sales, was 39.7 percent compared with 41.1 percent last year, reflecting lower volumes, unfavorable currency impacts and weak Fine Fragrance sales performance.
* Research and Development expense decreased 4 percent to $50 million, reflecting a stronger U.S. dollar and cost control. As a percentage of sales, R&D expense was 9.0 percent in 2009 compared to 8.7 percent last year.
* Selling and Administrative expense decreased $1 million year-over-year. This reflects cost reduction efforts as well as a stronger U.S. dollar that more than offset $1 million of incremental pension expense and $2 million related to product claims and bad debts. The 2008 period included a $2.6 million insurance recovery. As a percentage of sales, costs increased to 16.0 percent versus 15.1 percent in 2008.
* Other income, net was $3.5 million favorable versus the prior year quarter, mainly due to gains on existing currency positions.
* Interest expense increased $2 million year-over-year, including $4 million related to the closeout of a U.S. LIBOR-EURIBOR interest rate swap.
* The effective tax rate was 24.4 percent compared to 25.4 percent in 2008. The favorable change in year-over-year tax rates is mainly attributable to the closure of open tax positions and the mix of earnings across the countries in which we operate. The 2008 period included a $2.1 million favorable adjustment related to tax settlements.
