IFF Sales Up 5% in Q1

02/05/08 International Flavors & Fragrances Inc., a leading global creator of flavors and fragrances for consumer products, has announced sales of $597 million, a 5 percent increase from first quarter 2007. Reported sales benefited from the weaker U.S. dollar, mainly against the Euro. At comparable exchange rates, sales would have increased 1 percent compared to the prior year period.

Earnings per share as reported were $.69 in both the first quarter of 2008 and 2007. The 2008 first quarter results include pre-tax restructuring charges of $6.2 million or $.06 per share related to employee separation costs due to the elimination of approximately 125 positions in support functions. Excluding these charges, earnings per share would have been $.75, a 9 percent increase over the same period last year.

Operating profit for the quarter was 16.0 percent of sales, including the pre-tax restructuring charges of $6.2 million, compared to 16.8 percent in the prior year period.

"We are very pleased with the continued strength of our Flavors business, which has delivered market share growth for seven consecutive quarters," commented Robert M. Amen, Chairman and Chief Executive Officer. "Our Fragrance business results were mixed. Functional Fragrance sales were strong in Asia and Europe, although this performance was offset by weakness in Global Fine Fragrance and North America Functional Fragrance sales.

"Despite the challenging U.S. economic environment, which we anticipate will continue for some time, we remain confident about our growth prospects -- particularly in the emerging markets -- and our ability to deliver on our financial goals."

Flavor sales increased 12 percent over first quarter 2007 due to market share gains from new wins and volume growth of existing business. Growth was especially strong in Latin America and Asia. Excluding the impact of currencies, sales growth for Flavors was up 8 percent.

In comparison to first quarter 2007, Fragrance sales were flat, primarily because strong growth in the Greater Asia and European regions was offset by weak demand for fragrances in North America. Fragrance Ingredient sales were 6 percent lower due to weaker demand in North America and Europe and a planned shift in product mix to enable gross margin improvement.

First Quarter 2008 Overview
• Gross profit, as a percentage of sales, was 41.1 percent compared with 41.8 percent in the prior year quarter. This decrease was mainly the result of the decline in North America sales, which impacted absorption of manufacturing expenses, most notably in fragrance compounds. Product mix, mainly lower sales of fine and beauty care compounds, and some impact of higher material costs also affected margins; the average cost of raw materials increased 4 percent over the prior year quarter.

• Research and Development spending, as a percentage of sales, was 8.7 percent, higher than the 8.2 percent in the first quarter 2007, and equal to the rate of spend for the full year 2007.

• Selling and Administrative expenses, as a percentage of sales, declined to 15.1 percent as compared to 16.1 percent in the first quarter of 2007. The 2008 expenses included the benefit of a $2.6 million insurance recovery related to a 2005 product contamination matter.

• Interest expense totaled $18 million as compared to $8 million in 2007, due to higher borrowings incurred in connection with the 2007 accelerated share repurchase program. Average cost of debt was 5.9 percent for 2008 compared to 4.1 percent in 2007.

• The Company's first quarter effective tax rate was 25.4 percent compared to 28.0 percent in the prior year quarter. The 2008 first quarter benefited from favorable tax rulings with respect to prior periods; excluding the benefit of these favorable rulings, the effective tax rate for the first quarter would have been 28.2 percent.

Average number of diluted shares (in thousands) was 81,253 compared to 90,658 in the prior year quarter.