IFF Reports Second Quarter 2009 Results
“I am encouraged with the progress made in the second quarter,” said
Flavors Business Unit
Local currency sales in the second quarter were slightly positive
compared to a very strong second quarter in 2008. Despite the weaker
operating environment, performance in
Worldwide Flavor sales, as reported, were down seven percent due to the
impact of the stronger U.S. dollar. Operating profit was
Fragrances Business Unit
Fragrance sales were down seven percent in local currency versus the
second quarter 2008. Fine & Beauty Care sales continued to be challenged
driven by sharp declines in retail consumption as well as supply chain
contraction in the Fine Fragrance and Fragrance Ingredients businesses.
Functional Fragrance growth resulted from new product wins and volume
gains in Fabric and Personal Wash. Functional Fragrance sales increased
three percent in local currency with growth in all regions except
Operating profit decreased by
Sales performance by region and product category follows:
% Change in Sales-Second Quarter 2009 vs Second Quarter 2008 | |||||||||||||
Fine & Beauty Care |
Functional | Ingredients | Total Frag. | Flavors | Total | ||||||||
North America | Reported | -26% | -3% | -9% | -13% | 1% | -6% | ||||||
EAME (1) | Reported | -37% | -12% | -29% | -26% | -18% | -23% | ||||||
Local Currency |
-26% | 1% | -18% | -14% | -5% | -11% | |||||||
Latin America | Reported | 8% | 2% | -5% | 3% | -1% | 2% | ||||||
Local Currency | 10% | 3% | -4% | 4% | 8% | 6% | |||||||
Greater Asia | Reported | 7% | 11% | -14% | 4% | -4% | -1% | ||||||
Local Currency | 10% | 13% | -14% | 6% | 1% | 3% | |||||||
Total | Reported | -23% | -3% | -19% | -14% | -7% | -11% | ||||||
Local Currency | -16% | 3% | -13% | -7% | 0% | -4% | |||||||
¹ Europe, Africa and Middle East |
Second Quarter 2009 Highlights
- Gross profit, as a percentage of sales, was 40.1 percent compared with 41.5 percent last year, driven by unfavorable currency impacts, continued input cost pressures and weak Fine Fragrance sales performance.
-
Research, Selling and Administrative (RSA) expenses decreased
$19 million year-over-year reflecting the effects of a stronger U.S. dollar, benefits of ongoing cost reduction efforts and reduced incentive compensation expense. The current year quarter includes$1 million related to employee separation costs compared to$3 million in 2008. Excluding employee separation costs, as a percentage of sales, RSA expenses remained flat at 24.8 percent. Within RSA, R&D expense as a percentage of sales was 8.6 percent in 2009 compared to 8.8 percent last year. -
Interest expense decreased
$4 million year-over-year principally due to the elimination of cross-currency interest rate swaps and lower borrowing costs. -
The effective tax rate was 26.1 percent as compared to a rate of 23.2
percent in the prior year quarter. The 2008 effective tax rate was
27.6 percent excluding a
$3.9 million benefit from favorable tax rulings related to prior periods. -
Cash flow from operations improved by
$9 million to $88 million for the first six months of 2009 compared to$79 million during the 2008 period.
Third Quarter Outlook
Looking ahead, Mr. Amen commented, “Our priorities for the balance of the year are to focus on helping our customers create consumer-preferred products while accelerating our cost and margin improvement initiatives. We continue to have opportunities to improve efficiency and reduce overhead. While the macroeconomic setting is expected to remain challenging through the balance of the year, I am optimistic that we will deliver improved local currency sales and margin expansion. We continue to enjoy a strong balance sheet with a substantial cash position and healthy free cash flow.”
