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International Flavors & Fragrances' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Please keep in mind that all numbers referenced, unless specifically stated otherwise, are on a comparable basis, which exclude items that impact comparability to accurately reflect on how IFF manages business. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as defined in regulation G, is available under the Investor Relations section of iff.com.

I would now like introduce Doug Tough, Chairman and CEO. You may begin.

Douglas D. Tough

Thank you, operator. And good morning and good afternoon, everyone. Michael DeVeau, our Head of Investor Relations, is unable to join us today as he is participating in an offsite weeklong, IFF leadership development program. He asked that I remind anyone who has follow-up questions to please contact him by e-mail and he will respond as soon as he gets a moment.

Now reviewing our Q1 results. Excluding a 2-percentage-point impact related to foreign currency, the diversity and the strength of our category and geographic presence allowed us to continue to grow our business as worldwide local currency sales increased 1% in the first quarter, on top of the 9% growth we reported a year ago.

In Flavors, local currency sales increased 5%, or 3% on a reported basis, led by double-digit performance in the emerging markets. If we exclude a 1 percentage point impact associated with an intentional, strategic exit of low-margin businesses in the year ago period, local currency sales on a like-for-like basis, or as we refer to it, LFL, grew 6%.

As expected, Fragrance results were pressured by volume declines in ingredients, which had a 300-basis-point impact on total local currency Fragrance sales, as well as a challenging year ago comparison when Fine & Beauty Care grew 14% in local currency.

We were encouraged by the trends seen throughout the quarter as each month improved sequentially, a trend that has continued in the month of April. From a profitability perspective, despite a pricing benefit of nearly 3%, overall gross margin declined 140 basis points due to a 9% increase in raw material costs. This was an improvement relative to the fourth quarter when gross margin was down 220 basis points from the previous year.

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