IFF Reports Third Quarter 2012 Local Currency Sales Growth of 5%

Doug Tough: “The diverse and stable nature of our business portfolio – combined with our consumer insights and customer intimacy – has enabled us to deliver strong results even in a challenged environment."

7 Nov 2012 --- International Flavors & Fragrances Inc., a leading global creator of flavors and fragrances for consumer products, reported financial results for the third quarter ended September 30, 2012.

Third Quarter 2012 Results

- Reported revenue for the quarter totaled $709.0 million, a decrease of 1% from $713.8 million in the third quarter of 2011. Excluding the impact of foreign currency, local currency sales increased 5%.

- On a like-for-like basis, which excludes the impact of proactively managing the exit of low-margin Flavors sales activities, local currency sales increased 7%.

- Reported net income totaled $16.4 million, or $0.20 per diluted share, for the third quarter. Reported net income includes $72.4 million of tax expense related to the previously announced Spanish tax settlement.

- Excluding the impact of the $72.4 million charge in the third quarter related to the Spanish tax settlement and a $0.6 million reversal of a restructuring charge in the prior year third quarter, adjusted net income increased 9% to $88.7 million versus adjusted net income of $81.8 million in the prior year period.

- Adjusted EPS grew 8% to $1.08 per share from $1.00 in the third quarter of 2011.

Management Commentary

“Continuing the trends we saw in the second quarter, both our Flavors and Fragrance Compounds businesses delivered solid top-line growth and margin recovery this quarter, reflecting the strength, stability and diversity of our business, even with ongoing economic uncertainty in many parts of the world,” said Doug Tough, Chairman and CEO of IFF. “By focusing on the execution of our strategic priorities we achieved local currency growth of 7% on a like-for-like basis, which was the highest growth we have achieved since the first quarter of 2011.”

“We saw strong momentum in every region and end-use product category, with the exception of Fragrance Ingredients. Fragrance Compounds achieved 9% local currency growth, which was the result of 10% growth in Fine and Beauty Care and 8% growth in Functional Fragrance. Flavors delivered 9% growth on a like-for-like basis, supported by double-digit growth in Beverages and Dairy, and solid growth in Savory and Sweet. These strong growth trends, as well as an improved mix of business and ongoing manufacturing efficiencies, resulted in adjusted earnings growth of 8%.”

Mr. Tough continued, “The diverse and stable nature of our business portfolio – combined with our consumer insights and customer intimacy – has enabled us to deliver strong results even in a challenged environment. Our momentum is fueled by the strategic investments we have made in emerging markets over many years, and our ability to provide customers with products that meet and surpass consumer expectations and lead to market share growth. We are committed to driving the business for the long-term and executing on our growth plans.”

Mr. Tough added, “IFF’s operations were impacted by Hurricane Sandy, resulting in short-term disruptions in power, manufacturing and information technology systems. Most of these disruptions have been resolved, due to the rapid response of our employees in implementing our disaster recovery plan. As a result, orders are being processed and shipped from all of our sites, and all our critical business systems are operational. We are currently assessing the costs and other impacts resulting from the hurricane, and we do not expect them to have a material financial impact on our fourth quarter results. Excluding these costs and other potential financial impacts, we expect our adjusted EPS to be in-line with consensus for the fourth quarter.”

Third Quarter 2012 Operating Highlights

- Local currency sales increased 5%, supported by 10% growth in the emerging markets.

- Gross profit, as a percentage of sales, was 42.5%, compared with 39.0% in the third quarter of 2011. The 350 basis point improvement is due to an improved mix of business, the benefits associated with exiting lower margin sales activities, pricing, moderating raw material cost increases, and ongoing manufacturing efficiencies.

- Research, selling and administrative (RSA) expenses, as a percentage of sales, increased 250 basis points to 23.6% compared with 21.1% in the third quarter of 2011, primarily as a result of higher incentive compensation accruals and pension expenses.

- Operating profit increased $5.6 million or 4% to $134.2 million, from $128.6 million in the third quarter of 2011. The prior year number includes a $0.6 million benefit associated with the reversal of restructuring liabilities. Excluding this item from the prior year period, adjusted operating profit increased $6.2 million, or 5%, to $134.2 million, due to new wins, pricing realization, volume and mix improvements, and manufacturing efficiencies, which more than offset higher raw material costs and incentive compensation accruals.

- Interest expense declined $0.4 million in the third quarter, reflecting lower levels of outstanding debt, mainly due to long-term debt repayments in the second half of 2011.

- Other expense, net, decreased by $3.4 million in the third quarter of 2012 compared with the third quarter of 2011, due to gains associated with the Company’s deferred compensation plan assets.

- The effective tax rate for the quarter of 86.6% includes a $72.4 million tax charge arising from the Spanish tax settlement. Excluding the impact of the Spanish tax settlement in the current quarter and the prior year restructuring benefit, the effective tax rate increased 30 basis points to 27.2% in the third quarter of 2012 from 26.9% in the prior year quarter. The marginal increase primarily reflects the absence of a U.S. R&D tax credit in the current quarter, largely offset by reduced costs of repatriation.

- Cash flows from operations for the first nine months of 2012 were $142.9 million, or 6.7% of sales, compared with $116.7 million for the first nine months of 2011, or 5.4% of sales. Cash flow from operations for 2012 includes a $105.5 million cash outflow arising from the Spanish tax settlement, and a $248.4 million cash inflow from ongoing operations. The increased cash flow in 2012 reflects the impact of lower year-over-year incentive compensation and income tax payments in the first nine months of 2012 compared with the first nine months of 2011, as well as improved earnings.