Regulatory News:
International Flavors & Fragrances Inc. (NYSE: IFF)
(Euronext Paris: IFF) (TASE: IFF) reported financial results for
the second quarter ended June 30, 2019 and provided updated full
year 2019 guidance.
Second Quarter 2019 Consolidated Summary:
Reported
(GAAP)
Adjusted
(Non-GAAP)1
Sales
Operating Profit
EPS
Sales
Operating Profit
EPS
EPS ex Amortization
$1.3 B
$200 M
$1.20
$1.3 B
$214 M
$1.30
$1.61
¹ Schedules at the end of this release contain reconciliations
of reported GAAP to non-GAAP metrics.
Management Commentary
“I am pleased to report that we delivered on our profitability
objective for the second quarter in light of a softer top-line
dynamic, as expected,” said Andreas Fibig, IFF Chairman and CEO.
“Through our core productivity program, as well as acquisition
related synergies, we achieved an 80 basis point improvement in
adjusted operating profit margin excluding amortization - a marked
acceleration versus our first quarter performance.
“Our integration efforts are well underway and we are making
excellent progress. For those businesses where we have aligned our
go-to-market approach, growth was strong, increasing high
single-digits. We are also executing well against our cost synergy
plan as our realized savings were $15 million for the first half of
2019. Based on our performance to date and our outlook for the
remainder of the year, we have increased our expected 2019 savings
to approximately $40 million -- above our previous $30 to $35
million estimate.
“For the full year, we remain confident in our ability to
achieve an improvement in adjusted operating profit as productivity
initiatives and integration-related synergies largely offset a
modest revision in sales expectation. We also revised our adjusted
EPS excluding amortization to be $6.15 to $6.35, driven by a change
in the average effective tax rate on the amortization of intangible
assets and a change in redeemable non-controlling interests.
“To reflect our confidence in our long-term strategy and strong
cash flow generation, we are pleased to announce we are raising our
quarterly dividend. This marks a decade of consecutive dividend
increases and underscores our future growth prospects and strong
financial position.”
Second Quarter 2019 Consolidated Financial Results
- Reported net sales for the second quarter totaled $1.3 billion,
an increase of 40% from $920 million in 2018, including the
contribution of sales related to Frutarom. On a combined basis,
currency neutral sales increased 1%, including the net contribution
of acquisitions and divested businesses.
- Reported earnings per share (EPS) for the second quarter was
$1.20 per diluted share versus $1.25 per diluted share reported in
2018. Excluding those items that affect comparability, adjusted EPS
excluding amortization was $1.61 per diluted share in 2019 versus
$1.71 in the year-ago period, as adjusted operating profit growth
was more than offset by higher interest expense and shares
outstanding -- both related to the Frutarom acquisition.
Second Quarter 2019 Segment Summary: Growth vs. Prior
Year
Reported
(GAAP)
Currency Neutral
(Non-GAAP)
Sales
Segment
Profit
Sales
Segment
Profit
Scent
1%
13%
4%
19%
Taste1
(4)%
(11)%
(1)%
(6)%
Frutarom
—
—
—
—
1 2019 Taste sales exclude approximately $0.5 million of second
quarter third-party sales transferred to Frutarom effective the
beginning of the year. Adjusting for this transfer would result in
the currency neutral Taste performance being 0% for the
quarter.
Scent Business Unit
- On a reported basis, sales increased 1%, or $6.2 million, to
$475.7 million. Currency neutral sales improved 4%, with growth in
nearly all regions and categories. Performance was strongest in
Fragrance Ingredients and Consumer Fragrances, both increasing mid
single- digits. Fine Fragrance grew low single-digits led by strong
new wins, particularly in EAME.
- Scent segment profit increased 13% on a reported basis and 19%
on a currency neutral basis reflecting cost and productivity
initiatives, along with more favorable price to input costs.
Taste Business Unit
- On a reported basis, sales decreased 4%, or $16.4 million, to
$434.2 million. Currency neutral sales decreased approximately 1%,
as growth in Greater Asia and EAME were more than offset by
continued volume erosion with multinational customers in Latin
America and North America. From a category perspective, growth was
strongest in Savory and Beverage.
