International Flavors & Fragrances Inc. (NYSE: IFF) reported earnings per share for the third quarter of $.70, exceeding the First Call consensus expectation of $.58.
Third quarter 2006 sales totaled $539 million, up 9% from the prior year quarter; fragrance and flavor sales increased 12% and 6%, respectively. Reported sales for the 2006 quarter benefited from the generally weaker U.S. dollar during the quarter; at comparable exchange rates, sales would have increased 7% in comparison to the 2005 quarter.
Fragrance sales were led by a 24% increase in fine fragrance sales, with much of the growth driven by new product introductions. Sales of functional fragrances increased 5% from both increased volume and new product introductions while sales of fragrance ingredients increased 11% mainly from increased volume.
Flavor sales increased 6%, based on a combination of new product introductions and volume growth. Flavor compound sales increased in each region in both local currency and dollars. “The acceleration of growth in sales and earnings is very encouraging,” said Robert M. Amen, IFF Chairman and Chief Executive Officer. “We continue to perform very well in fine fragrances, with our major customers, and in key growth markets – notably Latin America, Asia and Eastern Europe. These strong performances have been enhanced by renewed growth and improved operating results in both North America and Western Europe. These results demonstrate the strategic initiatives undertaken in the past year are beginning to pay off. I am also very pleased to see the improvement in flavor sales.”
“The actions we announced in mid-October to organize into flavors and fragrance business units will sharpen our focus and improve accountability. I believe this will accelerate our growth and improve results. We are confident in our growth prospects and our ability to build shareholder value as demonstrated by the recent 14% increase in our dividend and $300 million share repurchase program.”
Third Quarter 2006
Sales performance by region and product category compared to the prior year quarter follows:
Net income for the 2006 quarter totaled $64 million, a 7% decrease compared with the prior year quarter, as reported. The 2005 third quarter net income of $69 million included a tax benefit of $23 million on repatriation of dividends from overseas affiliates.
- Gross profit, as a percentage of sales, improved nearly one percentage point compared to the prior year quarter, mainly from the higher sales, improved manufacturing expense absorption and favorable product mix.
- Research and Development expenses totaled 8.6% of sales compared to 9.1% in the prior year quarter.
- Selling, General and Administrative expenses, as a percentage of sales, were 16.3% in the current quarter compared to 17.4% in 2005. The 2005 quarter included $5 million of expense relating to a product contamination issue; 2006 results include the benefit of a $3 million insurance recovery related to this contamination matter. The 2006 quarter also included $14 million of incentive compensation expense; the 2005 quarter included $2 million of such expense.
- Other income (expense), net in the 2006 quarter increased $6 million over the prior year quarter, mainly due to gains on disposal of fixed assets as well as somewhat higher interest income, partially offset by higher foreign exchange losses.
- The effective tax rate was 30% compared to a negative rate of 4% in the prior year quarter. The 2005 quarter included the one-time $23 million tax benefit; excluding this benefit, the 2005 third quarter effective rate was 32%.
Outlook for 2006 increased
For the full year, the Company expects sales to increase by mid-single digit rates in both local currency and reported dollars, in comparison to 2005; previously, sales had been expected to increase at a lower rate.
Earnings per share for 2006 are now expected to be in the range of $2.36 to $2.44, compared to previous expectations of $2.20 to $2.28; the improvement comes primarily from expected higher sales for the year, and the benefit of actions taken to improve profitability.
About IFF
IFF is a 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 30 countries worldwide. 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 report, 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. Certain of such forward-looking information may be identified by such terms as "expect", "believe", "may", "outlook", "guidance" 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, 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 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; uncertainties related to any potential claims and rights of indemnification or other recovery for customer and consumer reaction to its earlier contamination issue; 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 foreign governments. 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.
Webcast and Conference call
The Company will host a real-time webcast and teleconference to discuss its third quarter results and its current expectations for 2006 at 10:00 a.m. Eastern Time on Thursday, November 2, 2006.
You may use the following dial-in numbers to access the teleconference (please dial in 5 to 10 minutes prior to the scheduled start time):
United States: 1-800-946-0713
International: 1-719-457-2642
Reservation Number: 2042282
You may access the webcast, together with the supplemental financial information presented as slides at the webcast and discussed in the teleconference, via the Company's internet website located at http://www.iff.com by clicking on “Investor Relations” and selecting the “Webcasts” page.
Playback Information
An archive of the webcast and a taped replay of the teleconference will be available following completion of the webcast and teleconference. The replay will be available beginning at 1:00 p.m. Eastern Time on Thursday, November 2nd and ending at Midnight on Wednesday, November 15, 2006. The archive of the webcast can be accessed through the Company's website as described above. The dial-in numbers and reservation number for the taped replay are:
United States: 1-888-203-1112
International: 1-719-457-0820
Reservation Number: 2042282
Contact
Douglas J. Wetmore
Senior Vice President and Chief Financial Officer
Phone: 212-708-7145
Full Release, including tables, and the Regulation G Reconciliation Schedule can be found in the attached Adobe Acrobat files.