IFF Reports Second Quarter 2018 Results
International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris:IFF) reported financial results and strategic achievements for the second quarter ended June 30, 2018.
“Top-line trends remained strong in the second quarter, marking the fourth consecutive quarter of mid-single digit growth,” said IFF Chairman and CEO Andreas Fibig. “Performance was broad-based, as all regions and categories improved versus prior year, driven by new wins and price increases needed to compensate for raw material inflation. In particular, we continued to see robust growth with our local and regional customers, as well as in the emerging markets - both of which grew high-single digits. In terms of bottom-line performance, we delivered a high-single digit improvement in adjusted currency neutral EPS.
“Based on our strong year-to-date performance and our current outlook for the balance of the year, we are reconfirming our previously stated full year currency neutral guidance.
“We are progressing toward the completion of our combination with Frutarom announced during the second quarter. We received Frutarom shareholder approval, as well as antitrust approval in the United States and Israel and we now expect to close in the fourth quarter - earlier than our previously communicated timeline, pending the remaining regulatory approvals. The integration planning process is well underway and, after nearly three months, we are more enthusiastic than ever about the opportunities ahead of us.
“Together with Frutarom, IFF expects to deliver accelerated growth and offer our customers a stronger, more differentiated portfolio of integrated solutions, allowing us to expand beyond our core taste and scent businesses into nutrition. We continue to focus on driving differentiation via R&D, balancing our customer base by emphasizing fast-growing small and mid-sized customers and maximizing our portfolio by expanding into fast-growing and diverse adjacencies. Our combination, especially in the context of the strong performance both companies continue to deliver, is expected to result in significant value creation for our shareholders. We could not be more excited about what the future holds.”
Second Quarter 2018 Consolidated Financial Highlights
Reported net sales for the second quarter totaled $920 million, an
increase of 9% from
$843 million in 2017. Excluding the impact of foreign exchange, currency neutral sales increased 5% over the prior year.
- Reported operating profit for the second quarter was $155 million versus $152 million reported in 2017, an increase of 2%. Excluding the impact of foreign exchange and those items that affect comparability, currency neutral adjusted operating profit decreased by 2%.
- Reported earnings per share (EPS) for the second quarter was $1.25 per diluted share versus $1.38 per diluted share reported in 2017. Excluding the impact of foreign exchange and those items that affect comparability, currency neutral adjusted EPS improved 8%.
Flavors Business Unit
- On a reported basis, sales increased 9%, or $36.2 million, to $450.5 million. Currency neutral sales grew 6% driven by growth in all categories and all regions.
- EAME increased 16% on a reported basis and 5% on a currency neutral basis, led by strong double-digit growth in Africa and the Middle East as well as mid-single digit growth in Europe. Growth was achieved across all categories, led by strong performances in Dairy, Beverage and Savory.
- North America improved 9% driven by high-single-digit growth at Tastepoint℠ and strong new wins in Beverage, Dairy and Sweet.
- Latin America increased 5% on a reported basis and 8% on a currency neutral basis led by strong double-digit growth in Argentina and Mexico. On a category basis, strong double-digit growth was achieved in Savory and Dairy as well as mid-single digit growth in Beverage.
- Greater Asia increased 5% on a reported basis and 2% on a currency neutral basis, as strong double-digit growth in China and India was largely offset by softness in Indonesia and Thailand. On a category basis, growth was strongest in Savory, Sweet and Dairy.
- Flavors segment profit increased 13% on a reported basis and 6% on a currency neutral basis, driven primarily by volume growth and the benefits from productivity initiatives.
Fragrances Business Unit
- On a reported basis, sales increased 10%, or $40.9 million, to $469.5 million. Currency neutral sales improved 5%, with broad-based growth from all categories and nearly all regions.
- Fine Fragrances increased 7% on a reported basis and 1% on a currency neutral basis led by double-digit growth in LATAM and low-single-digit growth in North America.