- Taste segment profit decreased 11% on a reported basis and 6%
on a currency neutral basis as the benefits from productivity
initiatives were more than offset by volume declines, unfavorable
price to input costs and mix.
Frutarom Business Unit
- On a reported basis, sales were $381.7 million. On a standalone
basis, currency neutral sales remained constant, including the net
contribution of acquisitions and divested businesses. Results were
driven by the benefit related to acquisitions offset by declines in
F&F ingredients - notably CitraSource - as well as raw
material-driven price decreases in Natural Colors and weakness in
EAME Taste, Savory Solutions and Trade & Marketing.
- Segment profit contributed $37 million in the second quarter,
or $77 million excluding amortization. Margin performance continued
to be driven by disciplined cost management and acquisition-related
synergies.
Quarterly Dividend
- On August 5, 2019, the Board of Directors authorized a 3%, or
$0.02 increase, in the quarterly dividend to $0.75 per share of the
Company’s common stock. The quarterly dividend is payable on
October 4, 2019 to shareholders of record as of September 23, 2019.
Including this authorization, IFF has increased its quarterly
dividend payment for the tenth consecutive year.
Compliance
During the integration of Frutarom, IFF was made aware of
allegations that two Frutarom businesses operating principally in
Russia and Ukraine made improper payments to representatives of a
number of customers. IFF promptly commenced investigations of such
allegations with the assistance of outside legal and accounting
firms. IFF’s investigations are not yet complete, but preliminary
results indicate that improper payments were made and that key
members of Frutarom’s senior management at the time were aware of
such payments. IFF has not uncovered any evidence suggesting that
such payments had any connection to the United States.
Based on the results of the investigations to date, IFF believes
that such improper customer payments are no longer being made and
the estimated affected sales represented less than 1% of IFF’s and
Frutarom’s combined net sales for 2018. IFF does not believe the
impact from these matters is or will be material to IFF’s results
of operations or financial condition.
IFF is committed to the highest standards of ethics and
compliance and has strict compliance policies in place that are
regularly reviewed and updated. Consistent with such policies, IFF
has taken or will take appropriate remedial actions with respect to
the matters described above. Although the investigations are
continuing, based on the results to date and other
compliance-related integration activities IFF is not currently
aware of similar instances of misconduct.
2019 Financial Guidance:
Original Guidance
Revised Guidance
Sales
$5.2B - $5.3B
$5.15B - $5.25B
Adjusted EPS (1)
$4.90 - $5.10
$4.85 - $5.05
Adjusted EPS Ex Amortization
(1)
$6.30 - $6.50
$6.15 - $6.35
1 See Use of Non-GAAP Financial Measures
For the full year, the Company now expects to deliver between
$5.15 and $5.25 billion in sales in 2019. On a combined basis and
excluding the impact of currency, growth is expected to be 3 to
5%.
The Company now expects adjusted EPS excluding amortization to
be $6.15 to $6.35, principally due to a change in the average
effective tax rate associated with the amortization of intangible
assets and changes in redeemable non-controlling interests. On a
combined basis, and excluding the impact of currency, adjusted EPS
excluding amortization is expected to be 6 to 9%. The Company also
expects adjusted EPS to be $4.85 to $5.05 versus the original
guidance range of $4.90 to $5.10.
Audio Webcast
A live webcast to discuss the Company’s second quarter 2019
financial results will be held on August 6, 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,
expected impact of the acquisition of Frutarom, including cost
savings, 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 on sale
of assets, FDA mandated product recall, and Frutarom acquisition
related 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 on sale of assets, FDA
mandated product recall, U.S. tax reform, and Frutarom acquisition
related costs (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.
