IFF Reports Fourth Quarter and Full Year Results for 2008
Excluding items affecting comparability, fourth quarter adjusted EPS
(“Adjusted EPS”) were
On a comparable basis, excluding items from both periods, 2008 full year
Adjusted EPS of
“I am generally pleased with our 2008 financial performance, especially
in light of the challenging economic and market conditions we faced this
year," said
Mr. Amen continued, “Margin pressure increased through most of 2008 as a result of higher input costs and weaker sales mix. In the fourth quarter, we were able to largely mitigate these factors and reduce the year-over-year gap in operating margins through internal improvements and cost recovery initiatives. Importantly, we made good progress against many of our strategic initiatives. I remain cautiously optimistic about 2009.”
FOURTH QUARTER 2008
Sales in local currency increased 2% versus the comparable period in
2007, whereas reported sales of
Flavors Business Unit
Local currency sales were up 3% in the 2008 quarter, driven by growth in
Fragrances Business Unit
Fragrance sales in local currency were flat versus the comparable period
last year. Lower Fine and Beauty Care sales in
Sales performance by region and product category follows:
Fourth Quarter 2008 vs. 2007 | |||||||||||||||
Percent Change in Sales by Region of Destination | |||||||||||||||
Fine & |
Functional | Ingredients | Total Frag. | Flavors | Total | ||||||||||
North America | Reported | 0% | 0% | -2% | 0% | 4% | 2% | ||||||||
EAME(1) |
Reported | -16% | -9% | -4% | -11% | -8% | -10% | ||||||||
Local Currency |
-7% | 0% | 5% | -1% | 1% | 0% | |||||||||
Latin America | Reported | -4% | -7% | 14% | -3% | 0% | -2% | ||||||||
Greater Asia | Reported | 10% | 13% | -1% | 9% | 2% | 5% | ||||||||
Local Currency | 11% | 14% | -4% | 9% | 6% | 7% | |||||||||
Total | Reported | -8% | -2% | -2% | -4% | -1% | -3% | ||||||||
Local Currency | -3% | 1% | 2% | 0% | 3% | 2% | |||||||||
(1) Europe, Africa and Middle East |
Fourth Quarter 2008 Highlights
- Gross profit, as a percentage of sales, was 39.8% compared with 40.7% in the prior year quarter, a marked improvement from the year-over-year comparison in the second and third quarters.
-
Research and Development expense decreased approximately 3% to
$52 million , largely due to a stronger U.S. dollar. As a percentage of sales, it remained flat versus 2007 at 9.7%. -
Selling and Administrative expense, as a percentage of sales,
decreased slightly to 17.5% versus 17.8% in 2007. The improvement
reflects lower incentive compensation expense (
$6 million ) and cost containment efforts offset by planned increases to support growth. -
We initiated a performance improvement plan that will affect
approximately 90 positions globally that resulted in a
$12 million restructuring charge for severance. -
Other income, net in 2008, decreased
$5 million from the prior year quarter, mainly due to a gain on asset sales in 2007. -
Interest expense totaled
$19 million , increasing$3 million compared to the 2007 quarter, primarily due to the cost of a U.S. LIBOR-EURIBOR interest rate swap. -
The effective tax rate was a 26.4% benefit compared to a 26.2% expense
in 2007. Excluding
$20 million of benefits in 2008, mainly related to tax settlements, the current quarter effective tax rate would have been 25.3% compared to 25.7% in 2007 excluding the gain on asset sales ($6 million pre-tax,$4 million after-tax).
FULL YEAR 2008
Reported sales totaled
Flavors Business Unit
Flavors delivered reported sales growth in all regions—most notably in
Fragrances Business Unit
Total Fragrance sales in local currency declined approximately 1% for
the year. This reflects good growth in
Sales performance by region and product category follows:
2008 vs. 2007 | ||||||||||||||
Percent Change in Sales by Region of Destination | ||||||||||||||
Fine & |
Functional | Ingredients | Total Frag. | Flavors | Total | |||||||||
North America | Reported | -14% | -10% | -2% | -10% | 2% | -4% | |||||||
EAME |
Reported | 2% | 8% | 6% | 5% | 7% | 6% | |||||||
Local Currency | -4% | 2% | -1% | -1% | 2% | 0% | ||||||||
Latin America | Reported | 7% | -2% | 17% | 3% | 21% | 9% | |||||||
Greater Asia | Reported | 19% | 13% | 11% | 14% | 13% | 13% | |||||||
Local Currency | 17% | 12% | 7% | 12% | 10% | 11% | ||||||||
Total | Reported | 0% | 3% | 5% | 2% | 9% | 5% | |||||||
Local Currency | -3% | 0% | 1% | -1% | 6% | 2% | ||||||||
Full Year 2008 Highlights
- Gross profit, as a percentage of sales, was 40.6% compared with 41.8% in 2007. The decline was mainly due to higher input costs and sales mix that was partially offset by volume growth in Flavors, price recovery across both business units and favorable exchange rate impacts.
