Completes historic year with record-setting sales – increasing
17% – and transformational acquisition
Regulatory News:
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.
Full Year 2018 Consolidated Summary:
Reported
(GAAP)
Adjusted
(Non-GAAP)¹
Sales
Operating
Profit
EPS Sales
Operating
Profit
EPS
EPS
Ex Amortization2
Consolidated $4.0 B $584 M
$3.79
$4.0 B $677 M $5.58 $6.28
Fourth Quarter 2018 Consolidated Summary:
Reported
(GAAP)
Adjusted
(Non-GAAP)¹
Sales
Operating
Profit
EPS Sales
Operating
Profit
EPS
EPS
Ex Amortization2
Consolidated $1.2 B $95 M $0.09 $1.2 B $162 M
$0.89 $1.22
1 Schedules at the end of this release contain reconciliations
of reported GAAP to non-GAAP metrics.
2Adjusted EPS ex amortization is a Non-GAAP metric that excludes
all amortization of acquisition related intangible assets from
Adjusted EPS.
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.
Full Year 2018 Segment Summary: Growth vs. Prior Year
Reported (GAAP)
Currency Neutral (Non-GAAP) Sales
Segment
Profit
Sales
Segment
Profit
Taste 6% 10% 5% 6%
Scent 6% 3% 4% (2)%
Frutarom - - - -
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: Growth vs. Prior
Year
Reported (GAAP) Currency Neutral
(Non-GAAP) Sales
Segment
Profit
Sales
Segment
Profit
Taste 0% (5)% 2% (7)%
Scent 1% (4)% 3% (4)%
Frutarom - - - -
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.
Outlook
The Company reconfirms long-term combined guidance over the
2019-2021 period of:
Guidance Sales(1) 5-7% CAGR
Adjusted EPS ex amortization* (2) 10%+ CAGR
The Company’s 2019 guidance is as follows:
Guidance Sales $5.2B - $5.3B
Adjusted EPS (2) $4.90 - $5.10
Adjusted EPS ex
amortization* $6.30 - $6.50
On a combined basis, full year 2018 sales were approximately
$5.1 billion, including $4 billion achieved in 2018, plus an
estimated $1.1 billion related to Frutarom’s first nine months of
2018, less an estimated $45 million of planned divestitures.
Combined adjusted EPS ex amortization (approximately $190 to $195
million of amortization of intangible assets) was approximately
$5.95, including $6.28 achieved in 2018, plus an estimated $2.06
related to Frutarom’s first nine months of 2018, less an estimated
$2.26 related to acquisition financing and less an estimated $0.13
related to effective tax rate, minority interest, changes in
operating income/expense and planned divestitures.
Combined sales growth for 2019 is expected to be approximately
5% to 7% and combined adjusted EPS ex amortization is expected to
be 8% to 11% - both on a currency neutral basis. When
comparing 2019 guidance to 2018 combined results, currency is
expected to negatively impact sales in 2019 by an estimated $150
million or 3 percentage points, and adjusted EPS ex amortization by
$0.12 or 2 percentage points.
1 On a currency neutral basis
2 See Use of Non-GAAP Financial Measures
* Adjusted EPS ex amortization is a Non-GAAP metric that
excludes all amortization of acquisition related intangible assets
from Adjusted EPS
A copy of the Company’s Annual Report on Form 10-K will be
available on its website at www.iff.com or at www.sec.gov by
February 26, 2019.
Audio Webcast
A live webcast to discuss the Company’s fourth quarter and full
year 2018 financial results will be held on February 14, 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 and
long-term guidance for 2019-2021, the expected impact of the
acquisition of Frutarom, including expected expansion of our
portfolio and our customer base, and our ability to deliver strong
financial results. 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 27, 2018 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) 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, (4)
the Company’s ability to successfully market to its expanded and
decentralized Taste and Frutarom customer base, (5) the Company’s
ability to effectively compete in its market and develop and
introduce new products that meet customers’ needs, (6) the
Company’s ability to successfully develop innovative and
cost-effective products that allow customers to achieve their own
profitability expectations, (7) the impact of the disruption in the
Company’s manufacturing operations, (8) the impact of a disruption
in the Company’s supply chain, including the inability to obtain
ingredients and raw materials from third parties, (9) volatility
and increases in the price of raw materials, energy and
transportation, (10) 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, (11) the impact of any failure
or interruption of the Company’s key information technology systems
or a breach of information security, (12) the Company’s ability to
react in a timely and cost-effective manner to changes in consumer
preferences and demands, (13) the Company’s ability to establish
and manage collaborations, joint ventures or partnership that lead
to development or commercialization of products, (14) the Company’s
ability to benefit from its investments and expansion in emerging
markets; (15) the impact of currency fluctuations or devaluations
in the principal foreign markets in which it operates; (16)
economic, regulatory and political risks associated with the
Company’s international operations, (17) the impact of global
economic uncertainty on demand for consumer products, (18) the
inability to retain key personnel; (19) the Company’s ability to
comply with, and the costs associated with compliance with, U.S.
