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International Flavors & Fragrances Inc. (IFF - Analyst Report) reported third-quarter 2012 adjusted earnings per share of $1.08, a cent above the Zacks Consensus Estimate of $1.07. The results improved 8% from the year-ago earnings of $1.00 per share.

GAAP earnings per share of 20 cents, including 88 cents of restructuring & other costs, were below $1.00 earned in the year-ago quarter.


Net sales in the reported quarter were approximately $709.0 million, down 1% year over year and below the Zacks Consensus Estimate of $726.0 million. On a constant currency basis, revenue inched up 5% year over year.

The company operates in two segments: Flavors and Fragrances.

In the third quarter, revenue from the Flavors business increased 6.0% year over year, on a constant currency basis, to $340.7 million and accounted for 48.1% of total revenue. Revenue from the Fragrances business was roughly 51.9% of total revenue amounting to $368.3 million, up 5% on a constant currency basis.

From a geographical perspective, revenue from North America were weak and declined 1% year over year, while results from EAME registered a decline of 6%, or up 6% on a constant currency basis. Revenue from Latin America increased 5% or 11% on a constant currency basis and from Greater Asia revenue was up 3% or 6% on a constant currency basis.


Gross margin in the quarter increased by 250 basis points to 42.5% based on manufacturing efficiencies and new business wins. Research and development expense, as a percentage of sales, increased by 60 basis points to settle at 8.1% while selling and administrative expense increased by 190 basis points to 15.5%.

Adjusted operating margin in the quarter was 18.9% compared with 17.9% in the year-ago quarter. Interest expense plummeted 3.6% to $9.9 million in the quarter.

Balance Sheet

Exiting the third quarter, International Flavors & Fragrances’ cash and cash equivalents decreased 7.1% sequentially to $97.2 million compared with $104.6 million in the previous quarter. Long-term debt, net of current portions, stood at $677.0 million as against $777.4 million in the sequential quarter.

Cash Flow

Cash flow from operating activities in the third quarter of 2012 was $7.5 million versus a cash inflow of $114.6 million in the year-ago quarter. Capital spending was at $30.4 million versus $29.0 million in the comparable quarter of 2011.

During the quarter, the company paid dividends totalling $25.3 million.

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

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