IFF Reports Second Quarter 2008 Results
Flavors Sales Up 15%; 8% in Local Currency
Fragrances Sales Up 8%; 1% in Local Currency
Double-Digit Increase in Adjusted EPS
NEW YORK--(BUSINESS WIRE)--July 30, 2008--International Flavors & Fragrances Inc. (NYSE: IFF), a leading global creator of flavors and fragrances for consumer products, today announced results for the second quarter 2008. On a GAAP basis, earnings per share (EPS) were $0.83 in the 2008 second quarter, versus $0.87 in the prior year quarter. Second quarter 2008 adjusted earnings per share after special items were $0.81, a 13 percent increase versus the $0.72 earned in the prior year quarter on a comparable basis.
The 2008 second quarter results included employee separation costs of $3.4 million or $0.03 per share, and a $3.9 million or $0.05 per share benefit from favorable tax rulings with respect to prior periods. The 2007 second quarter results included a pre-tax gain on a land sale of $5.3 million or $0.04 per share, as well as a $10 million or $0.11 per share benefit from favorable tax rulings with respect to prior periods.
Operating profit for the quarter was 16.0 percent of sales, including employee separation costs, compared to 17.9 percent in the prior year period.
"The four percent local currency sales growth during the second quarter keeps us on track to deliver on our long-term revenue and EPS goals," said Robert M. Amen, IFF's Chairman and CEO. "While North America continues to be a challenge, total Company revenue benefited from growth in the Greater Asia and Latin America regions where sales grew 20 percent or more. Our non-U.S. sales in the second quarter amounted to 75 percent of total revenue, with more than one-third coming from the world's emerging markets."
Mr. Amen continued, "Our teams remain focused on creating innovative and consumer-preferred flavors and fragrances that help our customers grow their brands, especially in the emerging markets where demand for consumer goods is outpacing GDP growth."
Second quarter 2008 sales were $636 million, up 11 percent from the prior year period. Reported sales benefited from the generally weaker U.S. dollar, mainly against the Euro; at comparable exchange rates, sales would have increased 4 percent over the 2007 quarter.
Flavors Business Unit
The 15 percent growth in Flavors sales resulted from both market share gains and volume increases of existing business. Growth in Latin America was particularly strong with Flavors sales up 36 percent in the quarter. Greater Asia posted sales growth of 22 percent. Excluding the impact of currencies, Flavors sales were up 8 percent.
Fragrances Business Unit
Fragrances sales increased 8 percent on a reported basis and 1 percent excluding the impact of currencies - a significant improvement over first quarter 2008 results. Looking at total second quarter reported revenue by geographic region, Fragrances sales grew 18 percent in Greater Asia, 15 percent in Europe and 14 percent in Latin America. These gains offset an 11 percent decline in North America.
Second Quarter 2008 Overview
-- Gross profit, as a percentage of sales, was 41.5 percent
compared with 42.9 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. In addition, product mix
and some impact of higher material costs also affected
margins.
-- Research and development spending, as a percentage of sales,
was 8.8 percent versus 8.5 percent in second quarter 2007,
which reflects increasing investments in customer
applications.
-- Selling and administrative expenses, as a percentage of sales,
increased to 16.5 percent as compared to 15.9 percent in
second quarter 2007. The 2008 expenses included $3.4 million
of employee separation costs.
-- Interest expense totaled $19 million as compared to $8 million
in second quarter 2007, due to higher borrowings incurred in
connection with the 2007 accelerated share repurchase program,
which was completed in June 2008. Average cost of debt was 6.0
percent for the quarter as compared to 4.2 percent in the 2007
second quarter.
-- Effective tax rate for second quarter 2008 was 23.2 percent
compared to 19.2 percent in the prior year quarter. Both
periods benefited from favorable tax rulings with respect to
prior periods; excluding the benefit of these favorable
rulings, the effective tax rate for second quarter 2008 and
2007 would have been 27.6 percent and 29.4 percent,
respectively.
