IFF Reports First Quarter 2019 Results

Achieved double-digit sales growth; Reconfirms full year guidance

NEW YORK–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24IFF&src=ctag” target=”_blank”gt;$IFFlt;/agt;–Regulatory News:

International Flavors & Fragrances Inc. (NYSE: IFF) (Euronext Paris:
IFF) (TASE: IFF) reported financial results for the first quarter ended
March 31, 2019.

First Quarter 2019 Consolidated Summary:

 

Reported
(GAAP)

 

Adjusted
(Non-GAAP)¹

Sales  

Operating
Profit

  EPS Sales  

Operating
Profit

  EPS  

EPS
Ex Amortization

Consolidated $1.3 B   $164 M   $0.96 $1.3 B   $205 M   $1.24   $1.57
 

¹ Schedules at the end of this release contain reconciliations of
reported GAAP to non-GAAP metrics.

Management Commentary

“Our first quarter results were in line with our expectations and
reflect strong progress in the company’s transformation following the
Frutarom acquisition,” said Andreas Fibig, IFF Chairman and CEO. “In the
first quarter of 2019, we achieved solid sales growth across all three
of our divisions and maintained strong profitability levels despite the
continued higher raw material cost environment. On a consolidated basis,
the combination of our legacy business performance, plus the addition of
Frutarom, yielded double-digit sales and adjusted operating profit
growth.

“We are executing well against our integration roadmap. For those
businesses where we have aligned our go-to-market approach with IFF –
North America Taste and IBR – growth is very strong, increasing
double-digits. We are also seeing great progress from procurement
synergies and are well underway in terms of our manufacturing
optimization plan. For 2019, we are confident that we will achieve our
$30 to $35 million cost savings goal as our current run-rate savings are
already in excess of this target.

“Looking forward, we expect sales growth and profitability to improve in
the second half of the year. We remain focused on executing our strategy
and integrating successfully, and by doing so, we have reiterated our
full year financial guidance.”

First Quarter 2019 Consolidated Financial Results

  • Reported net sales for the first quarter totaled $1.3 billion, an
    increase of 39% from
    $931.0 million in 2018, including the
    contribution of sales related to Frutarom. On a combined basis,
    currency neutral sales improved 3%, excluding the contribution of
    acquisitions and divested businesses, with growth across all segments.
  • Reported earnings per share (EPS) for the first quarter was $0.96 per
    diluted share versus $1.63 per diluted share reported in 2018.
    Excluding those items that affect comparability, adjusted EPS ex
    amortization was $1.57 per diluted share in 2019 versus $1.78 in the
    year-ago period as adjusted operating profit growth was more than
    offset by higher interest expense and shares outstanding, both related
    to the Frutarom acquisition.

First Quarter 2019 Segment Summary: Growth vs. Prior Year

  Reported (GAAP)     Currency Neutral (Non-GAAP)
Sales   Segment Profit Sales   Segment Profit
Scent 1% (8)% 4% (3)%
 
Taste (1)% (3)% 2% (1)%
 
Frutarom    
 

Scent Business Unit

  • On a reported basis, sales increased 1%, or $6.4 million, to $488.4
    million. Currency neutral sales improved 4%, with growth in nearly all
    regions and categories. Performance was strongest in Fine Fragrances,
    increasing double-digits, led by strong new win performance. Consumer
    Fragrances grew mid-single digits, with the strongest growth in Home
    Care and Fabric Care. Fragrance Ingredients was challenged as price
    increases related to higher raw material costs were more than offset
    by volume declines.
  • Scent segment profit decreased 8% on a reported and 3% on a currency
    neutral basis as the benefits from cost and productivity initiatives
    were more than offset by unfavorable price to input costs.

