IFF Reports First Quarter 2019 Results
International Flavors & Fragrances Inc. (NYSE: IFF) (Euronext Paris: IFF) (TASE: IFF) reported financial results for the first quarter ended March 31, 2019.
“Our first quarter results were in line with our expectations and reflect strong progress in the company’s transformation following the Frutarom acquisition,” said Andreas Fibig, IFF Chairman and CEO. “In the first quarter of 2019, we achieved solid sales growth across all three of our divisions and maintained strong profitability levels despite the continued higher raw material cost environment. On a consolidated basis, the combination of our legacy business performance, plus the addition of Frutarom, yielded double-digit sales and adjusted operating profit growth.
“We are executing well against our integration roadmap. For those businesses where we have aligned our go-to-market approach with IFF – North America Taste and IBR – growth is very strong, increasing double-digits. We are also seeing great progress from procurement synergies and are well underway in terms of our manufacturing optimization plan. For 2019, we are confident that we will achieve our $30 to $35 million cost savings goal as our current run-rate savings are already in excess of this target.
“Looking forward, we expect sales growth and profitability to improve in the second half of the year. We remain focused on executing our strategy and integrating successfully, and by doing so, we have reiterated our full year financial guidance.”
First Quarter 2019 Consolidated Financial Results
Reported net sales for the first quarter totaled $1.3 billion, an
increase of 39% from
$931.0 million in 2018, including the contribution of sales related to Frutarom. On a combined basis, currency neutral sales improved 3%, excluding the contribution of acquisitions and divested businesses, with growth across all segments.
- Reported earnings per share (EPS) for the first quarter was $0.96 per diluted share versus $1.63 per diluted share reported in 2018. Excluding those items that affect comparability, adjusted EPS ex amortization was $1.57 per diluted share in 2019 versus $1.78 in the year-ago period as adjusted operating profit growth was more than offset by higher interest expense and shares outstanding, both related to the Frutarom acquisition.
Scent Business Unit
- On a reported basis, sales increased 1%, or $6.4 million, to $488.4 million. Currency neutral sales improved 4%, with growth in nearly all regions and categories. Performance was strongest in Fine Fragrances, increasing double-digits, led by strong new win performance. Consumer Fragrances grew mid-single digits, with the strongest growth in Home Care and Fabric Care. Fragrance Ingredients was challenged as price increases related to higher raw material costs were more than offset by volume declines.
- Scent segment profit decreased 8% on a reported and 3% on a currency neutral basis as the benefits from cost and productivity initiatives were more than offset by unfavorable price to input costs.
Taste Business Unit
- On a reported basis, sales decreased 1%, or $4.4 million, to $444.6 million. Currency neutral sales improved 2%, with growth in three of four regions. Performance in the quarter was driven by mid-single digit growth in Greater Asia, where India and Indonesia grew double-digits, and EAME, led by strong growth in Africa and the Middle East as well as Western Europe. In North America, year-over-year improvements continue to be led by TastePoint. Latin America declined primarily due to volumes with multinational customers.
- Taste segment profit decreased 3% on a reported basis and 1% on a currency neutral basis, as volume growth and the benefits from productivity initiatives were more than offset by unfavorable price to raw material costs and mix.
Frutarom Business Unit
- On a reported basis, sales were $364.4 million. On a standalone basis, currency neutral sales grew 3%, excluding the contribution of acquisitions and divested businesses. Performance was driven by strong growth in Taste, led by double-digit gains in North America, and solid increases in Savory Solutions, which more than offset declines in F&F ingredients and Natural Colors.
- Segment profit contributed $29 million in the first quarter; $68 million excluding amortization. Margin performance continued to be driven by disciplined cost management.
