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IFF Reports Strong First Quarter Sales and Earnings
New Wins Drive Sales Growth of 15% Company Updates Guidances for 2004
NEW YORK, April 29 /PRNewswire-FirstCall/ -- International Flavors & Fragrances Inc. (NYSE: IFF) ("IFF" or "the Company") reported diluted earnings per share for the first quarter 2004 of $.59 compared to $.34 for the prior year quarter, an increase of 74%. The 2003 results include $20.4 million ($13.5 million after tax or $.14 per share) of restructuring and other charges related to the Company's reorganization plan. Excluding the effects of these charges, first quarter 2004 diluted earnings per share increased 23% in comparison to the prior year quarter.
First quarter 2004 sales totaled $535.0 million, increasing 15% in comparison to the prior year quarter. Reported sales for the 2004 quarter benefited from the strengthening of various currencies in relation to the U.S. dollar; had exchange rates remained constant, sales for the first quarter 2004 would have increased 6% in comparison to the prior year quarter.
Sales for the first quarter were strong in all geographic regions although performance in Europe was primarily the result of favorable currency translation. For the quarter, sales performance by region was as follows:
* North America flavor sales grew 18% while fragrances grew 13%; in total, sales in the region grew 15%. The flavor sales performance was driven by new wins and continued strong order activity across the entire customer portfolio. Fragrance sales for the quarter increased in all product categories with fine fragrance sales increasing 10%, functional fragrances 13% and aroma chemical sales 14%. * European sales increased 14% with fragrances increasing 15% and flavors 14%; sales results benefited from the strength of the Euro and Pound sterling. Local currency sales declined 1% in both flavors and fragrances. Local currency sales of functional and fine fragrances increased 4% and 2%, respectively; aroma chemical sales declined 10%. The local currency performance reflects modest improvement in some of the major economies of Western Europe, most notably in France, Italy and Great Britain, offset by weaker sales in Eastern Europe, the Middle East and Africa. * Asia Pacific sales increased 15% with fragrances increasing 13% and flavors 17%; sales results benefited from the strength of the Yen and the Australian dollar. Local currency flavor and fragrance sales each increased 7%. This strong performance reflects improving economic conditions in the region and the benefit of significant new wins in both fine and functional fragrances. Local currency sales growth was strongest in Greater China, Thailand and Vietnam, with respective increases of 16%, 29% and 48%. Australia, Indonesia, South Korea and Taiwan all grew in the low- to mid-single digits. Japan sales were flat in local currency which, due to the strength of the Yen, resulted in a 10% increase in reported dollars. * Latin American sales increased 9% in both flavors and fragrances. Mexico and Brazil flavor sales grew 9% and 5%, respectively, while Venezuela and Central America increased 91% and 50% respectively. Fragrance sales in Argentina, Venezuela and Central America increased 25%, 89% and 27%, respectively, while Mexico, Brazil and Colombia sales increased 5%, 6% and 11%, respectively. Performance in the region reflects improved economic conditions and the benefit of new wins in both flavors and fragrances. * India sales increased 31% in local currency and 34% in reported dollars. Local currency fragrance sales increased 25% resulting in a 30% increase in reported dollars. Flavor sales increased 37% in local currency, resulting in a 38% increase in reported dollars. In both flavors and fragrances, the sales performance reflected the benefit of new flavor and fragrance wins and the continued strength of IFF's business in the Indian market.
Net income for the quarter increased 76% in comparison to the prior year quarter. Excluding the impact of restructuring and other charges from the 2003 quarter, net income increased 24% in comparison to the prior year. Gross profit as a percentage of sales increased to 42.7% of sales from 42.0% in the prior year, primarily because of the improved sales performance. Research and development expenses totaled 8.3% of sales compared to 8.4% in the prior year quarter, consistent with the Company's intended level of R&D spending. Selling, General and Administrative expenses, as a percentage of sales, increased to 16.8% from 16.3%; this increase resulted mainly from higher expense accruals under the Company's incentive compensation plans, based on the first quarter's sales and operating performance. Operating margin in the quarter, as a percentage of sales, improved to 16.9% of sales, compared to 16.6% of sales in the 2003 quarter; the improvement was primarily attributable to the improved sales and the continued benefit of the cost reduction actions undertaken in 2003. Interest expense declined 20% from the prior year as a result of the Company's interest rate management and debt reduction initiatives.
