IFF Reports Third Quarter 2010 Results

International Flavors & Fragrances Inc. (NYSE: IFF), a leading global creator of flavors and fragrances for consumer products, today reported third quarter 2010 revenue of $673 million, 10 percent higher than the prior year quarter. Revenue in local currency increased 13 percent as foreign currency had a three percentage point impact on results. Reported earnings per share (EPS) were $0.95, compared to $0.66 for the third quarter 2009. EPS in 2010 included a $0.03 per share expense related to ongoing restructuring efforts in Europe, while third quarter 2009 included a $0.16 per share expense relating to restructuring and employee separation costs. Excluding these items, adjusted EPS for the third quarter increased 20 percent to $0.98 versus $0.82 in the prior year quarter.

"Our third quarter performance marks the continuation of excellent results," said IFF Chairman and Chief Executive Officer Doug Tough. "All categories performed at or above expectations, as both Flavor and Fragrance results were once again supported by strong new win performance. This outstanding top-line performance combined with our continued focus on cost discipline enabled us to deliver a margin profile that has not been achieved in over five years."

Mr. Tough continued, "As we look towards the balance of the year, we expect local currency sales in the fourth quarter to remain strong, albeit approaching more normalized levels. We believe that our teams' continued ability to win new business will be a critical driver of results going forward as it appears that the benefits of restocking are subsiding. We expect that this performance will support our efforts to drive market share improvements while also creating long-term value for our shareholders."

Flavor Business Unit

Local currency sales in the third quarter increased 10 percent over the comparable 2009 period as all regions reported strong results. For the third consecutive quarter, an accelerated level of demand from existing accounts and new business wins led to double-digit growth in Europe, Africa, Middle East (EAME) and Greater Asia. Performance in North America continued to benefit from double-digit performances in both Confectionery and Beverage; while Latin America experienced strong double-digit growth in Confectionery, Savory and Dairy.

Reported operating profit increased 15 percent year-over-year, or $8 million, to $63 million in the third quarter. This increase was driven by accelerated sales growth, improving input costs and our continued margin improvement initiatives. Operating profit margin in the quarter improved 100 bps to 21.0 percent versus 20.0 percent in the prior year period.

Fragrance Business Unit

Local currency sales in the third quarter increased 15 percent over the prior year period as all regions reported double-digit growth. New business wins and increased volumes once again drove double-digit growth in Fine Fragrance. In Beauty Care, the strong trends in Hair Care and Toiletries continued, as each category grew at a double-digit rate. Functional Fragrance results were solid, as a double-digit performance in Home Care more than offset challenging year-over-year comparison from the prior year period. In Fragrance Ingredients, local currency sales increased 18 percent as continued improvements in underlying demand aided results.

Operating profit increased by $22 million to $69 million in the third quarter, including a $2 million charge related to ongoing restructuring efforts in Europe as compared to $11 million related to restructuring costs in the prior year period. Excluding these items, adjusted operating profit grew 23 percent, or $13 million to $71 million. As a result, adjusted operating profit margin for the quarter increased 190 bps to 19.0 percent, driven by strong new win performance, favorable input costs and benefits from ongoing profit improvement initiatives.

Sales performance by region and product category follows:

Third Quarter 2010 Highlights

• Gross profit, as a percentage of sales, was 42.3 percent compared with 40.6 percent in the prior year period. This improvement was mainly attributable to increased sales and moderating input costs.
• Research, Selling and Administrative (RSA) expense, as a percentage of sales, decreased 50 bps to 24.1 percent reflecting strong operating leverage and lower costs versus the year-ago period. Excluding the impact relating to the change in CEO position in the prior year period, adjusted RSA, as a percentage of sales, increased 40 bps driven by additional incentive compensation accruals plus higher spending to support growth. Within RSA, R&D expense as a percentage of sales decreased 20 bps to 7.9 percent, although absolute levels increased approximately $4 million versus the year-ago period.
• Operating profit increased $33 million to $121 million, including a $2 million expense related to ongoing restructuring efforts in Europe as compared to $16 million related to restructuring and employee separation costs in the prior year period. Excluding these items, adjusted operating profit grew 18 percent, or $19 million, to $123 million. Adjusted operating profit margin increased to 18.3 percent, a 140 bps improvement versus the year-ago period.
• Interest expense in the quarter declined $1 million year-over-year reflecting lower levels of outstanding debt.
• The effective tax rate in the quarter was 27.4 percent compared to 28.9 percent in the comparable period last year. The year-over-year decrease reflects the mix of earnings across the countries in which the company operates.
• Cash flow from operations improved by $8 million to $208 million for the first nine months of 2010 compared to the same period in 2009. This improvement was led by the strong profit performance and a continued focus to drive working capital efficiency.

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