A live webcast to discuss the Company’s first quarter 2019 financial results will be held on May 7, 2019, at 10:00 a.m. ET. The webcast and accompanying slide presentation may be accessed 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 guidance for full year 2019, expected impact of the acquisition of Frutarom, including cost savings, and our ability to accelerate growth and profitability in 2019. 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 26, 2019 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) risks related to the integration of the Frutarom business, including whether we will realize the benefits anticipated from the acquisition in the expected time frame; (2) unanticipated costs, liabilities, charges or expenses resulting from the Frutarom acquisition, (3) the increase in the Company’s leverage resulting from the additional debt incurred to pay a portion of the consideration for Frutarom and its impact on the Company’s liquidity and ability to return capital to its shareholders, (4) the Company’s ability to successfully market to its expanded and decentralized Taste and Frutarom customer base, (5) the Company’s ability to effectively compete in its market and develop and introduce new products that meet customers’ needs, (6) the Company’s ability to successfully develop innovative and cost-effective products that allow customers to achieve their own profitability expectations, (7) the impact of the disruption in the Company’s manufacturing operations, (8) the impact of a disruption in the Company’s supply chain, including the inability to obtain ingredients and raw materials from third parties, (9) volatility and increases in the price of raw materials, energy and transportation, (10) the Company’s ability to comply with, and the costs associated with compliance with, regulatory requirements and industry standards, including regarding product safety, quality, efficacy and environmental impact, (11) the impact of any failure or interruption of the Company’s key information technology systems or a breach of information security, (12) the Company’s ability to react in a timely and cost-effective manner to changes in consumer preferences and demands, (13) the Company’s ability to establish and manage collaborations, joint ventures or partnership that lead to development or commercialization of products, (14) the Company’s ability to benefit from its investments and expansion in emerging markets; (15) the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates; (16) economic, regulatory and political risks associated with the Company’s international operations, (17) the impact of global economic uncertainty on demand for consumer products, (18) the inability to retain key personnel; (19) the Company’s ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws, (20) the Company’s ability to realize the benefits of its cost and productivity initiatives, (21) the Company’s ability to successfully manage its working capital and inventory balances, (22) the impact of the failure to comply with U.S. or foreign anti-corruption and anti-bribery laws and regulations, including the U.S. Foreign Corrupt Practices Act, (23) the Company’s ability to protect its intellectual property rights, (24) the impact of the outcome of legal claims, regulatory investigations and litigation, (25) changes in market conditions or governmental regulations relating to our pension and postretirement obligations, (26) the impact of future impairment of our tangible or intangible long-lived assets, (27) the impact of changes in federal, state, local and international tax legislation or policies, including the Tax Cuts and Jobs Act, with respect to transfer pricing and state aid, and adverse results of tax audits, assessments, or disputes, (28) the effect of potential government regulation on certain product development initiatives, and restrictions or costs that may be imposed on the Company or its operations as a result, and (29) the impact of the United Kingdom’s expected departure from the European Union. 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 non-GAAP financial measures, including: (i) currency neutral sales, which eliminates the effects that result from translating our international sales in U.S. dollars; (ii) adjusted operating profit and adjusted EPS, which exclude restructuring costs and other significant items of a non-recurring and/or non-operational nature such as gains on sale of assets, operational improvement initiatives, integration related costs, FDA mandated product recall costs, acquisition related costs, Frutarom acquisition related costs, U.S. Tax reform (often referred to as “Items Impacting Comparability); (iii) adjusted EPS ex amortization, which excludes Items Impacting Comparability and the amortization of acquisition related intangible assets; and (iv) currency neutral adjusted EPS ex amortization, which eliminates the effects that result from translating our international sales in U.S. dollars on adjusted EPS ex amortization.
These non-GAAP measures are intended to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. In discussing our historical and expected future results and financial condition, we believe it is meaningful for investors to be made aware of and to be assisted in a better understanding of, on a period-to-period comparable basis, financial amounts both including and excluding these identified items, as well as the impact of exchange rate fluctuations. With respect to the redemption value adjustment to EPS, the Company excluded this adjustment as (i) the amount is not believed to be a measure of earnings and is excluded from the net income attributable to IFF; and (ii) the Company believes that investors may benefit from an understanding of the Company’s results without giving effect to this adjustment. These non-GAAP measures 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.
When we provide our expectations for adjusted EPS and adjusted EPS ex amortization for our full year 2019 guidance, the closest corresponding GAAP measure and a reconciliation of the differences between the non-GAAP expectation and the corresponding GAAP measure is not available without unreasonable effort due to length of the forecasted period and potential variability, complexity and low visibility as to items such as future contingencies and other costs that would be excluded from the GAAP measure, and the tax impact of such items, in the relevant future period. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results.
In the fourth quarter of fiscal year 2018, we began including Adjusted (Non-GAAP) EPS ex. Amortization as a key non-GAAP financial measure of our business. Full amortization expense of intangible assets acquired in connection with acquisitions will be excluded from Adjusted (Non-GAAP) EPS ex. Amortization calculation. The exclusion of amortization expense allows comparison of operating results that are consistent over time for newly and long-held businesses and with both acquisitive and non-acquisitive peer companies. We believe this calculation will provide a more accurate presentation in this and in future periods in the event of additional acquisitions. Further, this allows the investors to evaluate and understand operating trends excluding the impact on operating income and earnings per diluted share. In addition, the Frutarom acquisition related costs have been separated from costs related to prior acquisitions. The Frutarom acquisition costs represent a significant balance and we believe this amount should be shown separately to provide an accurate presentation of the acquisition related costs. Our GAAP results and GAAP metrics do not change, and this change has no effect on day to day business operations, or how we manage our business. For Frutarom, we present segment profit excluding amortization expense as it allows comparison of operating results that are consistent over time for newly and long-held businesses and with both acquisitive and non-acquisitive peer companies.
We calculated “combined” numbers by combining (i) our results (including Frutarom from January 1, 2019 through March 31, 2019) with (ii) the results of Frutarom prior to its acquisition by us on October 4, 2018, and adjusting for divestitures of Frutarom businesses since October 4, 2018, but do not include any other adjustments that would have been made had we owned Frutarom for such periods prior to October 4, 2018.
International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris: IFF) (TASE: IFF) is a leading innovator of scent, taste, and nutrition, with 97 manufacturing facilities, 105 R&D centers, and 39,000 customers globally. 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 experience in more than 90,000 unique products sold annually. Our 13,000 team members globally take advantage of leading consumer insights, naturals exploration, 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 .
Head of Investor Relations and Communications & Divisional CFO, Scent
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