IFF Reports Fourth Quarter and Full Year 2012 Results – iStockAnalyst (press release)

International Flavors & Fragrances Inc. (NYSE: IFF), a leading global
creator of flavors and fragrances for consumer products, today reported
financial results for the fourth quarter and full year ended December
31, 2012.

Fourth Quarter 2012 Results

• Reported revenue increased $37 million or 6% to $681 million from $644
  million in the prior year quarter. Excluding the impact of foreign
  currency (by translating current and prior year sales at the same
  exchange rates), local currency sales increased 8% reflecting a high
  level of new wins and positive volume on existing business. Our
  expanding footprint in emerging markets accounted for 49% of fourth
  quarter sales.
• On a like-for-like (LFL) basis, which excludes the exit of Flavors
  low-margin sales activities, local currency sales increased 10%.
• Net income for the quarter totaled $68.1 million, or $0.83 per share,
  compared with net income of $24.4 million or $0.30 per share in the
  prior year quarter. Net income in the fourth quarter of 2011 included
  an aggregate charge of $36.8 million, or $0.44 per share, related to a
  patent litigation settlement and restructuring and other charges.
• Excluding the patent litigation settlement and restructuring charges
  from the prior year’s results, adjusted net income increased 11% to
  $68.1 million from $61.1 million in the prior year quarter, and
  adjusted earnings per share (EPS) increased 12% to $0.83 per share
  from $0.74 per share in the prior year quarter.

Full Year 2012 Results

• Reported revenue for the full year increased 1% to $2.8 billion. Local
  currency sales increased 4% for the full year, reflecting accelerated
  momentum throughout the year. On a like-for-like basis, sales
  increased 5%. The emerging markets accounted for 47% of full year
  sales.
• Net income for the full year totaled $254.1 million, or $3.09 per
  share, compared with net income of $266.9 million or $3.26 per share
  in the prior year. Net income for the full year includes special
  charges of $73.4 million, or $0.89 per share, almost all of which is
  related to the previously-announced Spanish tax settlement. Net income
  for the prior year included an aggregate charge of $39.3 million, or
  $0.47 per share, related to a patent litigation settlement and
  restructuring and other charges.
• Excluding these charges from operating results, adjusted net income
  increased 7% to $327.5 million from $306.2 million and full year
  adjusted EPS increased 6% to $3.98 from $3.74.
• Cash flows from operations for the full year were $333.1 million, or
  11.8% of sales, compared with $189.2 million, or 6.8% of sales in the
  prior year. Cash flow from operations for 2012 includes a $105.5
  million cash outflow arising from the Spanish tax settlement, and for
  2011 includes a $40 million payment for a patent litigation
  settlement. Excluding these items, the Company’s cash flow from
  operations nearly doubled in 2012.

Management Commentary

Doug Tough, Chairman and CEO, said, “We had a strong finish to the year,
driven by our diverse product portfolio, expanding geographic footprint
and commitment to providing customers with innovative and superior
products that are desired and enjoyed by consumers all around the world.
This diversification allowed us to achieve strong broad-based growth in
the fourth quarter, led by double-digit growth in the emerging markets.
Both business units contributed to our gross margin performance,
reflecting strong new wins from our continued focus on innovation,
ongoing manufacturing leverage, and the impact of exiting lower margin
sales activities. Our strong top-line performance enabled us to achieve
local currency sales, operating profit and EPS growth in line with our
long-term targets.”

“For the full year we delivered local currency sales growth of 4%,
marking the third consecutive year of top-line growth in line with our
long-term growth targets. We made targeted investments to expand our
footprint in the growing markets of Greater Asia, which included opening
a new manufacturing facility in Singapore and a creative center in
India, continuing construction on our facility in China, and initiating
investments behind our recently-announced capacity expansion project in
Turkey. Based on our consumer insights and market knowledge, our
research programs are aligned under our key R&D platforms, which are
designed to meet the consumer needs of today while anticipating the
consumer preferences of tomorrow. We announced earlier this week that we
are have made further progress with our biotechnology partner, Evolva,
on creating an alternative route for vanillin, which we believe will
provide us with a sustainable source for this key flavoring ingredient
and give us a strong competitive advantage.”

“We are very well positioned in the market, and enter 2013 with a strong
R&D pipeline and solid growth momentum. We have confidence in our
strengths and will continue to focus on excellence in execution of our
strategies.”