Richard A. Goldstein, Chairman and Chief Executive Officer of IFF, said, "I'm pleased with our first quarter performance, especially following the strong performance achieved in the fourth quarter 2003. The actions that we have taken over the past several years to better our processes, increase efficiencies and improve customer service are clearly paying off. IFF has become a more effective and streamlined operation with a solid foundation for continued success in increasing shareholder value.
"Our results were mainly driven by new customer wins and strong demand for our core flavor and fragrance products. Our improved sales and operating performance is largely due to our continued focus on customer service and our research and development initiatives -- the keys to our future success. Our strong growth in nearly all geographic regions reaffirms my confidence that we are on the right track to meeting our expectations for 2004 and for sustained profitable growth in the years ahead."
Updated Outlook for 2004
IFF now expects local currency sales growth in 2004 to be in the low- to mid-single digits in comparison to 2003. Based on current exchange rates, such local currency growth is expected to result in a high-single digit increase in reported dollars.
IFF intends to grant restricted stock units ("RSU's") in May 2004 as an element of its incentive compensation plans for all eligible U.S. - based employees and a majority of eligible overseas employees. Vesting of the RSU's for the Company's senior management will be performance and time based; for the remainder of eligible employees, vesting will be time based. As a result, the Company expects to record $4.5 million to $6.0 million in pre-tax compensation expense during 2004; the actual expense will depend upon the value of the Company's stock and the number of RSU's granted. Such compensation expense was not contemplated in previous earnings guidance provided by the Company.
After consideration of the expense attributable to the RSU's, IFF continues to expect earnings per share for 2004 to be in the range of $2.24 to $2.31. This expected performance represents an increase in earnings per share of between 6% and 9% over comparable 2003 results of $2.12 per share. For purposes of this comparison, the 2003 per share results exclude the impact of restructuring and other charges; including the effect of such charges, 2003 reported per share results were $1.83.
IFF is the world's leading creator and manufacturer of flavors and fragrances used in a wide variety of consumer products-from fine fragrances and toiletries, to soaps, detergents and other household products, to beverages and food products. IFF is dedicated to The Pursuit of Excellence in every area of its business, using knowledge, creativity, innovation and technology to continually provide customers with the highest quality products and service and superior consumer understanding.
IFF has sales, manufacturing and creative facilities in 34 countries worldwide and annual sales exceeding $1.9 billion. For more information, please visit our Web site at www.iff.com.
Cautionary Statement Under The Private Securities Litigation Reform Act of 1995
Statements in this press 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 reasonable current assumptions and expectations. Such forward-looking statements, which may be identified by such words as "expect," "anticipate," "outlook," "guidance," "may" and similar forward-looking terminology, involve significant risks, uncertainties and other factors, which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management's expectations. Such factors include, among others, the following: general economic and business conditions in the Company's markets, including economic, population health and political uncertainties; interest rates; the price 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 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 impact of possible pension funding obligations and increased pension expense on the Company's cash flow and results of operations; the effect of legal and regulatory proceedings, as well as restrictions imposed on the Company, its operations or its representatives by foreign governments; and the fact that the outcome of litigation is highly uncertain and unpredictable and there can be no assurance that the triers of fact or law, at either the trial level or at any appellate level, will accept the factual assertions, factual defenses or legal positions of the Company or its factual or expert witnesses in any such litigation. The Company intends its forward-looking statements to speak only as of the time of such statements and does not undertake to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results.
There will be a conference call today at 10:00 AM Eastern Time, at which time the Company will discuss operating results for the first quarter 2004. The dial in number for U.S.-based participants is 877-502-9273; for international participants, the number is 913-981-5582. The pass code for the call is 524629.
