Press Release

Like-for-Like Local Currency Sales Increase 7%; Reported Sales Decline 1%

Adjusted Operating Profit Margin Expands 100 basis points to 18.9%

Reported EPS of $0.20 includes $0.88 charge for Spanish Tax Settlement

NEW YORK--(BUSINESS WIRE)--Nov. 6, 2012-- International Flavors & Fragrances Inc. (NYSE: IFF), a leading global creator of flavors and fragrances for consumer products, today reported financial results for the third quarter ended September 30, 2012.

Third Quarter 2012 Results

• Reported revenue for the quarter totaled $709.0 million, a decrease of 1% from $713.8 million in the third quarter of 2011. Excluding the impact of foreign currency, local currency sales increased 5%.
• On a like-for-like basis, which excludes the impact of proactively managing the exit of low-margin Flavors sales activities, local currency sales increased 7%.
• Reported net income totaled $16.4 million, or $0.20 per diluted share, for the third quarter. Reported net income includes $72.4 million of tax expense related to the previously announced Spanish tax settlement.
• Excluding the impact of the $72.4 million charge in the third quarter related to the Spanish tax settlement and a $0.6 million reversal of a restructuring charge in the prior year third quarter, adjusted net income increased 9% to $88.7 million versus adjusted net income of $81.8 million in the prior year period.
• Adjusted EPS grew 8% to $1.08 per share from $1.00 in the third quarter of 2011.

Management Commentary

“Continuing the trends we saw in the second quarter, both our Flavors and Fragrance Compounds businesses delivered solid top-line growth and margin recovery this quarter, reflecting the strength, stability and diversity of our business, even with ongoing economic uncertainty in many parts of the world,” said Doug Tough, Chairman and CEO of IFF. “By focusing on the execution of our strategic priorities we achieved local currency growth of 7% on a like-for-like basis, which was the highest growth we have achieved since the first quarter of 2011.”

“We saw strong momentum in every region and end-use product category, with the exception of Fragrance Ingredients. Fragrance Compounds achieved 9% local currency growth, which was the result of 10% growth in Fine and Beauty Care and 8% growth in Functional Fragrance. Flavors delivered 9% growth on a like-for-like basis, supported by double-digit growth in Beverages and Dairy, and solid growth in Savory and Sweet. These strong growth trends, as well as an improved mix of business and ongoing manufacturing efficiencies, resulted in adjusted earnings growth of 8%.”

Mr. Tough continued, “The diverse and stable nature of our business portfolio – combined with our consumer insights and customer intimacy – has enabled us to deliver strong results even in a challenged environment. Our momentum is fueled by the strategic investments we have made in emerging markets over many years, and our ability to provide customers with products that meet and surpass consumer expectations and lead to market share growth. We are committed to driving the business for the long-term and executing on our growth plans.”

Mr. Tough added, “IFF’s operations were impacted by Hurricane Sandy, resulting in short-term disruptions in power, manufacturing and information technology systems. Most of these disruptions have been resolved, due to the rapid response of our employees in implementing our disaster recovery plan. As a result, orders are being processed and shipped from all of our sites, and all our critical business systems are operational. We are currently assessing the costs and other impacts resulting from the hurricane, and we do not expect them to have a material financial impact on our fourth quarter results. Excluding these costs and other potential financial impacts, we expect our adjusted EPS to be in-line with consensus for the fourth quarter.”