Consolidated Income Statement (Amounts in thousands except per
share data) (Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
% Change
2019
2018
% Change
Net sales
$
1,291,568
$
920,016
40
%
$
2,588,970
$
1,850,944
40
%
Cost of goods sold
745,329
521,299
43
%
1,511,472
1,046,419
44
%
Gross profit
546,239
398,717
37
%
1,077,498
804,525
34
%
Research and development expenses
84,816
74,767
13
%
175,412
153,244
14
%
Selling and administrative expenses
210,100
157,407
33
%
423,282
300,051
41
%
Amortization of acquisition-related
intangibles
47,909
9,584
NMF
95,534
18,769
NMF
Restructuring and other charges, net
2,525
1,186
113
%
18,699
1,903
NMF
Losses on sales of fixed assets
952
1,264
(25
)%
764
1,195
(36
)%
Operating profit
199,937
154,509
29
%
363,807
329,363
10
%
Interest expense
32,593
53,246
(39
)%
69,165
69,841
(1
)%
Other income, net
(2,137
)
(20,655
)
(90
)%
(9,415
)
(21,232
)
(56
)%
Income before taxes
169,481
121,918
39
%
304,057
280,754
8
%
Taxes on income
30,612
22,769
34
%
53,974
52,190
3
%
Net income
138,869
99,149
40
%
250,083
228,564
9
%
Net income attributable to noncontrolling
interest
2,492
—
—%
4,877
—
—%
Net income attributable to IFF
136,377
99,149
38
%
245,206
228,564
7
%
Net income per share - basic (1)
$
1.21
$
1.25
$
2.19
$
2.89
Net income per share - diluted (1)
$
1.20
$
1.25
$
2.16
$
2.87
Average number of shares outstanding -
basic
111,996
79,065
111,930
79,041
Average number of shares outstanding -
diluted
112,872
79,303
113,131
79,347
(1) For 2019, net income per share reflects adjustments related
to the redemption value of certain redeemable noncontrolling
interests. NMF Not meaningful
International Flavors & Fragrances Inc.
Condensed Consolidated Balance Sheet (Amounts in thousands)
(Unaudited)
June 30,
December 31,
2019
2018
Cash, cash equivalents, and restricted
cash
$
454,820
$
648,522
Receivables
1,046,028
937,765
Inventories
1,163,653
1,078,537
Other current assets
325,525
277,036
Total current assets
2,990,026
2,941,860
Property, plant and equipment,
net
1,316,305
1,241,152
Goodwill and other intangibles,
net
8,450,984
8,417,710
Other assets
590,767
288,673
Total assets
13,348,082
12,889,395
Short term borrowings
$
84,231
$
48,642
Other current liabilities
1,065,302
1,079,669
Total current liabilities
1,149,533
1,128,311
Long-term debt
4,428,675
4,504,417
Non-current liabilities
1,444,347
1,131,487
Redeemable noncontrolling interests
115,540
81,806
Shareholders' equity
6,209,987
6,043,374
Total liabilities and shareholders'
equity
$
13,348,082
$
12,889,395
International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows (Amounts in thousands)
(Unaudited)
Six Months Ended June
30,
2019
2018
Cash flows from operating
activities:
Net income
$
250,083
$
228,564
Adjustments to reconcile to net cash
provided by operating activities
Depreciation and
amortization
154,814
64,968
Deferred income taxes
(27,214
)
14,342
Losses on sale of assets
764
1,195
Stock-based compensation
18,300
15,173
Pension contributions
(10,681
)
(9,963
)
Product recall claim
settlement, net of insurance proceeds received
—
(12,969
)
Changes in assets and
liabilities, net of acquisitions:
Trade receivables
(87,111
)
(99,963
)
Inventories
(71,545
)
(67,940
)
Accounts payable
(7,645
)
(7,139
)
Accruals for incentive
compensation
(29,338
)
(25,158
)
Other current payables and
accrued expenses
(11,934
)
11,028
Other assets
(29,989
)
(65,620
)
Other liabilities
36,412
8,651
