|View printer-friendly version|
IFF Reports First Quarter 2013 Like-for-Like Sales Growth of 4% and Adjusted EPS of $1.19 per diluted Share, Up 19%
Local Currency Sales Increase 3%; Reported Sales Increase 2%
Reported EPS of
Reported net sales for the first quarter totaled
$727.8 million, an increase of 2% from $710.6 millionin the first quarter of 2012. Excluding the impact of foreign currency, local currency sales increased 3%. On a like-for-like basis, which excludes the exit of low-margin sales activities in Flavors, local currency sales increased 4%.
Net income totaled
$90.7 millionor $1.10per diluted share for the first quarter, compared with net income of $81.1 millionor $0.99per diluted share in the prior year first quarter.
Adjusted EPS, which excludes the impact of a charge related to the
Spanish Tax ruling as well as charges related to plant closings,
increased 19% to
$1.19per diluted share in the first quarter, up from an adjusted $1.00per diluted share in the first quarter of 2012.
Please see the information and schedules at the end of this release for reconciliations of GAAP to non-GAAP financial metrics.
“We are pleased with our performance this quarter, which resulted in an
adjusted EPS improvement of 19%. In the first quarter, we delivered
like-for-like sales growth of 4%, supported by strong underlying
momentum in both Fragrance Compounds and Flavors, reflecting the
diversity and strength of our category and geographic portfolios,” said
“This quarter we achieved strong new win rates owing to the innovative
abilities of our business segments, combined with our expertise in
proactively providing customers with solutions based on the strength of
our creative, consumer insight, and research and development teams. Our
overall sales were also supported by 9% local currency growth in the
emerging markets, with double-digit sales growth in many developing
“As expected, gross margins in the first quarter benefited from the combined impact of previous price increases and modest raw material cost declines. Based on our strategy of maximizing our portfolio, gross margins also benefited from strong innovation-based wins, an improved product mix in part due to the exit of low-margin sales activities in Flavors, as well as various other cost savings and value-enhancing initiatives.”
Mr. Tough continued, “We took several actions during the quarter to
enhance our manufacturing efficiency and consolidate our geographic
footprint. During the quarter, we made the decision to close our Flavors
facility in Knislinge,
“And, last week we took further steps to strengthen our innovation
platform, improve operating efficiencies and meet customers’ growing
needs. On Tuesday, we announced our multi-year collaboration with
Mr. Tough concluded, “We entered the year with increased optimism with the expectation for an improving operating environment, a robust R&D pipeline, and strong customer relationships and partnerships. We see solid momentum in each of our business units, and expect to deliver stronger sales growth in the second quarter as we continue to focus on leveraging our geographic reach, strengthening our innovation platform and maximizing our portfolio. We believe that by executing on these three strategic pillars, we will be able to grow our business this year in line with our long-term targets.”
- Local currency sales in the emerging markets accounted for 49% of total company sales in the first quarter and experienced growth of 9%.
- Gross profit, as a percent of sales, was 42.8% compared with 40.2% in the prior year. Excluding the impact of plant closings in the current quarter, the adjusted gross profit was 42.9%, compared with 40.2% in the first quarter of 2012. The 270 basis point adjusted gross margin improvement was due to modest declines in raw material costs, residual pricing, our cash flow hedging activities, strong new wins owing in part to our innovations, improved mix due to the exit of low-margin sales activities in Flavors, as well as ongoing cost reduction efforts. Although raw material prices have experienced a modest decline this quarter, they remain near historically high levels.
- Research, selling and administrative (RSA) expenses, as a percent of sales, increased 100 basis points to 23.9% compared with 22.9% in the first quarter of 2012. The RSA increase this quarter primarily reflects higher incentive compensation costs, adjustments to deferred compensation plan assets, and increased pension expenses.
Operating profit increased 14% or
$16.7 million to $137.6 millionfrom $120.9 million. Excluding the $1.2 millioncost related to closing two smaller facilities in Europeand Asiathis quarter, and a $1.7 millionrestructuring charge in the prior year quarter, adjusted operating profit increased $16.2 million, or 13% to $138.8 million, from $122.6 millionin the first quarter of 2012. The improvement in adjusted operating profit was principally due to volume growth combined with gross margin expansion, offset in part by higher incentive compensation charges. Adjusted operating profit margin increased 190 basis points to 19.1% from 17.2% in the prior year.
- The effective tax rate for the quarter was 28.9% compared with 26.5% in the prior year quarter, and includes a tax charge relating to the Spanish tax ruling. Excluding the impact of the Spanish tax charge and taxes related to the plant closings in the current quarter, as well as taxes related to restructuring costs from the prior year’s quarter, the adjusted effective tax rate was 24.0%, or 270 basis points below the prior year adjusted effective tax rate of 26.7%. The decrease was primarily driven by the benefit associated with the U.S. tax legislation enacted in the first quarter of 2013, which includes the R&D tax credit.
