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International Flavors & Fragrances Inc. (NYSE: IFF) today reports results for the fourth quarter and full year 2006
“The strong fourth quarter performance tops off a very good 2006 for IFF,” said Robert M. Amen, IFF Chairman and Chief Executive Officer. “It is very encouraging to see the fourth quarter growth in both flavors and fragrances, all driven by the excellent contribution of the people of IFF. Our strategy is working and we have good momentum going into 2007.”
Earnings per share were $.49 in the 2006 fourth quarter, versus $.16 in the prior year quarter, an increase of 206%. The 2006 results include restructuring charges of $.02 and a non-recurring gain on disposition of land, included in Other income, of $.06. The 2005 fourth quarter earnings results included a restructuring charge of $.17 per share. On a comparable basis, excluding the restructuring charges from both periods and the 2006 land sale gain, fourth quarter 2006 earnings per share of $.45 represent a 36% gain over the 2005 quarter.
For the full year 2006, earnings per share were $2.44, compared to $2.04 in 2005, an increase of 20%. The 2006 results include restructuring charges of $.02 and non-recurring gains on disposition of assets, included in Other income, of $.14; the 2005 results included restructuring charges of $.16 per share, offset by a $.26 benefit relating to the Company's repatriation of funds from overseas affiliates. On a comparable basis, excluding these non-recurring items from both years, the 2006 per share results of $2.32 represent a 20% improvement over the full year 2005 of $1.94.
Fourth quarter 2006 sales totaled $514 million, up 11% from the prior year quarter; fragrance and flavor sales increased 13% and 7%, respectively. Sales for the 2006 quarter benefited from the generally weaker U.S. dollar; at comparable exchange rates, sales would have increased 7% in comparison to the 2005 quarter.
Fragrance sales were led by an 18% increase in fine fragrance sales driven by both new product introductions and continued success of existing fine fragrance creations. Sales of functional fragrances and fragrance ingredients increased 9% and 11%, respectively, with the increases coming from both increased volume and new product introductions.
Flavor sales increased 7%, based on a combination of new wins and volume growth. Flavor compound sales increased in each region in both local currency and dollars.
Fourth Quarter 2006
Sales performance by region and product category compared to the prior year quarter follows:
Net income for the 2006 fourth quarter, including $1 million in after tax restructuring charges, totaled $44 million, a 192% increase compared with the prior year quarter. The 2005 fourth quarter result of $15 million included restructuring charges of $16 million after tax. Excluding the restructuring charges from both years, net income increased 48% in the 2006 fourth quarter.
- Gross profit, as a percentage of sales, improved one half percentage point compared to the prior year quarter, mainly due to higher sales.
- Research and Development expenses totaled 9% of sales compared to 10% in the prior year quarter.
- Selling, General and Administrative expenses, as a percentage of sales, were 17.6% in the current quarter compared to 18.6% in 2005. The 2005 quarter included approximately $3 million of expense relating to a product contamination issue.
- Other income (expense), net in the 2006 fourth quarter increased $4 million over the prior year quarter, mainly due to the a gain on sale of land, partially offset by higher exchange losses.
- The effective tax rate was 28.8% compared to 29.4% in the prior year quarter.
Full Year 2006
Sales performance by region and product category compared to the prior year follows:
Net income for 2006, including $2 million in after tax restructuring charges, totaled $223 million, a 15% increase compared with the prior year. Full year 2005 results of $193 million included restructuring charges totaling $16 million after tax, as well as a tax benefit of $25 million relating to repatriation of funds from overseas affiliates. Excluding the restructuring charges from both years and the one-time tax benefit from 2005, net income in 2006 increased 22% versus the comparable 2005 result.
- Gross profit, as a percentage of sales, improved one percentage point compared to the prior year, mainly from the higher sales, improved manufacturing expense absorption and favorable product mix.
- Research and Development expenses totaled 8.9% of sales compared to 9.0% in the prior year.
- Selling, General and Administrative expenses, as a percentage of sales, were 16.8% compared to 17.0% in 2005. The 2005 figures included approximately $8 million of expense relating to a product contamination issue; 2006 results include the benefit of a $3 million insurance recovery related to this matter.
- Other income (expense), net in 2006 increased $7 million over the prior year, mainly due to gains on sale of assets, partially offset by higher exchange losses.
- The effective tax rate was 28.8% compared to a rate of 21.6% in the prior year. The 2005 rate reflected the one-time $25 million tax benefit; excluding this benefit, the 2005 effective rate would have been 31.6%.
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 or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results.
Webcast and Conference call
In conjunction with the release, the Company will host a real-time webcast and teleconference to discuss its 2006 fourth quarter results. The teleconference and the webcast are scheduled for 9:00 a.m. Eastern Time on Tuesday, January 30, 2007.
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: 1-800-361-0912
Reservation Number: 3837469
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 current link under “Webcasts”.
Douglas J. Wetmore
Senior Vice President and Chief Financial Officer