Third Quarter 2012 Operating Highlights

• Local currency sales increased 5%, supported by 10% growth in the emerging markets.
• Gross profit, as a percentage of sales, was 42.5%, compared with 39.0% in the third quarter of 2011. The 350 basis point improvement is due to an improved mix of business, the benefits associated with exiting lower margin sales activities, pricing, moderating raw material cost increases, and ongoing manufacturing efficiencies.
• Research, selling and administrative (RSA) expenses, as a percentage of sales, increased 250 basis points to 23.6% compared with 21.1% in the third quarter of 2011, primarily as a result of higher incentive compensation accruals and pension expenses.
• Operating profit increased $5.6 million or 4% to $134.2 million, from $128.6 million in the third quarter of 2011. The prior year number includes a $0.6 million benefit associated with the reversal of restructuring liabilities. Excluding this item from the prior year period, adjusted operating profit increased $6.2 million, or 5%, to $134.2 million, due to new wins, pricing realization, volume and mix improvements, and manufacturing efficiencies, which more than offset higher raw material costs and incentive compensation accruals.
• Interest expense declined $0.4 million in the third quarter, reflecting lower levels of outstanding debt, mainly due to long-term debt repayments in the second half of 2011.
• Other expense, net, decreased by $3.4 million in the third quarter of 2012 compared with the third quarter of 2011, due to gains associated with the Company’s deferred compensation plan assets.
• The effective tax rate for the quarter of 86.6% includes a $72.4 million tax charge arising from the Spanish tax settlement. Excluding the impact of the Spanish tax settlement in the current quarter and the prior year restructuring benefit, the effective tax rate increased 30 basis points to 27.2% in the third quarter of 2012 from 26.9% in the prior year quarter. The marginal increase primarily reflects the absence of a U.S. R&D tax credit in the current quarter, largely offset by reduced costs of repatriation.
• Cash flows from operations for the first nine months of 2012 were $142.9 million, or 6.7% of sales, compared with $116.7 million for the first nine months of 2011, or 5.4% of sales. Cash flow from operations for 2012 includes a $105.5 million cash outflow arising from the Spanish tax settlement, and a $248.4 million cash inflow from ongoing operations. The increased cash flow in 2012 reflects the impact of lower year-over-year incentive compensation and income tax payments in the first nine months of 2012 compared with the first nine months of 2011, as well as improved earnings.

Investments in Emerging Markets

• On September 12, 2012, the Company announced the opening of a new state-of-the art liquid flavors and fragrances manufacturing plant in Jurong, Singapore, as part of its previously announced $100 million investment in Greater Asia. The new 12,000 square meter facility replaces the Company’s existing plant in the same area. The investment reflects the Company’s confidence in the future growth opportunities for both its customers and for IFF in the developing markets of Asia.
• On October 16, 2012, the Company announced that it plans to invest over $50 million in its existing flavors facility in Gebze, Turkey over the next three years. The Gebze location offers an unparalleled strategic hub into the fast-growing developing markets of Europe, the Middle East and Africa. The significant investment in creative and manufacturing capabilities in Turkey will provide additional support to current and future Flavors customers in the region. The Company anticipates opening the site in phases, with the first phase delivering significant capacity expansion and expected to be completed by Q2, 2013.

Flavors Business Unit

• Reported revenue for the third quarter was on par with the prior year quarter at $340.7 million. Excluding the impact of foreign currency, local currency sales increased 6%, marking the 27^th quarter of consecutive local currency sales growth for Flavors.
• On a like-for-like basis, which excludes the exit of lower-margin sales activities, local currency sales increased 9% in the quarter, with double-digit growth in EAME and mid to high single-digit growth in Greater Asia, North America and Latin America, supported by new wins, lower volume declines on existing business and pricing.
• On an end-use category basis, local currency growth was led by double-digit growth in Beverages and Dairy, followed by solid growth in Savory and Sweet.
• Flavors gross margins increased over the prior year quarter primarily due to favorable category mix and the impact of exiting lower-margin sales activities, which we are proactively managing to improve margins.
• Segment profit increased 7% to $76.1 million in the third quarter of 2012, up from $71.2 in the prior year quarter, driven by strong volume growth, favorable category mix and pricing realization, that more than offset higher raw material costs and ongoing investments in R&D. Segment profit margin increased 150 basis points to 22.4% from 20.9%.

Fragrances Business Unit

• Reported revenue decreased 1% to $368.3 million, compared with $373.2 million in the third quarter of 2011. Excluding the impact of foreign currency, local currency sales increased 5% in the third quarter, due to 10% growth in Fine and Beauty Care and 8% growth in Functional Fragrance.
• Sales of Fragrance Ingredients declined 12% in local currency in the third quarter of 2012 due to continued volume declines in commodity products.
• Sales of Fragrance Compounds, which includes Fine and Beauty Care and Functional Fragrance, increased 9% in local currency in the third quarter of 2012. This marked the second consecutive quarter of accelerated growth in Fragrance Compounds. The third quarter local currency sales growth reflects double-digit growth in Fine Fragrance, Toiletries and Personal Wash. The emerging markets grew in the high single-digits this quarter, led by 15% local currency sales growth in the Latin America region.
• Fragrances gross margins increased over the prior year quarter primarily due to ongoing cost reduction initiatives, new wins, favorable category mix, and continued pricing to offset higher input costs.
• Segment profit increased 11% to $65.3 million in the third quarter of 2012, up from $58.7 million in the prior year quarter. The improved segment profit is due to improved category mix and pricing, combined with ongoing cost discipline and benefits from the strategic realignment plan announced in the first quarter of 2012. Segment profit margin increased 200 basis points to 17.7% from 15.7%.

