International Flavors & Fragrances Inc. (NYSE:IFF), a leading global creator of flavors and fragrances for consumer products, today reported financial results for the first quarter ended March 31, 2014. First Quarter 2014 Results
- Reported net sales for the first quarter totaled $770 million, an increase of 6% from $728 million in the first quarter of 2013. Excluding the impact of foreign currency, local currency sales increased 7%. As expected, our January 15th acquisition of Aromor contributed approximately 1% of growth to the sales increase.
- Net income totaled $106.7 million, or $1.30 per diluted share, for the first quarter, compared with net income of $90.7 million, or $1.10 per diluted share, in the prior year first quarter.
- Adjusted EPS excludes the impact of restructuring and operational improvement initiative costs from the current year quarter, and a Spanish tax charge and other items impacting comparability from the prior year quarter. Adjusted EPS increased 11% to $1.32 per diluted share in the first quarter, up from an adjusted $1.19 per diluted share in the first quarter of 2013.
Mr. Tough continued, “This quarter we completed the acquisition of Aromor, and we are pleased to welcome their talented teams to our organization and excited about the opportunities that lie ahead. Our R&D, commercial and financial teams are working closely with Aromor to ensure a smooth integration, which is proceeding on plan and contributing to our improved results this quarter. We expect the addition of their specialty ingredients to our portfolio to enhance our creative processes and result in higher win rates. Their expertise in R&D is a real benefit to the entire organization and our joint programs will lead to a stronger IFF.”“Given our robust performance in the first quarter of 2014, our outlook for the full year remains unchanged,” concluded Mr. Tough. “We expect to achieve 5-7% top line growth, which includes a percentage point of growth from Aromor, and expect to deliver double-digit growth in adjusted operating profit and adjusted EPS. We remain highly focused on leveraging our geographic reach, strengthening our innovation platform and maximizing our portfolio to better serve our customers with high performance products and drive profitable growth for our shareholders. At the same time, we are making important strategic investments in technology, research and talent development that will support our people in serving our customers and open new avenues of growth for our Company.” First Quarter 2014 Operating Highlights
- Local currency sales growth was 7% in the emerging markets and 5% in the developed markets. Sales to the emerging markets accounted for 49% of total company sales.
- Gross profit, as a percent of sales, was 44.3% compared with 42.8% in the prior year quarter. The 150 basis point adjusted gross margin improvement was due to a high level of new wins and favorable end-use category mix, the favorable net impact of price to input costs, and cost savings initiatives.
- Research, selling and administrative (RSA) expenses, as a percent of sales, increased 10 basis points to 24.0% compared with 23.9% in the first quarter of 2013. The modest RSA increase this quarter primarily reflects the inclusion of Aromor’s results and higher incentive compensation accruals.
- Operating profit increased 13%, or $18.5 million, to $156.1 million from $137.6 million. Adjusted operating profit increased 14%, or $20.0 million, to $158.8 million from $138.8 million in the first quarter of 2013. The improvement in adjusted operating profit was primarily due to strong volume growth combined with gross margin expansion. Adjusted operating profit margin increased 150 basis points to 20.6% from 19.1% in the prior year. The results of Aromor were not significant to the consolidated financial results of the Company for the first quarter of 2014.
- Excluding items impacting comparability, the adjusted effective tax rate was 25.5%, or 150 basis points higher than the prior year adjusted effective tax rate of 24.0%. The increase in the adjusted effective tax rate was primarily driven by the absence of the U.S. R&D tax credit in the current quarter.
- Cash flow from operations was $35.0 million, or 4.5% of sales, compared with $18.7 million, or 2.6% of sales in the prior year quarter. The increased cash flow from operations reflects the absence of a $30 million pension contribution which was made in the first quarter of 2013, offset by higher incentive compensation payments in the first quarter of 2014.
- Reported net sales increased 9% to $403.7 million in the first quarter of 2014 compared with $371.5 million in the first quarter of 2013.
- Excluding the impact of foreign currency, local currency sales growth was 8%. Local currency sales growth was high single-digit in the developed markets and low single-digit in the emerging markets. The recent acquisition of Aromor contributed two percentage points of growth to the Fragrance business unit’s local currency sales growth of 8%.