-- Average number of diluted shares (in millions) was 80.6
compared to 90.1 in second quarter 2007.
About International Flavors & Fragrances Inc.
IFF is a leading global creator of flavors and fragrances used in a wide variety of consumer products and packaged goods. Consumers experience these unique scents and tastes in fine fragrances and beauty care, detergents and household goods, as well as beverages, confectionary and food products. The Company leverages its competitive advantages of brand understanding and consumer insight combined with its focus on R&D and innovation, to provide customers with differentiated product offerings. A member of the S&P 500 Index, IFF has sales, manufacturing and creative facilities in 31 countries worldwide. For more information, please visit our Web site at www.iff.com.
Individuals interested in receiving future updates on IFF via e-mail can register at http://ir.iff.biz.
Audio Web Cast
An audio Web cast, to discuss the Company's second quarter 2008 financial results and outlook, will be held Thursday, July 31 at 9:00 a.m. ET. Interested parties can access the Web cast, accompanying slide presentation, press release, Generally Accepted Accounting Principles (GAAP) reconciliation and Form 10-Q on the Company's Web site at www.iff.com, under the "Investor Relations" section. For those unable to listen to the live broadcast, a replay will be available on the Company's Web site approximately one hour after the event and will remain available on the IFF Web site until August 14, 2008.
Cautionary Statement Under The Private Securities Litigation Reform Act of 1995
Statements in this quarterly release, which are not historical facts or information, are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's current assumptions, estimates and expectations. Certain of such forward-looking information may be identified by such terms as "expect," "believe," "outlook," "guidance," "may," and similar terms or variations thereof. All information concerning future revenues, tax rates or benefits, interest savings, earnings and other future financial results or financial position, constitutes forward-looking information. Such forward-looking statements involve significant risks, uncertainties and other factors. Actual results of the Company may differ materially from any future results expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions in the Company's markets, including economic, inflationary and recessionary pressures, high energy and commodity prices, decline of the U.S. dollar, population health and political uncertainties; interest rates; the price, quality and availability of raw materials; the Company's ability to implement its business strategy, including the achievement of anticipated cost savings, profitability and growth targets; the impact on cash and the impact of increased borrowings related to the July 2007 share repurchase program; the impact of currency fluctuation or devaluation in the Company's principal foreign markets and the success of the Company's hedging and risk management strategies; the outcome of uncertainties related to litigation; the impact of possible pension funding obligations and increased pension expense on the Company's cash flow and results of operations; and the effect of legal and regulatory proceedings, as well as restrictions imposed on the Company, its operations or its representatives by U.S. and foreign governments. The Company intends its forward-looking statements to speak only as of the time of such statements and does not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results.
Any public statements or disclosures by IFF following this report that modify or impact any of the forward-looking statements contained in or accompanying this report will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this report.
International Flavors & Fragrances Inc.
Consolidated Income Statement
(Amounts in thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -----------------------------
% %
2008 2007 Change 2008 2007 Change
--------- --------- ----------- -----------
Net sales $636,126 $573,726 11 $1,232,731 $1,139,827 8
Cost of goods
sold 372,345 327,668 14 723,474 657,050 10
--------- --------- ----------- -----------
Gross margin 263,781 246,058 7 509,257 482,777 5
Research and
development 56,166 48,760 15 108,222 95,392 13
Selling and
administrative 104,662 91,198 15 194,811 182,469 7
Amortization of
intangibles 1,539 3,555 (57) 3,078 7,111 (57)
Restructuring
and other
charges (255) - 5,967 -
Interest
expense 18,545 8,396 36,764 16,710
Other (income)
expense, net (4,117) (2,819) (1,812) (2,986)
--------- --------- ----------- -----------
Pretax income 87,241 96,968 (10) 162,227 184,081 (12)
Taxes on income 20,209 18,596 9 39,252 43,020 (9)
--------- --------- ----------- -----------
Net income $ 67,032 $ 78,372 (14) $ 122,975 $ 141,061 (13)
========= ========= =========== ===========
Earnings per
share
Basic $ 0.84 $ 0.88 $ 1.54 $ 1.58
Diluted $ 0.83 $ 0.87 $ 1.52 $ 1.56
Average shares
outstanding
Basic 79,627 89,174 (11) 79,962 89,276 (10)
Diluted 80,578 90,124 (11) 80,916 90,391 (10)
International Flavors & Fragrances Inc.