Audio Webcast

A live webcast to discuss the Company's third quarter 2012 financial results, and fourth quarter and full year 2012 outlook will be held today, November 6, 2012, at 10:00 a.m. EST. Investors may access the webcast and accompanying slide presentation on the Company's website at www.iff.com under the Investor Relations section. For those unable to listen to the live broadcast, a recorded version of the webcast will be made available on the Company's website approximately one hour after the event and will remain available on IFF’s website for one year.

About IFF

International Flavors & Fragrances Inc. (NYSE: IFF) is a leading global creator of flavors and fragrances used in a wide variety of consumer products. Consumers experience these unique scents and tastes in fine fragrances and beauty care, detergents and household goods, as well as beverages, sweet goods and food products. The Company leverages its competitive advantages of consumer insight, research and development, creative expertise, and customer intimacy to provide customers with innovative and differentiated product offerings. A member of the S&P 500 Index, IFF has more than 5,600 employees working in 32 countries worldwide. For more information, please visit our website at www.iff.com.

Cautionary Statement Under The Private Securities Litigation Reform Act of 1995

This press release includes “forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995, including statements regarding (i) the Company’s expectation regarding the timing and investment required for its facility expansion plans, (ii) the Company’s ability to capitalize on the strategic investments made in emerging markets, (iii) the Company’s estimates of the direct and indirect costs resulting from Hurricane Sandy that it may incur in the fourth quarter, (iv) the Company’s belief that all critical business systems are operational and (v) the Company’s belief that, excluding the costs and other potential financial impact of Hurricane Sandy, it will be able to deliver adjusted EPS in the fourth quarter generally in line with market consensus, These forward-looking statements are qualified in their entirety by cautionary statements and risk factor disclosures contained in the Company’s Securities and Exchange Commission filings, including the Company’s Annual Report on Form 10-K filed with the Commission on February 28, 2012. The Company wishes to caution readers that certain important factors may have affected and could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. With respect to the Company’s expectations regarding these statements, such factors include, but are not limited to: (1) the economic climate for the Company’s industry and demand for the Company’s products; (2) the ability of the Company to successfully implement its recent restructuring initiative and achieve the estimated savings; (3) fluctuations in the price, quality and availability of raw materials; (4) decline in consumer confidence and spending; (5) changes in consumer preferences; (6) the Company’s ability to predict the short and long-term effects of global economic conditions; (7) movements in interest rates; (8) the Company’s ability to implement its business strategy, including the achievement of anticipated cost savings, profitability, realization of price increases and growth targets; (9) the Company’s ability to successfully develop new and competitive products and enter and expand its sales in new and other emerging markets; (10) the impact of currency fluctuations or devaluations in the Company’s principal foreign markets; (11) unanticipated costs and construction delays in the expansion of the Company’s facilities; (12) any adverse impact on the availability, effectiveness and cost of the Company’s hedging and risk management strategies; (13) uncertainties regarding the outcome of, or funding requirements, related to litigation or settlement of pending litigation, uncertain tax positions or other contingencies; (14) the impact of possible pension funding obligations and increased pension expense, particularly as a result of changes in asset returns or discount rates, on the Company’s cash flow and results of operations; (15) 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; (16) adverse changes in federal, state, local and foreign tax legislation or adverse results of tax audits, assessments, or disputes; (17) the direct and indirect costs and other financial impact that may result from any business disruptions due to political instability, armed hostilities, incidents of terrorism, natural disasters, including Hurricane Sandy, or the responses to or repercussion from any of these or similar events or conditions; (18) the Company’s ability to quickly and effectively implement its disaster recovery and crisis management plans, and (19) adverse changes due to accounting rules or regulations. New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risks on the Company’s business. Accordingly, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

The following information and schedules provide reconciliation information between reported GAAP amounts and certain adjusted amounts. This information and schedules is not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP.

The following information and schedules provide reconciliation information between reported GAAP amounts and certain adjusted amounts. This information and schedules is not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP.

Source: International Flavors & Fragrances Inc.

International Flavors & Fragrances Inc.
Investor Relations:
Shelley Young, 212-708-7271
Director, Investor Relations