IFF Reports First Quarter 2022 Results
International Flavors & Fragrances Inc. (NYSE: IFF) reported financial results for the first quarter ended March 31, 2022.
“We are pleased with our strong start to 2022 led by broad-based growth across our entire portfolio,” said IFF CEO Frank Clyburn. “Our pricing actions, in combination with our diligent focus on cost discipline, have helped offset the inflationary pressures felt across the global economy. Given our performance to date and reflecting additional inflation throughout the year, we have increased our sales expectation to include incremental pricing actions to fully recover our cost exposure as we remain committed to delivering our full year profit objective. At the same time, we are also sharpening our execution rigor, enhancing our focus on productivity, and investing to strengthen our business as we position the company to deliver sustainable, profitable growth for our shareholders.”
First Quarter 2022 Consolidated Financial Results
- Reported net sales for the first quarter were $3.23 billion, an increase of 31% compared to the prior year period, driven primarily by the incremental sales related to the merger with Nutrition & Biosciences ("N&B"). On a comparable basis2, currency neutral sales increased 13%, led by double-digit growth in Nourish, Health & Biosciences and Pharma Solutions. In the first quarter, pricing increased approximately 8% and volume grew approximately 5%.
- Income before taxes on a reported basis for the first quarter was $285 million. Adjusted operating EBITDA for the first quarter was $702 million, an increase of 23% from $569 million in the prior year period principally driven by the incremental profit related to the merger with N&B. On a comparable basis2, currency neutral adjusted operating EBITDA increased 9%, driven by pricing actions, volume growth and productivity gains.
- Reported earnings per share (EPS) for the first quarter was $0.96. Adjusted EPS excluding amortization was $1.69 per diluted share.
- Cash flow from operations for the first quarter was $(4) million, and free cash flow defined as cash flow from operations less capital expenditures totaled $(136) million. Net debt to credit adjusted EBITDA at the end of the first quarter was 4.2x.
1 Schedules at the end of this release contain reconciliations of reported GAAP to Non-GAAP metrics. See Use of Non-GAAP Financial Measures for explanations of our Non-GAAP metrics.
2 Comparable results for the first quarter is defined as 3 months (January, February and March) of legacy IFF and N&B results, in both the 2021 and 2022 periods, and exclude the impact of divestitures in the prior year period and acquisitions in the current year period.
- On a reported basis, first quarter sales were $1.73 billion. On a comparable basis2, currency neutral sales grew 16% with double-digit growth in Food Designs and Ingredients and high single digit growth in Flavors.
- Nourish adjusted operating EBITDA was $329 million and adjusted operating EBITDA margin was 19.0% in the first quarter. On a comparable basis2, currency neutral adjusted operating EBITDA grew 14% driven by strong pricing actions, volume growth and productivity gains.
Health & Biosciences Segment
- On a reported basis, first quarter sales were $661 million. On a comparable basis2, currency neutral sales increased 10% with growth across all segments led by a double-digit growth in Health, Microbial Control and Grain Processing as well as high single digit increases in Cultures & Food Enzymes and Animal Nutrition.
- Health & Biosciences adjusted operating EBITDA was $192 million and adjusted operating EBITDA margin was 29.0% in the first quarter. On a comparable basis2, currency neutral adjusted operating EBITDA grew 8% led by volume growth, price increases and productivity gains.
- On a reported basis, first quarter sales were $585 million versus $569 million in the prior year period. Currency neutral sales increased 6% led by double-digit growth in Fine Fragrances, and solid growth in Cosmetic Actives and Fragrance Ingredients.
- Scent adjusted operating EBITDA was $116 million versus $128 million in the prior year period. Adjusted operating EBITDA margin was 19.8% in the first quarter. On a currency neutral basis, adjusted operating EBITDA declined 2% as the Company continues to implement price increases in collaboration with customers to fully offset inflationary pressures.
Pharma Solutions Segment
- On a reported basis, first quarter sales were $249 million. On a comparable basis2, currency neutral sales increased 10% with double-digit growth in Pharma and Industrial.
- Pharma Solutions adjusted operating EBITDA was $65 million and adjusted operating EBITDA margin was 26.1% in the first quarter. On a comparable basis2, currency neutral adjusted operating EBITDA grew 10% led by price increases, volume growth and productivity gains.
The Company expects full year 2022 sales to be approximately $12.6 billion to $13.0 billion (versus previous guidance of $12.3 billion to $12.7 billion), with an expected full year 2022 adjusted operating EBITDA of approximately $2.5 billion to $2.6 billion (no change). The Company's updated full year guidance reflects the expected Microbial Control divestiture, which is anticipated to be complete on July 1, 2022 (versus June 1, 2022 previously), as well as the addition of the Health Wright Products acquisition, which closed on April 1, 2022.
