International Flavors & Fragrances Inc. (IFF) (New York) reported second quarter 2011 revenue of $716 million, 7% higher than the prior year period's revenue. Excluding the impact of foreign currency, revenue in local currency increased 3%. Reported earnings per share (EPS) increased 12% to $0.93 compared to $0.83 for the second quarter 2010. EPS in 2011 included a $0.04 per share expense related to the conclusion of restructuring efforts in Europe as compared to a $0.02 expense related to similar restructuring activities in the prior year period. Excluding these items from each period, adjusted EPS for the second quarter increased 14% to $0.97 versus $0.85 in the prior year quarter.
"We are pleased with our second quarter performance in light of our challenging 17% local currency sales growth comparison and the significant increases in raw material costs," said Doug Tough, IFF chairman and CEO. "The diversification of our product and geographic portfolio provided us the ability to deliver solid local currency sales growth. From a profitability perspective, our initial pricing actions and continued cost discipline helped mitigate raw material pressures to drive double-digit adjusted operating profit and adjusted EPS growth."
Tough continued, "While our first half performance was strong, it is worth noting that we will continue to face strong year-over-year comparables and elevated levels of raw material costs over the balance of the year. Nonetheless, we believe that by focusing on our strategy—leveraging our geographic reach, strengthening innovation and maximizing our portfolio—we can achieve our long-term targets of 4–6% local currency sales growth, seven to 9% operating profit growth, and 10% plus EPS growth for the full year 2011."
For the fragrance business unit, the local currency sales in the second quarter declined 2% against a record 23% comparable in the prior year period. Fine fragrance and beauty care results were challenged by a very strong year-ago comparison of 37%, as net new business was more than offset by volume declines. Functional fragrance grew slightly supported by net new business across all categories and a solid performance in the home care category. Fragrance ingredients results were down year-over-year against our strongest year-ago comparison, as lower consumption rates impacted results. Operating profit decreased by $7 million to $58 million in the second quarter, including a $4 million expense related to the conclusion of restructuring efforts in Europe as compared to a $2 million expense related to similar restructuring activities in the prior year period. Excluding these items, adjusted operating profit declined by $5 million as double-digit increases in raw material costs and lower sales more than offset the benefits associated with the European restructuring and other profit improvement initiatives. Adjusted operating profit margin, as expected, fell 180 bps to 16.8% versus the year-ago period.
In the flavor business unit, the second quarter 2011 saw local currency sales increase 8% over the prior year period, with most growth being attributed to a double-digit performance in emerging markets such as Brazil, Russia, India and China. These countries combined grew in excess of 20%. In the developed markets, performance was strongest in North America as health and wellness initiatives continued to drive results. From a category perspective, growth was achieved across the entire portfolio, led by a double-digit increase in savory and high single-digit increases in beverage and confectionery. Operating profit increased 10%, or $6 million, to $71 million in the second quarter as accelerated sales growth and continued cost discipline drove results. Operating profit margin declined 60 bps versus the prior year period to 20.6% as pricing initiatives lagged raw material costs as expected.