About IFF
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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, energy and commodity prices, decline in consumer confidence and spending, significant fluctuations in the value of the U.S. dollar, and the difficulty in projecting the short and long-term effects of global economic conditions; movements in interest rates; volatility and deterioration of the capital and credit markets 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; effectiveness and cost of the Company’s hedging and risk management strategies; 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 filed with the
International Flavors & Fragrances Inc. |
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Three Months Ended |
Six Months Ended |
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2009 | 2008 |
% |
2009 | 2008 |
% |
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Net sales |
$ |
568,261 |
|
$ | 636,126 | (11 | ) |
$ |
1,127,891 |
) |
$ | 1,232,731 | (9 | ) | ||||||||
Cost of goods sold | 340,164 | 372,345 | (9 | ) | 677,594 | 723,474 | (6 | ) | ||||||||||||||
Gross margin | 228,097 | 263,781 | (14 | ) | 450,297 | 509,257 | (12 | ) | ||||||||||||||
Research and development | 48,761 | 56,166 | (13 | ) | 98,950 | 108,222 | (9 | ) | ||||||||||||||
Selling and administrative | 93,012 | 104,662 | (11 | ) | 182,436 | 194,811 | (6 | ) | ||||||||||||||
Amortization | 1,539 | 1,539 | - | 3,078 | 3,078 | - | ||||||||||||||||
Restructuring and other charges | 4,104 | (255 | ) | 4,104 | 5,967 | |||||||||||||||||
Interest expense | 14,047 | 18,545 | 33,828 | 36,764 | ||||||||||||||||||
Other (income) expense, net | 1,569 | (4,117 | ) | 406 | (1,812 | ) | ||||||||||||||||
Pretax income | 65,065 | 87,241 | (25 | ) | 127,495 | 162,227 | (21 | ) | ||||||||||||||
Income taxes | 16,982 | 20,209 | (16 | ) | 32,216 | 39,252 | (18 | ) | ||||||||||||||
Net income | $ | 48,083 | $ | 67,032 | (28 | ) | $ | 95,279 | $ | 122,975 | (23 | ) | ||||||||||
Earnings per share - basic | $ | 0.61 | $ | 0.84 | $ | 1.21 | $ | 1.53 | ||||||||||||||
Earnings per share - diluted | $ | 0.60 | $ | 0.83 | $ | 1.20 | $ | 1.52 | ||||||||||||||
Average shares outstanding (1) |
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Basic | 78,352 | 79,627 | (2 | ) | 78,273 | 79,962 | (2 | ) | ||||||||||||||
Diluted | 79,050 | 80,371 | (2 | ) | 78,898 | 80,725 | (2 | ) | ||||||||||||||
(1) Diluted shares decreased by 207 and 191 shares from the amounts reported for the three and six months ended June 30, 2008, respectively, as result of adopting FSP EITF 03-6-1 on January 1, 2009. |
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International Flavors & Fragrances Inc. |
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June 30, |
December 31, |
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Cash & short-term investments |
$ |
164,159 |
|
$ |
178,828 |
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Receivables | 509,406 | 439,768 | ||||||
Inventories | 441,007 | 479,567 | ||||||
Other current assets | 72,639 | 62,905 | ||||||
Total current assets | 1,187,211 | 1,161,068 | ||||||
Property, plant and equipment, net | 488,790 | 496,856 | ||||||
Goodwill and other intangibles, net | 723,605 | 726,683 | ||||||
Other assets | 375,932 | 365,306 | ||||||
Total assets | $ | 2,775,538 | $ | 2,749,913 | ||||
Bank borrowings and overdrafts, and current portion of long-term debt |
$ | 73,351 | $ | 101,982 | ||||
Other current liabilities | 335,058 | 349,059 | ||||||
Total current liabilities | 408,409 | 451,041 | ||||||
Long-term debt | 1,140,929 | 1,153,672 | ||||||
Non-current liabilities (1) | 506,979 | 564,558 | ||||||
Shareholders' equity (1) | 719,221 | 580,642 | ||||||
Total liabilities and shareholders' equity | $ | 2,775,538 | $ | 2,749,913 | ||||
(1) Non-current Liabilities decreased and shareholders’ equity increased by $7.5 million from the amounts reported in 2008 as a result of the reclass of noncontrolling interest in accordance with FAS 160, which was adopted on January 1, 2009. |
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International Flavors & Fragrances Inc. |
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Six Months Ended |
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2009 | 2008 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 95,279 | $ | 122,975 | ||||
