|IFF Reports Fourth Quarter and Full Year 2009 Results|
For the full year, the Company reported revenue of $2.3 billion, a three percent decrease over the prior year. Excluding the impact of foreign currency, revenue in local currency remained constant. Reported EPS for the year was $2.46, compared to $2.86 for the full year 2008. EPS in 2009 included an expense of $0.23 per share related to restructuring charges and employee separation costs, while 2008 included a benefit of $0.10 per share associated with an insurance recovery and benefits from prior period tax settlements, net of restructuring charges, employee separation costs and shared services implementation costs. Excluding these items, adjusted EPS for the full year 2009 decreased three percent to $2.69 versus $2.76 in the prior year, as strong second half performance substantially minimized the impact of first half weakness.
"Given the economic challenges we faced over the course of the year, we are very pleased with how we finished 2009," said Kevin Berryman, Executive Vice President and Chief Financial Officer. "The combination of focused strategies, disciplined cost control, and prudent working capital management enabled us to build sales, earnings and cash flow momentum in the second half of the year. We took important steps to strengthen our product portfolio, enhance our geographic growth opportunities and optimize our manufacturing and supply chain footprint to further reinforce our competitive position."
"As our strategic initiatives continue to gain traction and we adapt to an ever changing economy, we believe that we are well-positioned to return to local currency sales growth and improve on our overall profitability in 2010," Berryman continued.
FOURTH QUARTER 2009
Flavor Business Unit
Local currency sales in the fourth quarter increased one percent over the comparable 2008 period. Growth can be attributed to a solid performance in Greater Asia as higher volumes and new wins in Beverage and Dairy drove results. In the developed markets, a strong performance in Beverage was more than offset by weakness in Confectionery and Savory in Europe and Dairy in North America. Similar to the third quarter 2009, sales in Latin America were mixed, as the loss of non-strategic business continued to impact results.
Operating profit increased by $13 million to $46 million including a $1 million charge related to restructuring efforts in Europe. Excluding this charge and $3 million related to restructuring costs in the prior year period, adjusted operating profit was very strong, increasing 34 percent, or $12 million, to $47 million. This increase was mainly driven by continued success in margin improvement initiatives and disciplined cost management. As a result, adjusted operating profit margin improved to 17.4 percent versus 14.0 percent in the prior year period.
Fragrance Business Unit
Local currency sales in the fourth quarter increased four percent versus the comparable quarter last year. Overall growth was attributed to strong emerging market performance, particularly Greater Asia and Latin America, as new wins and increased demand from both global and regional customers continued to drive results. In the Fine Fragrance and Beauty Care category, Beauty Care grew double-digits while Fine Fragrance trends continued to improve. Fine Fragrance results, while improved, remained under pressure as weakness in the developed markets continued to impact performance. Functional Fragrance continued to perform well as new wins in Fabric Care and Personal Wash drove strong results. Fragrance Ingredients sales also improved, as local currency sales increased seven percent, driven by an underlying improvement in demand.
Operating profit increased by $7 million to $49 million in the fourth quarter, including a $3 million charge related to ongoing restructuring efforts in Europe as compared to $2 million related to restructuring costs in the prior year period. Excluding these charges, adjusted operating profit increased by 19 percent or $8 million to $51 million driven by incremental R&D credits of $6 million. As a result, adjusted operating profit margin for the quarter increased 130 bps to 16.3 percent, as higher R&D credits, higher pricing, and continued margin improvement initiatives offset unfavorable mix, higher input costs and higher incentive compensation expense.
Sales performance by region and product category follows:
Europe, Africa and Middle East
Fourth Quarter 2009 Highlights
FULL YEAR 2009
Flavor Business Unit
On a local currency basis, Flavor sales for 2009 increased two percent over the prior year. Greater Asia, Latin American and North America delivered solid growth resulting from new wins and price increases that more than offset weak economic conditions. Local currency sales in Europe remained constant as the economic slowdown and inventory reductions by our customers impacted our results.
