IFF Reports Second Quarter 2017 Results
International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris: IFF), a leading innovator of sensory experiences that move the world, reported financial results and strategic achievements for the second quarter ended June 30, 2017.
“Our second quarter results finished in line with our expectations, with improved trends across several of our key financial metrics,” said IFF Chairman and CEO Andreas Fibig. “We continued to advance our strategy as we drove innovation, executed our productivity programs, and benefited from acquisitions. These improvements reflect significant efforts across our entire organization as we implement our long-term strategy and generate strong returns for our shareholders.”
Mr. Fibig continued, “Looking forward, we expect second half performance to see improved year-over-year organic sales growth and additional savings related to the productivity program we announced earlier this year. For the full year, we remain optimistic that we can achieve our previously stated currency neutral guidance.”
Second Quarter 2017 Consolidated Financial Highlights
- Reported net sales for the second quarter totaled $842.9 million, an increase of 6% from $793.5 million for the second quarter of 2016. Excluding the impact of foreign exchange, currency neutral sales increased 8% over the prior year, including approximately six percentage points related to our recent acquisitions.
- Reported operating profit for the second quarter was $159.1 million versus $164.7 million reported in 2016. Excluding the impact of foreign exchange and those items that affect comparability, currency neutral adjusted operating profit grew 6%, to $171.8 million, principally driven by acquisitions, volume growth, and productivity initiatives.
- Reported earnings per share (EPS) for the second quarter was $1.38 per diluted share versus $1.46 per diluted share reported in 2016. Excluding the impact of foreign exchange and those items that affect comparability, currency neutral adjusted EPS improved 8%, to $1.50 per diluted share, benefiting from a year-over-year reduction in shares outstanding.
Second Quarter 2017 Strategic Highlights
Innovating Firsts: strengthen position and drive differentiation in priority R&D platforms
- Sweetness and savory modulation portfolio sales improved strong double-digits
- Flavors Latin America grew strong double-digits led by our proprietary delivery system
- Rolled out new flavor modulator for our flavorists’ to use in formulation development
- Launched new fragrance ingredient, Veraspice™, to further drive differentiation
- IFF | Lucas Meyer Cosmetics won Bronze at In-Cosmetics Global 2017 for Siligel™
Win Where We Compete: achieve market leadership position in key markets, categories & customers
- North America sales +19%, inclusive of our recent acquisitions
- Middle East & Africa up strong double-digits led by growth in both Flavors & Fragrances
Become Our Customers’ Partner of Choice: attain commercial excellence
- Launched TastepointSM by IFF to serve dynamic mid-tier customers
- First and only F&F house to sign the World Business Council for Sustainable Development’s (WBCSD) new publication, The CEO Guide to the Circular Economy
Strengthen and Expand the Portfolio: pursue value creation through collaborations & acquisitions
- David Michael, Fragrance Resources and PowderPure acquisitions contributed approximately 6 percentage points of sales growth and 4 percentage points of operating profit growth in Q2 2017
- Cosmetic Active Ingredients grew strong double-digits
- Joined MIT Media Lab to Accelerate Sensorial Open Innovation
Fragrances Business Unit
- On a reported basis, sales increased 4%, or $14.6 million, to $428.5 million while currency neutral sales improved 5%. This increase was driven by the benefit of acquisitions as well as growth in Fine Fragrances, Fabric Care and Fragrance Ingredients.
- Fine Fragrances improved 10% on a reported basis and 11% on a currency neutral basis, inclusive of additional sales related to the acquisition of Fragrance Resources. Performance was driven by double-digit growth in Greater Asia, EAME and North America, more than offsetting softness in Latin America.
- Consumer Fragrances was flat on a reported basis and improved 1% on a currency neutral basis principally driven by the additional sales related to the acquisition of Fragrance Resources and low-single-digit improvements in Fabric Care and Home Care.
- Fragrance Ingredients grew 7% on a reported basis and 9% on a currency neutral basis, led by double-digit growth in EAME and Latin America and double-digit growth in cosmetic active ingredients.
