Sluggish Growth and Higher Costs Dent Profits at IFF

09 Nov 2016 --- International Flavor and Fragrances (IFF) has reported that sales nudged up in Q3 but income fell as it was hit by a raft of higher costs and sluggish volume growth. Increased costs include manufacturing and administration costs as well as $25m reserved for litigation.

Sales were up two percent to $777m while net income was down from $106m to $90m at IFF, which supplies flavors and fragrances for a variety of foods and beverages including yogurts, ice-creams, noodles, coffee, smoothies , as well as cosmetics and detergents.

Across its Flavors business, sales were up year-on-year two percent to $367m while profit was down three percent to $77.5m. 

Its North American Flavors business struggled due to softness in the beverage market. But sales were up in Latin America and Asia, spearheaded by growth in India and China. 

Sales were also up in Europe, Africa, Middle East (EAME), led by double digit growth in the Middle East and Africa.

Across its Fragrance business, sales were up one percent to $410m while profits were down six percent to $85m.

Its Fragrance business was undermined by weakness in Latin America and Western Europe, which more than offset growth in Asia and North America.

“In the third quarter, we continued to drive the execution of Vision 2020,” said Chairman and CEO Andreas Fibig. “In the key areas we’ve identified – encapsulation, modulation, North America, Africa and the Middle East – we continue to make progress against our strategic goals.”

“We also accelerated our efforts in M&A recently, with the addition of approximately $160 million in expected annualized sales from David Michael and Fragrance Resources – both of which complement our strategic vision well.”

“Financially, third quarter currency neutral sales grew 3 percent, led by an improved performance in Flavors and the contribution from the IFF | Lucas Meyer Cosmetics acquisition. Driven by new win performance, growth was achieved across both business units. From a currency neutral operating profit perspective, we anticipated performance to be muted given the timing of planned investments, yet results came in softer than expected due principally to unfavorable mix and higher manufacturing costs.”

“As we progress in the fourth quarter, we are optimistic that sales, operating profit and EPS growth – on a currency neutral basis – will all improve sequentially.”

“For the full year, despite challenging conditions given a higher level of economic uncertainty and limited volume growth by many consumer packaged goods companies, we are pleased to say that we are in a position to deliver solid top- and bottom-line growth in 2016.”

“Longer-term, we believe that our investment in innovation will enable us to accelerate sales performance while simultaneously driving productivity improvements to ensure sustainable profit growth. We’re confident that by doing so, the cumulative benefits will lead to improved value creation for our customers, employees and shareholders.”

IFF operates in 35 countries and most of its business is outside of the US.