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IFF Q1 Profit Surges 12% On Fragrance Compounds, Flavors Momentum

Posted: May 8, 2013

International Flavors & Fragrances Inc.'s (IFF) first-quarter profit rose 12%, boosted by strong underlying momentum in both flavors and fragrance compounds, which offset a sales decline in fragrance ingredients.

For the quarter ended March 31, net income rose to $90.7 million from $81.1 million a year earlier.  

First-quarter sales rose 2% to $727.8 million from $710.6 million a year earlier. Excluding the impact of foreign currency, local currency sales rose 3%. On a like-for-like basis, which excludes the exit of low-margin sales activities in flavors, local currency sales increased 4%.

The fragrances business unit's first-quarter sales rose 3% to $371.5 million and the foreign currency impact was negligible this quarter. Fragrance compounds experienced local currency sales growth of 7% in the first quarter, which more than offset an 11% sales decline in fragrance ingredients.

The company, which recently announced a multi-year collaboration with Amyris as well as plans to close its fragrances ingredients manufacturing facility in Augusta, Ga., is taking actions to ensure the long-term profitability of its fragrance ingredients business and to strengthen its competitive position.

"We see solid momentum in each of our business units, and expect to deliver stronger sales growth in the second quarter as we continue to focus on leveraging our geographic reach, strengthening our innovation platform and maximizing our portfolio," said Doug Tough, IFF chairman and CEO. 

During the latest quarter, the company’s fine and beauty care category had local currency sales growth of 4%, driven by double-digit growth in Latin America and Greater Asia. 

Functional fragrances had local currency sales growth of 9% with positive growth in all regions during the quarter, led by double-digit growth in Latin America and Greater Asia and high single-digit growth in Europe, Africa, Middle East (EAME) region. This marks the 19th consecutive quarter of growth in functional fragrances, due to increased new wins, including those using our encapsulation technology, and increased core list participation. The emerging markets represented 54% of fragrances compounds sales. Within fragrance compounds, the emerging markets grew at 18% in the first quarter over the prior year quarter.

During a conference call, IFF executives noted softness in fine fragrances, although they said the short-term softness was due to the impact of the very strong fourth-quarter sales realized last year.

Flavors business unit sales rose 2% to $356.4 million during the quarter from $349.9 million a year earlier. The foreign currency impact was negligible this quarter. On a like-for-like (LFL) basis, which excludes the exit of low-margin sales activities, local currency sales increased 6% in the quarter, driven by strong new wins and residual benefits of previously taken pricing. On a regional basis, Greater Asia, Latin America and EAME delivered LFL local currency sales growth of 6%, and North America delivered LFL local currency sales growth of 4%.

"This quarter, we exited over 10 million on sales activities affecting both savory and sweet end-use categories," said Hernan Vaisman, group president of flavors. "We expect to exit the same level of business in the second quarter of 2013 and after that, we are largely finished within this program. As a percentage of sales, we would expect the impact in the second quarter of exited sales to be approximately 3 percentage points." 

Also during the conference call, IFF executives said they expect to see improved top-line growth in the second quarter, although overall growth will still be impacted by the exit of low-margin sales activities for one final quarter. On a like-for-like basis, IFF expects to achieve mid- to high-single-digit growth fueled by broad-based geographic growth.