- Research and Development expense, as a percentage of sales, was 8.9%, up slightly from the prior year.
-
Selling and Administrative expense, as a percentage of sales, was
16.0% in 2008 compared to 16.5% in 2007. The year 2008 includes
$3 million of expense for employee separation and the Global Shared Service implementation, as well as an insurance recovery. Excluding these items, Selling and Administrative expense would have been 15.8% of sales. The decrease reflects lower incentive compensation expense ($22 million ) partially offset by investments to support growth in emerging markets. -
Other income, net in 2008, decreased
$8 million from 2007, mainly due to asset sales in 2007. -
Interest expense totaled
$74 million compared to$42 million during the year 2007. The increase reflects borrowings incurred during the third quarter of 2007 as well as the impact of higher costs on U.S. LIBOR-EURIBOR interest rate swaps, principally during the second half of 2008. -
The effective tax rate was 18.1 % compared to a rate of 24.8 % in the
prior year. Both 2008 and 2007 included benefits principally related
to tax settlements of
$26 million and$10 million , respectively. Excluding these benefits, the 2008 effective tax rate would have been 27.3 % compared to a rate of 27.9 % for 2007. The lower effective tax rate for the current year was the result of a greater share of consolidated pre-tax earnings in lower tax jurisdictions. -
$178 million cash on-hand, significant drawdown capacity available on our multi-year credit facility as ofDecember 31, 2008 .
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Audio Web Cast
An audio Web cast, to discuss the Company's fourth quarter and full year
2008 financial results and outlook, will be held today at
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”, “anticipate”, “believe”, “outlook”, “guidance”, “may” and similar terms or variations thereof. All information concerning future revenues, tax rates or benefits, interest and other 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, especially given the current disruption in global economic conditions, including economic and recessionary pressures; energy and commodity prices; decline in consumer confidence and spending; significant fluctuations in the value of the U.S. dollar; population health and political uncertainties, and the difficulty in projecting the short and long-term effects of global economic conditions; rising interest rates; continued volatility and deterioration of the capital and credit markets, including continued disruption in the commercial paper market, and any adverse impact on our cost of and access to capital and credit; fluctuations in 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, especially given the current disruptions to such currency markets, and the impact on the availability, effectiveness and cost 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.
Certain other factors which may impact our financial results or which
may cause actual results to differ from such forward-looking statements
are also discussed in the Company’s periodic reports files with the
International Flavors & Fragrances Inc. |
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Consolidated Income Statement |
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(Amounts in thousands except per share data) |
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(Unaudited) |
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Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||
2008 | 2007 | % Change | 2008 | 2007 | % Change | |||||||||||||||||||||||
Net sales | $ | 539,103 | $ | 553,498 | -3% | $ | 2,389,372 | $ | 2,276,638 | 5% | ||||||||||||||||||
Cost of goods sold | 324,471 | 328,199 | -1% | 1,418,738 | 1,324,424 | 7% | ||||||||||||||||||||||
Gross margin | 214,632 | 225,299 | -5% | 970,634 | 952,214 | 2% | ||||||||||||||||||||||
Research & development | 52,344 | 53,898 | -3% | 212,695 | 199,023 | 7% | ||||||||||||||||||||||
Selling and administrative | 94,565 | 98,354 | -4% | 381,841 | 375,287 | 2% | ||||||||||||||||||||||
