Regulatory News:
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.
Third Quarter 2019 Consolidated Summary:
Reported
(GAAP)
Adjusted
(Non-GAAP)1
Sales
Operating Profit
EPS
Sales
Operating Profit
EPS
EPS ex Amortization
$1.3 B
$185 M
$1.13
$1.3 B
$201 M
$1.20
$1.53
¹ Schedules at the end of this release contain reconciliations
of reported GAAP to non-GAAP metrics.
Management Commentary
“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.
Third Quarter 2019 Segment Summary: Growth vs. Prior
Year
Reported
(GAAP)
Currency Neutral
(Non-GAAP)
Sales
Segment
Profit
Sales
Segment
Profit
Scent
2%
(5)%
3%
0%
Taste
(3)%
1%
(2)%
4%
Frutarom
—
—
—
—
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.
Compliance Update
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.
The Company reconfirms its 2019 financial guidance as
follows:
Guidance
Sales
$5.15B - $5.25B
Adjusted EPS (1)
$4.85 - $5.05
Adjusted EPS Ex Amortization
(1)
$6.15 - $6.35
1 See Use of Non-GAAP Financial Measures
Audio Webcast
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.
Consolidated Income Statement (Amounts in thousands except per
share data) (Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
% Change
2019
2018
% Change
Net sales
$
1,267,345
$
907,548
40
%
$
3,856,315
$
2,758,492
40
%
Cost of goods sold
734,257
506,882
45
%
2,245,729
1,553,300
45
%
Gross profit
533,088
400,666
33
%
1,610,586
1,205,192
34
%
Research and development expenses
85,077
75,302
13
%
260,489
228,545
14
%
Selling and administrative expenses
210,829
157,796
34
%
634,111
457,847
38
%
Amortization of acquisition-related
intangibles
48,430
9,003
NMF
143,964
27,772
NMF
Restructuring and other charges, net
3,716
927
NMF
22,415
2,830
NMF
Losses (gains) on sales of fixed
assets
372
(1,630
)
(123
)%
1,136
(435
)
NMF
Operating profit
184,664
159,268
16
%
548,471
488,633
12
%
Interest expense
33,497
23,914
40
%
102,662
93,755
10
%
Loss on extinguishment of debt
—
38,810
(100
)%
—
38,810
(100
)%
Other income, net
(5,699
)
(4,158
)
37
%
(15,114
)
(25,389
)
(40
)%
Income before taxes
156,866
100,702
56
%
460,923
381,457
21
%
Taxes on income
27,059
4,986
NMF
81,033
57,176
42
%
Net income
129,807
95,716
36
%
379,890
324,281
17
%
Net income attributable to noncontrolling
interest
2,683
—
—
%
7,560
—
—
%
Net income attributable to IFF
127,124
95,716
33
%
372,330
324,281
15
%
Net income per share - basic (1)
$
1.15
$
1.18
$
3.34
$
4.06
Net income per share - diluted (1)
$
1.13
$
1.17
$
3.30
$
4.04
Average number of shares outstanding -
basic
111,998
81,263
111,953
79,783
Average number of shares outstanding -
diluted
113,493
81,647
113,133
80,115
(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)
September 30,
December 31,
2019
2018
Cash, cash equivalents, and restricted
cash
$
504,054
$
648,522
Receivables
942,705
937,765
Inventories
1,126,389
1,078,537
Other current assets
325,410
277,036
Total current assets
2,898,558
2,941,860
Property, plant and equipment,
net
1,313,539
1,241,152
Goodwill and other intangibles,
net
8,211,378
8,417,710
Other assets
561,249
288,673
Total assets
12,984,724
12,889,395
Short term borrowings
$
384,823
$
48,642
Other current liabilities
1,027,626
1,079,669
Total current liabilities
1,412,449
1,128,311
Long-term debt
4,008,134
4,504,417
Non-current liabilities
1,382,608
1,131,487
Redeemable noncontrolling interests
114,545
81,806
Shareholders' equity
6,066,988
6,043,374
Total liabilities and shareholders'
equity
$
12,984,724
$
12,889,395
International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows (Amounts in thousands)
(Unaudited)
Nine Months Ended September
30,
2019
2018
Cash flows from operating
activities:
Net income
$
379,890
$
324,281
Adjustments to reconcile to net cash
provided by operating activities
Depreciation and
amortization
235,429
95,994
Deferred income taxes
(35,134
)
20,623
