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IFF Reports First Quarter 2008 Results
Earnings per share as reported were $.69 in both the first quarter of 2008 and 2007. The 2008 first quarter results include pre-tax restructuring charges of $6.2 million or $.06 per share related to employee separation costs due to the elimination of approximately 125 positions in support functions. Excluding these charges, earnings per share would have been $.75, a 9 percent increase over the same period last year.
Operating profit for the quarter was 16.0 percent of sales, including the pre-tax restructuring charges of $6.2 million, compared to 16.8 percent in the prior year period.
"We are very pleased with the continued strength of our Flavors business, which has delivered market share growth for seven consecutive quarters," commented Robert M. Amen, Chairman and Chief Executive Officer. "Our Fragrance business results were mixed. Functional Fragrance sales were strong in Asia and Europe, although this performance was offset by weakness in Global Fine Fragrance and North America Functional Fragrance sales.
"Despite the challenging U.S. economic environment, which we anticipate will continue for some time, we remain confident about our growth prospects -- particularly in the emerging markets -- and our ability to deliver on our financial goals."
Flavors Business Unit
Flavor sales increased 12 percent over first quarter 2007 due to market share gains from new wins and volume growth of existing business. Growth was especially strong in Latin America and Asia. Excluding the impact of currencies, sales growth for Flavors was up 8 percent.
Fragrance Business Unit
In comparison to first quarter 2007, Fragrance sales were flat, primarily because strong growth in the Greater Asia and European regions was offset by weak demand for fragrances in North America. Fragrance Ingredient sales were 6 percent lower due to weaker demand in North America and Europe and a planned shift in product mix to enable gross margin improvement.
First Quarter 2008 Overview
- Gross profit, as a percentage of sales, was 41.1 percent compared with 41.8 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. Product mix, mainly lower sales of fine and beauty care compounds, and some impact of higher material costs also affected margins; the average cost of raw materials increased 4 percent over the prior year quarter.
- Research and Development spending, as a percentage of sales, was 8.7 percent, higher than the 8.2 percent in the first quarter 2007, and equal to the rate of spend for the full year 2007.
- Selling and Administrative expenses, as a percentage of sales, declined to 15.1 percent as compared to 16.1 percent in the first quarter of 2007. The 2008 expenses included the benefit of a $2.6 million insurance recovery related to a 2005 product contamination matter.
- Interest expense totaled $18 million as compared to $8 million in 2007, due to higher borrowings incurred in connection with the 2007 accelerated share repurchase program. Average cost of debt was 5.9 percent for 2008 compared to 4.1 percent in 2007.
- The Company's first quarter effective tax rate was 25.4 percent compared to 28.0 percent in the prior year quarter. The 2008 first quarter benefited from favorable tax rulings with respect to prior periods; excluding the benefit of these favorable rulings, the effective tax rate for the first quarter would have been 28.2 percent.
- Average number of diluted shares (in thousands) was 81,253 compared to 90,658 in the prior year quarter.
About International Flavors & Fragrances Inc.
IFF is a leading 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 first quarter 2008 financial results and outlook, will be held today 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 May 15, 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 price, 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) Quarter ended March 31, 2007 2008 % Change Net sales $566,101 $596,605 5% Cost of goods sold 329,382 351,123 7% Gross margin 236,719 245,482 4% Research & development 46,632 52,056 12% Selling and administrative 91,271 90,149 -1% Amortization 3,556 1,538 -57% Restructuring and other charges - 6,222 Interest expense 8,314 18,219 Other expense (income), net (167) 2,307 Pretax income 87,113 74,991 -14% Income taxes 24,424 19,043 -22% Net income $62,689 $55,948 -11% Earnings per share - basic $0.70 $0.70 - Earnings per share - diluted $0.69 $0.69 - Average shares outstanding Basic 89,378 80,296 -10% Diluted 90,658 81,253 -10% International Flavors & Fragrances Inc. Consolidated Condensed Balance Sheet (Amounts in thousands) (Unaudited) December 31, March 31, 2007 2008 Cash and cash equivalents $151,471 $60,458 Short-term investments 604 706 Receivables 450,579 508,167 Inventories 484,222 512,034 Other current assets 103,602 98,775 Total current assets 1,190,478 1,180,140 Property, plant and equipment, net 508,820 523,420 Goodwill and other intangibles, net 732,836 731,298 Other assets 294,654 305,997 Total assets $2,726,788 $2,740,855 Bank borrowings and overdrafts $152,473 $152,869 Other current liabilities 386,423 365,120 Total current liabilities 538,896 517,989 Long-term debt 1,060,168 1,071,342 Non-current liabilities 510,527 568,373 Shareholders' equity 617,197 583,151 Total liabilities and shareholders' equity $2,726,788 $2,740,855 International Flavors & Fragrances Inc. Consolidated Statement of Cash Flows (Amounts in thousands) (Unaudited) March 31, March 31, 2007 2008 Cash flows from operating activities: Net income $62,689 $55,948 Adjustments to reconcile to net cash provided by operations: Depreciation and amortization 21,139 19,494 Deferred income taxes 11,695 21 Loss (gain) on disposal of assets (815) 72 Equity based compensation 4,277 3,885 Changes in assets and liabilities: Current receivables (38,454) (34,802) Inventories 1,648 (4,897) Current payables (62,771) (48,814) Changes in other assets 2,591 (12,023) Changes in other liabilities 1,147 28,757 Net cash provided by operations 3,146 7,641 Cash flows from investing activities: Net change in short-term investments (277) (115) Additions to property, plant and equipment (8,590) (11,966) Purchase of (proceeds from) investments 4,380 (3,784) Proceeds from disposal of assets 452 471 Net cash used in investing activities (4,035) (15,394) Cash flows from financing activities: Cash dividends paid to shareholders (18,764) (18,628) Net change in bank borrowings and overdrafts 1,903 (36,568) Proceeds from issuance of stock under stock-based compensation plans 15,764 2,314 Excess tax benefits on stock options exercised 1,732 - Purchase of treasury stock (31,480) (29,995) Net cash used in financing activities (30,845) (82,877) Effect of exchange rate changes on cash and cash equivalents 431 (383) Net change in cash and cash equivalents (31,303) (91,013) Cash and cash equivalents at beginning of year 114,508 151,471 Cash and cash equivalents at end of period $83,205 $60,458 International Flavors & Fragrances Q1 2008 Segment Profit (Amounts in Thousands) (Unaudited) Three Months Ended March 31, 2008 Global (DOLLARS IN THOUSANDS) Flavors Fragrances Expenses Consolidated Net sales $273,807 $322,798 - $596,605 Operating profit $56,928 $46,896 $(8,307) $95,517 Interest expense (18,219) Other income (expense), net (2,307) Income before taxes $74,991 Three Months Ended March 31, 2007 Global (DOLLARS IN THOUSANDS) Flavors Fragrances Expenses Consolidated Net sales $243,442 $322,659 - $566,101 Operating profit $44,814 $58,868 $(8,422) $95,260 Interest expense (8,314) Other income (expense), net 167 Income before taxes $87,113
SOURCE International Flavors & Fragrances Inc.