MITTEILUNG UEBERMITTELT VON BUSINESS WIRE. FUER DEN INHALT IST ALLEIN DAS BERICHTENDE UNTERNEHMEN VERANTWORTLICH.
NEW YORK --(BUSINESS WIRE)-- 04.11.2019 --
International Flavors & Fragrances Inc. (NYSE: IFF) (Euronext Paris: IFF) (TASE: IFF) reported financial results for the third quarter ended September 30, 2019 and reconfirms full year 2019 guidance.
"In the third quarter, we delivered a sequential improvement in our combined top-line growth rate," said IFF Chairman and CEO Andreas Fibig. "Scent continued to perform well, growing low single-digits, and we have seen a sequential improvement at Frutarom - with broad-based increases across many categories. In Taste, our win rate remains high, yet performance continued to be impacted by volume erosion. On a two-year basis, Taste growth remained solid when we factor in a high single-digit year-ago comparison.
"We drove strong improvements in profitability with adjusted operating profit margin ex amortization up 60 basis points year-over-year, despite a more challenging top-line environment. We also generated strong cash flow - with improvements in operating and free cash flow - through an increased emphasis on productivity savings and the benefit of acquisition-related synergies.
"Our integration efforts are progressing well across all of our priorities. We are expanding our Tastepoint model in key markets around the world, we secured $14 million of cross-selling wins on a run-rate basis and executed on our talent agenda. For those businesses where we have aligned our go-to-market approach, growth remained robust. We also continue to progress against our cost synergy efforts, and now expect to deliver approximately $50 million of savings in 2019 - significantly ahead of our revised estimate of $40 million.
"We have started the fourth quarter strong, and with a continuation of this trend, we expect sales and adjusted EPS ex amortization for full year 2019 to be in line with the low end of our guidance. Acknowledging the many moving parts and challenging market environment over the course of the year, we remain on pace to deliver solid top and bottom-line results. Our path forward is clear - deliver strong value creation for all our stakeholders through growth acceleration, margin expansion and a successful integration."
Third Quarter 2019 Consolidated Financial Results
- Reported net sales for the third quarter totaled $1.3 billion, an increase of 40% from $908 million in 2018, including the contribution of sales related to Frutarom. On a combined basis, currency neutral sales increased 2%, including the net contribution of acquisitions and divested businesses.
- Reported earnings per share (EPS) for the third quarter was $1.13 per diluted share versus $1.17 per diluted share reported in 2018. Excluding those items that affect comparability, adjusted EPS excluding amortization was $1.53 per diluted share in 2019 versus $1.62 in the year-ago period, as adjusted operating profit growth was more than offset by shares outstanding and higher interest expense - both related to the Frutarom acquisition.
Scent Business Unit
- On a reported basis, sales increased 2%, or $9.1 million, to $480.4 million. Currency neutral sales improved 3%, with growth in all regions and nearly all categories. Performance was strongest in Fine Fragrance, growing mid single-digits led by robust growth in EAME and Greater Asia. Consumer Fragrances grew low single-digits with increases in nearly all categories led by Home Care, Hair Care and Fabric Care. Fragrance Ingredients was flat as price increases were offset by volume declines related to inventory destocking.
- Scent segment profit decreased 5%on a reported basis and was 0% on a currency neutral basis as the benefits of productivity initiatives and mix were offset by unfavorable price to input costs.
Taste Business Unit
- On a reported basis, sales decreased 3%, or $12.9 million, to $423.3 million. Currency neutral sales decreased approximately 2% against a strong 7% year-ago comparison as high single-digit growth in Greater Asia was more than offset by volume erosion with multinational customers. From a category perspective, growth was strongest in Beverage and Savory, led by strong new win performance.
- Taste segment profit increased 1% on a reported basis and 4% on a currency neutral basis driven primarily by productivity initiatives and cost management.
Frutarom Business Unit
- On a reported basis, sales were $363.7 million. On a standalone basis, currency neutral sales increased 5%, including the net contribution of acquisitions and divested businesses, as organic sales remained constant. Performance was driven by growth in Taste and Savory offset by continued pressures in F&F ingredients - notably CitraSource - and Natural Product Solutions - particularly raw material-driven price decreases in Natural Colors.
- Segment profit contributed $28 million in the third quarter, or $68 million excluding amortization. Margin continued to be supported by disciplined cost management and acquisition-related synergies.
IFF's investigation of allegations that improper payments to representatives of customers were made in Russia and Ukraine has been substantially completed. Such allegations have been substantiated, and IFF has confirmed that key members of Frutarom's senior management at the time were aware of such payments. IFF has taken appropriate remedial actions, including replacing senior management in relevant locations, and believes that such improper customer payments have stopped.
In addition to IFF's standard compliance integration activities, IFF has also conducted a robust secondary review of Frutarom's operations in certain other jurisdictions, including those that it deems "high risk". These reviews supplement IFF's existing global compliance initiatives that were implemented at Frutarom in connection with the closing of the Frutarom transaction. These secondary reviews were conducted with the assistance of outside legal and accounting firms. These reviews are substantially complete.
IFF has confirmed in these investigations that total affected sales represented less than 1% of IFF's and Frutarom's combined net sales for 2018. The impact of the reviews including the costs associated with them, to date, have not been and are not anticipated to be material to IFF's results of operations or financial condition. In addition, no evidence has been uncovered suggesting that any of these compliance matters had any connection to the United States.