Losses (gains) on sale of
assets
1,136
(435
)
Stock-based compensation
26,426
22,041
Pension contributions
(16,390
)
(15,983
)
Loss on extinguishment of
debt
—
38,810
Gain on deal contingent
derivatives
—
(12,505
)
Product recall claim
settlement, net of insurance proceeds received
—
(3,090
)
Changes in assets and
liabilities, net of acquisitions:
Trade receivables
(22,878
)
(93,198
)
Inventories
(84,140
)
(92,705
)
Accounts payable
(39,332
)
(17,198
)
Accruals for incentive
compensation
(20,726
)
(10,753
)
Other current payables and
accrued expenses
(12,161
)
386
Other assets
(58,016
)
(61,597
)
Other liabilities
28,931
7,287
Net cash provided by operating
activities
383,035
201,958
Cash flows from investing
activities:
Cash paid for acquisitions, net
of cash received
(49,065
)
(22
)
Additions to property, plant
and equipment
(160,449
)
(102,421
)
Additions to intangible
assets
(6,070
)
—
Proceeds from life insurance
contracts
1,890
1,837
Maturity of net investment
hedges
—
(2,642
)
Proceeds from disposal of
assets
34,607
961
Proceeds from unwinding of
cross currency swap derivative instruments
25,900
—
Contingent consideration
paid
(4,655
)
—
Net cash used in investing
activities
(157,842
)
(102,287
)
Cash flows from financing
activities:
Cash dividends paid to
shareholders
(233,477
)
(163,318
)
Increase in revolving credit
facility and short term borrowings
11
112,483
Proceeds from sales of equity
securities, net of issuance costs
—
2,268,965
Deferred financing costs
—
(21,944
)
Repayments on debt
(100,785
)
(288,810
)
Proceeds from issuance of
long-term debt
—
2,926,414
Contingent consideration
paid
(21,791
)
—
Gain on pre-issuance hedges
—
12,505
Proceeds from issuance of stock
in connection with stock options
200
—
Employee withholding taxes
paid
(9,966
)
(9,725
)
Purchase of treasury stock
—
(15,475
)
Net cash (used in) provided by financing
activities
(365,808
)
4,821,095
Effect of exchange rates changes on cash,
cash equivalents and restricted cash
(3,853
)
(14,353
)
Net change in cash, cash equivalents
and restricted cash
(144,468
)
4,906,413
Cash, cash equivalents and restricted cash
at beginning of year
648,522
368,046
Cash, cash equivalents and restricted
cash at end of period
$
504,054
$
5,274,459
International Flavors & Fragrances Inc.
Business Unit Performance (Amounts in thousands)
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Net Sales
Taste
$
423,269
$
436,214
$
1,302,050
$
1,335,773
Scent
480,384
471,334
1,444,407
1,422,719
Frutarom
363,692
—
1,109,858
—
Consolidated
$
1,267,345
$
907,548
$
3,856,315
$
2,758,492
Segment Profit
Taste
$
97,526
$
96,497
$
304,062
$
317,666
Scent
83,484
87,488
260,543
261,545
Frutarom
28,257
—
94,841
—
Global Expenses
(8,333
)
(19,578
)
(39,892
)
(63,975
)
Operational Improvement Initiatives
(712
)
(344
)
(1,652
)
(1,773
)
Acquisition Related Costs
—
1
—
519
Integration Related Costs
(10,511
)
(958
)
(36,825
)
(1,951
)
Restructuring and Other Charges, net
(3,716
)
(927
)
(22,415
)
(1,837
)
(Losses) Gains on Sale of Assets
(372
)
1,630
(1,136
)
435
FDA Mandated Product Recall
(250
)
9,800
(250
)
4,800
Frutarom Acquisition Related Costs
2,914
(14,341
)
(5,182
)
(26,796
)
Compliance Review & Legal Defense
Costs
(3,623
)
—
(3,623
)
—
Operating profit
184,664
159,268
548,471
488,633
Interest Expense
(33,497
)
(23,914
)
(102,662
)
(93,755
)
Loss on extinguishment of debt
—
(38,810
)
—
(38,810
)
Other income, net
5,699
4,158
15,114
25,389
Income before taxes
$
156,866
$
100,702
$
460,923
$
381,457
Operating Margin
Taste
23
%
22
%
23
%
24
%
Scent
17
%
19
%
18
%
18
%
Frutarom
8
%
—
%
9
%
—
%
Consolidated
15
%
18
%
14
%
18
%
International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation Foreign Exchange Impact
(Unaudited)
Q3 Taste
Sales
Segment
Profit
% Change - Reported
(3)%
1%
Currency Impact
1%
3%
% Change - Currency Neutral