and foreign environmental protection laws, (20) the Company’s
ability to realize the benefits of its cost and productivity
initiatives, (21) the Company’s ability to successfully manage its
working capital and inventory balances, (22) 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, (23) the Company’s ability to protect its
intellectual property rights, (24) the impact of the outcome of
legal claims, regulatory investigations and litigation, (25)
changes in market conditions or governmental regulations relating
to our pension and postretirement obligations, (26) the impact of
future impairment of our tangible or intangible long-lived assets,
(27) 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, (28) 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 (29) the
impact of the United Kingdom’s expected departure from the European
Union in 2019. 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, which eliminates the effects
that result from translating its international sales in U.S.
dollars; (ii) adjusted operating profit and adjusted EPS, which
exclude restructuring costs and other significant items of a
non-recurring and/or non-operational nature such as legal
charges/credits, gains on sale of assets, tax assessment,
operational improvement initiatives, integration related costs, FDA
mandated product recall costs, acquisition related costs, CTA
realization, Frutarom acquisition related costs, U.S. Tax reform
(often referred to as “Items Impacting Comparability); (iii)
adjusted EPS ex amortization, which excludes Items Impacting
Comparability and the amortization of acquisition related
intangible assets; and (iv) long term guidance on currency neutral
adjusted EPS ex amortization, which eliminates the effects that
result from translating its international sales in U.S. dollars on
adjusted EPS ex amortization.
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. With respect to the
redemption value adjustment to EPS, the Company excluded this
adjustment as (i) the amount is not believed to be a measure of
earnings and is excluded from the net income attributable to IFF;
and (ii) the Company believes that investors may benefit from an
understanding of the Company’s results without giving effect to
this adjustment. 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.
When we provide our expectations for adjusted EPS and adjusted
EPS ex amortization for our full year 2019 guidance and our
expectations for currency neutral sales and currency neutral
adjusted EPS ex amortization for our long-term combined guidance
for 2019-2021, the closest corresponding GAAP measure and a
reconciliation of the differences between the non-GAAP 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 measure, 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.
Commencing in the fourth quarter of fiscal year 2018, we are
including Adjusted (Non-GAAP) 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 (Non-GAAP) 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.
We calculated “combined” numbers by combining (i) our results
(including Frutarom from October 4, 2018 through December 31, 2018)
with (ii) the results of Frutarom prior to its acquisition by us on
October 4, 2018, and adjusting for divestitures of Frutarom
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.
