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IFF Q3 Profit Falls Due to Tax Settlement

Posted: November 6, 2012

International Flavors & Fragrances Inc.'s (IFF) third-quarter profit fell 80% on a $72.4 million tax expense related to its previously announced Spanish tax settlement. However, the company expects continued strength in its flavor and fragrance compound businesses and emerging markets in the fourth quarter.

For the quarter ended Sept. 30, IFF said its net income fell $16.4 million from $82.2 million a year earlier. Excluding the impact of the tax settlement, adjusted net income rose 9% to $88.7 million. 

Third-quarter revenue fell 1% to $709 million from $713.8 million a year ago. However, excluding the impact of foreign currency, local currency sales climbed 5%.

“We saw strong momentum in every region and end-use product category, with the exception of fragrance ingredients," said Doug Tough, IFF's chairman and CEO.

For the quarter, IFF's fragrances business unit  revenue fell 1% to $368.3 million. Excluding the impact of foreign currency, local currency sales rose 5%, due to 10% growth in fine and beauty care and 8% growth in functional fragrance. By segment, fragrance compounds achieved 9% local currency growth, which was the result of 10% growth in fine and beauty care and 8% growth in functional fragrance. 

During the company's quarterly conference call, Nicolas Mirzayantz, group president of the company's fragrances unit, said the company plans to shift its focus to its fragrance compounds business as IFF moves to higher-margin areas and is adding manufacturing capacity to support its growing emerging markets business. 

By comparison, IFF also has determined it is getting a better benefit on margin in its flavors business. Third-quarter flavors business unit revenue was on par with the prior year quarter at $340.7 million. Excluding the impact of foreign currency, local currency sales rose 6%. Excluding the exit of lower-margin sales activities, the company booked double-digit growth in greater Asia, North America and Latin America.

Flavors delivered 9% currency growth on a like-for-like basis during the quarter, supported by double-digit growth in beverages and dairy, and solid growth in savory and sweet.  

Vaisman Hernan, the company's group president of flavors, said on the conference call that emerging markets posted 10% growth. EAME was the best performing region of the quarter with 13% like-for-like growth overall, led by strong growth in dairy (Read more about IFF's investment in developing EAME markets). Greater Asia was the largest flavors region, growing at 9% like-for-like growth. In Latin America, like-for-like growth was 6% led by sweet, dairy and beverage. He also expects momentum for flavors to continue in the fourth quarter.

Although IFF’s operations were impacted by Hurricane Sandy, resulting in short-term disruptions in power, manufacturing and information technology systems, the company expects its adjusted fourth-quarter earnings (excluding the impact) to be in line with consensus estimates. The company said most of the disruptions have been resolved and orders are being processed and shipped from all IFF sites, and all critical business systems are operational.