Taste Business Unit

  • On a reported basis, sales decreased 1%, or $4.4 million, to $444.6
    million. Currency neutral sales improved 2%, with growth in three of
    four regions. Performance in the quarter was driven by mid-single
    digit growth in Greater Asia, where India and Indonesia grew
    double-digits, and EAME, led by strong growth in Africa and the Middle
    East as well as Western Europe. In North America, year-over-year
    improvements continue to be led by TastePoint. Latin America declined
    primarily due to volumes with multinational customers.
  • Taste segment profit decreased 3% on a reported basis and 1% on a
    currency neutral basis, as volume growth and the benefits from
    productivity initiatives were more than offset by unfavorable price to
    raw material costs and mix.

Frutarom Business Unit

  • On a reported basis, sales were $364.4 million. On a standalone basis,
    currency neutral sales grew 3%, excluding the contribution of
    acquisitions and divested businesses. Performance was driven by strong
    growth in Taste, led by double-digit gains in North America, and solid
    increases in Savory Solutions, which more than offset declines in F&F
    ingredients and Natural Colors.
  • Segment profit contributed $29 million in the first quarter; $68
    million excluding amortization. Margin performance continued to be
    driven by disciplined cost management.

The Company reconfirms its 2019 guidance as follows:

    Guidance
 
Sales $5.2B – $5.3B
Adjusted EPS (1) $4.90 – $5.10
Adjusted EPS ex amortization (1) $6.30 – $6.50
 

1 See Use of Non-GAAP Financial Measures

A copy of the Company’s Quarterly Report on Form 10-Q will be available
on its website at www.iff.com
or at www.sec.gov
by May 8, 2019.

Audio Webcast

A live webcast to discuss the Company’s first quarter 2019 financial
results will be held on May 7, 2019, at 10:00 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

This press release includes “forward-looking statements” under the
Federal Private Securities Litigation Reform Act of 1995, including
statements regarding guidance for full year 2019, expected impact of the
acquisition of Frutarom, including cost savings, and our ability to
accelerate growth and profitability in 2019. 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 26, 2019 and subsequent
filings with the SEC, including the Company’s Quarterly Reports on Form
10-Q. 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) risks related to the
integration of the Frutarom business, including whether we will realize
the benefits anticipated from the acquisition in the expected time
frame; (2) unanticipated costs, liabilities, charges or expenses
resulting from the Frutarom acquisition, (3) the increase in the
Company’s leverage resulting from the additional debt incurred to pay a
portion of the consideration for Frutarom and its impact on the
Company’s liquidity and ability to return capital to its shareholders,
(4) the Company’s ability to successfully market to its expanded and
decentralized Taste and Frutarom customer base, (5) the Company’s
ability to effectively compete in its market and develop and introduce
new products that meet customers’ needs, (6) the Company’s ability to
successfully develop innovative and cost-effective products that allow
customers to achieve their own profitability expectations, (7) the
impact of the disruption in the Company’s manufacturing operations, (8)
the impact of a disruption in the Company’s supply chain, including the
inability to obtain ingredients and raw materials from third parties,
(9) volatility and increases in the price of raw materials, energy and
transportation, (10) the Company’s 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, (11) the impact of any failure or interruption of
the Company’s key information technology systems or a breach of
information security, (12) the Company’s ability to react in a timely
and cost-effective manner to changes in consumer preferences and
demands, (13) the Company’s ability to establish and manage
collaborations, joint ventures or partnership that lead to development
or commercialization of products, (14) the Company’s ability to benefit
from its investments and expansion in emerging markets; (15) the impact
of currency fluctuations or devaluations in the principal foreign
markets in which it operates; (16) economic, regulatory and political
risks associated with the Company’s international operations, (17) the
impact of global economic uncertainty on demand for consumer products,
(18) the inability to retain key personnel; (19) the Company’s ability
to comply with, and the costs associated with compliance with, U.S. and
foreign environmental protection laws, (20) the Company’s ability to
realize the benefits of its cost and productivity initiatives, (21) the
Company’s ability to successfully manage its working capital and
inventory balances, (22) 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, (23) the Company’s
ability to protect its intellectual property rights, (24) the impact of
the outcome of legal claims, regulatory investigations and litigation,
(25) changes in market conditions or governmental regulations relating
to our pension and postretirement obligations, (26) the impact of future
impairment of our tangible or intangible long-lived assets, (27) 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, (28) the effect of potential
government regulation on certain product development initiatives, and
restrictions or costs that may be imposed on the Company or its
operations as a result, and (29) the impact of the United Kingdom’s
expected departure from the European Union. 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 non-GAAP financial measures, including:
(i) currency neutral sales, which eliminates the effects that result
from translating our international sales in U.S. dollars; (ii) adjusted
operating profit and adjusted EPS, which exclude restructuring costs and
other significant items of a non-recurring and/or non-operational nature
such as gains on sale of assets, operational improvement initiatives,
integration related costs, FDA mandated product recall costs,
acquisition related costs, Frutarom acquisition related costs, U.S. Tax
reform (often referred to as “Items Impacting Comparability); (iii)
adjusted EPS ex amortization, which excludes Items Impacting
Comparability and the amortization of acquisition related intangible
assets; and (iv) currency neutral adjusted EPS ex amortization, which
eliminates the effects that result from translating our international
sales in U.S. dollars on adjusted EPS ex amortization.