Meet IFF
International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext
Paris: IFF) (TASE: IFF) is a leading innovator of scent, taste, and
nutrition, with over 110 manufacturing facilities, 100 R&D
centers, and 33,000 customers globally. At the heart of our
company, we are fueled by a sense of discovery, constantly asking
“what if?”. That passion for exploration drives us to co-create
unique products that consumers experience in more than 150,000
unique products sold annually. Our 13,000 team members globally
take advantage of leading consumer insights, naturals exploration,
research and development, creative expertise, and customer intimacy
to develop differentiated offerings for consumer products. 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 December 31, Year
Ended December 31, 2018
2017
%
Change
2018 2017
%
Change
Net sales $ 1,219,047 $ 854,625 43 % $ 3,977,539 $
3,398,719 17 % Cost of goods sold 741,532
498,627 49 % 2,294,832 1,926,256
19 % Gross profit 477,515 355,998 34 % 1,682,707 1,472,463 14 %
Research and development 83,038 76,820 8 % 311,583 295,469 5 %
Selling and administrative 249,614 141,469 76 % 707,461 570,144 24
% Restructuring and other charges 2,249 5,528 -59 % 5,079 19,711
-74 % Amortization of acquisition-related intangibles 48,106 10,366
NMF 75,879 34,693 119 % Gains on the sale of fixed assets
(742 ) (64 ) NMF (1,177 ) (184 ) NMF Operating
profit 95,250 121,879 -22 % 583,882 552,630 6 % Interest expense
38,804 15,779 146 % 132,558 65,363 103 % Loss on extinguishment of
debt - - 0 % 38,810 - 0 % Other (income) expense, net (9,854
) (9,092 ) 8 % (35,243 ) (49,778 ) -29 %
Pretax income 66,300 115,192 -42 % 447,757 537,045 -17 % Income
taxes 50,800 155,347 -67 %
107,976 241,380 -55 % Net (loss) income 15,500
(40,155 ) -139 % 339,781 295,665 15 % Net income attributable to
noncontrolling interest 2,479 - NMF $
2,479 $ - NMF Net (loss) income attributable to IFF $
13,021 $ (40,155 ) -132 % $ 337,302 $ 295,665
14 % Net (loss) income per share - basic (a) $ 0.09 $ (0.51
) $ 3.81 $ 3.73 Net (loss) income per share - diluted (a) $ 0.09 $
(0.51 ) $ 3.79 $ 3.72 Average shares outstanding Basic
110,871 79,056 87,551 79,070 Diluted 112,155 79,056 88,121 79,370
(a) For 2018, net income per share
reflects adjustments related to the excess of the redemption value
of certain redeemable noncontrolling interests, over their existing
carrying values. NMF Not meaningful
International Flavors & Fragrances
Inc.
Condensed Consolidated Balance
Sheet
(Amounts in thousands)
(Unaudited)
December 31, 2018
2017 Cash, restricted cash & cash equivalents $ 648,522
$ 368,046 Receivables 937,765 663,663 Inventories 1,078,537 649,448
Other current assets 277,036 215,387 Total current
assets 2,941,860 1,896,544 Property, plant and equipment,
net 1,241,152 880,580 Goodwill and other intangibles, net 8,417,710
1,572,075 Other assets 288,674 249,727 Total assets $
12,889,396 $ 4,598,926 Bank borrowings and overdrafts, and
Current portion of long-term debt $ 48,642 $ 6,966 Other current
liabilities 1,079,669 761,802 Total current
liabilities 1,128,311 768,768 Long-term debt 4,504,417
1,632,186 Non-current liabilities 1,131,488 508,678
Redeemable noncontrolling interests 81,806 - Shareholders'
equity 6,043,374 1,689,294 Total liabilities and
shareholders' equity $ 12,889,396 $ 4,598,926
International Flavors & Fragrances
Inc.
Consolidated Statement of Cash
Flows
(Amounts in thousands)
(Unaudited)
Year Ended December 31, 2018
2017 Cash flows from operating
activities: Net income $ 339,781 $ 295,665 Adjustments
to reconcile to net cash provided by operations: Depreciation and
amortization 173,792 117,967 Deferred income taxes 19,403 58,889
Gains on sale of assets (1,177 ) (184 ) Stock-based compensation
