NEW YORK–(BUSINESS WIRE)– International Flavors & Fragrances Inc. (NYSE: IFF) (Euronext Paris: IFF) reported financial results and strategic achievements for the second quarter ended July 1, 2016.
Second Quarter 2016 Consolidated Financial Highlights
- Reported net sales for the second quarter totaled $793.5 million, an increase of 3% from $767.5 million in the second quarter of 2015. Excluding the impact of currency, currency neutral sales increased 4%, including a 2 percentage point contribution related to the acquisition of IFF | Ottens Flavors and IFF | Lucas Meyer Cosmetics.
- Reported operating profit totaled $164.5 million, an increase of 11% from $148.8 million in the second quarter of 2015. Adjusted operating profit and currency neutral adjusted operating profit both increased 7% to $165.7 million in the second quarter of 2016, driven primarily by volume growth, benefits associated with cost and productivity initiatives, and the contribution of acquisitions.
- Reported earnings per share (EPS) increased 13% to $1.46 per diluted share compared with $1.29 per diluted share in the prior year second quarter. Adjusted EPS increased 8% to $1.47 per diluted share compared with $1.36 per diluted share in the prior year second quarter. Excluding the impact of foreign exchange, adjusted currency neutral EPS increased 5% driven by lower year-over-year shares outstanding, offset by higher interest expense and a higher effective tax rate.
Second Quarter 2016 Strategic Highlights: Currency Neutral Performance
Innovating Firsts: strengthen position and drive differentiation in priority R&D platforms
- Sweetness and savory modulation portfolio continued to grow strong double-digits
- Encapsulation-related sales increased double-digits led by Fabric Care and Personal Wash
- Launched new natural flavor modulator and new natural flavor molecule
- Debuted first-ever Cradle to Cradle Certified™ fragrance: PuraVita™
Win Where We Compete: achieve market leadership position in key markets, categories & customers
- North America sales +5% driven primarily by the contribution of acquisitions
- Middle East & Africa up mid-single-digits with strong growth in Flavors
- Home Care grew mid-single-digits led by double-digit growth in North America & EAME
Become Our Customers’ Partner of Choice: attain commercial excellence
- Launched enhanced sustainability strategy focused on positive transformational changes toward a regenerative, healthy and abundant world
- Achieved core list status with key customer
- Partnered with Unilever to improve the lives of vetiver farming communities in Haiti
- Deployed industry-first on-site wind turbine at Tilburg, Netherlands facility
Strengthen and Expand the Portfolio: pursue value creation through collaborations & acquisitions
- IFF | Lucas Meyer Cosmetics achieved double-digit growth on a standalone basis
- IFF | Ottens Flavors posted solid growth on a standalone basis led by regional customers
- IFF | Lucas Meyer Cosmetics invested in Bio ForeXtra to Expand Raw Material Access
“As we celebrate the first anniversary of the launch of Vision 2020, we are proud of the performance we made relative to our strategic priorities,” said Chairman and CEO Andreas Fibig. “Since inception, we’ve seen strong currency neutral sales growth across all of our key platforms – modulation, encapsulation, delivery systems and naturals – proof that we are executing our plan and delivering industry-leading innovation to our customers. We also made strong in-roads in improving our market position in key countries, strengthening our relationships with many of our customers and actively pursuing value creation opportunities through collaborations and acquisitions.
“With respect to the second quarter of 2016, we are pleased to report our performance was consistent with our expectations for all of our key financial metrics. Currency neutral sales growth of 4% was driven by new wins across both businesses and the benefits associated with our strategic acquisitions. Adjusted operating profit and adjusted EPS, on a currency neutral basis, both grew faster than sales led by volume growth, cost and productivity initiatives and acquisitions. We achieved these financial results as we continued to strategically reinvest in the business to drive long-term growth.
“As we have started the year well – first half currency neutral sales grew 5% and currency neutral adjusted operating profit and adjusted EPS were up 7% and 8% respectively – we remain cautiously optimistic in achieving our previously stated currency neutral guidance given the continued macroeconomic uncertainty.”
Fragrances Business Unit
- On a reported basis, sales increased 5%, or $18.9 million, to $414.0 million. Reported Fragrances segment profit increased 10%, or $7.7 million, to $87.6 million and reported segment profit margin expanded 100 basis points to 21.2%.
- Currency neutral sales improved 5%, including approximately 3 percentage points related to the acquisition of IFF | Lucas Meyer Cosmetics.
- Fine Fragrances decreased 1% on a reported and currency neutral basis as strong double-digit growth in Latin America was offset by softness in North America and EAME.
- Consumer Fragrances grew 4% on a reported and currency neutral basis driven by broad- based growth across all sub-categories led by a double-digit increase in Personal Wash and strong contributions from Fabric and Home Care. On a geographic basis, growth was led by a double-digit increase in Greater Asia and high-single-digit growth in North America.
- Fragrance Ingredients grew 15% on a reported basis and 14% on a currency neutral basis, inclusive of sales related to the IFF | Lucas Meyer Cosmetics acquisition.
- Fragrances segment profit improved approximately 7% on a currency neutral basis as a result of volume growth, benefits from cost and productivity initiatives, and the acquisition of IFF | Lucas Meyer Cosmetics. Segment profit margin expanded 40 basis points to 21.2% on a currency neutral basis.
Flavors Business Unit
- On a reported basis, sales increased 2%, or $7.0 million, to $379.5 million. Reported Flavors segment profit increased 8% to $90.3 million from $84.0 million, and reported segment profit margin improved 120 basis points to 23.8%.