IFF is committed to the highest standards of ethics and integrity and has strict compliance policies in place that are regularly reviewed and updated.
A live webcast to discuss the Company's third quarter 2019 financial results will be held on November 5, 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, the progress of the integration of Frutarom, including expected cost savings in 2019, the status and preliminary results of our ongoing investigations regarding improper payments made in Frutarom businesses operating principally in Russia and the Ukraine and the expected impact of such investigations on our results of operations or financial condition, 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) risks relating to the Company's ongoing investigations into improper payments made in Frutarom businesses principally operating in Russia and the Ukraine, including expenses incurred with respect to the investigations, the cost of any remedial measures or compliance programs arising out of the investigations, legal proceedings or government investigations that may arise relating to the subject of the Company's investigations, and the outcome of any such legal or government investigations, such as the imposition of fines, penalties, orders, or injunctions, (4) the impact of the failure to comply with U.S. or foreign anti-corruption and anti-bribery laws and regulations, including with respect to the Company's ongoing investigations into improper payments made in Frutarom businesses principally operating in Russia and the Ukraine, (5) the impact of the outcome of legal claims, regulatory investigations and litigation, including any that may arise out of the Company's ongoing investigations into improper payments made in Frutarom businesses principally operating in Russia and the Ukraine, (6) 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, (7) the Company's ability to successfully market to its expanded and decentralized Taste and Frutarom customer base, (8) the Company's ability to effectively compete in its market and develop and introduce new products that meet customers' needs, (9) the Company's ability to successfully develop innovative and cost-effective products that allow customers to achieve their own profitability expectations, (10) the impact of the disruption in the Company's manufacturing operations, (11) the impact of a disruption in the Company's supply chain, including the inability to obtain ingredients and raw materials from third parties, (12) volatility and increases in the price of raw materials, energy and transportation, (13) 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, (14) the impact of any failure or interruption of the Company's key information technology systems or a breach of information security, (15) the Company's ability to react in a timely and cost-effective manner to changes in consumer preferences and demands, (16) the Company's ability to establish and manage collaborations, joint ventures or partnership that lead to development or commercialization of products, (17) the Company's ability to benefit from its investments and expansion in emerging markets; (18) the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates; (19) economic, regulatory and political risks associated with the Company's international operations, (20) the impact of global economic uncertainty on demand for consumer products, (21) the inability to retain key personnel; (22) the Company's ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws, (23) the Company's ability to realize the benefits of its cost and productivity initiatives, (24) the Company's ability to successfully manage its working capital and inventory balances, (25) 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, (26) the Company's ability to protect its intellectual property rights, (27) the impact of the outcome of legal claims, regulatory investigations and litigation, (28) changes in market conditions or governmental regulations relating to our pension and postretirement obligations, (29) the impact of future impairment of our tangible or intangible long-lived assets, (30) 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, (31) 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 (32) 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; (ii) adjusted operating profit; (iii) adjusted operating profit (margin) ex. amortization; (iv) adjusted EPS; (v) adjusted EPS ex. amortization.
Our non-GAAP financial measures are defined below.
Currency Neutral metrics eliminate the effects that result from translating international currency to U.S. dollars. We calculate currency neutral numbers by comparing current year results to the prior year results restated at exchange rates in effect for the current year based on the currency of the underlying transaction.
Adjusted Operating Profit excludes the impact of operational improvement initiatives, acquisition related costs, integration related costs, restructuring and other charges, net, losses (gains) on sale of assets, FDA mandated product recall, Frutarom acquisition related costs, and compliance review & legal defense costs ("Operating Profit Items Impacting Comparability").
Adjusted Operating Profit (Margin) ex. Amortization excludes the impact of Operating Profit Items Impacting Comparability and the amortization of acquisition related intangible assets.
Adjusted EPS excludes the impact of operational improvement initiatives, acquisition related costs, integration related costs, restructuring and other charges, net, losses (gains) on sale of assets, FDA mandated product recall, U.S. tax reform, Frutarom acquisition related costs, compliance review & legal defense costs, and redemption value adjustment to EPS (often referred to as "Items Impacting Comparability").
Adjusted EPS ex. Amortization excludes the impact of Items Impacting Comparability and the amortization of acquisition related intangible assets.
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. 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.
In the fourth quarter of fiscal year 2018, we began including Adjusted 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 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.
Forward-Looking Non-GAAP Metrics. This press release also includes our expectations for 2019 with respect to (i) sales growth; (ii) Adjusted EPS growth; and (iii) EPS ex. amortization growth. The closest corresponding GAAP measures to these non-GAAP measures and a reconciliation of the differences between the non-GAAP metric 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 measures, 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.
Combined 2018 Financials
We calculated "combined" numbers by combining (i) our fiscal year 2018 results (including Frutarom from October 4, 2018 to December 31, 2018) with (ii) the results of Frutarom from January 1, 2018 to October 3, 2018, and adjusting for divestitures of Frutarom's 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.
Welcome to IFF
At IFF (NYSE:IFF) (Euronext Paris: IFF) (TASE: IFF), we're using Uncommon Sense to create what the world needs. As a collective of unconventional thinkers and creators, we put science and artistry to work to create unique and unexpected scents, tastes, experiences and ingredients for the products our world craves. Learn more at www.iff.com, Twitter, Facebook, Instagram, and LinkedIn.
International Flavors & Fragrances Inc.
Head of Investor Relations and Communications & Divisional CFO, Scent