(2)%
4%
Q3 Scent
Sales
Segment
Profit
% Change - Reported
2%
(5)%
Currency Impact
1%
5%
% Change - Currency Neutral
3%
0%
YTD Taste
Sales
Segment
Profit
% Change - Reported
(3)%
(4)%
Currency Impact
3%
3%
% Change - Currency Neutral
0%
(1)%
YTD Scent
Sales
Segment
Profit
% Change - Reported
2%
0%
Currency Impact
2%
5%
% Change - Currency Neutral
4%
5%
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
Third Quarter
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
533,088
$
400,666
Operational Improvement Initiatives
(a)
711
398
Integration Related Costs (c)
187
18
FDA Mandated Product Recall (e)
250
(9,800
)
Frutarom Acquisition Related Costs (g)
(3,603
)
—
Adjusted (Non-GAAP)
$
530,633
$
391,282
Reconciliation of Selling and
Administrative Expenses
Third Quarter
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
210,829
$
157,796
Acquisition Related Costs (b)
—
1
Integration Related Costs (c)
(10,047
)
(915
)
Frutarom Acquisition Related Costs (g)
(691
)
(14,341
)
Compliance Review & Legal Defense
Costs (h)
(3,623
)
—
Adjusted (Non-GAAP)
$
196,468
$
142,541
Reconciliation of Operating
Profit
Third Quarter
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
184,664
$
159,268
Operational Improvement Initiatives
(a)
712
344
Acquisition Related Costs (b)
—
(1
)
Integration Related Costs (c)
10,511
958
Restructuring and Other Charges, net
(d)
3,716
927
Losses (Gains) on Sale of Assets
372
(1,630
)
FDA Mandated Product Recall (e)
250
(9,800
)
Frutarom Acquisition Related Costs (g)
(2,914
)
14,341
Compliance Review & Legal Defense
Costs (h)
3,623
—
Adjusted (Non-GAAP)
$
200,934
$
164,407
Reconciliation of Adjusted
(Non-GAAP) Operating Profit Margin ex. Amortization
(DOLLARS IN
THOUSANDS)
Third Quarter
Numerator
2019
2018
Adjusted (Non-GAAP) Operating
Profit
$
200,934
$
164,407
Amortization of Acquisition
related Intangible Assets
48,430
9,003
Adjusted (Non-GAAP) Operating
Profit ex. Amortization
249,364
173,410
Denominator
Sales
1,267,345
907,548
Adjusted (Non-GAAP) Operating Profit
Margin ex. Amortization
19.7
%
19.1
%
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
Third Quarter
2019
2018
(DOLLARS IN
THOUSANDS)
Income before taxes
Taxes on income (j)
Net Income Attributable to IFF
(k)
Diluted EPS (l)
Income before taxes
Taxes on income (j)
Net Income Attributable to
IFF
Diluted EPS
Reported (GAAP)
$
156,866
$
27,059
$
127,124
$
1.13
$
100,702
$
4,986
$
95,716
$
1.17
Operational Improvement Initiatives
(a)
712
243
469
—
345
125
220
—
Acquisition Related Costs (b)
(3,371
)
—
(3,371
)
(0.03
)
(1
)
1
(2
)
—
Integration Related Costs (c)
10,511
2,347
8,164
0.07
959
237
722
0.01
Restructuring and Other Charges, net
(d)
3,716
811
2,905
0.03
927
228
699
0.01
Losses (Gains) on Sale of Assets
372
98
274
—
(1,630
)
(387
)
(1,243
)
(0.02
)
FDA Mandated Product Recall (e)
250
57
193
—
(9,800
)
(2,344
)
(7,456
)
(0.09
)
U.S. Tax Reform (f)
—
—
—
—
—
8,151
(8,151
)
(0.10
)
Frutarom Acquisition Related Costs (g)
(2,914
)
(715
)
(2,199
)
(0.02
)
54,994
9,561
45,433
0.56
Compliance Review & Legal Defense
Costs (h)
3,623
827
2,796
0.02
—
—
—
—
Redemption value adjustment to EPS (i)
—
—
—
(0.02
)
—
—
—
—
Adjusted (Non-GAAP)
$
169,765
$
30,727
$
136,355
$
1.20
$
146,496
$
20,558
$
125,938
$
1.54
Reconciliation of Adjusted
(Non-GAAP) EPS ex. Amortization
Third Quarter
(DOLLARS AND SHARE
AMOUNTS IN THOUSANDS)
2019
2018
Numerator
Adjusted (Non-GAAP) Net
Income
$
136,355
$
125,938
Amortization of Acquisition
related Intangible Assets
48,430
9,003
Tax impact on Amortization of
Acquisition related Intangible Assets (j)
10,961
2,340
Amortization of Acquisition
related Intangible Assets, net of tax (m)
37,469
6,663
Adjusted (Non-GAAP) Net Income
ex. Amortization
173,824
132,601
Denominator
Weighted average shares
assuming dilution (diluted)
113,493
81,647
Adjusted (Non-GAAP) EPS ex.
