International Flavors & Fragrances Inc. (NYSE: IFF), a leading global creator of flavors and fragrances for consumer products, today reported second quarter 2011 revenue of $716 million, seven percent higher than the prior year period. Excluding the impact of foreign currency, revenue in local currency increased three percent. Reported earnings per share (EPS) increased 12 percent to $0.93 compared to $0.83 for the second quarter 2010. EPS in 2011 included a $0.04 per share expense related to the conclusion of our restructuring efforts in Europe as compared to a $0.02 expense related to similar restructuring activities in the prior year period. Excluding these items from each period, adjusted EPS for the second quarter increased 14 percent to $0.97 versus $0.85 in the prior year quarter.
"We are pleased with our second quarter performance in light of our challenging 17 percent local currency sales growth comparison and the significant increases in raw material costs," said Doug Tough, Chairman and Chief Executive Officer. "The diversification of our product and geographic portfolio provided us the ability to deliver solid local currency sales growth. From a profitability perspective, our initial pricing actions and continued cost discipline helped mitigate raw material pressures to drive double-digit adjusted operating profit and adjusted EPS growth."
Mr. Tough continued, "While our first half performance was strong, it is worth noting that we will continue to face strong year-over-year comparables and elevated levels of raw material costs over the balance of the year. Nonetheless, we believe that by focusing on our strategy - leveraging our geographic reach, strengthening innovation and maximizing our portfolio - we can achieve our long-term targets of four to six percent local currency sales growth, seven to nine percent operating profit growth, and 10 percent plus EPS growth for the full year 2011."
SECOND QUARTER 2011
Flavor Business Unit
Local currency sales in the second quarter increased eight percent over the prior year period. Overall growth can once again be attributed to a double-digit performance in the emerging markets where countries such as Brazil, Russia, India and China combined grew in excess of 20 percent. In the developed markets, performance was strongest in North America as health and wellness initiatives continued to drive results. From a category perspective, growth was achieved across the entire portfolio, led by a double-digit increase in Savory and high single-digit increases in Beverage and Confectionery.
Operating profit increased 10 percent, or $6 million, to $71 million in the second quarter as accelerated sales growth and continued cost discipline drove results. Operating profit margin declined 60 bps versus the prior year period to 20.6 percent as pricing initiatives lagged raw material costs as expected.
Fragrance Business Unit
Local currency sales in the second quarter declined two percent against a record 23 percent comparable in the prior year period. Fine Fragrance & Beauty Care results were challenged by a very strong year-ago comparison of 37 percent, as net new business was more than offset by volume declines. Functional Fragrance grew slightly supported by net new business across all categories and a solid performance in the Home Care category. Fragrance Ingredients results were down year-over-year against our strongest year-ago comparison, as lower consumption rates impacted results.
Operating profit decreased by $7 million to $58 million in the second quarter, including a $4 million expense related to the conclusion of our restructuring efforts in Europe as compared to a $2 million expense related to similar restructuring activities in the prior year period. Excluding these items, adjusted operating profit declined by $5 million as double-digit increases in raw material costs and lower sales more than offset the benefits associated with the European restructuring and other profit improvement initiatives. Adjusted operating profit margin, as expected, fell 180 bps to 16.8 percent versus the year-ago period.
Sales performance by region and product category follows:
Second Quarter 2011 vs. Second Quarter 2010
Fine &
Beauty Care Functional Ingredients Total Frag. Flavors Total
North America Reported 1% 4% -3% 1% 9% 5%
EAME 1 Reported 7% 6% 0% 5% 19% 10%
Local Currency -3% -3% -7% -4% 9% 0%
Latin America Reported -8% -1% -13% -5% 7% -1%
Local Currency -11% -1% -15% -7% 4% -3%
Greater Asia Reported 1% 7% 17% 7% 15% 12%
Local Currency -1% 6% 11% 5% 8% 7%
Total Reported 1% 5% 0% 2% 14% 7%
Local Currency -4% 1% -5% -2% 8% 3%
Europe, Africa and Middle East
Second Quarter 2011 Highlights
• Gross profit, as a percentage of sales, was 39.7 percent compared with 42.8 percent in the prior year period as significant raw material increases pressured results. Sales growth, including pricing, as well as margin improvement initiatives and restructuring benefits, offset the elevated levels of raw material costs in absolute terms as gross profit was effectively flat versus year-ago levels.
• Research, Selling and Administrative (RSA) expenses, as a percentage of sales, decreased 360 bps year-over-year to 22.7 percent reflecting lower incentive compensation accruals and continued cost discipline.
• Operating profit increased $10 million to $118 million, including a $4 million expense related to the conclusion of our restructuring efforts in Europe as compared to a $2 million expense related to similar restructuring activities in the prior year period. Excluding these items, adjusted operating profit grew 11 percent, or $12 million, as lower incentive compensation accruals, foreign exchange benefits and continued cost discipline drove results. Adjusted operating profit margin increased 50 bps to 17.0 percent versus 16.5 percent in the year-ago period.
• Interest expense was constant year-over-year at $12 million.
• The effective tax rate was 27.4 percent compared to 28.3 percent in the comparable period last year. The year-over-year decrease reflects a $6 million write-off of deferred tax assets as a result of recent U.S. state law changes enacted during the quarter, substantially offset by several items, including reserve adjustments on uncertain tax positions and a favorable mix in earnings and remittances. The 2010 tax rate was also negatively affected by the absence of a U.S. R&D credit in the quarter.