29,401 26,567 Loss on extinguishment of debt 38,810 - Gain on deal
contingent derivatives (12,505 ) - Pension contributions (22,433 )
(39,298 ) Litigation settlement - (56,000 ) Product recall claim
settlement, net of insurance proceeds received 235 - Foreign
currency gain on liquidation of entity - (12,217 ) Changes in
assets and liabilities, net of acquisitions: Trade receivables
(49,958 ) (68,851 ) Inventories (117,641 ) (18,911 ) Accounts
payable 55,136 29,114 Accruals for incentive compensation (2,289 )
19,144 Other current payables and accrued expenses (5,279 ) 22,679
Other assets (19,219 ) (3,866 ) Other liabilities 10,647
20,058 Net cash provided by operating
activities 436,704 390,756
Cash flows from investing activities: Cash paid for
acquisitions, net of cash received (4,857,343 ) (192,328 )
Additions to property, plant and equipment (170,094 ) (128,973 )
Additions to intangible assets (3,326 ) - Proceeds from disposal of
assets 8,176 16,139 Proceeds from disposal of subsidiaries, net of
cash held 10,157 - Maturity of net investment hedges (2,642 ) 1,434
Proceeds from life insurance contracts 1,837
3,798 Net cash used in investing activities
(5,013,235 ) (299,930 )
Cash flows from financing
activities: Cash dividends paid to shareholders (230,218 )
(206,118 ) Decrease in revolving credit facility and short term
borrowing (927 ) (4,499 ) Deferred financing costs (33,668 ) (5,373
) Repayments of debt (376,625 ) (250,000 ) Proceeds from issuance
of long-term debt 3,256,742 498,250 Proceeds from sales of equity
securities, net of issuance costs 2,268,965 - Gain (loss) on
pre-issuance hedges 12,505 (5,310 ) Proceeds from issuance of stock
in connection with stock plans - 329 Employee withholding taxes
paid (9,725 ) (11,768 ) Purchase of treasury stock (15,475 )
(58,069 ) Net cash provided (used in) by financing
activities 4,871,574 (42,558 ) Effect of
exchange rates changes on cash and cash equivalents (14,567 )
(4,214 )
Net change in cash and cash equivalents 280,476
44,054
Cash, restricted cash and cash equivalents at beginning
of year 368,046 323,992
Cash,
restricted cash and cash equivalents at end of period $ 648,522
$ 368,046
International Flavors & Fragrances
Inc.
Business Unit Performance
(Amounts in thousands)
(Unaudited)
Three Months Ended
December 31,
Year Ended
December 31,
2018 2017 2018
2017
Net Sales Taste $ 401,576
$ 401,880 $ 1,737,349 $ 1,632,166 Scent 457,911
452,745 1,880,630 1,766,553 Frutarom 359,560 -
359,560 -
Consolidated
1,219,047 854,625 3,977,539 3,398,719
Segment Profit
Taste $ 77,523
$ 81,714 $ 395,190 $ 360,483 Scent 68,002
71,132 329,548 318,954 Frutarom 27,358 - 27,358 - Global Expenses
(10,752 ) (13,342 ) (74,730 ) (60,810 ) Operational Improvement
Initiatives (396 ) (329 ) (2,169 ) (1,802 ) Acquisition Related
Costs 770 113 1,289 (20,389 ) Integration Related Costs (5,237 )
(1,676 ) (7,188 ) (4,179 ) Legal Charges/Credits, net - - - (1,000
) Tax Assessment - - - (5,331 ) Restructuring and Other Charges,
net (2,249 ) (5,528 ) (4,086 ) (19,711 ) Gain on Sale of Assets 742
64 1,177 184 FDA Mandated Product Recall 2,325 (7,500 ) 7,125
(11,000 ) UK Pension Settlement Charges - (2,769 ) - (2,769 )
Frutarom Acquisition Related Costs (62,836 ) - (89,632 ) -
Operating profit 95,250 121,879
583,882 552,630 Interest Expense (38,804 ) (15,779 )
(132,558 ) (65,363 ) Loss on extinguishment of debt - - (38,810 ) -
Other income (expense), net 9,854 9,092
35,243 49,778
Income before
taxes $ 66,300 $ 115,192 $ 447,757 $
537,045
Operating Margin Taste 19.3 % 20.3 %
22.7 % 22.1 % Scent 14.9 % 15.7 % 17.5 % 18.1 % Frutarom 7.6 % N/A
7.6 % N/A Consolidated 7.8 % 14.3 % 14.7 % 16.3 %
International Flavors & Fragrances
Inc.
