November 2, 2006 - International Flavors & Fragrances Inc. reported earnings per share for the third quarter of $.70, exceeding the First Call consensus expectation of $.58. The third quarter 2005 results as reported were $.72, which included a gain of $.24 per share relating to repatriation of funds from overseas affiliates. On a comparable basis, excluding this one-time repatriation benefit, the third quarter 2006 results per share represent a 46% gain over the 2005 quarter.
Third quarter 2006 sales totaled $539 million, up 9% from the prior year quarter; fragrance and flavor sales increased 12% and 6%, respectively. Reported sales for the 2006 quarter benefited from the generally weaker U.S. dollar during the quarter; at comparable exchange rates, sales would have increased 7% in comparison to the 2005 quarter.
Fragrance sales were led by a 24% increase in fine fragrance sales, with much of the growth driven by new product introductions. Sales of functional fragrances increased 5% from both increased volume and new product introductions while sales of fragrance ingredients increased 11% mainly from increased volume.
Flavor sales increased 6%, based on a combination of new product introductions and volume growth. Flavor compound sales increased in each region in both local currency and dollars. “The acceleration of growth in sales and earnings is very encouraging,” said Robert M. Amen, IFF Chairman and Chief Executive Officer. “We continue to perform very well in fine fragrances, with our major customers, and in key growth markets – notably Latin America, Asia and Eastern Europe. These strong performances have been enhanced by renewed growth and improved operating results in both North America and Western Europe. These results demonstrate the strategic initiatives undertaken in the past year are beginning to pay off. I am also very pleased to see the improvement in flavor sales.”
“The actions we announced in mid-October to organize into flavors and fragrance business units will sharpen our focus and improve accountability. I believe this will accelerate our growth and improve results. We are confident in our growth prospects and our ability to build shareholder value as demonstrated by the recent 14% increase in our dividend and $300 million share repurchase program.”
Third Quarter 2006
Sales performance by region and product category compared to the prior year quarter follows:
Net income for the 2006 quarter totaled $64 million, a 7% decrease compared with the prior year quarter, as reported. The 2005 third quarter net income of $69 million included a tax benefit of $23 million on repatriation of dividends from overseas affiliates.
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Gross profit, as a percentage of sales, improved nearly one percentage point compared to the prior year quarter, mainly from the higher sales, improved manufacturing expense absorption and favorable product mix.
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Research and Development expenses totaled 8.6% of sales compared to 9.1% in the prior year quarter.
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Selling, General and Administrative expenses, as a percentage of sales, were 16.3% in the current quarter compared to 17.4% in 2005. The 2005 quarter included $5 million of expense relating to a product contamination issue; 2006 results include the benefit of a $3 million insurance recovery related to this contamination matter. The 2006 quarter also included $14 million of incentive compensation expense; the 2005 quarter included $2 million of such expense.
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Other income (expense), net in the 2006 quarter increased $6 million over the prior year quarter, mainly due to gains on disposal of fixed assets as well as somewhat higher interest income, partially offset by higher foreign exchange losses.
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The effective tax rate was 30% compared to a negative rate of 4% in the prior year quarter. The 2005 quarter included the one-time $23 million tax benefit; excluding this benefit, the 2005 third quarter effective rate was 32%.
Outlook for 2006 increased
For the full year, the Company expects sales to increase by mid-single digit rates in both local currency and reported dollars, in comparison to 2005; previously, sales had been expected to increase at a lower rate. Earnings per share for 2006 are now expected to be in the range of $2.36 to $2.44, compared to previous expectations of $2.20 to $2.28; the improvement comes primarily from expected higher sales for the year, and the benefit of actions taken to improve profitability.