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International Flavors & Fragrances' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Our diversity in terms of our customers, our end-use categories and our geographic footprint allowed us to continue to grow our business this quarter and deliver local currency sales growth of 4% and on a like-for-like basis, local currency sales growth of 5%. The growth we achieved this quarter, the highest since the first quarter of 2011 is due to the momentum we have established in many areas of the business. Our global reach and our customer intimacy enable us to better serve our customers and capitalize on opportunities that are available today for market share growth.

IFF’s growth this quarter was driven by our Flavors business, which delivered 8% local currency growth on top of 8% local currency growth in the prior year quarter. The year-over-year performance reflects the balanced and the consistent nature of our business, and a strong and growing presence we have in emerging markets. We also saw growth in our Fragrance Compounds business this quarter, which delivered 6% local currency sales growth.

Solid growth in both the Fine & Beauty Care and the Functional Fragrance categories offset continued erosion in Ingredients. Nicolas Mirzayantz will provide more details on our Ingredients business later in the call. As anticipated this quarter was an inflection point for our business in terms of volume, costs and profitability and we are pleased with the results.

Raw material cost increases started to ease this quarter. However, they remain at high levels. As you know, raw material prices have been increasing for the last five quarters on average by 11% each quarter. We have been able to mitigate this inflation through pricing resulting in a more favorable relationship between raw material price increases and pricing this quarter.

Our other margin enhancing efforts including cost efficiencies and volume leverage when combined with pricing led to gross margins expanding 210 basis points to 41.8% this quarter versus 39.7% in the year-ago and 40.2% in the first quarter of 2012. Our adjusted operating profit increased 8% to $132.3 million driven by gross margin expansion and our cost management discipline. Our adjusted operating margin expanded 130 basis points to 18.3% of sales from the second quarter of 2011.

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