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. With respect to the redemption
value adjustment to EPS, the Company excluded this adjustment as (i) the
amount is not believed to be a measure of earnings and is excluded from
the net income attributable to IFF; and (ii) the Company believes that
investors may benefit from an understanding of the Company’s results
without giving effect to this adjustment. 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.

When we provide our expectations for adjusted EPS and adjusted EPS ex
amortization for our full year 2019 guidance, the closest corresponding
GAAP measure and a reconciliation of the differences between the
non-GAAP expectation and the corresponding GAAP measure is not available
without unreasonable effort due to length of the forecasted period and
potential variability, complexity and low visibility as to items such as
future contingencies and other costs that would be excluded from the
GAAP measure, and the tax impact of such items, in the relevant future
period. The variability of the excluded items may have a significant,
and potentially unpredictable, impact on our future GAAP results.

In the fourth quarter of fiscal year 2018, we began including Adjusted
(Non-GAAP) EPS ex. Amortization as a key non-GAAP financial measure of
our business. Full amortization expense of intangible assets acquired in
connection with acquisitions will be excluded from Adjusted (Non-GAAP)
EPS ex. Amortization calculation. The exclusion of amortization expense
allows comparison of operating results that are consistent over time for
newly and long-held businesses and with both acquisitive and
non-acquisitive peer companies. We believe this calculation will provide
a more accurate presentation in this and in future periods in the event
of additional acquisitions. Further, this allows the investors to
evaluate and understand operating trends excluding the impact on
operating income and earnings per diluted share. In addition, the
Frutarom acquisition related costs have been separated from costs
related to prior acquisitions. The Frutarom acquisition costs represent
a significant balance and we believe this amount should be shown
separately to provide an accurate presentation of the acquisition
related costs. Our GAAP results and GAAP metrics do not change, and this
change has no effect on day to day business operations, or how we manage
our business. For Frutarom, we present segment profit excluding
amortization expense as it allows comparison of operating results that
are consistent over time for newly and long-held businesses and with
both acquisitive and non-acquisitive peer companies.

We calculated “combined” numbers by combining (i) our results (including
Frutarom from January 1, 2019 through March 31, 2019) with (ii) the
results of Frutarom prior to its acquisition by us on October 4, 2018,
and adjusting for divestitures of Frutarom businesses since October 4,
2018, but do not include any other adjustments that would have been made
had we owned Frutarom for such periods prior to October 4, 2018.

Meet IFF

International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris: IFF)
(TASE: IFF) is a leading innovator of scent, taste, and nutrition, with
97 manufacturing facilities, 105 R&D centers, and 39,000 customers
globally. 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 experience in more
than 90,000 unique products sold annually. Our 13,000 team members
globally take advantage of leading consumer insights, naturals
exploration, 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.