Amortization
$
1.53
$
1.62
(a)
For 2019, represents accelerated
depreciation related to a plant relocation in India and China. For
2018, represents accelerated depreciation related to a plant
relocation in India and Taiwan.
(b)
For 2019, represents adjustments to the
fair value for an equity method investment in Canada which we began
consolidating in the second quarter.
(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 and Frutarom.
(d)
For 2019, represents costs primarily
related to the Frutarom Integration Initiative and the 2019
Severance Charges program. For 2018, represents severance costs
related to the 2017 Productivity Program.
(e)
For 2019, represents additional claims
that management will pay to co-packers. For 2018, represents
recoveries from the supplier for the third quarter, partially
offset by final payments to the customer made for the affected
product in the first quarter.
(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. For 2019, amount
primarily relates to a measurement period adjustment to the amount
of the inventory "step-up" recorded. For 2018, amount primarily
includes $28.8 million of bridge loan commitment fees partially
offset by $25.3 million net mark-to-market gains on deal-contingent
interest rate derivatives included in Interest expense; $34.9
million make whole payment on the Senior Notes - 2007 and $3.9
million realized loss on a fair value hedge included in Loss on
extinguishment of debt; $1.9 million realized gain on a foreign
currency derivative included in Other income; and $14.3 million of
transaction costs included in administrative expenses.
(h)
Costs related to reviewing the nature of
inappropriate payments and review of compliance in certain other
countries. In addition, includes legal costs for related
shareholder lawsuits.
(i)
Represents the adjustment to EPS related
to the excess of the redemption value of certain redeemable
noncontrolling interests over their existing carrying value.
(j)
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.
(k)
For 2019, net income is reduced by income
attributable to noncontrolling interest of $2.7M.
(l)
The sum of these items does not foot due
to rounding.
(m)
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
Third Quarter
Year-to-Date
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
1,610,586
$
1,205,192
Operational Improvement Initiatives
(a)
1,651
1,254
Integration Related Costs (c)
508
18
FDA Mandated Product Recall (e)
250
(4,800
)
Frutarom Acquisition Related Costs (g)
4,247
—
Adjusted (Non-GAAP)
$
1,617,242
$
1,201,664
Reconciliation of Selling and
Administrative Expenses
Third Quarter
Year-to-Date
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
634,111
$
457,847
Acquisition Related Costs (b)
—
519
Integration Related Costs (c)
(35,647
)
(915
)
Frutarom Acquisition Related Costs (g)
(937
)
(26,796
)
Compliance Review & Legal Defense
Costs (h)
(3,623
)
Adjusted (Non-GAAP)
$
593,904
$
430,655
Reconciliation of Operating
Profit
Third Quarter
Year-to-Date
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
548,471
$
488,633
Operational Improvement Initiatives
(a)
1,652
1,773
Acquisition Related Costs (b)
—
(519
)
Integration Related Costs (c)
36,825
1,951
Restructuring and Other Charges, net
(d)
22,415
1,837
Losses (Gains) on Sale of Assets
1,136
(435
)
FDA Mandated Product Recall (e)
250
(4,800
)
Frutarom Acquisition Related Costs (g)
5,182
26,796
Compliance Review & Legal Defense
Costs (h)
3,623
—
Adjusted (Non-GAAP)
$
619,554
$
515,236
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
Third Quarter
Year-to-Date
2019
2018
(DOLLARS IN
THOUSANDS)
Income before taxes
Taxes on income (j)
Net Income Attributable to IFF
(k)
Diluted EPS
Income before taxes
Taxes on income (j)
Net Income Attributable to
IFF
Diluted EPS (l)
Reported (GAAP)
$