Cash flow from operations for the three months ended
March 31, 2013was $18.7 million, or $33.9 millionlower than the prior year quarter of $52.6 million. The decrease primarily reflects higher year-over-year incentive compensation payments and additional pension contributions in the U.S..
April 4, the Company issued $300.0 millionof 10-year 3.2% Senior Notes due 2023, marking our first offering in the U.S. public bond markets in more than 10 years. This public debt diversifies our sources of funding as well as our debt investor base.
April 29, 2013, the Company entered into a multi-year collaboration with Amyristo jointly develop and commercialize a sustainable, cost-effective and reliable source of fragrance ingredients.
May 3, 2013, IFF announced its intention to close its Fragrance Ingredients manufacturing facility in Augusta, Georgiaby July 2014, and consolidate production into existing IFF facilities. The closing of the Augustaplant will improve efficiencies within its Ingredients manufacturing network and is in keeping with the Company’s objective to ensure its operations are cost-efficient and competitive.
Fragrances Business Unit
Reported sales increased 3% to
$371.5 million, compared with $360.7 millionin the first quarter of 2012. The foreign currency impact was negligible this quarter.
- Fragrance Compounds experienced local currency sales growth of 7% in the first quarter, which more than offset an 11% sales decline in Fragrance Ingredients.
Within Fragrance Compounds, our Fine and Beauty Care category had
local currency sales growth of 4%, driven by double-digit growth in
Latin Americaand Greater Asia. Functional Fragrances had local currency sales growth of 9% owing to positive growth in all regions, led by double-digit growth in Latin Americaand Greater Asiaand high single digit growth in EAME. This marks the 19th consecutive quarter of growth in Functional Fragrances, due to increased new wins, including those using our encapsulation technology, and increased core list participation.
- The emerging markets represented 54% of Fragrances Compounds sales. Within Fragrance Compounds, the emerging markets grew at 18% in the first quarter over the prior year quarter, reflecting broad-based geographic and category growth.
- Gross margins from our Fragrances business unit increased over the prior year quarter, primarily due to favorable raw material costs combined with residual pricing, ongoing cost savings initiatives and improved mix.
Fragrances segment profit increased 22% to
$68.4 millionin the first quarter of 2013, up from $56.1 millionin the first quarter of 2012. The segment profit improvement is the result of volume growth from new wins combined with gross margin improvements and ongoing cost discipline. The segment profit margin increased 290 basis points to 18.4% from 15.5%.
Flavors Business Unit
Reported sales increased 2% to
$356.4 million, compared with $349.9 millionin the first quarter of 2012. The foreign currency impact was negligible this quarter.
- On a like-for-like (LFL) basis, which excludes the exit of low-margin sales activities, local currency sales increased 6% in the quarter, driven by strong new wins and residual benefits of previously taken pricing.
On a regional basis,
Greater Asia, Latin Americaand EAME delivered LFL local currency sales growth of 6%, and North Americadelivered LFL local currency sales growth of 4%.
- On an end-use category basis, LFL local currency sales growth was led by high single digit growth in Dairy and Beverage due to increased sales using our modulation technologies. Savory increased mid-single digits, and Sweet also had positive growth this quarter.
- Gross margins in the Flavors business increased over the prior year quarter primarily as a result of the benefit of favorable raw material costs and residual pricing, as well as mix improvements including the continued exit of low-margin sales activities. The Company expects to have one additional quarter that will be impacted by the exit of low-margin sales activities. Starting with the third quarter of 2013, the Company will have largely completed this effort.
Flavors segment profit increased 4% to
$83.0 millionin the first quarter of 2013, up from $79.7 millionin the prior year quarter. Segment profit margin increased 50 basis points to 23.3% from 22.8%, as a result of volume growth from new wins combined with the gross margin improvement.
A live webcast to discuss the Company's first quarter financial results
and full year outlook will be held today,
Cautionary Statement Under The Private Securities Litigation Reform Act of 1995
This press release includes “forward-looking statements” under the
Federal Private Securities Litigation Reform Act of 1995, including
statements regarding the Company’s expectations concerning (i) its
results, performance and the growth opportunities for the business in
2013; (ii) the completion of its exit of low-margin sales activities;
(iii) its product portfolio and R&D pipeline; (iv) the expected
development of commercialization of sustainable, cost-effective
fragrance ingredients in collaboration with
International Flavors & Fragrances Inc.
Shelley Young, 212-708-7271
Director, Investor Relations