- Fragrances segment profit decreased 3% on a reported basis and currency neutral basis, as volume growth and the benefits from productivity initiatives were more than offset by unfavorable price to input costs and weaker sales mix.
Flavors Business Unit
- On a reported basis, sales increased 9%, or $34.8 million, to $414.3 million while currency neutral sales grew 11%. This increase was driven by organic growth coming from three of the four regions, as well as a strong contribution of sales related to the David Michael acquisition.
- EAME increased 2% on a reported basis and 9% on a currency neutral basis, led by broad-based growth, particularly in Western Europe and Central, Southern and Eastern Europe as well as additional sales related to the acquisition of David Michael.
- North America grew 30% reflecting additional sales related to the acquisition of David Michael and PowderPure, as well as broad-based category growth led by double-digit growth in Dairy and high-single-digit growth in Savory.
- Latin America increased 13% on a reported basis and 11% on a currency neutral basis, led by strong double-digit growth in Argentina and Colombia.
- Greater Asia decreased 3% on a reported basis and 2% on a currency neutral basis, as double-digit growth in Thailand and India plus low-single-digit growth in China was more than offset by challenging conditions in Indonesia.
- Flavors segment profit grew 11% on a reported basis and 14% on a currency neutral basis, driven by the contribution of acquisitions, the benefits from productivity initiatives and volume growth.
A copy of the Company’s Quarterly Report on Form 10-Q will be available on its website at www.iff.com or at sec.gov by August 9, 2017.
A live webcast to discuss the Company’s second quarter financial results will be held on August 9, 2017, at 10:00 a.m. EDT. 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 for fiscal year 2017, the expected impact of and benefits from productivity initiatives and the impact of our actions on long-term value creation for our customers and 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 28, 2017. 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) macroeconomic trends affecting the emerging markets; (2) the Company’s ability to implement and adapt its Vision 2020 strategy; (3) 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; (4) the Company’s ability to realize the benefits of its productivity initiatives and other optimization activities, (5) the Company’s ability to effectively compete in its market, and to successfully develop new and competitive products that appeal to its customers and consumers; (6) changes in consumer preferences and demand for the Company’s products or a decline in consumer confidence and spending; (7) the Company’s ability to benefit from its investments and expansion in emerging markets; (8) the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates, including the devaluation of the Euro and certain emerging market currencies; (9) the economic and political risks associated with the Company’s international operations, including challenging economic conditions in China and Latin America; (10) the impact of any failure of the Company’s key information technology systems or costs that could be incurred due to a breach of data privacy or information security; (11) the Company’s ability to attract and retain talented employees; (12) the Company’s ability to comply with, and the costs associated with compliance with U.S. and foreign environmental protection laws; (13) volatility and increases in the price of raw materials, energy and transportation; (14) price realization in a rising input cost environment (15) fluctuations in the quality and availability of raw materials; (16) the impact of a disruption in the Company’s supply chain or its relationship with its suppliers; (17) the impact of customer claims or product recalls; (18) any adverse impact on the availability, effectiveness and cost of the Company’s hedging and risk management strategies; (19) the Company’s ability to successfully manage its working capital and inventory balances; (20) uncertainties regarding the outcome of, or funding requirements related to litigation or settlement of pending litigation uncertain tax positions or other contingencies; (21) 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; (22) 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 (23) 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 (i) Currency Neutral Sales, (ii) Adjusted Operating Profit and Currency Neutral Adjusted Operating Profit and (iii) Adjusted EPS and Currency Neutral Adjusted EPS. Currency Neutral Sales eliminate the effects that result from translating its international sales in U.S. dollars. Adjusted Operating Profit and Adjusted EPS exclude (a) restructuring costs, (b) certain other non-operational significant items such as legal charges/credits, gain on sale of assets, operational improvement initiatives, acquisition related costs, integration-related costs and CTA realization and (c) costs associated with product recalls (often referred to as “Items Impacting Comparability”). When we provide our expectations for our currency neutral metrics in our full year 2017 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 2017 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 7,400 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.
International Flavors & Fragrances Inc.
Michael DeVeau, 212-708-7164
VP, Corporate Strategy, Investor Relations & Communications
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