- Fragrance Compounds consists of two newly-defined market categories; Fine Fragrance and Consumer Fragrances. Consumer Fragrances consists of five end-use categories: Fabric Care, Home Care, Personal Wash, Hair Care and Toiletries.
- Fragrance Compounds achieved local currency sales growth of 6% this quarter, reflecting double-digit growth in Greater Asia and North America, and solid growth in the EAME region, offset by a single-digit decline in Latin America.
- Fine Fragrance delivered double-digit local currency growth of 10% due to a high level of new wins and strong sales of our classic fragrances, particularly in the developed markets.
- Consumer Fragrance delivered solid local currency growth of 4% this quarter, compared with growth of 9% in the prior year quarter. Hair Care achieved double-digit growth and Fabric Care delivered high single-digit growth due to the continued demand for our encapsulation technology, particularly in the emerging markets.
- Fragrance Ingredients local currency sales growth of 22% this quarter includes 14% growth associated with our Aromor acquisition and 8% local currency growth excluding Aromor. Strong sales of specialty ingredients within Fragrance Ingredients, which includes the benefit of the Aromor acquisition, drove increased growth. Excluding the planned migration of modest volume to Fragrance Compounds, Fragrance Ingredients achieved growth of 12%.
- Fragrances gross margins improved over the prior year quarter primarily due to strong volume growth and favorable end-use category mix, the favorable net impact of price to input costs, and ongoing cost reduction initiatives.
- Fragrance segment profit increased 28%, or $18.8 million, to $87.2 million in the first quarter of 2014, up from $68.4 million in the first quarter of 2013. Segment profit margin increased 320 basis points to 21.6%. The improvement is due to strong volume growth, gross margin expansion, and increased cost discipline.
- Reported net sales increased 3% to $366.5 million, compared with $356.4 million in the first quarter of 2013.
- Excluding the impact of foreign currency, Flavors local currency sales growth was 5% this quarter, reflecting strong volume growth from a continued high level of wins.
- Flavors achieved double-digit local currency growth in the emerging markets, which accounted for 52% of total Flavors sales.
- On a regional basis, Latin America delivered 23% local currency sales growth due to a very high level of new wins in Beverage. Greater Asia and EAME both delivered solid local currency growth of 8% and 4%, respectively, reflecting positive single-digit growth across all end-use categories, more than offsetting weakness in North America.
- Gross margins in the Flavors business increased over the prior year quarter reflecting higher volume and favorable end-use category mix, the favorable net impact of price to input costs, and ongoing manufacturing efficiencies.
- Flavors segment profit increased 6% to $88.1 million in the first quarter of 2014, up from $83.0 million in the prior year quarter. Flavors segment profit margin increased 70 basis points to 24.0% from 23.3% in the prior year quarter, as a result of strong volume growth from new wins, gross margin improvement and disciplined cost control.
|International Flavors & Fragrances Inc. Consolidated Income Statement (Amounts in thousands except per diluted share data) (Unaudited)|
|Three Months Ended March 31,|
|Cost of goods sold||428,812||416,476||3||%|
|Research and development||61,504||59,101||4||%|
|Selling and administrative||123,733||114,653||8||%|
|Restructuring and other charges||122||—|
|Other expense (income), net||1,443||(1,069||)|
|Earnings per share - basic||$||1.31||$||1.11|
|Earnings per share - diluted||$||1.30||$||1.10|
|Average shares outstanding|
|International Flavors & Fragrances Inc. Condensed Consolidated Balance Sheet (Amounts in thousands) (Unaudited)|
|March 31,||December 31,|
|Cash & cash equivalents||$||268,584||$||405,505|
|Other current assets||174,473||189,099|
|Total current assets||1,569,851||1,652,903|
|Property, plant and equipment, net||696,234||687,215|
|Goodwill and other intangibles, net||759,316||696,197|
|Bank borrowings and overdrafts, and|
|current portion of long-term debt||$||2,291||$||149|
|Other current liabilities||482,250||560,217|
|Total current liabilities||484,541||560,366|
