International Flavors & Fragrances Reports First Quarter 2008 Results
New York, May 1, 2008 - International Flavors & Fragrances Inc., a leading global creator of flavors and fragrances for consumer products, today announced sales of $597 million, a 5 percent increase from first quarter 2007. Reported sales benefited from the weaker U.S. dollar, mainly against the Euro. At comparable exchange rates, sales would have increased 1 percent compared to the prior year period.
Earnings per share as reported were $.69 in both the first quarter of 2008 and 2007. The 2008 first quarter results include pre-tax restructuring charges of $6.2 million or $.06 per share related to employee separation costs due to the elimination of approximately 125 positions in support functions. Excluding these charges, earnings per share would have been $.75, a 9 percent increase over the same period last year.
Operating profit for the quarter was 16.0 percent of sales, including the pre-tax restructuring charges of $6.2 million, compared to 16.8 percent in the prior year period.
"We are very pleased with the continued strength of our Flavors business, which has delivered market share growth for seven consecutive quarters," commented Robert M. Amen, Chairman and Chief Executive Officer. "Our Fragrance business results were mixed. Functional Fragrance sales were strong in Asia and Europe, although this performance was offset by weakness in Global Fine Fragrance and North America Functional Fragrance sales.
"Despite the challenging U.S. economic environment, which we anticipate will continue for some time, we remain confident about our growth prospects -- particularly in the emerging markets -- and our ability to deliver on our financial goals."
Flavors Business Unit
Flavor sales increased 12 percent over first quarter 2007 due to market share gains from new wins and volume growth of existing business. Growth was especially strong in Latin America and Asia. Excluding the impact of currencies, sales growth for Flavors was up 8 percent.
Fragrance Business Unit
In comparison to first quarter 2007, Fragrance sales were flat, primarily because strong growth in the Greater Asia and European regions was offset by weak demand for fragrances in North America. Fragrance Ingredient sales were 6 percent lower due to weaker demand in North America and Europe and a planned shift in product mix to enable gross margin improvement.
First Quarter 2008 Overview
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Gross profit, as a percentage of sales, was 41.1 percent compared with 41.8 percent in the prior year quarter. This decrease was mainly the result of the decline in North America sales, which impacted absorption of manufacturing expenses, most notably in fragrance compounds. Product mix, mainly lower sales of fine and beauty care compounds, and some impact of higher material costs also affected margins; the average cost of raw materials increased 4 percent over the prior year quarter.
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Research and Development spending, as a percentage of sales, was 8.7 percent, higher than the 8.2 percent in the first quarter 2007, and equal to the rate of spend for the full year 2007.
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Selling and Administrative expenses, as a percentage of sales, declined to 15.1 percent as compared to 16.1 percent in the first quarter of 2007. The 2008 expenses included the benefit of a $2.6 million insurance recovery related to a 2005 product contamination matter.
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Interest expense totaled $18 million as compared to $8 million in 2007, due to higher borrowings incurred in connection with the 2007 accelerated share repurchase program. Average cost of debt was 5.9 percent for 2008 compared to 4.1 percent in 2007.
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The Company's first quarter effective tax rate was 25.4 percent compared to 28.0 percent in the prior year quarter. The 2008 first quarter benefited from favorable tax rulings with respect to prior periods; excluding the benefit of these favorable rulings, the effective tax rate for the first quarter would have been 28.2 percent.
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Average number of diluted shares (in thousands) was 81,253 compared to 90,658 in the prior year quarter.
International Flavors & Fragrances Inc.
Consolidated Income Statement
(Amounts in thousands except per share data)
(Unaudited)
Quarter ended March 31,
2007 2008 % Change
Net sales $566,101 $596,605 5%
Cost of goods sold 329,382 351,123 7%
Gross margin 236,719 245,482 4%
Research & development 46,632 52,056 12%
Selling and administrative 91,271 90,149 -1%
Amortization 3,556 1,538 -57%
Restructuring and other charges - 6,222
Interest expense 8,314 18,219
Other expense (income), net (167) 2,307
Pretax income 87,113 74,991 -14%
Income taxes 24,424 19,043 -22%
Net income $62,689 $55,948 -11%
Earnings per share - basic $0.70 $0.70 -
Earnings per share - diluted $0.69 $0.69 -
Average shares outstanding
Basic 89,378 80,296 -10%
Diluted 90,658 81,253 -10%
International Flavors & Fragrances Inc.
Consolidated Condensed Balance Sheet
(Amounts in thousands)
(Unaudited)
December 31, March 31,
2007 2008
Cash and cash equivalents $151,471 $60,458
Short-term investments 604 706
Receivables 450,579 508,167
Inventories 484,222 512,034
Other current assets 103,602 98,775
Total current assets 1,190,478 1,180,140
Property, plant and equipment, net 508,820 523,420
Goodwill and other intangibles, net 732,836 731,298
Other assets 294,654 305,997
Total assets $2,726,788 $2,740,855
Bank borrowings and overdrafts $152,473 $152,869
Other current liabilities 386,423 365,120
Total current liabilities 538,896 517,989
Long-term debt 1,060,168 1,071,342
Non-current liabilities 510,527 568,373
Shareholders' equity 617,197 583,151
Total liabilities and shareholders' equity $2,726,788 $2,740,855
International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
March 31, March 31,
2007 2008
Cash flows from operating activities:
Net income $62,689 $55,948
Adjustments to reconcile to net cash
provided by operations:
Depreciation and amortization 21,139 19,494
Deferred income taxes 11,695 21
Loss (gain) on disposal of assets (815) 72
Equity based compensation 4,277 3,885
Changes in assets and liabilities:
Current receivables (38,454) (34,802)
Inventories 1,648 (4,897)
Current payables (62,771) (48,814)
Changes in other assets 2,591 (12,023)
Changes in other liabilities 1,147 28,757
Net cash provided by operations 3,146 7,641
Cash flows from investing activities:
Net change in short-term investments (277) (115)
Additions to property, plant and
equipment (8,590) (11,966)
Purchase of (proceeds from) investments 4,380 (3,784)
Proceeds from disposal of assets 452 471
Net cash used in investing activities (4,035) (15,394)
Cash flows from financing activities:
Cash dividends paid to shareholders (18,764) (18,628)
Net change in bank borrowings
and overdrafts 1,903 (36,568)
Proceeds from issuance of stock
under stock-based compensation plans 15,764 2,314
Excess tax benefits on stock
options exercised 1,732 -
Purchase of treasury stock (31,480) (29,995)
Net cash used in financing activities (30,845) (82,877)
Effect of exchange rate changes on
cash and cash equivalents 431 (383)
Net change in cash and cash equivalents (31,303) (91,013)
Cash and cash equivalents at beginning
of year 114,508 151,471
Cash and cash equivalents at end of period $83,205 $60,458
International Flavors & Fragrances
Q1 2008 Segment Profit
(Amounts in Thousands)
(Unaudited)
Three Months Ended March 31, 2008
Global
(DOLLARS IN THOUSANDS) Flavors Fragrances Expenses Consolidated
Net sales $273,807 $322,798 - $596,605
Operating profit $56,928 $46,896 $(8,307) $95,517
Interest expense (18,219)
Other income (expense), net (2,307)
Income before taxes $74,991
Three Months Ended March 31, 2007
Global
(DOLLARS IN THOUSANDS) Flavors Fragrances Expenses Consolidated
Net sales $243,442 $322,659 - $566,101
Operating profit $44,814 $58,868 $(8,422) $95,260
Interest expense (8,314)
Other income (expense), net 167
Income before taxes $87,113
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