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International Flavors & Fragrances Inc. (IFF - Analyst Report) reported encouraging results for the second quarter of fiscal 2011. Adjusted earnings per share in the quarter increased 14% year over year to 97 cents compared with 85 cents in the year-ago quarter. Results were a penny above the Zacks Consensus Estimate of 96 cents.

GAAP EPS, including restructuring expenses, in the quarter was 93 cents versus 83 cents in the year-ago quarter.


Net sales in the second quarter were $715.6 million, up 7% year over year and above the Zacks Consensus Estimate of $702 million. On a constant currency basis, revenue soared by 3% 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 second quarter grew 14.0% year over year to $345.4 million and accounted for 48.3% of total revenue. Constant currency growth was 8% year over year.

Revenue from the Fragrances business was roughly 51.7% of total revenue, amounting to $370.2 million, up 2% year over year.  On a constant currency basis, Fragrances business registered a 2% decline over the year-ago quarter.

From a geographical perspective, revenue from North America increased 5% year over year, while results from EAME registered an escalation of 10%, or flat on a constant currency basis. Revenue from Latin America plummeted 1% or 3% on a constant currency basis and from Greater Asia it soared by 12% or 7% on a constant currency basis. 


Gross margin in the second quarter decreased by 310 basis points to 39.7% based on higher cost of sales. Research and development expense as a percentage of sales also decreased by 50 basis points to settle at 7.9%, while selling and administrative expenses decreased by 320 basis points to 14.8%.

Adjusted operating margin in the quarter was 17.0% compared with 16.5% in the year-ago quarter. Interest expense was flat at $12.0 million in the quarter. Tax rate in the quarter was 27.4% versus 28.3% in the second quarter of 2010.

Balance Sheet

Exiting the second quarter, International Flavors & Fragrances had cash and cash equivalents of approximately $123.4 million compared with $112.0 million in the previous quarter. Long-term debt, net of current portions, was roughly $767.4 million versus $787.0 million in the previous quarter.

Cash Flow

Cash flow from operating activities for the second quarter was $37.0 million versus $95.2 million in the year-ago quarter. Capital spending went up by 35.6% year over year to $26.3 million compared with $24.0 million in year-ago quarter.

During the quarter, the company paid dividends totaling $21.6 million.

Outlook: Management is optimistic about achieving a 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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