IFF Reports Strong Rise in Net Sales in Q3, Boosted by Emerging Markets
05 Nov 2014 --- International Flavors & Fragrances Inc. (IFF) has reported that net sales totaled $773.8 million, an increase of 4% from $742.3 million in the third quarter of 2013. Excluding the impact of foreign currency, local currency sales grew by 4% reflecting continued growth in the emerging markets.
Excluding restructuring and other charges and operational improvement initiative costs, adjusted operating profit increased 7% to $153.5 million from $144.1 million in the prior year quarter, while adjusted earnings per diluted share increased 8% to $1.32 from $1.22 in the prior year quarter. For the third quarter, restructuring and other charges and operational improvement initiative costs totaled $0.9 million versus $2.6 million for the same period in 2013.
On a U.S. GAAP basis, operating profit rose 8% to $152.6 million from $141.5 million for the third quarter of 2013. GAAP earnings per diluted share (EPS) rose 9% to $1.31 versus $1.20 for the same period in 2013.
“We are pleased we have achieved 4% local currency sales growth again this quarter, owing to the strength and diversity of our portfolio, the continued execution of our three pillar growth strategy and the recent acquisition of Aromor,” said Andreas Fibig, Chief Executive Officer of IFF. “The emerging markets continued to outperform the developed markets and fueled our sales growth in both business units. We saw strong growth in many countries in Latin America, Greater Asia and the Middle East and Africa. In addition, the integration of Aromor is progressing well and is contributing to our top-line growth as expected.”
Local currency sales in the emerging markets accounted for 50% of total Company sales in the third quarter and delivered growth of 6%. The developed markets experienced a sales decline of 1% this quarter. Adjusted gross profit, as a percent of sales, was 44.0% compared with 44.2% in the prior year quarter. This slight decrease reflects cost savings and productivity initiatives that were more than offset by weaker operational performance and mix. Research, selling and administrative (RSA) expenses, as a percent of sales, was 24.2 percent in the third quarter, or a reduction of 60 basis points from 24.8 percent of sales in the third quarter of 2013. The reduction was primarily driven by lower incentive compensation expense in the current year’s results.
Excluding items impacting comparability, adjusted operating profit increased 7%, or $9.4 million, to $153.5 million from $144.1 million in the third quarter of 2013. The improvement reflects lower incentive compensation expense and continued cost management. The results of Aromor were not significant to the consolidated financial results of the Company for the third quarter of 2014.
Excluding items impacting comparability, the adjusted effective tax rate was 24.5% compared with 26.2% in the prior year quarter. The 170 basis point tax rate reduction reflects higher earnings from lower tax jurisdictions, favorable provision to return adjustments and lower loss provisions, partially offset by higher repatriation costs and the absence of the R&D tax credit in the current quarter.
The year-over-year improvement in adjusted EPS reflects higher operating income, lower interest expense and a lower tax rate.
Cash flow from operations for the nine months ended September 30, 2014 was $317.5 million, or 13.6% of sales, compared to $257.3 million, or 11.6% of sales in the prior year period. Cash flow from operations for the first nine months of 2014 benefited from higher net income, lower year-over-year pension contributions, and lower tax payments, partially offset by higher incentive compensation payments in 2014.
For the Flavors Business Unit, reported net sales for the quarter totaled $358.7 million in the third quarter, an increase of 3% from net sales of $349.4 million in the third quarter of 2013. Excluding the impact of foreign currency, Flavors local currency sales growth was 2% this quarter, primarily due to 6% growth in the emerging markets.
On a regional basis, Latin America again delivered double-digit local currency sales growth owing to a continued high level of new wins in Beverage using our proprietary technology systems. EAME and Greater Asia delivered low single-digit local currency sales growth. North America, although improved from the first half of the year, continued to face a challenging environment.
Flavors segment profit totaled $79.7 million in the third quarter, compared with $81.1 million in the prior year quarter. Flavors segment profit margin declined 100 basis points to 22.2% from 23.2% in the prior year quarter. The decline in segment profit and profit margin was driven primarily by weaker operational performance, including less favorable absorption and new plant costs.
“Our overall performance was in line with our expectations, and puts us on track to deliver our full year estimate of 4% to 6% local currency sales growth,” said Mr. Fibig. “We also continue to believe we will deliver double-digit growth in adjusted operating profit and adjusted earnings per share for the full year at levels that compare favorably to our long-term targets.”