- Currency neutral sales grew 3%, including approximately 1 percentage point related to the acquisition of IFF | Ottens Flavors, as all categories improved year-over-year.
- EAME increased 3% on a reported basis and 4% on a currency neutral basis led by high-single-digit currency neutral growth in the Middle East and Africa and broad-based growth across Western Europe and Eastern Europe.
- North America improved 4%, principally reflecting the contribution of additional sales related to the acquisition of IFF | Ottens Flavors.
- Latin America decreased 10% on a reported basis and 7% on a currency neutral basis. Mexico grew strong double-digits on a currency neutral basis; however; performance was offset by challenges related to customers reducing their inventory positions due to the softening of import restrictions in Argentina.
- Greater Asia increased 4% on a reported basis and 6% on a currency neutral basis led by strong growth in Indonesia, India and Asean.
- Flavors segment profit grew approximately 9% on a currency neutral basis primarily resulting from volume growth and the benefits from cost and productivity initiatives. Segment profit margin expanded 120 basis points to 23.8% on a currency neutral basis.
A copy of the Company’s Quarterly Report on Form 10-Q will be available on its website at www.iff.com or at sec.gov by August 10, 2016.
A live webcast to discuss the Company’s second quarter 2016 financial results will be held on August 9, 2016, at 10:00 a.m. EDT. Investors may access the webcast and accompanying slide presentation on the Company’s IR website at ir.iff.com. For those unable to listen to the live webcast, a recorded version 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.
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 our outlook for fiscal year 2016. 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 March 1, 2016. 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 Company’s ability to implement its Vision 2020 strategy; (2) the Company’s ability to successfully identify and complete acquisitions in line with its Vision 2020 strategy, and to realize the anticipated benefits of those acquisitions; (3) the Company’s ability to effectively compete in its market, and to successfully develop new and competitive products that appeal to its customers and consumers; (4) changes in consumer preferences and demand for the Company’s products or a decline in consumer confidence and spending; (5) the Company’s ability to benefit from its investments and expansion in emerging markets; (6) the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates, including the devaluation of the Euro; (7) the economic and political risks associated with the Company’s international operations, including challenging economic conditions in China and Latin America; (8) the impact of any failure of the Company’s key information technology systems or a breach of information security; (9) the Company’s ability to attract and retain talented employees; (10) the Company’s ability to comply with, and the costs associated with compliance with U.S. and foreign environmental protection laws; (11) the Company’s ability to realize expected cost savings and efficiencies from its profitability improvement initiative and other optimization activities; (12) volatility and increases in the price of raw materials, energy and transportation; (13) fluctuations in the quality and availability of raw materials; (14) the impact of a disruption in the Company’s supply chain or its relationship with its suppliers; (15) any adverse impact on the availability, effectiveness and cost of the Company’s hedging and risk management strategies; (16) the Company’s ability to successfully manage its working capital and inventory balances; (17) uncertainties regarding the outcome of, or funding requirements related to litigation or settlement of pending litigation uncertain tax positions or other contingencies; (18) the effect of legal and regulatory developments, as well as restrictions or costs that may be imposed on the Company or its operations by U.S. and foreign governments; (19) adverse changes in federal, state, local and international tax legislation or policies, including with respect to transfer pricing and state aid, and adverse results of tax audits, assessments, or disputes; and (19) changes in market conditions or governmental regulations relating to our pension and postretirement obligations. 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 revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Use of Non-GAAP Financial Measures
We provide in this press release (1) Currency Neutral Sales, (2) Adjusted Operating Profit and Currency Neutral Adjusted Operating Profit and (3) Adjusted EPS and Currency Neutral Adjusted EPS, which exclude restructuring costs and other significant items of a non-recurring and/or nonoperational nature such as operational improvement initiatives and acquisition related costs (often referred to as “Items Impacting Comparability”) and, with respect to the currency neutral items, the impact of foreign currency movements. We provide these metrics as we believe that they are useful in providing period to period comparisons of the results of our operational performance. When we provide our expectations for our currency neutral metrics in our full year 2016 guidance, we estimate the anticipated FX impact by comparing prior year results to the prior year results restated at exchange rates in effect for the current year based on the currency of the underlying transaction. When we provide our expectations for our Adjusted Operating Profit and our Adjusted EPS in our full year 2016 guidance, the closest corresponding GAAP measures (expected reported Operating Profit and EPS) and a reconciliation of the differences between the non-GAAP expectation and the corresponding GAAP measure generally are not available without unreasonable effort due to inherent difficulty of forecasting the timing and amount of reconciling items that would be excluded from the GAAP measure in the relevant future period and the relevant tax impact of such reconciling items on EPS. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results. Currency Neutral Sales, Adjusted Operating Profit, Currency Neutral Adjusted Operating Profit, Adjusted EPS and Currency Neutral Adjusted EPS should not be considered in isolation or as substitutes for analysis of the Company’s results under GAAP and may not be comparable to other companies’ calculation of such metrics.
International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris: IFF) is a leading innovator of sensorial experiences that move the world. At the heart of our company, we are fueled by a sense of discovery, constantly asking “what if?”. That passion for exploration drives us to co-create unique products that consumers taste, smell, or feel in fine fragrances and beauty, detergents and household goods, as well as beloved foods and beverages. Our 6,700 team members globally take advantage of leading consumer insights, research and development, creative expertise, and customer intimacy to develop differentiated offerings for consumer products. Learn more at www.iff.com, Twitter , Facebook, Instagram, and LinkedIn.
International Flavors & Fragrances Inc.
Michael DeVeau, 212-708-7164
VP, Global Corporate Communications & Investor Relations