Net cash provided by operating
activities
184,916
55,169
Cash flows from investing
activities:
Cash paid for acquisitions, net
of cash received
(49,064
)
(22
)
Additions to property, plant
and equipment
(119,094
)
(67,421
)
Proceeds from life insurance
contracts
1,890
—
Maturity of net investment
hedges
—
(2,642
)
Proceeds from disposal of
assets
24,685
618
Contingent consideration
paid
(4,655
)
—
Net cash used in investing
activities
(146,238
)
(69,467
)
Cash flows from financing
activities:
Cash dividends paid to
shareholders
(155,578
)
(108,824
)
Increase in revolving credit
facility and short term borrowings
8
110,259
Deferred financing costs
—
(1,401
)
Repayments on debt
(47,417
)
—
Contingent consideration
paid
(21,791
)
—
Proceeds from issuance of stock
in connection with stock options
200
—
Employee withholding taxes
paid
(9,855
)
(9,096
)
Purchase of treasury stock
—
(15,475
)
Net cash used in financing activities
(234,433
)
(24,537
)
Effect of exchange rates changes on cash,
cash equivalents and restricted cash
2,053
(6,788
)
Net change in cash, cash equivalents
and restricted cash
(193,702
)
(45,623
)
Cash, cash equivalents and restricted cash
at beginning of year
648,522
368,046
Cash, cash equivalents and restricted
cash at end of period
$
454,820
$
322,423
International Flavors & Fragrances Inc.
Business Unit Performance (Amounts in thousands)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Net Sales
Taste
$
434,179
$
450,540
$
878,781
$
899,559
Scent
475,671
469,476
964,023
951,385
Frutarom
381,718
—
746,166
—
Consolidated
$
1,291,568
$
920,016
$
2,588,970
$
1,850,944
Segment Profit
Taste
$
98,081
$
109,605
$
206,536
$
221,169
Scent
91,244
80,780
177,059
174,056
Frutarom
37,493
—
66,584
—
Global Expenses
(12,886
)
(20,572
)
(31,559
)
(44,398
)
Operational Improvement Initiatives
(534
)
(403
)
(940
)
(1,429
)
Acquisition Related Costs
—
4
—
518
Integration Related Costs
(11,417
)
(993
)
(26,314
)
(993
)
Restructuring and Other Charges, net
(2,525
)
(193
)
(18,699
)
(910
)
Losses on Sale of Assets
(952
)
(1,264
)
(764
)
(1,195
)
FDA Mandated Product Recall
—
—
—
(5,000
)
Frutarom Acquisition Related Costs
1,433
(12,455
)
(8,096
)
(12,455
)
Operating profit
199,937
154,509
363,807
329,363
Interest Expense
(32,593
)
(53,246
)
(69,165
)
(69,841
)
Other income, net
2,137
20,655
9,415
21,232
Income before taxes
$
169,481
$
121,918
$
304,057
$
280,754
Operating Margin
Taste
23
%
24
%
24
%
25
%
Scent
19
%
17
%
18
%
18
%
Frutarom
10
%
—
%
9
%
—
%
Consolidated
15
%
17
%
14
%
18
%
International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation Foreign Exchange Impact
(Unaudited)
Q2 Taste
Sales
Segment
Profit
% Change - Reported
(4)%
(11)%
Currency Impact
3%
5%
% Change - Currency Neutral
(1)%
(6)%
Q2 Scent
Sales
Segment
Profit
% Change - Reported
1%
13%
Currency Impact
3%
6%
% Change - Currency Neutral
4%
19%
YTD Taste
Sales
Segment
Profit
% Change - Reported
(2)%
(7)%
Currency Impact
3%
4%
% Change - Currency Neutral
1%
(3)%
YTD Scent
Sales
Segment
Profit
% Change - Reported
1%
2%
Currency Impact
3%
6%
% Change - Currency Neutral
4%
7%*
* Item does not foot due to rounding
International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation (Unaudited)
The following information and schedules provide
reconciliation information between reported GAAP amounts and
non-GAAP certain adjusted amounts. This information and schedules
are 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.