Fourth Quarter 2012 Operating Highlights

• Local currency sales increased 8%, supported by 11% growth in the
  emerging markets, and 6% growth in the developed markets. On a
  like-for-like basis, local currency sales increased 10%.
• Gross profit margins, as a percentage of sales, improved to 42.2%,
  compared with 37.9% in the fourth quarter of 2011. The improved
  performance was driven by favorable manufacturing leverage due to the
  strong volume growth, cost savings initiatives, an improved sales mix
  including benefits associated with exiting low-margin sales activities
  in Flavors, and the continued benefits of pricing which helped to
  offset the continued high level of input costs.
• Research, selling and administrative (RSA) expenses, as a percentage
  of sales, was 27.6% compared with 29.0% in the fourth quarter of 2011.
  Excluding the impact of the 2011 patent litigation settlement,
  adjusted RSA, as a percentage of sales, increased 380 basis points to
  27.6% compared with 23.8% in the prior year quarter, primarily as a
  result of higher incentive compensation accruals owing to the strength
  of our strong performance this quarter and its impact on the
  achievement of our full year sales growth targets. Before the impact
  of incentive compensation, adjusted RSA as a percentage of sales would
  have shown a decrease versus a year ago.
• Operating profit totaled $99.2 million, compared with $47.8 million in
  the prior year quarter. Operating profit in the prior year quarter
  included an aggregate charge of $43 million related to the patent
  litigation settlement and restructuring charges. Excluding these
  items, adjusted operating profit increased $8 million, or 9%, to $99.2
  million from $91.1 million in the prior year, as a result of volume
  growth, mix improvements and manufacturing leverage, which more than
  offset increased incentive compensation accruals. Adjusted operating
  profit margin increased 50 basis points to 14.6% from 14.1% in the
  prior year.
• Interest expense decreased by $0.2 million in the fourth quarter
  compared with the prior year quarter, reflecting lower levels of
  outstanding debt.
• The effective tax rate for the quarter was 23.2% compared with 39.8%
  in the prior year. The prior year tax rate was negatively impacted by
  the patent litigation settlement and restructuring charges. The
  quarter-over-quarter reduction also reflects favorable adjustments to
  provisions for uncertain tax positions and a lower cost of
  repatriation. These items were partially offset by the absence of the
  R&D tax credit in 2012.

Fourth Quarter 2012 Segment Results

Fragrances Business Unit

• Reported revenue increased 10% to $354 million in the fourth quarter,
  compared with $322 million in the fourth quarter of 2011. Local
  currency sales increased 13% in the fourth quarter. Fragrance
  Compounds momentum continued this quarter with local currency growth
  of 15%, marking the third consecutive quarter of accelerated growth.
• Fragrance Ingredients delivered local currency sales growth of 6%,
  which marked the first quarter of growth since Q1 2011.
• Strong new customer wins and broad-based growth in our Fragrance
  Compounds business drove local currency sales growth of 15%, with
  double-digit growth in Latin America, Greater Asia and North America
  and solid growth in EAME. Fine Fragrance and Beauty Care achieved 19%
  local currency sales growth and Functional Fragrance delivered 12%
  local currency sales growth.
• Fragrances gross margins increased over the prior year quarter
  primarily due to strong new wins, favorable category mix, cost savings
  initiatives and the continued benefits of pricing which is helping to
  offset the continued high level of input costs.
• Segment profit totaled $53 million in the fourth quarter of 2012
  compared with $37 million in the fourth quarter of 2011, or an
  increase of 44%. The improved segment profit is due to strong volume
  growth combined with gross margin expansion, which offset increased
  incentive compensation expenses this quarter. Segment profit margin
  increased 360 basis points to 15.1% from 11.5%.

