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International Flavors & Fragrances Inc. (IFF - Analyst Report) reported fourth-quarter 2012 adjusted earnings per share of 83 cents, up 12% from a year-ago earnings of 74 cents. Results were a cent below the Zacks Consensus Estimate of 84 cents.

Adjusted earnings per share in 2012 were $3.98, up compared with $3.74 earned in 2011 but below the Zacks Consensus Estimate of $4.01.


Net sales in the reported quarter were approximately $680.6 million, up 6% year over year and above the Zacks Consensus Estimate of $665.0 million. On a constant currency basis, revenue inched up 8% year over year.

The company operates in two segments: Flavors and Fragrances.

In the fourth quarter, revenue from the Flavors business increased 3.0% year over year, on a constant currency basis, to $326.4 million and accounted for 48.0% of total revenue. Revenue from the Fragrances business was roughly 52.0% of total revenue amounting to $354.1 million, up 13% on a constant currency basis.

From a geographical perspective, revenue from North America increased 7% year over year, while results from EAME were flat, or up 5% on a constant currency basis. Revenue from Latin America increased 16% or 20% on a constant currency basis and from Greater Asia revenue was up 6% or 7% on a constant currency basis.

In 2012, net sales grew 1% year over year, or 4% on a constant currency basis to $2,821.4 million. Results were above the Zacks Consensus Estimate of $2,802.0 million.


Gross margin in the fourth quarter increased by 430 basis points to 42.2% based on strong volumes and effective pricing, improved sales mix, manufacturing efficiencies,  and new business wins. Research and development expense, as a percentage of sales, increased by 100 basis points to settle at 9.1% while selling and administrative expense decreased by 230 basis points to 18.5%.

Adjusted operating margin in the quarter was 14.6% compared with 14.1% in the year-ago quarter. Interest expense plummeted 2.0% to $10.4 million in the quarter.

Balance Sheet

Exiting the fourth quarter, International Flavors & Fragrances’ cash and cash equivalents stood at $324.4 million compared with $97.2 million in the previous quarter. Long-term debt, net of current portions, was at $881.1 million, up from $677.0 million in the previous quarter.

Cash Flow

In 2012, cash flow from operating activities was $333.1 million versus $189.2 million in the previous year. The company spent $126.1 million on additions of property, plant and equipment as against $127.5 million in 2011.

During 2012, the company paid dividends totalling $130.9 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.

The stock currently carries a Zacks Rank #2 (Buy). Other stocks to watch out for in the industry are Inter Parfums Inc. (IPAR - Snapshot Report), with a Zacks Rank #1 (Strong Buy) and The Female Health Company and Helen of Troy Limited (HELE - Snapshot Report), each with a Zacks Rank #2 (Buy).

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