GAAP to Non-GAAP Reconciliation
Foreign Exchange Impact
(Unaudited)
Q4 Taste
Sales
Segment
Profit
% Change - Reported (GAAP) 0% -5% Currency
Impact 2% -2%
% Change - Currency Neutral 2%
-7%
Q4 Scent
Sales
Segment
Profit
% Change - Reported (GAAP) 1% -4% Currency
Impact 2% 0
% Change - Currency Neutral 3%
-4%
FY Taste
Sales
Segment
Profit
% Change - Reported (GAAP) 6% 10% Currency
Impact -1% -4%
% Change - Currency Neutral 5%
6%
FY Scent
Sales
Segment
Profit
% Change - Reported (GAAP) 6% 3% Currency
Impact -2% -5%
% Change - Currency Neutral 4%
-2%
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 Gross Profit Fourth Quarter
2018 2017 Reported
(GAAP) $ 477,515 $ 355,998 Operational Improvement Initiatives (a)
396 329 Acquisition Related Costs (b) - (194 ) Integration Related
Costs (c) 84 163 FDA Mandated Product Recall (e) (2,325 ) 7,500
Frutarom Acquisition Related Costs (h) 23,550
- Adjusted (Non-GAAP) $ 499,220 $ 363,796
Reconciliation of Selling and Administrative Expenses
Fourth Quarter 2018 2017
Reported (GAAP) $ 249,614 $ 141,469 Acquisition Related
Costs (b) 770 (81 ) Integration Related Costs (c) (5,145 ) (1,390 )
UK Pension Settlement Charges (f) - (1,882 ) Frutarom Acquisition
Related Costs (h) (39,286 ) - Adjusted
(Non-GAAP) $ 205,953 $ 138,116
Reconciliation of
Operating Profit Fourth Quarter 2018
2017 Reported (GAAP) $ 95,250 $ 121,879
Operational Improvement Initiatives (a) 396 329 Acquisition Related
Costs (b) (770 ) (113 ) Integration Related Costs (c) 5,237 1,676
Restructuring and Other Charges, net (d) 2,249 5,528 Gain on Sale
of Assets (742 ) (64 ) FDA Mandated Product Recall (e) (2,325 )
7,500 UK Pension Settlement Charges (f) - 2,769 Frutarom
Acquisition Related Costs (h) 62,836 -
Adjusted (Non-GAAP) $ 162,131 $ 139,504
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 and EPS Fourth
Quarter 2018 2017
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) $ 66,300 $ 50,800 $
13,021 $ 0.09 $ 115,192 $ 155,347 $ (40,155 ) $ (0.51 ) Operational
Improvement Initiatives (a) 395 133 262 - 329 82 247 - Acquisition
Related Costs (b) (770 ) (177 ) (593 ) (0.01 ) (113 ) (45 ) (68 ) -
Integration Related Costs (c) 5,236 1,160 4,076 0.04 1,676 574
1,102 0.01 Restructuring and Other Charges, net (d) 2,249 577 1,672
0.01 5,528 1,561 3,967 0.05 Gain on Sale of Assets (742 ) (211 )
(531 ) - (64 ) (20 ) (44 ) - FDA Mandated Product Recall (e) (2,325
) (453 ) (1,872 ) (0.02 ) 7,500 2,652 4,848 0.06 UK Pension
Settlement Charges (f) - - - - 2,769 526 2,243 0.03 U.S. Tax Reform
(g) - (32,847 ) 32,847 0.30 - (139,172 ) 139,172 1.76 Frutarom
Acquisition Related Costs (h) 63,586 12,386 51,200 0.46 - - - -
Redemption value adjustment to EPS (i) - -
- 0.03 - -
- - Adjusted (Non-GAAP) $ 133,929 $
31,368 $ 100,082 $ 0.89 $ 132,817 $ 21,505 $ 111,312 $ 1.40
Reconciliation of Adjusted (Non-GAAP) EPS ex. Amortization
Fourth Quarter Numerator 2018
2017 Adjusted (Non-GAAP) Net Income $ 100,082 $
111,312 Amortization of Acquisition related Intangible Assets
48,106 10,366 Tax impact on Amortization of Acquisition related
Intangible Assets 11,257 1,679
Amortization of Acquisition related Intangible Assets, net of tax
(m) 36,849 8,687 Adjusted (Non-GAAP) Net
Income ex. Amortization 136,931 119,999
Denominator
Weighted average shares assuming dilution (diluted) 112,155
79,413 Adjusted (Non-GAAP) EPS ex. Amortization $
1.22 $ 1.51 (a) For 2018,
represents accelerated depreciation related to a plant relocation
in India. For 2017, represents accelerated depreciation and idle
labor costs in Hangzhou, China. (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. For 2017, represents
the amortization of inventory "step-up" included in Cost of goods
sold and transaction costs related to the acquisitions of Fragrance
Resources and PowderPure within Selling and administrative
expenses. (c) For 2018, represents costs related to the integration
of the Frutarom acquisition. For 2017, represents costs related to
the integration of the David Michael and Fragrance Resources
acquisitions. (d) For 2018, represents severance costs related to