Operating profit increased by $10 million to $208 million including a $1 million charge related to restructuring efforts in Europe. Excluding this charge and $4 million related to restructuring costs in the prior year, adjusted operating profit increased $8 million as pricing,ongoing cost discipline and margin improvement initiatives more than offset higher input costs and unfavorable currency parity. As a result, adjusted operating profit margin improved 90 bps to 19.3 percent.
Fragrance Business Unit
In 2009, local currency sales declined one percent year-over-year as the strong second half performance partially offset first half weakness. Fine Fragrance and Beauty Care local currency sales declined eight percent as a result of sharp declines in retail consumption as well as supply chain contraction in North America and Europe in the Fine Fragrance business. Fragrance Ingredients local currency sales also fell two percent primarily due to erosion in the Fine Fragrance category and customer de-stocking in the first half of the year. While Fine Fragrance and Fragrance Ingredients sales experienced weakness in 2009, trends improved in the second half, supported by Fragrance Ingredients sales returning to positive growth in the second half of 2009. Functional Fragrance performance consistently improved over the previous three quarters, finishing with five percent local currency growth globally as new wins in the Fabric Care and Personal Wash categories led results. Beauty Care also improved over the previous three quarters, as a strong performance in Hair Care and Toiletries in the emerging markets drove results.
Operating profit decreased by $32 million to $171 million, including an $18 million charge related to restructuring charges. Excluding this charge and $4 million related to restructuring costs in the prior year, adjusted operating profit declined $18 million as a result of unfavorable volume and mix, higher input costs and negative currency impacts that were partially offset by an additional benefit of $8 million related to incremental R&D credits, price increases, and margin improvement initiatives. As a result, adjusted operating profit margin declined 80 bps to 15.1 percent over the comparable year period.
Sales performance by region and product category follows:
Full Year 2009 Highlights
International Flavors & Fragrances Inc. (NYSE: IFF), is a leading global creator of flavors and fragrances used in a wide variety of consumer products and packaged goods. Consumers experience these unique scents and tastes in fine fragrances and beauty care, detergents and household goods, as well as beverages, confectionery and food products. The Company leverages its competitive advantages of brand understanding and consumer insight combined with its focus on R&D and innovation, to provide customers with differentiated product offerings. A member of the S&P 500 Index, IFF has sales, manufacturing and creative facilities in 32 countries worldwide. For more information, please visit our website at www.iff.com.
An audio webcast to discuss the Company's fourth quarter and full year 2009 financial results and outlook will be held today at 10:00 a.m. EST February 9, 2010. Interested parties can access the webcast and accompanying slide presentation on the Company's website at www.iff.com under the Investor Relations section. For those unable to listen to the live broadcast, a replay will be available on the Company's website approximately one hour after the event and will remain available on the IFF website until February 23, 2010.
Cautionary Statement Under The Private Securities Litigation Reform Act of 1995
Statements in this quarterly 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. Certain of such forward-looking information may be identified by such terms as "expect", "anticipate", "believe", "outlook", "guidance", "may" and similar terms or variations thereof. All information concerning future revenues, tax rates or benefits, interest and other savings, earnings and other future financial results or financial position, constitutes forward-looking information. Such forward-looking statements involve significant risks, uncertainties and other factors. Actual results of the Company may differ materially from any future results expressed or implied by such forward-looking statements. Such factors include, among othersthe following: general economic and business conditions in the Company's markets, especially given the current disruption in global economic conditions, including economic and recessionary pressures; energy and commodity prices; decline in consumer confidence and spending; significant fluctuations in the value of the U.S. dollar; population health and political uncertainties, and the difficulty in projecting the short and long-term effects of global economic conditions; fluctuating interest rates; continued volatility and deterioration of the capital and credit markets and any adverse impact on our cost of and access to capital and credit; fluctuations in the price, quality and availability of raw materials; the Company's ability to implement its business strategy, including the achievement of anticipated cost savings, profitability and growth targets; the impact of currency fluctuation or devaluation in the Company's principal foreign markets, especially given the current disruptions to such currency markets, and the impact on the availability, effectiveness and cost of the Company's hedging and risk management strategies; the outcome of uncertainties related to litigation; the impact of possible pension funding obligations and increased pension expense on the Company's cash flow and results of operations; and the effect of legal and regulatory proceedings, as well as restrictions imposed on the Company, its operations or its representatives by U.S. and foreign governments. The Company intends its forward-looking statements to speak only as of the time of such statements and does not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results.