Flavors Business Unit

• Reported revenue increased 1% to $326 million in the fourth quarter
  from $323 million in the prior year quarter.
• Local currency sales increased 3% in the fourth quarter fueled by
  stronger growth in the emerging markets of Southeast Asia and Latin
  America combined with steady growth in the developed markets of North
  America and Western Europe. On a like-for-like basis, local currency
  sales increased 7% over the prior year quarter, led by 15% LFL growth
  in North America.
• From an end-use category perspective, local currency sales growth was
  fueled by double-digit growth in Beverages, particularly in North
  America, followed by solid growth in Savory and Dairy, primarily in
  Greater Asia.
• Flavors gross margins increased over the prior year quarter primarily
  due to favorable category mix, the impact of exiting low-margin sales
  activities, and the continued benefits of previous pricing to help
  offset the continued high level of input costs.
• Segment profit totaled $62 million in the fourth quarter of 2012,
  compared with $63 million in the fourth quarter of 2011. Overall sales
  growth and expanded gross margins due to favorable category mix and
  pricing realization were more than offset by higher RSA expenses,
  including increased incentive compensation expense. Segment profit
  margin decreased 60 basis points to 19.0% from 19.6%.

Full Year 2012 Operating Highlights

• Local currency sales increased 4%, reflecting 8% growth in emerging
  markets. On a like-for-like basis, local currency sales increased 5%.
• Gross profit margins, as a percentage of sales, improved to 41.7%,
  compared with 39.6% in 2011. The improved performance was due to an
  improved mix of business, the benefits associated with exiting
  low-margin sales activities, continued pricing, moderating raw
  material cost increases and ongoing manufacturing efficiencies.
• Research, selling and administrative (RSA) expenses, as a percentage
  of sales, was 24.4% compared with 23.8% in 2011. Excluding the impact
  of the 2011 patent litigation settlement, the adjusted RSA, as a
  percentage of sales, increased 180 points to 24.4% compared with 22.6%
  in 2011, primarily as a result of higher incentive compensation
  accruals and pension expenses.
• Operating profit totaled $487 million in 2012 compared with $428
  million in 2011. Excluding an aggregate charge of $46.7 million
  related to the patent litigation and restructuring charges from the
  prior year’s results, and $1.7 million of restructuring charges form
  the current year’s results, adjusted operating profit increased $14
  million or 3% to $488 million in 2012 from $474 million in 2011.
  Adjusted operating profit margins increased 30 basis points to 17.3%
  from 17.0%.
• Interest expense decreased by $3 million year-over-year, reflecting
  lower levels of outstanding debt.
• The effective tax rate was 42.7% in 2012 as compared to a rate of
  28.6% in the prior year. Excluding the impact of the 2011 and 2012
  items previously noted, including the 2011 patent litigation and
  restructuring charges and the 2012 Spanish tax settlement and
  restructuring charges, the adjusted effective tax rate for 2012 was
  26.4%, compared with 27.1% in the prior year. The year-over-year
  reduction reflects favorable adjustments to provisions for uncertain
  tax positions in 2012, combined with a lower cost of repatriation.
  These favorable impacts were partially offset by the absence of the US
  R&D tax credit in 2012.

Full Year 2012 Segment Results

Fragrances Business Unit

• Reported revenue for the full year of $1.4 billion was flat compared
  with the prior year. Fragrance local currency sales increased 3%. The
  Fragrances segment contributed 51% of the total consolidated revenue.
• For the full year, Fragrance Compounds had local currency growth of
  7%, compared with 1% local currency growth in 2011. Fragrance
  Ingredients, although improving over the course of the year, declined
  10% in local currency sales in 2012 versus 2011.
• Fragrance Compounds showed positive local currency sales growth across
  all regions, with double-digit growth in Latin America and solid
  growth in Greater Asia, North America and EAME. Both Fine Fragrance &
  Beauty Care and Functional delivered full year local currency sales
  growth of 7% due to strong new customer wins.
• Fragrances gross margins increased over the prior year primarily due
  to new customer wins, favorable category mix, and productivity gains
  from cost savings initiatives and continued pricing to offset higher
  input costs.
• Segment profit totaled $238 million in 2012 compared with $227 million
  in the prior year, or an increase of 5%. The segment profit
  improvement is due to improved category mix and pricing, combined with
  ongoing cost discipline including the benefit from the strategic
  realignment plan announced in the first quarter of 2012, which more
  than offset higher raw material costs. Segment profit margin increased
  80 basis points to 16.5% from 15.7%.