Consolidated Income Statement

(Amounts in thousands except per share data)

(Unaudited)

 
Three Months Ended March 31,
2019   2018   % Change
 
Net sales $1,297,402 $930,928 39 %
Cost of goods sold 766,143 525,119 46 %
Gross profit 531,259 405,809 31 %
Research and development expenses 90,596 78,476 15 %
Selling and administrative expenses 213,182 142,644 49 %
Amortization of acquisition-related intangibles 47,625 9,185 NMF
Restructuring and other charges, net 16,174 717 NMF
Gains on sales of fixed assets (188) (69) 172 %
Operating profit 163,870 174,856 (6)%
Interest expense 36,572 16,595 120 %
Other income, net (7,278) (576) NMF
Income before taxes 134,576 158,837 (15)%
Taxes on income 23,362 29,421 (21)%
Net income $ 111,214 $129,416 (14)%

Net income attributable to noncontrolling
interest

2,385 NMF
Net income attributable to IFF $ 108,829 $129,416 (16)%
 
Net income per share – basic(1) $ 0.97 $ 1.63
Net income per share – diluted(1) $ 0.96 $ 1.63
 
Average shares outstanding
Basic 111,864 79,018
Diluted 113,389 79,393
 
(1)

For 2019, net income per share reflects
adjustments related
to the redemption
value of certain redeemable
noncontrolling
interests.

 
NMF Not meaningful

International Flavors & Fragrances Inc.

Condensed Consolidated Balance Sheet

(Amounts in thousands)

(Unaudited)

   
March 31, December 31,
2019 2018
Cash, cash equivalents, and restricted cash $ 497,129 $ 648,522
Receivables 1,003,965 937,765
Inventories 1,114,488 1,078,537
Other current assets 310,243 277,036
Total current assets 2,925,825 2,941,860
 
Property, plant and equipment, net 1,294,029 1,241,152
Goodwill and other intangibles, net 8,408,177 8,417,710
Other assets 583,389 288,673
Total assets $13,211,420 $ 12,889,395
 
Short term borrowings $ 84,003 $ 48,642
Other current liabilities 1,060,131 1,079,669
Total current liabilities 1,144,134 1,128,311
 
Long-term debt 4,421,430 4,504,417
Non-current liabilities 1,376,667 1,131,487
 
Redeemable noncontrolling interests 114,711 81,806
 
Shareholders’ equity 6,154,478 6,043,374
Total liabilities and shareholders’ equity $13,211,420 $ 12,889,395

International Flavors & Fragrances Inc.

Consolidated Statement of Cash Flows

(Amounts in thousands)

(Unaudited)

 

Three Months Ended
March 31,

 

2019   2018
Cash flows from operating activities:
Net income $111,214 $129,416
Adjustments to reconcile to net cash provided by (used in) operating
activities
Depreciation and amortization 81,775 33,384
Deferred income taxes (12,389) 18,404
Gains on sale of assets (188) (69)
Stock-based compensation 7,604 7,620
Pension contributions (3,956) (4,387)
Litigation settlement (12,969)
Changes in assets and liabilities, net of acquisitions:
Trade receivables (55,935) (61,301)
Inventories (24,719) (30,185)
Accounts payable 8,988 (8,435)
Accruals for incentive compensation (36,969) (36,583)
Other current payables and accrued expenses (11,321) (18,540)
Other assets (9,978) (26,035)
Other liabilities (6,894) (1,715)
Net cash provided by (used in) operating activities 47,232 (11,395)
 
Cash flows from investing activities:
Cash paid for acquisitions, net of cash received (33,895) (22)
Additions to property, plant and equipment (57,609) (33,105)
Proceeds from life insurance contracts 1,890
Maturity of net investment hedges (2,405)
Proceeds from disposal of assets 3,970 293
Contingent consideration paid (4,655)
Net cash used in investing activities (90,299) (35,239)
 
Cash flows from financing activities:
Cash dividends paid to shareholders (77,779) (54,420)
Increase in revolving credit facility and short term borrowings 2,895 53,688
Repayments on debt (36,156)
Proceeds from issuance of stock in connection with stock options 200
Employee withholding taxes paid (1,339) (3,266)
Purchase of treasury stock (10,617)
Net cash used in financing activities (112,179) (14,615)
Effect of exchange rates changes on cash and cash equivalents 3,853 (1,521)
Net change in cash and cash equivalents (151,393) (62,770)
Cash and cash equivalents at beginning of year 648,522 368,046
Cash and cash equivalents at end of period $497,129 $305,276

International Flavors & Fragrances Inc.

