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International Flavors & Fragrances Inc. (IFF - Analyst Report) reported encouraging results for the first quarter of fiscal 2011. Adjusted earnings per share in the quarter increased 21% year over year to $1.03 compared with 85 cents in the year-ago quarter. Results were also above the Zacks Consensus Estimate of 94 cents.


Net sales in the first quarter were $714 million, up 9% year over year and above the Zacks Consensus Estimate of $686 million. On a constant currency basis, revenue increased by 9% year over year. The increase in revenue was attributed to new business wins and higher sales volumes in all geographical regions. 

The company operates in two segments: Flavors and Fragrances.

Revenue from the Flavors business in the first quarter increased 13.0% year over year to $338.6 million and accounted for 47.4% of total revenue. Constant currency growth was 12.0% year over year. Revenue from the Fragrances business was roughly 52.6% of total revenue to $375.7 million, up 6.2% year over year.  Constant currency growth was 7% year over year.

From a geographical perspective, revenue from North America increased 9% year over year, while results from EAME registered an escalation of 8%, or 11% on a constant currency basis. Revenue from Latin America grew by 8% or 7% on constant currency and from Greater Asia soared by 12% or 8% on constant currency. 


Gross margin in the first quarter increased by 30 basis points to 41.6% based on higher revenue and cost reduction efforts, offset partially by higher input costs. Research and development expense as a percentage of sales remained flat at 8.0% while selling and administrative decreased by 160 basis points to 14.9%.

Adjusted operating margin in the quarter was 18.7% compared with 16.8% in the year-ago quarter. Interest expense declined to $11.7 million compared with $12.7 million in the year-ago quarter.

Balance Sheet

Exiting the first quarter, International Flavors& Fragranceshad cash and cash equivalents of approximately $112.0 million compared with $131.3 million in the previous quarter. Long-term debt, net of current portions, was roughly flat sequentially at $787.0 million.

Cash Flow

Cash flow from operating activities for the first quarter was ($34.9) million versus $32.4 million in the year-ago quarter. Capital spending went up by 49.6% year over year to $19.4 million compared with $13.0 million in year-ago quarter.

During the quarter, the company paid dividends totaling $21.7 million.

Outlook: Management is optimistic of achieving local currency sales growth target in the range of 4%-6%, operating profit growth between 7%-9% and EPS growth of over 10% in fiscal year 2011.

International Flavors & Fragrances is one of the leading companies engaged in the creation and manufacturing of fragrance and flavor products in the United States and internationally. We believe that the company’s success will be driven by its substantial geographical presence and product mix.

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