IFF Reports Fourth Quarter & Full Year 2018 Results

International Flavors & Fragrances Inc. (NYSE: IFF) (Euronext Paris: IFF) (TASE: IFF) reported financial results for the fourth quarter and full year ended December 31, 2018.

Management Commentary

“2018 was a pivotal year in the long and successful history of IFF,” said Andreas Fibig, IFF Chairman and CEO. “As an organization, we delivered on all our key financial metrics and completed our acquisition of Frutarom – the largest in our industry to date – all while successfully navigating a challenging and dynamic market environment. 

“We achieved strong advancements in both top and bottom line results in 2018. Highlights include our record-setting sales of approximately $4.0 billion – including sales related to Frutarom, as well as mid-single digit growth in both Taste and Scent – and strong adjusted EPS ex amortization of $6.28.

“We also made progress strategically to establish ourselves as a global leader in taste, scent and nutrition through the Frutarom acquisition. This combination helps us create a truly differentiated portfolio with an increased focus on naturals and health and wellness. It also provides us opportunities to expand into attractive and faster-growing categories and broadens our complementary and growing customer base.

“Sustainability also continued to be a prevalent part of our everyday as we surpassed three of our four 2020 environmental targets and launched our new environmental goals with ambitious science-based targets. Our efforts continued to be recognized as we joined Barron’s 100 most sustainable U.S. companies list, qualified for FTSE4Good Developed Market Index for the first time, and we were named to Euronext Vigeo’s World 120 Index – an index that ranks us amongst the top companies within the Euronext universe.

“As we enter 2019 – recognizing that the operating environment remains dynamic and raw material inflation continues – we are optimistic in our ability to achieve $5.2 billion to $5.3 billion in sales, $4.90 to $5.10 in adjusted EPS and $6.30 to $6.50 in adjusted EPS ex amortization. Our priorities as an organization are clear – execute our strategy, integrate successfully, drive differentiation and embed sustainability – all as we deliver strong financial results and build a stronger company for our customers, employees and shareholders.”

Full Year 2018 Consolidated Financial Results

• Reported net sales for the full year totaled $4.0 billion, an increase of 17% from
  $3.4 billion in 2017 driven by mid-single digit growth in both Taste and Scent and the contribution of sales related to Frutarom. For the year, pricing contributed approximately 2 percentage points to growth for both Taste and Scent.
• Reported earnings per share (EPS) for the full year was $3.79 per diluted share versus $3.72 per diluted share reported in 2017. Excluding those items that affect comparability, adjusted EPS ex amortization was $6.28 per diluted share in 2018 versus $6.23 in the year-ago period as adjusted operating profit growth and a lower year-over-year adjusted effective tax rate more than offset higher interest expense and shares outstanding, both due to the Frutarom acquisition.

Taste Business Unit

• On a reported basis, sales increased 6%, or $105.2 million, to $1.7 billion. Currency neutral sales grew 5% driven by growth in all regions and across all categories. Improvements were driven by high-single digit growth in North America, with strong double-digit growth at Tastepoint℠.  EAME, led by double-digit growth in Africa and the Middle East, and Latin America, driven by strong double-digit growth in Argentina, both achieved mid-single digit growth.
• Taste segment profit increased 10% on a reported basis and 6% on a currency neutral basis, driven primarily by volume growth and the benefits from productivity initiatives.

Scent Business Unit

• On a reported basis, sales increased 6%, or $114.1 million, to $1.9 billion.  Currency neutral sales improved 4%, with the strongest improvement in Fragrance Ingredients, which grew high-single digits, led by price increases and strong double-digit growth in Cosmetic Active Ingredients. Consumer Fragrances grew mid-single digits, including price increases, as performance was driven by double-digit growth in Hair Care and mid-single digit growth in Fabric Care, Home Care and Toiletries.
• Scent segment profit increased 3% on a reported basis and declined 2% on a currency neutral basis as the benefits from cost and productivity initiatives were more than offset by unfavorable price to input costs, reflecting unprecedented raw material inflation – including the previously announced citral supply issue and additional supply chain disruptions that occurred throughout the year – as well as higher manufacturing costs.

Fourth Quarter 2018 Segment Summary

Taste Business Unit

• On a reported basis, sales remained constant at $401.6 million in 2018. Currency neutral sales improved 2%, with growth in three of four regions. Performance was led by mid-single digit growth in North America and Greater Asia, the latter, which saw double-digit growth in India and high-single digit increases in Indonesia and China.
• Taste segment profit decreased 5% on a reported basis and 7% on a currency neutral basis, as volume growth and the benefits from productivity initiatives were more than offset by higher Research, Selling and Administrative expenses.

Scent Business Unit

• On a reported basis, sales increased 1%, or $5.2 million, to $457.9 million.  Currency neutral sales improved 3% as Fragrance Ingredients improved mid-single digits and Consumer Fragrances grew low-single digits to more than offset a slight decline in Fine Fragrances due to a strong double-digit year-ago comparison.
• Scent segment profit decreased 4% on a reported and currency neutral basis as the benefits from productivity initiatives and cost management were more than offset by unfavorable price to input costs and higher manufacturing expenses.

Frutarom Business Unit

• On October 4, 2018, the Frutarom acquisition was completed.  The results for Frutarom have been included from the closing date, and as a result do not represent a full quarter.
• On a reported basis, sales were $359.6 million. On a standalone basis, Frutarom sales improved 3% on a like-for-like basis driven by strong growth in Natural Product Solutions and F&F Ingredients.  The Core business – excluding Trade & Marketing – grew 4% on a like-for-like basis versus prior year.
• Segment profit contributed $27 million in the fourth quarter; $66 million excluding amortization.