Amortization | 1,538 | 2,212 | -30% | 6,153 | 12,878 | -52% | ||||||||||||||||||||||
Curtailment Loss | - | - | - | 5,943 | ||||||||||||||||||||||||
Restructuring and other charges | 12,245 | - | 18,212 | - | ||||||||||||||||||||||||
Interest expense | 19,207 | 16,229 | 18% | 74,008 | 41,535 | 78% | ||||||||||||||||||||||
Other expense (income), net | (3,991 | ) | (9,389 | ) | (2,797 | ) | (11,136 | ) | ||||||||||||||||||||
Pretax income | 38,724 | 63,995 | -39% | 280,522 | 328,684 | -15% | ||||||||||||||||||||||
Income taxes | (10,240 | ) | 16,772 | -161% | 50,894 | 81,556 | -38% | |||||||||||||||||||||
Net income | $ | 48,964 | $ | 47,223 | 4% | $ | 229,628 | $ | 247,128 | -7% | ||||||||||||||||||
Earnings per share - basic | $0.63 | $0.59 | 7% | $2.91 | $2.86 | 2% | ||||||||||||||||||||||
Earnings per share - diluted | $0.62 | $0.58 | 7% | $2.87 | $2.82 | 2% | ||||||||||||||||||||||
Average shares outstanding | ||||||||||||||||||||||||||||
Basic | 78,128 | 80,550 | -3% | 79,032 | 86,541 | -9% | ||||||||||||||||||||||
Diluted | 78,966 | 81,694 | -3% | 79,964 | 87,633 | -9% |
International Flavors & Fragrances Inc. |
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Consolidated Condensed Balance Sheet |
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(Amounts in thousands) |
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(Unaudited) |
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December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Cash & cash equivalents | $ | 178,467 | $ | 151,471 | ||||
Short-term - investments | 361 | 604 | ||||||
Receivables | 439,768 | 450,579 | ||||||
Inventories | 479,567 | 484,222 | ||||||
Other current assets | 63,586 | 69,217 | ||||||
Total current assets | 1,161,749 | 1,156,093 | ||||||
Property, plant and equipment, net | 496,856 | 508,820 | ||||||
Goodwill and other intangibles, net | 726,683 | 732,836 | ||||||
Other assets | 376,254 | 328,565 | ||||||
Total assets | $ | 2,761,542 | $ | 2,726,314 | ||||
Bank borrowings, overdrafts, current |
$ | 101,982 | $ | 152,473 | ||||
Other current liabilities | 390,280 | 390,970 | ||||||
Total current liabilities | 492,262 | 543,443 | ||||||
Long-term debt | 1,153,672 | 1,060,168 | ||||||
Non-current liabilities | 542,497 | 505,506 | ||||||
Shareholders' equity | 573,111 | 617,197 | ||||||
Total liabilities and shareholders' equity | $ | 2,761,542 | $ | 2,726,314 |
International Flavors & Fragrances Inc. |
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Consolidated Statement of Cash Flows |
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(Amounts in thousands) |
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(Unaudited) |
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Twelve Months Ended | ||||||||
December 31, | ||||||||
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 229,628 | $ | 247,128 | ||||
Adjustments to reconcile to net cash provided by operations: | ||||||||
Depreciation and amortization | 75,986 | 82,788 | ||||||
Deferred income taxes |
7,261 |
(6,343 | ) | |||||
Gain on disposal of assets | (2,160 | ) | (13,791 | ) | ||||
Equity based compensation | 17,246 | 18,168 | ||||||
Curtailment loss | - | 5,943 | ||||||
Changes in assets and liabilities | ||||||||
Current receivables | (39,879 | ) | (32,974 | ) | ||||
Inventories | (19,736 | ) | (12,406 | ) | ||||
Current payables | (30,585 | ) | 22,298 | |||||
Changes in other assets/liabilities |
(5,246 |
) | 3,251 | |||||
Net cash provided by operations | 232,515 | 314,062 | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment | (85,395 | ) | (65,614 | ) | ||||
Net, purchase of investments | (7,198 | ) | (2,699 | ) | ||||
Proceeds from disposal of assets | 2,848 | 16,959 | ||||||
Net cash used in investing activities | (89,745 | ) | (51,354 | ) | ||||
Cash flows from financing activities: | ||||||||
Cash dividends paid to shareholders | (74,865 | ) | (76,600 | ) | ||||
Net change in bank borrowings and overdrafts | 2,902 | (129,648 | ) | |||||
Proceeds from long-term debt | 139,167 | 498,569 | ||||||
Repayments of long-term debt | (139,364 | ) | - | |||||