the 2017 Productivity Program and costs associated with the
termination of agent relationships in a subsidiary. For 2017,
represents severance costs related to the 2017 Productivity
Program. (e) For 2018, principally represents recoveries from our
insurance in the fourth quarter. For 2017, represents management's
best estimate of losses related to the previously disclosed FDA
mandated recall. (f) Represents pension settlement charges incurred
in one of the Company's UK pension plans. (g) For 2017, represents
charges incurred related to enactment of certain U.S. tax
legislation changes in December 2017, including $38.6 million
related to net adjustments on deferred tax assets, and $100.6
million related to taxes on deemed repatriation of earnings. For
2018, represents additional expense based on updated repatriation
plans requiring accruals for withholding taxes on deemed
repatriation. (h) Represents transaction-related costs and expenses
related to the acquisition of Frutarom. Amount primarily includes
$23.5 million of amortization for inventory"step-up" costs and
$39.2 million of transaction costs included in Selling and
administrative expenses. (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)
Except for amortization, 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 2018, 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 Company's adjusted worldwide effective tax
rate. (k) For 2018, net income is reduced by income attributable to
noncontrolling interest of $2.479M. (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(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 Gross Profit Year Ended December
31, 2018 2017
Reported (GAAP) $ 1,682,707 $ 1,472,463 Operational Improvement
Initiatives (a) 1,650 1,802 Acquisition Related Costs (b) - 15,860
Integration Related Costs (c) 102 480 FDA Mandated Product Recall
(h) (7,125 ) 11,000 Frutarom Acquisition Related Costs (k)
23,550 - Adjusted (Non-GAAP) $ 1,700,884 $
1,501,605
Reconciliation of Selling and
Administrative Expenses
Year Ended December 31, 2018
2017 Reported (GAAP) $ 707,461 $ 570,144 Acquisition
Related Costs (b) 1,289 (4,529 ) Integration Related Costs (c)
(6,060 ) (3,258 ) Legal Charges/Credits, net (d) - (1,000 ) Tax
Assessment (e) - (5,331 ) UK Pension Settlement Charges (i) -
(1,882 ) Frutarom Acquisition Related Costs (k) (66,082 )
- Adjusted (Non-GAAP) $ 636,608 $ 554,144
Reconciliation of Operating Profit Year Ended December
31, 2018 2017
Reported (GAAP) $ 583,882 $ 552,630 Operational Improvement
Initiatives (a) 2,169 1,802 Acquisition Related Costs (b) (1,289 )
20,389 Integration Related Costs (c) 7,188 4,179 Legal
Charges/Credits, net (d) - 1,000 Tax Assessment (e) - 5,331
Restructuring and Other Charges, net (f) 4,086 19,711 Gain on Sale
of Assets (1,177 ) (184 ) FDA Mandated Product Recall (h) (7,125 )
11,000 UK Pension Settlement Charges (i) - 2,769 Frutarom
Acquisition Related Costs (k) 89,632 -
Adjusted (Non-GAAP) $ 677,366 $ 618,627
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 and EPS Year Ended
December 31, 2018 2017
Income
before taxes
Taxes on
income (m)
Net Income
Attributable
to IFF (n)
Diluted EPS (o)
Income
before taxes
Taxes on
income (m)
Net Income
Attributable
to IFF
Diluted EPS Reported (GAAP) $ 447,757 $ 107,976 $
337,302 $ 3.79 $ 537,045 $ 241,380 $ 295,665 $ 3.72 Operational
Improvement Initiatives (a) 2,169 694 1,475 0.02 1,802 450 1,352
0.02 Acquisition Related Costs (b) (1,289 ) (311 ) (978 ) (0.01 )
20,389 6,514 13,875 0.17 Integration Related Costs (c) 7,188 1,397
5,791 0.07 4,179 1,331 2,848 0.03 Legal Charges/Credits, net (d) -
- - - 1,000 354 646 0.01 Tax Assessment (e) - - - - 5,331 1,885
3,446 0.04 Restructuring and Other Charges, net (f) 4,086 1,020
3,066 0.03 19,711 5,465 14,246 0.17 Gains on Sale of Assets (1,177
) (352 ) (825 ) (0.01 ) (184 ) (59 ) (125 ) - CTA Realization (g) -
- - - (12,217 ) - (12,217 ) (0.15 ) FDA Mandated Product Recall (h)
(7,125 ) (1,601 ) (5,524 ) (0.06 ) 11,000 3,890 7,110 0.09 UK
Pension Settlement Charges (i) - - - - 2,769 526 2,243 0.03 U.S.
