IFF Reports Third Quarter 2016 Results
International Flavors & Fragrances Inc. (NYSE: IFF) (Euronext Paris: IFF) reported financial results and strategic achievements for the third quarter ended September 30, 2016.
Third Quarter 2016 Consolidated Financial Highlights
- Reported net sales for the third quarter totaled $777.0 million, an increase of 2% from $765.1 million in the third quarter of 2015. Excluding the impact of foreign exchange, currency neutral sales increased 3%, including a 1 percentage point contribution related to the acquisition of IFF | Lucas Meyer Cosmetics.
- Reported operating profit declined from $156.7 million in the third quarter of 2015 to $124.3 million in the third quarter of 2016, including a charge of $25 million related to a reserve for litigation. Excluding the impact of foreign exchange and those items that affect comparability, currency neutral adjusted operating profit decreased 4% as volume growth and the benefits associated with cost and productivity initiatives were more than offset by unfavorable mix and manufacturing performance as well as increases in research, selling and administrative costs (RSA), including planned strategic investments.
- Reported earnings per share (EPS) decreased from $1.31 per diluted share in the prior year period, to $1.12 per diluted share compared to the third quarter of 2016. Excluding the impact of foreign exchange and those items that affect comparability, adjusted currency neutral EPS declined 1%, as lower year-over-year shares outstanding and a favorable year-over-year effective tax rate were more than offset by operating profit performance.
Third Quarter 2016 Strategic Highlights: Currency Neutral Performance
Innovating Firsts : strengthen position and drive differentiation in priority R&D platforms
- Encapsulation-related sales grew strong double-digits in Personal Wash & Home Care
- Sweetness and savory modulation portfolio continued to grow double-digits
- Launched 4 new flavor molecules to build consumer-preferred products
- Commercialized a new captive fragrance ingredient to drive further differentiation
Win Where We Compete : achieve market leadership position in key markets, categories & customers
- Middle East & Africa up strong double-digits led by growth in both Flavors & Fragrances
- North America Fragrance sales +6% driven by strong double-digit growth in Fabric Care
- Home Care grew low-single-digits led by double-digit growth in Greater Asia
Become Our Customers’ Partner of Choice : attain commercial excellence
- Growth achieved across both global and regional accounts, with regionals outpacing
- First flavor and fragrance company to join the World Economic Forum
- Elected to World Business Council for Sustainable Development Executive Committee
Strengthen and Expand the Portfolio : pursue value creation through collaborations & acquisitions
- IFF | Lucas Meyer Cosmetics achieved double-digit growth on a standalone basis
- Acquired David Michael in Q4 2016 to improve share of North American Flavors business
In Q4 2016, announced intention to purchase Fragrance Resources to
North America and Germany
“In the third quarter, we continued to drive the execution of Vision 2020,” said Chairman and CEO Andreas Fibig. “In the key areas we’ve identified – encapsulation, modulation, North America, Africa and the Middle East – we continue to make progress against our strategic goals. We also accelerated our efforts in M&A recently, with the addition of approximately $160 million in expected annualized sales from David Michael and Fragrance Resources – both of which complement our strategic vision well.
“Financially, third quarter currency neutral sales grew 3%, led by an improved performance in Flavors and the contribution from the IFF | Lucas Meyer Cosmetics acquisition. Driven by new win performance, growth was achieved across both business units. From a currency neutral operating profit perspective, we anticipated performance to be muted given the timing of planned investments, yet results came in softer than expected due principally to unfavorable mix and higher manufacturing costs. As we progress in the fourth quarter, we are optimistic that sales, operating profit and EPS growth – on a currency neutral basis – will all improve sequentially.
“For the full year, despite challenging conditions given a higher level of economic uncertainty and limited volume growth by many consumer packaged goods companies, we are pleased to say that we are in a position to deliver solid top- and bottom-line growth in 2016. Longer-term, we believe that our investment in innovation will enable us to accelerate sales performance while simultaneously driving productivity improvements to ensure sustainable profit growth. We’re confident that by doing so, the cumulative benefits will lead to improved value creation for our customers, employees and shareholders.”
Fragrances Business Unit
- On a reported basis, sales increased 1%, or $4.2 million, to $410.1 million. Reported Fragrances segment profit was $85.0 million and reported segment profit margin was 20.7%.
- Currency neutral sales improved 2%, including approximately 1 percentage point related to the acquisition of IFF | Lucas Meyer Cosmetics.
- Fine Fragrances declined 3% on a reported and currency neutral basis as strong double-digit growth in Greater Asia and low single-digit growth in North America were more than offset by softness in Latin America and Western Europe.
- Consumer Fragrances was flat on a reported basis and grew 1% on a currency neutral basis led by mid-single-digit growth in Fabric Care and Personal Wash. On a geographic basis, growth was led by a high-single-digit increase in Greater Asia and mid-single-digit growth in North America.
- Fragrance Ingredients grew 9% on a reported basis and 8% on a currency neutral basis, driven by low-single digit growth on an organic basis and the contribution of sales related to the IFF | Lucas Meyer Cosmetics acquisition.
- Fragrances segment profit declined approximately 7% on a currency neutral basis as volume growth and the benefits from cost and productivity initiatives were more than offset by weaker mix, unfavorable price to input costs, manufacturing performance and RSA.
Flavors Business Unit
- On a reported basis, sales increased 2%, or $7.8 million, to $366.9 million. Reported Flavors segment profit was $77.5 million and reported segment profit margin was 21.1%.
- Currency neutral sales grew 3% led by mid-single-digit growth in Savory, Dairy and Sweet.
- EAME increased 2% on a reported basis and 5% on a currency neutral basis led by strong double-digit growth in the Middle East and Africa.
- North America was challenged as low-single-digit growth in Savory and Sweet were offset by softness in Beverage.
- Latin America increased 4% on a reported basis and 7% on a currency neutral basis as Brazil and Mexico both grew strong double-digits.
- Greater Asia increased 4% on a reported basis and 5% on a currency neutral basis led by growth in India, Asean, Indonesia and China.
- Flavors segment profit fell approximately 4% on a currency neutral basis as volume growth and the benefits from productivity initiatives were more than offset by weaker mix, unfavorable price to input costs and increases in RSA.
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 November 9, 2016.
A live webcast to discuss the Company’s third quarter 2016 financial results and outlook for the balance of the year will be held on November 8, 2016, at 10:00 a.m. EST. 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 and the impact of our actions on value creation for our customers and shareholders. 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 (20) expectations regarding the timing of closing and the benefits of the potential acquisition of Fragrance Resources (21) with respect to statements regarding the closing and potential benefits of Fragrance Resources these risks include (i) the ability of both parties to obtain required consents and (ii) other customary closing conditions. 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 legal charges/credits, 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.
521 West 57th Street
New York, NY 10019
International Flavors & Fragrances Inc.
Michael DeVeau, 212-708-7164
VP, Global Corporate Communications & Investor Relations
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