The Company expects to deliver comparable currency neutral sales growth of approximately 9% to 12% (versus 6 to 9% previously) for the full year 2022. The Company continues to expect comparable currency neutral adjusted operating EBITDA growth for 2022 to be approximately 4% to 8% (no change).
Based on current market foreign exchange rates, the Company expects that foreign exchange will negatively impact sales growth in 2022 by approximately 4 percentage points (versus 2 previously) and adjusted operating EBITDA growth by approximately 5 percentage points (versus 4 previously).
A live webcast to discuss the Company’s first quarter 2022 financial results will be held on May 10, 2022, at 9:00 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
Statements in this press release, which are not historical facts or information, are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management’s current assumptions, estimates and expectations including those concerning the impacts of COVID-19 and our plans to respond to its implications; the expected impact of global supply chain challenges; expectations regarding sales and profit for the fiscal year 2022, including the impact of foreign exchange, pricing actions, raw materials, and sourcing, logistics and manufacturing costs; expectations of the impact of inflationary pressures and the pricing actions to offset exposure to such impacts; the impact of higher input costs, including raw materials and energy; our ability to drive cost discipline measures and the ability to recover margin to pre-inflation levels; the divestiture of our microbial control business and the progress of our portfolio optimization strategy, through non-core business divestitures; our combination with N&B, including the expected cost benefits and synergies of the N&B Transaction, the success of our integration efforts and ability to deliver on our synergy commitments as well as future opportunities for the combined company; the success of our optimization of our portfolio; the growth potential of the markets in which we operate, including the emerging markets, expected capital expenditures, the expected costs and benefits of our ongoing optimization of our manufacturing operations, including the expected number of closings, expected cash flow and availability of capital resources to fund our operations and meet our debt service requirements; our ability to drive reductions in expenses; our strategic investments in capacity and increasing inventory to drive improved profitability; the impact of inflation and other macroeconomic factors; our ability to innovate and execute on specific consumer trends and demands; and our ability to continue to generate value for, and return cash to, our shareholders.
These forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Certain of such forward-looking information may be identified by such terms as “expect”, “anticipate”, “believe”, “intend”, “outlook”, “may”, “estimate”, “should”, “predict” and similar terms or variations thereof. Such forward-looking statements are based on a series of expectations, assumptions, estimates and projections about the Company, are not guarantees of future results or performance, and involve significant risks, uncertainties and other factors, including assumptions and projections, for all forward periods. Our actual results may differ materially from any future results expressed or implied by such forward-looking statements.
Such risks, uncertainties and other factors include, among others, the following: (1) inflationary trends in the price of our input costs, such as raw materials, transportation and energy; (2) supply chain disruptions, geopolitical developments, including the Russia-Ukraine conflict, or climate-change related events (including severe weather events) that may affect our suppliers or procurement of raw materials; (3) disruption in the development, manufacture, distribution or sale of our products from COVID-19 and other public health crises; (4) risks related to the integration of N&B and the Frutarom business, including whether we will realize the synergies and benefits anticipated from the acquisitions in the expected time frame; (5) failure to successfully establish and manage acquisitions, collaborations, joint ventures or partnerships, or the failure to close strategic transactions or divestments; (6) our ability to successfully market to our expanded and diverse customer base; (7) our substantial amount of indebtedness and its impact on our liquidity and ability to return capital to its shareholders; (8) our ability to effectively compete in our market and develop and introduce new products that meet customers’ needs; (9) our ability to retain key employees; (10) changes in demand from large multi-national customers due to increased competition and our ability to maintain “core list” status with customers; (11) our ability to successfully develop innovative and cost-effective products that allow customers to achieve their own profitability expectations; (12) disruption in the development, manufacture, distribution or sale of our products from natural disasters, public health crises, international conflicts, terrorist acts, labor strikes, political crisis, accidents and similar events; (13) the impact of a significant data breach or other disruption in our information technology systems, and our ability to comply with data protection laws in the U.S. and abroad; (14) unprecedented increases and volatility in sourcing and logistics costs; (15) our 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; (16) our ability to meet increasing customer, consumer, shareholder and regulatory focus on sustainability; (17) defect, quality issues (including product recalls), inadequate disclosure or misuse with respect to the products and capabilities; (18) our ability to react in a timely and cost-effective manner to changes in consumer preferences and demands, including increased awareness of health and wellness; (19) our ability to benefit from our investments and expansion in emerging markets; (20) the impact of currency fluctuations or devaluations in the principal foreign markets in which we operate; (21) economic, regulatory and political risks associated with our international operations; (22) the impact of global economic uncertainty on demand for consumer products; (23) our ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws; (24) our ability to successfully manage our working capital and inventory balances; (25) 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; (26) our ability to protect our intellectual property rights; (27) the impact of the outcome of legal claims, regulatory investigations and litigation, including current and future developments involving tax matters in Brazil; (28) changes in market conditions or governmental regulations relating to our pension and postretirement obligations; (29) 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; (30) the impact of the United Kingdom’s departure from the European Union; (31) the impact of the phase out of the London Interbank Offered Rate (LIBOR) on interest expense; and (32) risks associated with our CEO transition, including the impact on employee hiring and retention.