Tax Reform (j) - (25,345 ) 25,345 0.29 - (139,172 ) 139,172 1.76
Frutarom Acquisition Related Costs (k) 155,569 28,490 127,079 1.44
- - - - Redemption value adjustment to EPS (l) -
- - 0.03 -
- - - Adjusted (Non-GAAP)
$ 607,178 $ 111,968 $ 492,731 $ 5.58 $ 590,825 $ 122,564 $ 468,261
$ 5.89
Reconciliation of Adjusted (Non-GAAP) EPS ex.
Amortization Year Ended December 31, Numerator
2018 2017 Adjusted
(Non-GAAP) Net Income $ 492,731 $ 468,261 Amortization of
Acquisition related Intangible Assets 75,879 34,693 Tax impact on
Amortization of Acquisition related Intangible Assets 13,962
7,181 Amortization of Acquisition related
Intangible Assets, net of tax (p) 61,917
27,512 Adjusted (Non-GAAP) Net Income ex. Amortization
554,648 495,773
Denominator Weighted average shares
assuming dilution (diluted) 88,121 79,370
Adjusted (Non-GAAP) EPS ex. Amortization $ 6.28 $
6.23 (a) For 2018, represents
accelerated depreciation related to a plant relocation in India and
Taiwan asset write off. For 2017, represents accelerated
depreciation and idle labor costs in Hangzhou, China. (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. For
2017, represents the amortization of inventory "step-up" included
in Cost of goods sold and transaction costs related to the
acquisitions of Fragrance Resources and PowderPure within Selling
and administrative expenses. (c) For 2018, represents costs related
to the integration of the Frutarom acquisition. For 2017,
represents costs related to the integration of the David Michael
and Fragrance Resources acquisitions. (d) Represents additional
charge related to litigation settlement. (e) Represents the reserve
for payment of a tax assessment related to commercial rent for
prior periods. (f) For 2018, represents severance costs related to
the 2017 Productivity Program and costs associated with the
termination of agent relationships in a subsidiary. For 2017,
represents severance costs related to the 2017 Productivity
Program. (g) Represents the release of CTA related to the
liquidation of a foreign entity. (h) For 2018, principally
represents recoveries from the supplier for the third and fourth
quarter, partially offset by final payments to the customer made
for the effected product in the first quarter. For 2017, represents
management's best estimate of losses related to the previously
disclosed FDA mandated recall. (i) Represents pension settlement
charges incurred in one of the Company's UK pension plans. (j) For
2017, represents charges incurred related to enactment of certain
U.S. tax legislation changes in December 2017, including $38.6
million related to net adjustments on deferred tax assets, and
$100.6 million related to taxes on deemed repatriation of earnings.
For 2018, represents additional expense based on updated
repatriation plans requiring accruals for withholding taxes on
deemed repatriation. (k) Represents transaction-related costs and
expenses related to the acquisition of Frutarom. Amount primarily
includes $23.5 million of amortization for inventory "step-up"
costs, $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
$66.0 million of transaction costs included in Selling and
administrative expenses. (l) Represents the adjustment to EPS
related to the excess of the redemption value of certain redeemable
noncontrolling interests over their existing carrying value. (m)
Except for amortization, 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 2018, 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 Company's adjusted worldwide effective tax
rate. (n) For 2018, net income is reduced by income attributable to
noncontrolling interest of $2.479M. (o) The sum of these items does
not foot due to rounding. (p) 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/20190213005812/en/
Michael DeVeauHead of Investor Relations and Communications
& Divisional CFO, Scent212.708.7164Michael.DeVeau@iff.com
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