Reconciliation of Gross
Profit
Second Quarter
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
546,239
$
398,717
Operational Improvement Initiatives
(a)
534
403
Integration Related Costs (b)
165
—
Adjusted (Non-GAAP)
$
546,938
$
399,120
Reconciliation of Selling and
Administrative Expenses
Second Quarter
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
210,100
$
157,407
Acquisition Related Costs
—
4
Integration Related Costs (b)
(11,043
)
—
Frutarom Acquisition Related Costs (d)
1,433
(12,455
)
Adjusted (Non-GAAP)
$
200,490
$
144,956
Reconciliation of Operating
Profit
Second Quarter
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
199,937
$
154,509
Operational Improvement Initiatives
(a)
534
403
Acquisition Related Costs
—
(4
)
Integration Related Costs (b)
11,417
993
Restructuring and Other Charges, net
(c)
2,525
193
Losses on Sale of Assets
952
1,264
Frutarom Acquisition Related Costs (d)
(1,433
)
12,455
Adjusted (Non-GAAP)
$
213,932
$
169,813
Reconciliation of Adjusted
(Non-GAAP) Operating Profit Margin ex. Amortization
(DOLLARS IN
THOUSANDS)
Second Quarter
Numerator
2019
2018
Adjusted (Non-GAAP) Operating
Profit
$
213,932
$
169,813
Amortization of Acquisition
related Intangible Assets
47,909
9,584
Adjusted (Non-GAAP) Operating
Profit ex. Amortization
261,841
179,397
Denominator
Sales
1,291,568
920,016
Adjusted (Non-GAAP) Operating Profit
Margin ex. Amortization
20.3
%
19.5
%
International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation (Amounts in thousands)
(Unaudited)
The following information and schedules provide
reconciliation information between reported GAAP amounts and
non-GAAP certain adjusted amounts. This information and schedules
are 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.
Reconciliation of Net
Income
Second Quarter
2019
2018
(DOLLARS IN
THOUSANDS)
Income before taxes
Taxes on income (e)
Net Income Attributable to IFF
(f)
Diluted EPS
Income before taxes
Taxes on income (e)
Net Income Attributable to
IFF
Diluted EPS (g)
Reported (GAAP)
$
169,481
$
30,612
$
136,377
$
1.20
$
121,918
$
22,769
$
99,149
$
1.25
Operational Improvement Initiatives
(a)
534
176
358
—
403
142
261
—
Acquisition Related Costs
—
—
—
—
(4
)
(1
)
(3
)
—
Integration Related Costs (b)
11,417
2,574
8,843
0.08
993
—
993
0.01
Restructuring and Other Charges, net
(c)
2,525
552
1,973
0.02
193
46
147
—
Losses on Sale of Assets
952
235
717
0.01
1,264
263
1,001
0.01
Frutarom Acquisition Related Costs (d)
(1,433
)
(143
)
(1,290
)
(0.01
)
36,989
6,543
30,446
0.38
Adjusted (Non-GAAP)
$
183,476
$
34,006
$
146,978
$
1.30
$
161,756
$
29,762
$
131,994
$
1.66
Reconciliation of Adjusted
(Non-GAAP) EPS ex. Amortization
Second Quarter
(DOLLARS AND SHARE
AMOUNTS IN THOUSANDS)
2019
2018
Numerator
Adjusted (Non-GAAP) Net
Income
$
146,978
$
131,994
Amortization of Acquisition
related Intangible Assets
47,909
9,584
Tax impact on Amortization of
Acquisition related Intangible Assets (e)
12,635
5,673
Amortization of Acquisition
related Intangible Assets, net of tax (h)
35,274
3,911
Adjusted (Non-GAAP) Net Income
ex. Amortization
182,252
135,905
Denominator
Weighted average shares
assuming dilution (diluted)
112,872
79,303
Adjusted (Non-GAAP) EPS ex.
Amortization
$
1.61
$
1.71
(a)
Represents accelerated depreciation
related to a plant relocation in India and China.
(b)
For 2019, represents costs related to the
integration of the Frutarom acquisition, principally advisory
services. For 2018, represents costs related to the integration of
David Michael.