The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the Company (such as in our other filings with the SEC or in company press releases) for other factors that may cause actual results to differ materially from those projected by the Company. Please refer to Part I. Item 1A., Risk Factors, of the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2022 for additional information regarding factors that could affect our results of operations, financial condition and liquidity.
We intend our forward-looking statements to speak only as of the time of such statements and do not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this press release or included in our other periodic reports filed with the SEC could materially and adversely impact our operations and our future financial results. Any public statements or disclosures made by us following this press release that modify or impact any of the forward-looking statements contained in or accompanying this press release will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this press release.
Use of Non-GAAP Financial Measures
We provide in this press release non-GAAP financial measures, including: (i) comparable currency neutral sales; (ii) adjusted operating EBITDA and comparable currency neutral adjusted operating EBITDA; (iii) adjusted EBITDA margin; (iv) adjusted EPS ex amortization; (v) free cash flow; and (vi) net debt to credit adjusted EBITDA.
Our non-GAAP financial measures are defined below.
Currency Neutral metrics eliminate the effects that result from translating non-U.S. currencies to U.S. dollars. We calculate currency neutral numbers by translating current year invoiced sale amounts at the exchange rates used for the corresponding prior year period. We use currency neutral results in our analysis of subsidiary or segment performance. We also use currency neutral numbers when analyzing our performance against our competitors.
Adjusted operating EBITDA and adjusted operating EBITDA margin exclude depreciation and amortization expense, interest expense, other income (expense), net, restructuring and other charges and certain non-recurring items such as gains (losses) on sale of assets, shareholder activism related costs, business divestiture costs, employee separation costs, Frutarom acquisition related costs, N&B inventory step-up costs, N&B transaction related costs, integration related costs and the impact of the merger with N&B.
Adjusted EPS ex Amortization excludes the impact of non-operational items including restructuring and other charges, gains (losses) on sale of assets, shareholder activism related costs, business divestiture costs, employee separation costs, Frutarom acquisition related costs, N&B inventory step-up costs, N&B transaction related costs, integration related costs, redemption value adjustment to EPS, the impact of the merger with N&B and non-cash items including the amortization of acquisition related intangible assets.
Free Cash Flow is operating cash flow (i.e. cash flow from operations) less capital expenditures.
Net debt to credit adjusted EBITDA is the leverage ratio used in our credit agreement and defined as Net debt (which is long-term debt less cash and cash equivalents) divided by the trailing 12-month credit adjusted EBITDA. Credit adjusted EBITDA is defined as income (loss) before income taxes, depreciation and amortization expense, interest expense, specified items and non-cash items.
Comparable results for the first quarter is defined as 3 months (January, February and March) of legacy IFF and N&B results in the 2021 period and for the full company in the current 2022 period, and exclude the impact of divestitures in the prior year period and acquisitions in the current year period.
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. 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.
The Company cannot reconcile its expected Adjusted Operating EBITDA and expected annual effective tax rate under "Financial Guidance" without unreasonable effort because certain items that impact net income and other reconciling metrics are out of the Company's control and/or cannot be reasonably predicted at this time. These items include but are not limited to gains (losses) on sale of assets, shareholder activism related costs, business divestiture costs, employee separation costs, N&B inventory step-up costs, N&B transaction related costs, integration related costs and the impact of the merger with N&B.
Welcome to IFF
At IFF (NYSE: IFF), an industry leader in food, beverage, scent, health and biosciences, science and creativity meet to create essential solutions for a better world – from global icons to unexpected innovations and experiences. With the beauty of art and the precision of science, we are an international collective of thinkers who partners with customers to bring scents, tastes, experiences, ingredients and solutions for products the world craves. Together, we will do more good for people and planet. Learn more at iff.com, Twitter, Facebook, Instagram, and LinkedIn.
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