- Consumer Fragrances grew 8% on a reported basis and 5% on a currency neutral basis with growth achieved in all categories. Performance was led by double-digit growth in Hair Care as well as mid-single-digit increases in Toiletries, Home Care & Fabric Care. On a geographic basis, growth was broad-based, with all regions contributing positively to the results.
- Fragrance Ingredients grew 16% on a reported basis and 10% on a currency neutral basis, with increases in three of the four regions.
- Fragrances segment profit was flat on a reported basis and decreased 9% on a currency neutral basis as volume growth and the benefits from productivity initiatives were more than offset by the impact of higher raw material costs, net of price increases, including the previously announced citral supply issue.
A live webcast to discuss the Company’s second quarter 2018 financial results will be held on August 8, 2018, at 10:00 a.m. ET. 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 in our full year 2018 guidance, the expected timeline for completion and impact of the combination with Frutarom,
including our focus to drive differentiation, balance our customer base, maximize our portfolio and our ability to deliver growth across all of our key financial metrics, and the impact of our actions on value creation for our 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 February 27, 2018 and subsequent filings with the SEC, including the Company’s Quarterly Reports on Form 10-Q. 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 inability to obtain required regulatory approvals for the Frutarom acquisition, the timing of obtaining such approvals and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the acquisition; (2) the risk that a condition to closing of the Frutarom acquisition may not be satisfied on a timely basis or at all; (3) the failure of the proposed Frutarom transaction to close for any other reason; (4) uncertainties as to access to available financing (including financing for the acquisition or refinancing of Company or Frutarom debt) on a timely basis and on reasonable terms; (5) the impact of the Company’s proposed financing on its liquidity and flexibility to respond to other business opportunities; (6) whether the acquisition will have the accretive effect on the Company’s earnings or cash flows that it expects; (7) the inability to obtain, or delays in obtaining, cost savings and synergies from the Frutarom acquisition; (8) costs and difficulties related to the integration of Frutarom’s businesses and operations with the Company’s businesses and operations; (9) unexpected costs, liabilities, charges or expenses resulting from the Frutarom acquisition; (10) adverse effects on the Company’s stock price resulting from the Frutarom acquisition; (11) the inability to retain key personnel; (12) potential adverse reactions, changes to business relationships or competitive responses resulting from the Frutarom acquisition; (13) macroeconomic trends affecting the emerging markets; (14) 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; (15) the Company’s ability to realize the benefits of its cost and productivity initiatives; (16) the impact of the disruption in supply of citral from BASF on the price and availability of citral in 2018; (17) the Company’s ability to effectively compete in its market, and to successfully develop new, cost-effective and competitive products that appeal to its customers and consumers; (18) changes in consumer preferences and demand for the Company’s products or a decline in consumer confidence and spending; (19) the Company’s ability to benefit from its investments and expansion in emerging markets; (20) the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates; (21) the economic and political risks associated with the Company’s international operations, including challenging economic conditions in China and Latin America; (22) the impact of any failure or interruption of the Company’s key information technology systems or a breach of information security; (23) the Company’s ability to comply with, and the costs associated with compliance with U.S. and foreign environmental protection laws; (24) the Company’s ability to realize expected cost savings and efficiencies from its profitability improvement initiative and other optimization activities; (25) volatility and increases in the price of raw materials, energy and transportation; (26) price realization in a rising input cost environment; (27) fluctuations in the quality and availability of raw materials; (28) the impact of a disruption in the Company’s supply chain or its relationship with its suppliers; (29) any adverse impact on the availability, effectiveness and cost of the Company’s hedging and risk management strategies; (30) the Company’s ability to successfully manage its working capital and inventory balances; (31) 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; (32) 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 (33) 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 legal charges/credits, losses (gains) on sale of assets, tax assessment, operational improvement initiatives, integration costs, FDA mandated product recall costs, acquisition related costs, CTA realization, Frutarom pre-acquisition costs and U.S. Tax reform (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 2018 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 2018 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 7,300 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.
Michael DeVeau, 212-708-7164
VP, Corporate Strategy, Investor Relations & Communications
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