Flavors Business Unit

• Reported revenue for the full year increased 2% to $1.4 billion. The
  Flavors segment contributed 49% of the total consolidated revenue.
• Local currency sales increased 5% for the full year and increased 8%
  on a LFL basis, supported by 9% growth in emerging markets. Greater
  Asia, Flavors largest region, delivered growth of 7% for the full year
  growth, or 8% on a LFL basis. The developed market of North America
  delivered like-for-like growth of 9%.
• From an end-use category perspective, local currency growth was fueled
  by double-digit growth in Beverages, followed by solid growth in
  Savory and Dairy.
• Flavors full year gross margins increased over the prior year
  primarily due to favorable category mix, the impact of exiting
  low-margin sales activities and continued pricing.
• Full year segment profit for Flavors totaled $298 million compared
  with $284 million in the prior year. The improved segment profit is
  due to strong volume growth, favorable category mix and pricing
  realization that more than offset higher raw material costs, ongoing
  investments in R&D and increased incentive compensation expenses.
  Segment profit margin increased 50 basis points to 21.6% from 21.1%.

Audio Webcast

A live webcast to discuss the Company’s fourth quarter and full year
2012 financial results, and first quarter and full year 2013 outlook
will be held today, February 7, 2013, at 10:00 a.m. EST. Investors may
access the webcast and accompanying slide presentation on the Company’s
website at www.iff.com
under the Investor Relations section. For those unable to listen to the
live broadcast, a recorded version of the webcast 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.

About IFF

International Flavors & Fragrances Inc. (NYSE: IFF) is a leading global
creator of flavors and fragrances used in a wide variety of consumer
products. Consumers experience these unique scents and tastes in fine
fragrances and beauty care, detergents and household goods, as well as
beverages, sweet goods and food products. The Company leverages its
competitive advantages of consumer insight, research and development,
creative expertise, and customer intimacy to provide customers with
innovative and differentiated product offerings. A member of the S&P 500
Index, IFF has more than 5,700 employees working in 32 countries
worldwide. For more information, please visit our website at www.iff.com.

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 (i) the Company’s belief on the impact of its
research strategy on future consumer needs and preferences, (ii) the
Company’s expectation regarding the impact of its partnership with
Evolva and (iii) the Company’s expectations regarding its competitive
position in the market and its financial operational expectations for
2013. 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 28, 2012. 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) the general worldwide
economic climate and the economic climate for the Company’s industry and
demand for the Company’s products; (2) fluctuations in the price,
quality and availability of raw materials; (3) changes in consumer
preferences; (4) the Company’s ability to implement its business
strategy, including the achievement of anticipated cost savings,
profitability, realization of price increases and growth targets; (5)
the Company’s ability to successfully develop new and competitive
products and enter and expand its sales in new and other emerging
markets; (6) the impact of currency fluctuations or devaluations in the
Company’s principal foreign markets; (7) unanticipated costs and
construction delays in the expansion of the Company’s facilities; (8)
the effect of legal and regulatory proceedings, as well as restrictions
imposed on the Company, its operations or its representatives by U.S.
and foreign governments; (9) adverse changes in federal, state, local
and foreign tax legislation or adverse results of tax audits,
assessments, or disputes; (10) the direct and indirect costs and other
financial impact that may result from any business disruptions due to
political instability, armed hostilities, incidents of terrorism,
natural disasters, or the responses to or repercussion from any of these
or similar events or conditions; (11) the ability of Evolva to develop
an alternative route for vanillin which will meet consumers and the
Company’s clients’ needs and (12) adverse changes due to accounting
rules or regulations. 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 update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise.

Note: Local currency sales growth is calculated by translating
prior year sales at the exchange rates used for the corresponding 2012
period

The following information and schedules provide reconciliation
information between reported GAAP amounts and certain adjusted amounts.
This information and schedules is not intended as, and should not be
viewed as, a substitute for reported GAAP amounts or financial
statements of the Company prepared and presented in accordance with GAAP.

The following information and schedules provide reconciliation
information between reported GAAP amounts and certain adjusted amounts.
This information and schedules is not intended as, and should not be
viewed as, a substitute for reported GAAP amounts or financial
statements of the Company prepared and presented in accordance with GAAP.

In the fourth quarter of 2012, there were no items impacting
comparability.

The following information and schedules provide reconciliation
information between reported GAAP amounts and certain adjusted amounts.
This information and schedules is not intended as, and should not be
viewed as, a substitute for reported GAAP amounts or financial
statements of the Company prepared and presented in accordance with GAAP.