(c)
For 2019, represents severance costs
related primarily to Frutarom. For 2018, represents severance costs
related to the 2017 Productivity Program.
(d)
Represents transaction-related costs and
expenses related to the acquisition of Frutarom, including
adjustments that reduce the contingent consideration payable
related to certain acquisitions made by Frutarom. In 2019, amount
primarily relates to transaction costs included in Selling and
administrative expenses. For 2018, amount includes $10.6 million of
bridge loan commitment fees included in Interest expense, $25.0
million mark-to-market loss adjustment on an interest rate
derivative and an $11.0 million mark-to-market gain adjustment on a
foreign currency derivative, and $12.5 million of transaction costs
included in administrative expenses.
(e)
The income tax expense (benefit) on
non-GAAP adjustments is computed in accordance with ASC 740 using
the same methodology as the GAAP provision of income taxes. Income
tax effects of non-GAAP adjustments are calculated based on the
applicable statutory tax rate for each jurisdiction in which such
charges were incurred, except for those items which are non-taxable
for which the tax expense (benefit) was calculated at 0%. For
fiscal year 2019, these non-GAAP adjustments were not subject to
foreign tax credits or valuation allowances, but to the extent that
such factors are applicable to any future non-GAAP adjustments we
will take such factors into consideration in calculating the tax
expense (benefit). For amortization, the tax benefit has been
calculated based on the statutory rate on a country by country
basis.
(f)
For 2019, net income is reduced by income
attributable to noncontrolling interest of $2.5M.
(g)
The sum of these items does not foot due
to rounding.
(h)
Represents all amortization of intangible
assets acquired in connection with acquisitions, net of tax.
International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation (Unaudited)
The following information and schedules provide
reconciliation information between reported GAAP amounts and
non-GAAP certain adjusted amounts. This information and schedules
are 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.
Reconciliation of Gross
Profit
Second Quarter
Year-to-Date
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
1,077,498
$
804,525
Operational Improvement Initiatives
(a)
940
856
Integration Related Costs (c)
321
—
FDA Mandated Product Recall (e)
—
5,000
Frutarom Acquisition Related Costs (g)
7,850
—
Adjusted (Non-GAAP)
$
1,086,609
$
810,381
Reconciliation of Selling and
Administrative Expenses
Second Quarter
Year-to-Date
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
423,282
$
300,051
Acquisition Related Costs (b)
—
518
Integration Related Costs (c)
(25,600
)
—
Frutarom Acquisition Related Costs (g)
(246
)
(12,455
)
Adjusted (Non-GAAP)
$
397,436
$
288,114
Reconciliation of Operating
Profit
Second Quarter
Year-to-Date
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
363,807
$
329,363
Operational Improvement Initiatives
(a)
940
1,429
Acquisition Related Costs (b)
—
(518
)
Integration Related Costs (c)
26,314
993
Restructuring and Other Charges, net
(d)
18,699
910
Losses on Sale of Assets
764
1,195
FDA Mandated Product Recall (e)
—
5,000
Frutarom Acquisition Related Costs (g)
8,096
12,455
Adjusted (Non-GAAP)
$
418,620
$
350,827
International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation (Amounts in thousands)
(Unaudited)
The following information and schedules provide
reconciliation information between reported GAAP amounts and
non-GAAP certain adjusted amounts. This information and schedules
are 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.
