IFF Reports Second Quarter 2013 Like-for-Like Sales Growth of 8%
07 Aug 2013 --- International Flavors & Fragrances Inc. (IFF), a leading global creator of flavors and fragrances for consumer products, has reported financial results for the second quarter ended June 30, 2013. Reported net sales for the second quarter totaled $757.6 million, an increase of 5% from $721.3 million in the second quarter of 2012.
Excluding the impact of foreign currency, local currency sales increased 6%. Like-for-like sales, which excludes the impact of foreign currency and the exit of low-margin sales activities in Flavors, increased 8%. Reported EPS for the second quarter totaled $1.24 per diluted share compared with $1.08 per diluted share in the prior year second quarter, an increase of 15%. Adjusted EPS, which excludes a $16.1 million gain on the sale of a non-operating asset, as well as a $2.9 million restructuring charge related to the Fragrance Ingredients rationalization, increased 6% to $1.14 per diluted share in the second quarter, up from a reported and adjusted $1.08 per diluted share in the second quarter of 2012.
Doug Tough, Chairman and Chief Executive Officer of IFF said, “IFF achieved strong operating results this quarter, with both business units achieving double-digit growth in segment profit, due to the continued disciplined execution of our strategy. By focusing on expanding our geographic reach, strengthening our innovation platform and maximizing the value of our portfolio, we achieved strong top-line growth and margin expansion. Our profitability metrics, including gross profit margin, adjusted operating profit margin and adjusted net income margin, were all ahead of the prior year figures.”
Mr. Tough continued, “Our operating performance was partially offset by foreign exchange losses on working capital, resulting in adjusted EPS growth of 6%. When combined with our growth in the first quarter of 2013, our adjusted EPS for the first half of the year increased 12% over the prior year comparable figure.”
Mr. Tough continued, “Looking at our top line results, local currency sales growth of 6% reflects double-digit growth in the emerging markets - which grew at twice the rate of the developed markets, as well as a high level of new wins in both businesses, resulting from our strong culture of innovation. On a like-for-like basis, total consolidated sales growth of 8% was a result of 8% growth in Fragrance and 8% growth in Flavors, and demonstrates our ability to provide customers with value-added innovative products. This strong broad-based volume growth, when combined with a stronger mix of business, moderating input costs and ongoing implementation of our cost-containment initiatives, resulted in continued margin progression.”
Mr. Tough concluded, “Looking forward, we expect to be able to deliver continued momentum in the second half of the year, noting that we are entering into a more challenging period on a comparable basis. We are optimistic about our ability to deliver local currency sales, adjusted operating profit and EPS growth for the full year in line with our long term financial targets.”
Second Quarter 2013 Operating Highlights
• Local currency sales in the emerging markets accounted for 49% of total company sales in the second quarter and delivered growth of 10%.
• Gross profit, as a percent of sales, was 44.1% compared with 41.8% in the prior year. The 230 basis point gross margin improvement was due to modest declines in raw material costs, a strong level of innovations leading to new wins, an improved mix of business reflecting both new wins and the exit of low-margin sales activities in Flavors, and ongoing cost reduction efforts in Fragrances.
• Research, selling and administrative (RSA) expenses, as a percent of sales, increased 150 basis points to 25.0% compared with 23.5% in the second quarter of 2012. The RSA increase this quarter reflects higher incentive compensation costs as well as R&D costs associated with our biotechnology program for Fragrances.
• Adjusted operating profit increased 10% or $13.2 million to $145.5 million from $132.3 million. The improvement in the adjusted operating profit was due to strong sales growth combined with gross margin expansion, offset in part by higher incentive compensation accruals. Adjusted operating profit margin increased 90 basis points to 19.2% from 18.3% in the prior year.
• The effective tax rate for the quarter was 27.3% compared with 27.7% in the prior year quarter. Excluding the tax charge related to the $16.1 million gain on the sale of a non-operating asset, net of a tax benefit related to restructuring costs, the adjusted effective tax rate was 26.5%, or 120 basis points below the prior year adjusted effective tax rate of 27.7%. The prior year rate reflects increased provisions related to Spanish withholding taxes, and other provision adjustments for uncertain tax positions. The decrease in the adjusted effective tax rate was primarily driven by the absence of these items as well as the benefit associated with the U.S. tax legislation enacted in the first quarter of 2013.
For the Flavors Business Unit:
• Reported sales increased 4% to $374.0 million, compared with $361.4 million in the second quarter of 2012. Excluding the impact of foreign currency, local currency sales increased 5%.
• On a like-for-like (LFL) basis, which excludes the impact of foreign currency and the exit of low-margin sales activities, sales increased 8% in the quarter, driven by strong new wins.
• Flavors experienced broad-based growth across both the emerging and developed markets. The emerging markets had double-digit LFL growth. On a regional basis, North America and Latin America delivered LFL double-digit growth of 11%, while Greater Asia and EAME delivered LFL sales growth of 8% and 5%, respectively.
• On an end-use category basis, LFL sales growth was led by double-digit growth in Beverage and high single-digit growth in Savory due to a strong level of new wins based on our technologies.
• Gross margins in the Flavors business increased over the prior year quarter primarily due to modest declines in raw material costs, a strong level of new wins, and an improved mix of business reflecting both new wins and the exit of low-margin sales activities. Starting with the third quarter of 2013, the Company will have substantially completed the exit of low-margin sales activities.
• Flavors segment profit increased 12% to $89.9 million in the second quarter of 2013, up from $80.6 million in the prior year quarter. Segment profit margin increased 170 basis points to 24.0% from 22.3%, as a result of volume growth from new wins combined with the gross margin improvement.