460,923
$
81,033
$
372,330
$
3.30
$
381,457
$
57,176
$
324,281
$
4.04
Operational Improvement Initiatives
(a)
1,652
561
1,091
0.01
1,774
561
1,213
0.02
Acquisition Related Costs (b)
(3,371
)
—
(3,371
)
(0.03
)
(519
)
(134
)
(385
)
—
Integration Related Costs (c)
36,825
8,270
28,555
0.25
1,952
237
1,715
0.02
Restructuring and Other Charges, net
(d)
22,415
5,394
17,021
0.16
1,837
443
1,394
0.02
Losses (Gains) on Sale of Assets
1,136
290
846
0.01
(435
)
(141
)
(294
)
—
FDA Mandated Product Recall (e)
250
57
193
—
(4,800
)
(1,148
)
(3,652
)
(0.05
)
U.S. Tax Reform (f)
—
—
—
—
—
7,502
(7,502
)
(0.09
)
Frutarom Acquisition Related Costs (g)
5,182
672
4,510
0.04
91,983
16,104
75,879
0.95
Compliance Review & Legal Defense
Costs (h)
3,623
827
2,796
0.02
—
—
—
—
Redemption value adjustment to EPS (i)
—
—
—
(0.02
)
—
—
—
—
Adjusted (Non-GAAP)
$
528,635
$
97,104
$
423,971
$
3.74
$
473,249
$
80,600
$
392,649
$
4.89
Reconciliation of Adjusted
(Non-GAAP) EPS ex. Amortization
Third Quarter
Year-to-Date
(DOLLARS AND SHARE
AMOUNTS IN THOUSANDS)
2019
2018
Numerator
Adjusted (Non-GAAP) Net
Income
$
423,971
$
392,649
Amortization of Acquisition
related Intangible Assets
143,964
27,772
Tax impact on Amortization of
Acquisition related Intangible Assets (j)
33,792
8,013
Amortization of Acquisition
related Intangible Assets, net of tax (m)
110,172
19,759
Adjusted (Non-GAAP) Net Income
ex. Amortization
534,143
412,408
Denominator
Weighted average shares
assuming dilution (diluted)
113,133
80,115
Adjusted (Non-GAAP) EPS ex.
Amortization
$
4.72
$
5.14
(a)
For 2019, represents accelerated
depreciation related to a plant relocation in India and China. For
2018, represents accelerated depreciation related to a plant
relocation in India and Taiwan.
(b)
For 2019, represents adjustments to the
fair value for an equity method investment in Canada which we began
consolidating in the second quarter. 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 and Frutarom.
(d)
For 2019, represents costs primarily
related to the Frutarom Integration Initiative and the 2019
Severance Charges program. For 2018, represents severance costs
related to the 2017 Productivity Program.
(e)
For 2019, represents additional claims
that management will pay to co-packers. For 2018, represents
recoveries from the supplier for the third quarter, partially
offset by final payments to the customer made for the affected
product in the first quarter.
(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. For 2019, amount
primarily includes amortization for inventory "step-up" costs and
transaction costs. For 2018, amount primarily includes $39.4
million of bridge loan commitment fees included in Interest
expense; $34.9 million make whole payment on the Senior Notes -
2007 and $3.9 million realized loss on a fair value hedge included
in Loss on extinguishment of debt; $12.5 million realized gain on a
foreign currency derivative included in Other income; and $26.8
million of transaction costs included in administrative
expenses.
(h)
Costs related to reviewing the nature of
inappropriate payments and review of compliance in certain other
countries. In addition, includes legal costs for related
shareholder lawsuits.
(i)
Represents the adjustment to EPS related
to the excess of the redemption value of certain redeemable
noncontrolling interests over their existing carrying value.
(j)
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.
(k)
For 2019, net income is reduced by income
attributable to noncontrolling interest of $7.6M.
(l)
The sum of these items does not foot due
to rounding.
(m)
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/20191104005998/en/
International Flavors & Fragrances Inc. Michael DeVeau Head
of Investor Relations and Communications & Divisional CFO,
Scent 212.708.7164 Michael.DeVeau@iff.com