Any public statements or disclosures by IFF following this report that modify or impact any of the forward-looking statements contained in or accompanying this report will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this report.
Certain other factors which may impact our financial results or which may cause actual results to differ from such forward-looking statements are also discussed in the Company's periodic reports filed with the Securities and Exchange Commission and available on the IFF website at www.iff.com under "Investor Relations". You are urged to carefully consider all such factors.
(1) R&D credits were revised to properly reflect a reduction in R&D expense versus a reduction in income tax expense for the first nine months of 2009 and the twelve month period of 2008. This includes $0.8 million in the fourth quarter of 2008, $3.4 million for the full year of 2008 and $4.7 million for the first nine months of 2009. In addition, the impact of the incremental R&D credits in the fourth quarter of 2009 was $6.8 million. This had no impact on net income.
(2) The fourth quarter and full year 2009 include $4 million and $6 million, respectively, of additional tax expense pertaining to the recognition of certain out-of-period tax adjustments. The company did not adjust the prior periods as it concluded that such adjustments were not material to the prior periods consolidated financial statements.
(3) Diluted shares decreased by 322 and 241 shares from the amounts reported for the three and twelve months ended December 31, 2008, respectively, as result of adopting new accounting guidance in ASC 260 on January 1, 2009. For purposes of calculating Diluted EPS, net income allocated to our Purchased Restricted Shares was $0.3 million during each of the three months ended 2009 and 2008 and $1.3 million and $1.4 million during the years ended 2009 and 2008, respectively.
(1) Non-current Liabilities decreased and shareholders' equity increased by $7.5 million from the amounts reported in 2008 as a result of the reclass of noncontrolling interest in accordance with ASC 810, which was adopted on January 1, 2009.
(1) R&D credits were revised to properly reflect a reduction in R&D expense versus a reduction in income tax expense for the first nine months of 2009 and the twelve month period of 2008. This includes $0.8 million in the fourth quarter of 2008, $3.4 million for the full year of 2008 and $4.7 million for the first nine months of 2009. In addition, the impact of the incremental R&D credits in the fourth quarter of 2009 was $6.8 million.
The sum of EPS Reported, plus the per share effects of items added back to reconcile to EPS as Adjusted, may not equal the total EPS as Adjusted, due to rounding differences.
This supplemental schedule provides adjusted non-GAAP financial information and a quantitative reconciliation of the difference between the non-GAAP financial measure and the financial measure calculated and reported in accordance with GAAP.
These non-GAAP financial measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company believes that it is meaningful for investors to be made aware of and to be assisted in a better understanding of, on a period to period comparative basis, the relative impact of restructuring and employee separation charges, an insurance recovery related to a product contamination issue, shared services' implementation costs, and the benefit of tax rulings relating to prior years. The adjusted information is intended to be more indicative of the Company's core operating results.
At times, the Company may disclose free cash flow because the Company believes it is a measurement of cash flow that may be available for investing and financing activities. We define free cash flow as net cash provided from operations less capital expenditures and cash dividends. The calculation of free cash flow does not reflect the residual cash flow available for discretionary expenditures since non-discretionary items such as debt repayments are not deducted in determining such measure and as such, should not be considered a substitute for cash provided by operating activities or other cash flow statement data prepared in accordance with GAAP. Free cash flow, as we define it, may differ from similarly named measures used by other entities.
SOURCE: International Flavors & Fragrances Inc.
International Flavors & Fragrances Inc.