Business Unit Performance

(Amounts in thousands)

(Unaudited)

 
Three Months Ended March 31,
2019   2018
Net Sales
Taste $ 444,602 $ 449,019
Scent 488,352 481,909
Frutarom 364,448
Consolidated 1,297,402 930,928
 
Segment Profit
Taste 108,455 111,564
Scent 85,815 93,277
Frutarom 29,091
Global Expenses (18,673) (23,825)
Operational Improvement Initiatives (406) (1,026)
Acquisition Related Costs 514
Integration Related Costs (14,897)
Restructuring and Other Charges, net (16,174) (717)
Gains on Sale of Assets 188 69
FDA Mandated Product Recall (5,000)
Frutarom Acquisition Related Costs (9,529)
Operating profit 163,870 174,856
 
Interest Expense (36,572) (16,595)
Other income, net 7,278 576
Income before taxes $ 134,576 $ 158,837
 
Operating Margin
Taste 24.4 % 24.8 %
Scent 17.6 % 19.4 %
Frutarom 8.0 % N/A
Consolidated 12.6 % 18.8 %

International Flavors & Fragrances Inc.

GAAP to Non-GAAP Reconciliation

Foreign Exchange Impact

(Unaudited)

   

Q1 Taste

Sales  

Segment
Profit

% Change – Reported (GAAP) -1% -3%
Currency Impact 3% 2%
% Change – Currency Neutral 2%   -1%
     

Q1 Scent

Sales  

Segment
Profit

% Change – Reported (GAAP) 1% -8%
Currency Impact 3% 5%
% Change – Currency Neutral 4%   -3%

International Flavors & Fragrances Inc.
GAAP to
Non-GAAP Reconciliation

(Amounts in thousands)
(Unaudited)

The following information and schedules provide reconciliation
information between reported GAAP amounts and non-GAAP certain adjusted
amounts. This information and schedules are not intended as, and should
not be viewed as, a substitute for reported GAAP amounts or financial
statements of the Company prepared and presented in accordance with GAAP.

Reconciliation of Gross Profit
  First Quarter
2019   2018
Reported (GAAP) $ 531,259 $ 405,809
Operational Improvement Initiatives (a) 406 453
Integration Related Costs (c) 156
FDA Mandated Product Recall (e) 5,000
Frutarom Acquisition Related Costs (g) 7,850
Adjusted (Non-GAAP) $ 539,671 $ 411,262
 
Reconciliation of Selling and Administrative Expenses
First Quarter
2019 2018
Reported (GAAP) $ 213,182 $ 142,644
Acquisition Related Costs (b) 514
Integration Related Costs (c) (14,557)
Frutarom Acquisition Related Costs (g) (1,679)
Adjusted (Non-GAAP) $ 196,946 $ 143,158
 
Reconciliation of Operating Profit
First Quarter
2019 2018
Reported (GAAP) $ 163,870 $ 174,856
Operational Improvement Initiatives (a) 406 1,026
Acquisition Related Costs (b) (514)
Integration Related Costs (c) 14,897
Restructuring and Other Charges, net (d) 16,174 717
Gains on Sale of Assets (188) (69)
FDA Mandated Product Recall (e) 5,000
Frutarom Acquisition Related Costs (g) 9,529
Adjusted (Non-GAAP) $ 204,688 $ 181,016

Contacts

Michael DeVeau
Head of Investor Relations and Communications &
Divisional CFO, Scent
212.708.7164
Michael.DeVeau@iff.com

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