Reconciliation of Net
Income
Second Quarter
Year-to-Date
2019
2018
(DOLLARS IN
THOUSANDS)
Income before taxes
Taxes on income (h)
Net Income Attributable to IFF
(i)
Diluted EPS
Income before taxes
Taxes on income (h)
Net Income Attributable to
IFF
Diluted EPS
Reported (GAAP)
$
304,057
$
53,974
$
245,206
$
2.16
$
280,754
$
52,190
$
228,564
$
2.87
Operational Improvement Initiatives
(a)
940
318
622
0.01
1,429
436
993
0.01
Acquisition Related Costs (b)
—
—
—
—
(518
)
(135
)
(383
)
—
Integration Related Costs (c)
26,314
5,923
20,391
0.18
993
—
993
0.01
Restructuring and Other Charges, net
(d)
18,699
4,583
14,116
0.12
910
215
695
0.01
Losses on Sale of Assets
764
192
572
0.01
1,195
246
949
0.01
FDA Mandated Product Recall (e)
—
—
—
—
5,000
1,196
3,804
0.05
U.S. Tax Reform (f)
—
—
—
—
—
(649
)
649
0.01
Frutarom Acquisition Related Costs (g)
8,096
1,387
6,709
0.06
36,989
6,543
30,446
0.38
Adjusted (Non-GAAP)
$
358,870
$
66,377
$
287,616
$
2.54
$
326,752
$
60,042
$
266,710
$
3.35
Reconciliation of Adjusted
(Non-GAAP) EPS ex. Amortization
Second Quarter
Year-to-Date
(DOLLARS AND SHARE
AMOUNTS IN THOUSANDS)
2019
2018
Numerator
Adjusted (Non-GAAP) Net
Income
$
287,616
$
266,710
Amortization of Acquisition
related Intangible Assets
95,534
18,769
Tax impact on Amortization of
Acquisition related Intangible Assets (h)
22,831
5,673
Amortization of Acquisition
related Intangible Assets, net of tax (j)
72,703
13,096
Adjusted (Non-GAAP) Net Income
ex. Amortization
360,319
279,806
Denominator
Weighted average shares
assuming dilution (diluted)
113,131
79,347
Adjusted (Non-GAAP) EPS ex.
Amortization
$
3.18
$
3.52
(a)
Represents accelerated depreciation
related to a plant relocation in India and China, as well as a lab
closure in Taiwan for 2018.
(b)
For 2018, represents adjustments to the
contingent consideration payable for PowderPure, and transaction
costs related to Fragrance Resources and PowderPure within Selling
and administrative expenses.
(c)
For 2019, represents costs related to the
integration of the Frutarom acquisition, principally advisory
services. For 2018, represents costs related to the integration of
David Michael.
(d)
For 2019, represents severance costs
related primarily to Scent. For 2018, represents severance costs
related to the 2017 Productivity Program.
(e)
Represents losses related to the FDA
mandated recall.
(f)
Represents charges incurred related to
enactment of certain U.S. tax legislation changes in December
2017.
(g)
Represents transaction-related costs and
expenses related to the acquisition of Frutarom, including
adjustments that reduce the contingent consideration payable
related to certain acquisitions made by Frutarom. For 2019, amount
primarily includes $7.9 million of amortization for inventory
"step-up" costs and $2.5 million of transaction costs which was
offset by a $2.3 million reduction to contingent consideration
included in Selling and administrative expense. For 2018, amount
includes $10.6 million of bridge loan commitment fees included in
Interest expense, $25.0 million mark-to-market loss adjustment on
an interest rate derivative and an $11.0 million mark-to-market
gain adjustment on a foreign currency derivative, and $12.5 million
of transaction costs included in administrative expenses.
(h)
The income tax expense (benefit) on
non-GAAP adjustments is computed in accordance with ASC 740 using
the same methodology as the GAAP provision of income taxes. Income
tax effects of non-GAAP adjustments are calculated based on the
applicable statutory tax rate for each jurisdiction in which such
charges were incurred, except for those items which are non-taxable
for which the tax expense (benefit) was calculated at 0%. For
fiscal year 2019, these non-GAAP adjustments were not subject to
foreign tax credits or valuation allowances, but to the extent that
such factors are applicable to any future non-GAAP adjustments we
will take such factors into consideration in calculating the tax
expense (benefit). For amortization, the tax benefit has been
calculated based on the statutory rate on a country by country
basis.
(i)
For 2019, net income is reduced by income
attributable to noncontrolling interest of $4.9M.
(j)
Represents all amortization of intangible
assets acquired in connection with acquisitions, net of tax.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190805005610/en/
Michael DeVeau Head of Investor Relations and Communications
& Divisional CFO, Scent 212.708.7164 Michael.DeVeau@iff.com