Condensed Consolidated Balance Sheet
(Amounts in thousands)
(Unaudited)
June 30, December 31,
2008 2007
---------- ------------
Cash and cash equivalents $ 119,490 $ 151,471
Short-term investments 55 604
Receivables 521,120 450,579
Inventories 525,651 484,222
Other current assets 112,705 103,602
---------- ------------
Total current assets 1,279,021 1,190,478
Property, plant and equipment, net 514,920 508,820
Goodwill and other intangibles, net 729,759 732,836
Other assets 295,078 294,654
---------- ------------
Total assets $2,818,778 $2,726,788
========== ============
Bank borrowings and overdrafts $ 147,562 $ 152,473
Other current liabilities 395,269 386,423
---------- ------------
Total current liabilities 542,831 538,896
Long-term debt 1,068,884 1,060,168
Non-current liabilities 564,078 510,527
Shareholders' equity 642,985 617,197
---------- ------------
Total liabilities and shareholders' equity $2,818,778 $2,726,788
========== ============
International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
Six Months Ended
June 30,
2008 2007
--------- ---------
Cash flows from operating activities:
Net income $122,975 $141,061
Adjustments to reconcile to net cash provided by
operations:
Depreciation and amortization 42,529 42,287
Deferred income taxes 851 4,629
Gain on disposal of assets (684) (6,737)
Equity based compensation 8,898 8,248
Changes in assets and liabilities
Current receivables (57,879) (54,058)
Inventories (25,151) (1,258)
Current payables (16,060) (38,535)
Changes in other assets (23,855) (1,831)
Changes in other liabilities 27,226 1,836
--------- ---------
Net cash provided by operations 78,850 95,642
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (28,808) (21,331)
Purchase of investments (3,983) (4,786)
Proceeds from investments - 8,978
Proceeds from disposal of assets 934 8,751
--------- ---------
Net cash used in investing activities (31,857) (8,388)
--------- ---------
Cash flows from financing activities:
Cash dividends paid to shareholders (37,143) (37,230)
Net change in bank borrowings and overdrafts (12,333) (496)
Proceeds from issuance of stock under stock plans 2,840 36,461
Excess tax benefits on stock options exercised 38 3,914
Purchase of treasury stock (29,995) (80,711)
--------- ---------
Net cash used in financing activities (76,593) (78,062)
--------- ---------
Effect of exchange rates changes on cash and cash
equivalents (2,381) 471
Net change in cash and cash equivalents (31,981) 9,663
Cash and cash equivalents at beginning of year 151,471 114,508
--------- ---------
Cash and cash equivalents at end of period $119,490 $124,171
========= =========
Interest paid $ 41,282 $ 19,553
Income Taxes paid $ 18,441 $ 21,866
International Flavors & Fragrances Inc.
Segment Profit
(Amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
--------- --------- ----------- -----------
Net Sales
Flavors $289,794 $252,541 $ 563,601 $ 495,983
Fragrances $346,332 $321,185 $ 669,130 $ 643,844
------------------- -----------------------
Consolidated $636,126 $573,726 $1,232,731 $1,139,827
Operating Profit
Flavors $ 56,861 $ 52,580 $ 113,789 $ 97,394
Fragrances $ 56,339 $ 58,273 $ 103,235 $ 117,141
Global Expenses $(11,531) $ (8,308) $ (19,845) $ (16,730)
------------------- -----------------------
Consolidated $101,669 $102,545 $ 197,179 $ 197,805
Interest Expense $(18,545) $ (8,396) $ (36,764) $ (16,710)
Other income (expense),
net $ 4,117 $ 2,819 $ 1,812 $ 2,986
--------- --------- ----------- -----------
Income before taxes $ 87,241 $ 96,968 $ 162,227 $ 184,081
========= ========= =========== ===========
International Flavors & Fragrances Inc.