Adjustments to reconcile to net cash provided by operations: | ||||||||
Depreciation and amortization | 38,263 | 42,529 | ||||||
Deferred income taxes | 7,165 | 851 | ||||||
Gain on disposal of assets |
(1,487 | ) | (684 | ) | ||||
Equity based compensation | 10,136 | 8,898 | ||||||
Changes in assets and liabilities | ||||||||
Current receivables | (58,786 | ) | (57,879 | ) | ||||
Inventories | 47,268 | (25,151 | ) | |||||
Current payables | (27,461 | ) | (16,060 | ) | ||||
Changes in other assets/liabilities | (22,840 | ) | 3,371 | |||||
Net cash provided by operations |
87,537 | 78,850 | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment | (18,545 | ) | (28,808 | ) | ||||
Purchase of investments | (1,882 | ) | (3,983 | ) | ||||
Termination of net investment hedge | (13,604 | ) | - | |||||
Proceeds from disposal of assets | 835 | 934 | ||||||
Net cash used in investing activities | (33,196 | ) | (31,857 | ) | ||||
Cash flows from financing activities: | ||||||||
Cash dividends paid to shareholders | (39,338 | ) | (37,143 | ) | ||||
Net change in bank borrowings and overdrafts | (25,878 | ) | (12,333 | ) | ||||
Proceeds from issuance of stock under stock plans | 1,507 | 2,840 | ||||||
Excess tax benefits on stock options exercised |
- | 38 | ||||||
Purchase of treasury stock | (1,967 | ) | (29,995 | ) | ||||
Net cash used in financing activities | (65,676 | ) | (76,593 | ) | ||||
Effect of exchange rates changes on cash and cash equivalents | (3,317 | ) | (2,381 | ) | ||||
Net change in cash and cash equivalents | (14,652 | ) | (31,981 | ) | ||||
Cash and cash equivalents at beginning of year | 178,467 | 151,471 | ||||||
Cash and cash equivalents at end of period | $ | 163,815 | $ | 119,490 | ||||
International Flavors & Fragrances Inc. |
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2009 | 2008 | 2009 | 2008 | |||||||||||||
Net Sales | ||||||||||||||||
Flavors | $ | 269,768 | $ | 289,794 | $ | 535,889 | $ | 563,601 | ||||||||
Fragrances | 298,493 | 346,332 | 592,002 | 669,130 | ||||||||||||
Consolidated | 568,261 | 636,126 | 1,127,891 | 1,232,731 | ||||||||||||
Operating Profit | ||||||||||||||||
Flavors | 54,594 | 56,861 | 107,434 | 113,789 | ||||||||||||
Fragrances | 34,894 | 56,339 | 70,885 | 103,235 | ||||||||||||
Global Expenses | (8,807 | ) | (11,531 | ) | (16,590 | ) | (19,845 | ) | ||||||||
Consolidated | 80,681 | 101,669 | 161,729 | 197,179 | ||||||||||||
Interest Expense | (14,047 | ) | (18,545 | ) | (33,828 | ) | (36,764 | ) | ||||||||
Other income (expense), net | (1,569 | ) | 4,117 | (406 | ) | 1,812 | ||||||||||
Income before taxes | $ | 65,065 | $ | 87,241 | $ | 127,495 | $ | 162,227 | ||||||||
Regulation G
Reconciliation Schedule
Earnings Per Share |
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2009 | ||||||||
Q2 | YTD | |||||||
EPS Reported | $ | 0.60 | $ | 1.20 | ||||
Employee Separation Costs | 0.01 | 0.01 | ||||||
Restructuring Charges | 0.03 | 0.03 | ||||||
EPS as Adjusted | $ | 0.65 | $ | 1.25 | ||||
2008 | ||||||||
Q2 | YTD | |||||||
EPS Reported | $ | 0.83 | $ | 1.52 | ||||
Employee Separation Costs | 0.03 | 0.03 | ||||||
Restructuring Charges | - | 0.06 | ||||||
Insurance Recovery | - | (0.02 | ) | |||||
Tax Adjustment | (0.05 | ) | (0.07 | ) | ||||
EPS as Adjusted | $ | 0.81 | $ | 1.51 | ||||
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The sum of EPS Reported, plus the per share effects of items added back to reconcile to EPS as Adjusted, may not equal the total EPS as Adjusted, due to rounding differences. | |||||
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 restructuring and employee separation charges, an insurance recovery related to a product contamination issue and the benefit of tax rulings relating to prior years. The adjusted information is intended to be more indicative of the Company’s core operating results. | |||||
At times, the Company may disclose free cash flow because the Company believes it is a measurement of cash flow that is available for investing and financing activities. We define free cash flow as net cash provided from operations less capital expenditures and cash dividends. Free cash flow, as we define it, may differ from similarly named measures used by other entities. |
Source:
International Flavors & Fragrances Inc.
Investor Contact:
Michael
DeVeau, Investor Relations
212-708-7164