International Flavors & Fragrances Inc. (IFF) reported third quarter 2011 revenue of $714 million, 6% higher than the prior year period. Excluding the impact of foreign currency, revenue in local currency increased 1%. Reported earnings per share (EPS) increased 5% to $1.00 compared to $0.95 for the third quarter 2010. EPS in 2011 included a $0.01 per share benefit associated with the reversal of restructuring liabilities, as compared to a $0.03 per share expense related to restructuring efforts in Europe in the prior year period. Excluding these items from each period, adjusted EPS for the third quarter increased 2% to $1.00 versus $0.98 in the prior year quarter.
"Our category, customer and geographic diversity continued to support our financial results in the third quarter," said Doug Tough, IFF chairman and CEO. "The flavors business continued to gain market share led by our innovative health and wellness portfolio and double-digit growth in the emerging markets. In fragrances, results were pressured by price-driven volume declines in ingredients, where changes in volume are more price sensitive, and a general weakening of our more discretionary categories such as fine fragrance and beauty care. Fortunately, our emphasis on improved pricing and cost control, as well as favorable foreign exchange benefits, helped produce positive financial results on a consolidated basis."
Tough continued, "Given our year-to-date performance, plus a more cautious outlook for the fourth quarter, we now expect local currency sales growth and adjusted EPS growth to approach the low end of our long-term financial targets for the full year 2011. Despite the challenging economic conditions, we continue to believe we can deliver adjusted operating profit growth above our long-term targets driven by our efforts in pricing, the benefit of previous restructuring activities, and cost control initiatives."
For the flavor business unit, local currency sales in the third quarter increased 8% over the prior year period as double-digit growth in the emerging markets continued to drive results. In the developed markets, growth in North America was once again the strongest, led by several health and wellness initiatives. From a category perspective, savory continued to grow double-digits for the fourth consecutive quarter, and beverage was up high single-digits for the eighth consecutive quarter. Operating profit increased 13%, or $8 million, to $71 million in the third quarter as sales growth, including pricing, and continued cost discipline drove results. Operating profit margin declined 10 bps versus the prior year period to 20.9% as pricing actions and cost control virtually covered the impact of higher raw material costs on operating profit margin.
For the fragrance business unit, local currency sales in the third quarter declined 5% against a 15% increase in the prior year period. In fine fragrance and beauty care, new business wins and price increases were more than offset by volume declines on existing business. Functional fragrance results were similar to year-ago levels as new business wins, the realization of price increases and continued success in the home care category balanced volume declines. Fragrance ingredients was most challenged, as price increases to reduce the impact of rising raw materials costs substantially impacted volumes of some lower value-added products. Operating profit decreased by $9 million to $59 million in the third quarter, including a $1 million benefit associated with the reversal of restructuring liabilities, as compared to a $2 million expense related to restructuring efforts in Europe in the prior year period. Excluding these items from each period, adjusted operating profit declined by $12 million as strong double-digit increases in raw material costs and lower sales more than offset sequential improvements in pricing, the benefits associated with the European restructuring, and disciplined cost control. Adjusted operating profit margin fell 330 bps to 15.7 percent versus the year-ago period.