Proceeds from issuance of stock under stock plans | 8,609 | 50,116 | ||||||
Excess tax benefits on stock options exercised | 133 | 6,568 | ||||||
Purchase of treasury stock | (29,995 | ) | (577,001 | ) | ||||
Net cash used in financing activities | (93,413 | ) | (227,996 | ) | ||||
Effect of exchange rates changes on cash and cash equivalents | (22,361 | ) | 2,251 | |||||
Net change in cash and cash equivalents | 26,996 | 36,963 | ||||||
Cash and cash equivalents at beginning of year | 151,471 | 114,508 | ||||||
Cash and cash equivalents at end of period | $ | 178,467 | $ | 151,471 |
International Flavors & Fragrances Inc. |
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Business Unit Performance |
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(Amounts in thousands) |
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(Unaudited) |
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Three Months Ended | Twelve Months Ended | ||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||
2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Net Sales | |||||||||||||||||||
Flavors | $ | 250,707 | $ | 253,138 | $ | 1,092,544 | $ | 1,005,544 | |||||||||||
Fragrances | $ | 288,396 | $ | 300,360 | $ | 1,296,828 | $ | 1,271,094 | |||||||||||
Consolidated | $ | 539,103 | $ | 553,498 | $ | 2,389,372 | $ | 2,276,638 | |||||||||||
Operating Profit | |||||||||||||||||||
Flavors | $ | 32,479 | $ | 41,770 | $ | 197,838 | $ | 187,275 | |||||||||||
Fragrances | $ | 40,584 | $ | 36,892 | $ | 198,681 | $ | 209,812 | |||||||||||
Global Expenses | $ | (19,123 | ) | $ | 3,201 | $ | (44,786 | ) | $ | (26,976 | ) | ||||||||
Consolidated | $ | 53,940 | $ | 81,863 | $ | 351,733 | $ | 370,111 | |||||||||||
Interest Expense | $ | (19,207 | ) | $ | (16,229 | ) | $ | (74,008 | ) | $ | (41,535 | ) | |||||||
Other Income (expense), net | $ | 3,991 | $ | (1,639 | ) | $ | 2,797 | $ | 108 | ||||||||||
Income Before Taxes | $ | 38,724 | $ | 63,995 | $ | 280,522 | $ | 328,684 |
International Flavors & Fragrances Inc. | |||||||
Regulation G Reconciliation Schedule | |||||||
2008 | |||||||
Fourth Quarter |
Full Year* |
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EPS Reported | $0.62 | $2.87 | |||||
Employee separation and implementation costs |
0.05 |
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Restructuring charges | 0.10 |
0.16 |
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Insurance recovery | -0.02 | ||||||
Tax adjustment (1) | -0.22 | -0.29 | |||||
EPS as Adjusted | $0.50 |
$2.76 |
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2007 | |||||||
Fourth Quarter |
Full Year* |
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EPS Reported | $0.58 | $2.82 | |||||
Loss on curtailment | 0.04 | ||||||
Gain on asset sales | -0.05 | -0.09 | |||||
Tax adjustment (1) | -0.11 | ||||||
EPS as Adjusted | $0.53 | $2.66 | |||||
(1) Primarily, favorable tax ruling benefits | |||||||
* The sum of the individual quarter's net income per share does not equal the earnings per share for the year-to-date due to changes in average shares outstanding during the year. |
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This supplemental schedule provides adjusted non-GAAP financial information and a quantitative reconciliation of the difference between the non-GAAP financial measure and the financial measure calculated and reported in accordance with GAAP
These non-GAAP financial measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company believes that it is meaningful for investors to be made aware of and to be assisted in a better understanding of, on a period to period comparative basis, the relative impact of employee separation costs, restructuring charges, insurance recovery, Global Shared Service implementation costs, gains on asset disposals, benefit of tax settlements, and a pension curtailment charges. The adjusted information is intended to be more indicative of the Company’s core operating results.
Source:
International Flavors & Fragrances Inc.
Investor:
Richard
O'Leary, 212-708-7291
Interim CFO
or
Media:
Joseph
Faranda, 212-515-7959
VP, Marketing & Communications