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 |
Adjusted |
||||||||||||||
| Sales |
Operating |
EPS | Sales |
Operating |
EPS |
EPS |
|||||||||
| 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 |
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 |
|||||
| 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 |
||||
|
|
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 |
||
| % Change – Reported (GAAP) | -1% | -3% | ||
| Currency Impact | 3% | 2% | ||
| % Change – Currency Neutral | 2% | -1% | ||
|
Q1 Scent |
Sales |
Segment |
||
| % 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