A replay of the conference call will be available from 1:00 PM Eastern Time beginning on Thursday April 29, 2004 and ending at Midnight on Thursday, May 13, 2004. The dial in number for the replay for U.S.-based listeners is 888-203-1112; for international listeners, the number is 719-457-0820. The replay pass code will be 524629.
The call can also be monitored via the World Wide Web at www.iff.com. Real Network's Real Player or Microsoft Media Player is required to access the webcast. They can be downloaded from www.real.com or www.microsoft.com/windows/mediaplayer. A replay of the conference call will be available on the Company's website for twelve months.
International Flavors & Fragrances Inc. Consolidated Income Statement (Amounts in thousands except per share data) Quarter Ended March 31, 2003 2004 Net sales $466,224 $535,015 Cost of goods sold 270,447 306,786 Gross margin on sales 195,777 228,229 Research & development 38,962 44,648 Selling and administrative 76,115 89,726 Amortization 3,158 3,699 77,542 90,156 Restructuring and other charges (20,389) -- Interest expense (8,113) (6,457) Other income (expense), net (2,526) (1,425) Pretax income 46,514 82,274 Income taxes 14,497 25,916 Net income $32,017 $56,358 Including restructuring and other charges Net income $32,017 $56,358 Earnings per share - basic $.34 $.60 Earnings per share - diluted $.34 $.59 Excluding restructuring and other charges Net income $45,494 $56,358 Result per share - basic $.48 $.60 Result per share - diluted $.48 $.59 International Flavors & Fragrances Inc. Consolidated Condensed Balance Sheet (Amounts in thousands) December 31, March 31, 2003 2004 Cash & short-term investments $12,555 $12,279 Receivables 339,725 389,000 Inventories 454,631 451,079 Other current assets 95,761 100,202 Total current assets 902,672 952,560 Property, plant and equipment, net 510,612 501,700 Goodwill and other intangibles, net 799,413 796,337 Other assets 94,195 91,429 Total assets $2,306,892 $2,342,026 Commercial paper/notes payable - bank $194,304 $196,924 Other current liabilities 331,741 330,564 Total current liabilities 526,045 527,488 Long-term debt 690,231 679,161 Non-current liabilities 347,985 351,348 Shareholders' equity 742,631 784,029 Total liabilities and shareholders' equity $2,306,892 $2,342,026 Notes: 1. Capital spending in quarter - $12 million 2. Depreciation in quarter - $19 million 3. At December 31, 2003 and March 31, 2004 long-term debt includes unamortized gains and FAS 133 mark to market adjustments of $38 million and $35 million respectively, on various interest rate swaps the Company has entered into; such gains have been deferred and are being amortized over the remaining term of the underlying debt and the mark to market adjustment is recorded each quarter. Quarter Ended March 31, Average Shares Outstanding (in thousands): 2003 2004 Basic 94,158 94,233 Diluted 95,281 95,181 % Change in Sales by Region of Destination Fragrances Flavors Total North America 13 18 15 Europe - Reported 15 14 14 Europe - Local Currency (1) (1) (1) Latin America 9 9 9 Asia Pacific - Reported 13 17 15 Asia Pacific - Local Currency 7 7 7 India - Reported 30 38 34 India - Local Currency 25 37 31 Total - Reported 13 16 15 Total - Local Currency 5 7 6
SOURCE International Flavors & Fragrances Inc. -0- 04/29/2004 /CONTACT: Douglas J. Wetmore, Senior Vice President and Chief Financial Officer of International Flavors & Fragrances Inc., +1-212-708-7145/ /Web site: http://www.iff.com http://www.microsoft.com/windows/mediaplayer http://www.real.com / (IFF) CO: International Flavors & Fragrances Inc. ST: New York IN: HOU REA FOD FAS FIN CPR CHM SU: CCA ERN SLS LI -- NYTH020 -- 8555 04/29/2004 06:02 EDT http://www.prnewswire.com