|Total liabilities and shareholders' equity||$||3,321,353||$||3,331,731|
|International Flavors & Fragrances Inc. Consolidated Statement of Cash Flows (Amounts in thousands) (Unaudited)|
|Three Months Ended March 31,|
|Cash flows from operating activities:|
|Adjustments to reconcile to net cash provided by operations:|
|Depreciation and amortization||22,830||19,405|
|Deferred income taxes||8,246||12,232|
|Gain on disposal of assets||(811||)||(1,085||)|
|Changes in assets and liabilities, net of Aromor acquisition:|
|Accruals for incentive compensation||(62,282||)||(43,178||)|
|Other current payables and accrued expenses||1,096||(6,766||)|
|Changes in other assets/liabilities||8,661||(11,530||)|
|Net cash provided by operating activities||34,993||18,719|
|Cash flows from investing activities:|
|Cash paid for acquisition, net of cash received (including $15 million of contingent consideration)||(102,400||)||—|
|Additions to property, plant and equipment||(33,836||)||(29,861||)|
|Proceeds from termination of life insurance contracts||12,308||793|
|Maturity of net investment hedges||(472||)||530|
|Proceeds from disposal of assets||2,042||204|
|Net cash used in investing activities||(122,358||)||(28,334||)|
|Cash flows from financing activities:|
|Cash dividends paid to shareholders||(31,743||)||—|
|Net change in revolving credit facility borrowings and overdrafts||1,309||(352||)|
|Proceeds from issuance of stock under stock plans||913||1,970|
|Excess tax benefits on stock-based payments||315||744|
|Purchase of treasury stock||(20,122||)||(14,242||)|
|Net cash used in financing activities||(49,328||)||(11,880||)|
|Effect of exchange rates changes on cash and cash equivalents||(228||)||(2,881||)|
|Net change in cash and cash equivalents||(136,921||)||(24,376||)|
|Cash and cash equivalents at beginning of year||405,505||324,422|
|Cash and cash equivalents at end of period||$||268,584||$||300,046|
|International Flavors & Fragrances Inc. Business Unit Performance (Amounts in thousands) (Unaudited)|
|Three Months Ended March 31,|
|Restructuring and other charges, net||(122||)||—|
|Operational improvement initiative costs||(2,619||)||(1,198||)|
|Other income (expense), net||(1,443||)||1,069|
|Income before taxes||$||142,933||$||127,523|
|International Flavors & Fragrances Inc. Sales Performance by Region and Category (Unaudited)|
|First Quarter 2014 vs. 2013|
|Percentage Change in Sales by Region of Destination|
|Fine Fragrances||Consumer Fragrances (*)||Fragrance Ingredients||Total Fragrances||Total Flavors||Total Consolidated|
|* Consumer Fragrances consists of five end-use categories: Fabric Care, Home Care, Personal Wash, Hair Care and Toiletries.|
|International Flavors & Fragrances Inc. Reconciliation of Income (Amounts in thousands) (Unaudited)|
|The following information and schedules provide reconciliation information between reported GAAP amounts and certain adjusted amounts. This information and schedules are not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP.|
|First Quarter 2014|
|Items Impacting Comparability|
|Reported (GAAP)||Restructuring and Other Charges||Operational Improvement Initiative Costs||Adjusted (Non-GAAP)|
|Cost of Goods Sold||428,812||(2,250||)||(a)||(369||)||(b)|
|Research and Development||61,504|
|Selling and Administrative||123,733|
|Restructuring and other charges, net||122||(122||)|
|Other (Income) expense, net||1,443|
|Income before taxes||142,933||2,372||369|
|Taxes on Income||36,226||831||90||37,147|
|Earnings per share - diluted||$ 1.30||$ 0.02||$ 0.00||$ 1.32|
|(a)||Costs related to the Fragrance Ingredients Rationalization.|
|(b)||Related to plant closing in Europe and several locations in Asia.|
|First Quarter 2013|
|Items Impacting Comparability|
|Reported (GAAP)||Operational Improvement Initiative Costs||Spanish Tax Charge||Adjusted (Non-GAAP)|
|Cost of Goods Sold||416,476||(1,198||)||415,278|
|Research and Development||59,101||59,101|
|Selling and Administrative||114,653|
|Restructuring and other charges, net||—|
|Other (Income) expense, net||(1,069||)|
|Income before taxes||127,523||1,198||128,721|
|Taxes on Income||36,826||279||(6,230||)||(b)||30,875|
|Earnings per share - diluted||$ 1.10||$ 0.01||$ 0.08||$ 1.19|
|(a)||Related to plant closings in Europe and Asia.|
|(b)||Spanish tax charge related to the 2002-2003 ruling.|