IFF profits slump 56% on ‘unprecedented’ raw material costs

10-Feb-2012 - Last updated on 10-Feb-2012 at 15:00 GMT

'Growth potential' in emerging markets

International Flavors and Fragrances (IFF) saw net profits slump 56% in the fourth quarter due to one-off costs and ongoing high raw material prices, but adjusted results were largely in line with analysts’ expectations.

Net profit fell to $24.3m in the quarter ended December 31, compared to $55.5m for the prior year period, while revenue grew 2% to $644m compared with $629m a year ago.

Revenue in the company’s flavors segment grew 8% to $322.7m, driven by double-digit growth in emerging markets, as well as continued interest in health and wellness initiatives in North America and Western Europe, the company said. The beverage category saw the strongest growth, with sales increasing by double digits.

“At the beginning of 2011, we expressed optimism that IFF would continue to perform well despite ongoing macroeconomic challenges and unprecedented raw material cost increases,” said IFF chairman and CEO Doug Tough. “Our ability to achieve our long-term financial targets for the second consecutive year demonstrates the team’s aptitude for successfully executing our strategy and navigating through a challenging operating environment.”

Earnings per share were $0.30, compared to $0.68 in the fourth quarter of 2010, although on an adjusted basis, they were up 7% to $0.74. Per-share earnings were hit by restructuring costs and a patent litigation settlement.

For the full year, revenue was up 6% to $2.8bn.

Financial analysis firm Morningstar said: “We have emphasized that IFF is not immune to impending headwinds, like commodity cost inflation and soft consumer spending, and the company's fourth-quarter results support our view. Nevertheless, we believe our long-term thesis that barriers to entry for new participants run deep in the global flavors and fragrance industry remains intact, and we expect IFF will be able to earn excess returns on invested capital for many years to come.”

Tough added: “We continued to leverage our geographic reach to capture the growth potential of the emerging markets, to strengthen our innovation platform to deliver differentiating products, and to maximize our portfolio to improve the underperforming areas of our business.”

Meanwhile, the company’s results were impacted by its fragrances sector, which saw revenue contract 3% to $321m in the quarter, due to lower sales in developed markets, particularly Germany, France and Spain.