Regulation G Reconciliation Schedule
Earnings Per
Share
-----------------
2008
----------------------------------
Q1 Q2 YTD*
EPS Reported $ 0.69 $ 0.83 $ 1.52
Employee
Separation Costs 0.03 0.03
Restructuring
Charges 0.06 0.06
Insurance
Recovery (0.02) (0.02)
Tax Adjustment
(1) (0.03) (0.05) (0.07)
----------------------------------
EPS as Adjusted $ 0.70 $ 0.81 $ 1.51
==================================
2007
----------------------------------
Q1 Q2 YTD*
EPS Reported $ 0.69 $ 0.87 $ 1.56
Gain on Asset
Sale (0.04) (0.04)
Tax Adjustment
(1) (0.11) (0.11)
----------------------------------
EPS as Adjusted $ 0.69 $ 0.72 $ 1.41
==================================
(1) Favorable tax ruling benefit related to prior years
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA)
----------------------------------------------------------------------
9/30/2007 12/31/2007 3/31/2008 6/30/2008 Total
---------- ----------- ---------- ----------- ------
Net Income $ 58.8 $ 47.2 $ 55.9 $ 67.0 $228.9
Interest expense 8.6 16.2 18.2 18.6 61.6
Income Taxes 21.8 16.8 19.0 20.2 77.8
Depreciation 16.9 17.8 18.0 21.4 74.1
Amortization 3.6 2.2 1.5 1.6 8.9
Restructuring
charges 5.9 - 6.2 (0.2) 11.9
----------------------------------------------------
EBITDA $ 115.6 $ 100.2 $ 118.8 $ 128.6 $463.2
====================================================
9/30/2006 12/31/2006 3/31/2007 6/30/2007 Total
---------- ----------- ---------- ----------- ------
Net Income $ 63.7 $ 47.9 $ 62.7 $ 78.4 $252.7
Interest expense 6.5 7.4 8.3 8.4 30.6
Income Taxes 27.1 14.4 24.4 18.6 84.5
Depreciation 18.6 19.1 17.3 17.9 72.9
Amortization 3.7 3.7 3.6 3.5 14.5
Restructuring
charges 0.3 2.0 - - 2.3
----------------------------------------------------
EBITDA $ 119.9 $ 94.5 $ 116.3 $ 126.8 $457.5
====================================================
This supplemental schedule provides adjusted non-GAAP financial
information and a quantitative reconciliation of the difference
between the non-GAAP financial measure and the financial measure
calculated and reported in accordance with GAAP
These non-GAAP financial measures should not be considered in
isolation, or as a substitute for, or superior to, financial measures
calculated in accordance with GAAP. The Company believes that it is
meaningful for investors to be made aware of and to be assisted in a
better understanding of, on a period to period comparative basis, the
relative impact of restructuring and employee separation charges, an
insurance recovery related to a product contamination issue, a gain
from the sale of land and the benefit of tax rulings relating to
prior years. The adjusted information is intended to be more
indicative of the Company's core operating results.
* The sum of the individual quarter's net income per share does not
equal the earnings per share for the year-to-date due to changes in
average shares outstanding during the year.
CONTACT: International Flavors & Fragrances Inc.
Investors:
Yvette Rudich, 212-708-7164
Director of Corporate Communications
or
Media:
Melissa Sachs, 212-708-7278
Manager, Corporate Communications
SOURCE: International Flavors & Fragrances Inc.