IFF Sees Q3 Revenue Drop 8%

Operating profit decreased by $9 million to $46 million in the current quarter. As a result, operating profit margin declined to 13.7 percent versus the prior year period of 16.2 percent.

5 Nov 2009 --- International Flavors & Fragrances Inc., a leading global creator of flavors and fragrances for consumer products, reported third quarter 2009 revenue of $613 million, one percent lower than the prior year quarter. Excluding the impact of foreign currency, revenue in local currency increased two percent. Reported net income for the quarter was $53 million, or $0.66 per diluted share, compared to net income of $58 million, or $0.73 per diluted share for the third quarter 2008. Net income in 2009 included an expense of $0.16 per share related to the rationalization of two European facilities and the change in the Chief Executive Officer position, while third quarter 2008 included a $0.02 per share negative impact from implementation costs associated with our global shared service project. Excluding these non-recurring items, adjusted EPS for the third quarter 2009 were $0.82 versus $0.74 in the prior year quarter.

“We are very pleased with our performance for the quarter,” said Kevin Berryman, Executive Vice President and Chief Financial Officer. “Both our Flavor and Fragrance teams did an excellent job of managing through a very challenging operating environment. Our performance in the third quarter demonstrates our ability to drive organizational efficiency while continuing to support key growth initiatives in each of our businesses. The combination of our strategic initiatives, talented workforce and geographic portfolio position us well to capture growth opportunities and create long-term value for our shareholders.”

Local currency sales in the third quarter increased two percent over the comparable 2008 quarter, as all regions reported positive results. Overall growth was driven by new wins in North America, particularly in Savory, combined with stronger volumes and new wins in Confectionary and Dairy in the EAME region. Underlying demand in the emerging markets remained strong; however the loss of non-strategic business in Latin America and customer specific volume weakness in Greater Asia impacted results.

Operating profit increased by $3 million to $55 million, reflecting higher pricing, margin and cost recovery efforts combined with lower overhead expenses that more than offset the negative effects of higher input costs, weaker mix and unfavorable foreign exchange. As a result, operating profit margin improved to 20.0 percent versus the prior year period of 18.5 percent.

Fragrance sales grew three percent in local currency versus the third quarter 2008. Growth was achieved in all categories, with the exception of Fine Fragrance, as low double-digit gains in the Beauty Care and Functional Fragrance categories drove growth. Fine Fragrance sales in the developed markets of North America and Europe, although still declining, showed significant improvements compared to first half 2009 results. This change reflects strong new win performance, a significant reduction in customer de-stocking along with some underlying improvement in consumer demand. Sales to emerging markets were strong, particularly Greater Asia, as new wins and increased demand from both global and regional customers drove results. Fragrance Ingredient sales improved significantly compared to first half 2009, as local currency sales increased three percent, largely driven by a reduction in customer de-stocking activity and cost driven price increases.

Operating profit decreased by $9 million to $46 million in the current quarter. As a result, operating profit margin declined to 13.7 percent versus the prior year period of 16.2 percent. The reduction in operating profit was due to the recording of an $11 million restructuring charge related to our European facility rationalization plan. Excluding this charge, operating profit increased by $2 million to $57 million and operating profit margin rose 60 basis points to 16.8 percent as price increases and cost reduction efforts more than offset the effects of unfavorable mix, higher input costs and unfavorable foreign exchange.

* Gross profit, as a percentage of sales, was 40.6 percent compared with 40.0 percent last year, mainly attributable to higher pricing, moderating input cost increases versus first half 2009 and cost recovery and margin improvement initiatives.
* Research, Selling and Administrative (RSA) expenses increased $6 million year-over-year reflecting higher broad-based incentive compensation expense and one-time costs associated with the change in the Chief Executive Officer position. Excluding these incremental costs, RSA expense actually declined year over year driven by continued focus to control fixed cost and the effects of a stronger U.S. currency. Within RSA, R&D expense as a percentage of sales increased to 8.5 percent in 2009 compared to 8.4 percent last year.
* Interest expense decreased $5 million year-over-year principally due to the elimination of cross-currency interest rate swaps and lower borrowing costs.
* The effective tax rate was 27.9 percent as compared to a rate of 27.5 percent in the prior year quarter. Excluding the tax benefits related to the European facility rationalization and the change in the Chief Executive Officer position, the effective tax rate decreased approximately 110 bps to 26.8%.
* Cash flow from operations improved by $64 million to $200 million for the first nine months of 2009 compared to $136 million during the 2008 period. The improvement in operating cash flows was led by a reduction in inventories combined with better operating discipline over receivables and payables.