Internationa Flavors & Fragrances, Inc. (IFF)

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International Flavors & Fragrances, Inc. (IFF)

Q4 2010 Earnings Call Transcript

February 10, 2011 10:00 am ET


Michael DeVeau – IR Manager

Doug Tough – Chairman & CEO

Hernan Vaisman – Group President, Flavors

Nicolas Mirzayantz – Group President, Fragrances

Kevin Berryman – EVP & CFO


Mark Astrachan – Stifel Nicolaus

Emily Klingbeil – Credit Suisse

John Roberts – Buckingham Research

Jeff Zekauskas – JPMorgan:

Asher Kanka [ph] – RBC Capital Markets

Lauren Lieberman – Barclays Capital

Andrew Sawyer – Goldman Sachs

Mike Sison – KeyBanc

Edward Yang – Oppenheimer

Sam Yake – BGB Securities



At this time, I’d like to welcome everyone to the International Flavors & Fragrances Fourth-Quarter and Full-Year 2010 Earnings Conference Call. All participants will be on a listen-only mode until the formal question-and-answer portion of the call. Participants will be announced by their name and company name and in order to get all participants an opportunity to ask their question, we request a limit of one question per person.

I’d now like to introduce Michael DeVeau, Investor Relations Manager. You may begin.

Michael DeVeau

Thank you, Operator, and good morning everyone. Speaking on the call today is our Chairman and CEO, Doug Tough; our President of Flavors, Hernan Vaisman; our President of Fragrances, Nicolas Mirzayantz and our CFO, Kevin Berryman. Also in the room with us today is Beth Ford, our Executive Vice President, Supply Chain. This call is being recorded and will be available for playback on our Web site.

Please keep in mind that during this call we’ll be making forward-looking statements about the company’s performance, particularly with respect to the first-quarter and full-year of 2011. These statements are based on how we see things today and contain some elements of uncertainty. For additional information concerning factors that could cause actual results to differ materially from forward-looking statements, I ask that you to refer to the cautionary statements and risk factors contained in IFF’s filing with the SEC.

Some of today’s prepared remarks we’ll discuss the non-GAAP financial information which excludes those items that affect comparability. These items are laid out in our reconciliation to comparable net GAAP measures, which is also available on our Web site.

With that, I’d like to turn the call over to Doug.

Doug Tough

Thank you, Michael, and good morning, good afternoon to everyone. IFF had an excellent year in calendar year 2010 led by strong performances across both Flavors and Fragrances. Our 13% local currency sales growth can be credited to strong growth in the emerging markets, increased relative innovation and an underlying strength across our product portfolio.

While we did experience some benefits from restocking and favorable comparisons early in the year, I am pleased to say that a large part of our success was driven by new business wins. This record top-line performance provided strong operational leverage that when combined with our margin improvement initiatives drove a substantial increase in operating profit.

For the full-year, adjusted operating profit increased 17% and operating profit margin expanded 60 basis points to 16.3%. The benefits of lower interest expense and a more favorable tax rate provided additional leverage to our bottom-line results. For the full-year, adjusted earnings per share grew 25% to $3.37, a company record for the highest annual EPS we’ve achieved.

I’d like to now highlight some key accomplishments that we achieved throughout the last 12 months. First, from a customer perspective, we’re recognized as a leading supplier by both Procter & Gamble and Natura.

In addition, we’re selected as a global core supplier for a multinational flavor customer, making us one of only three suppliers on that coveted list.

In 2010, we solidified our commitment to research and development by appointing Dr. Ahmet Baydar to a newly creative position of Senior Vice President, Research and Development. Under Dr. Baydar’s direction, we are strengthening our efforts in innovation, technological development and external collaborations. All of which are viable to accelerating our performance.

In addition, we signed a licensing agreement with a developer of our all natural sweetness enhancer Redpoint Bio that will enable us to offer our customers more natural solutions for reduced sugar products.

More recently, we’ve entered into an agreement with Evolva Holding, a publicly-traded Swiss biotech company. The objective of our partnership is to create a commercially viable biosynthetic route for production of a key ingredient.

We also recently announced our plans to invest over $100 million in Greater Asia over the next three years. This investment will be allocated to two new state-of-the art manufacturing facilities located in Guangzhou, China and Singapore, as growth in this region continues to accelerate.

It is important that we align our infrastructure to support our capacity requirements. Our investment reflects our continued confidence in our growth strategies in the Asia region, and our long-term commitment to these very important emerging markets.

And last, but not least, we began work in 2010 to enhance our growth and our profitability by embarking on a strategic assessment of the company. In our new approach, we evaluated our categories, our customers and our regions by aligning all appropriate cost to better understand where we’re creating the highest levels of value.

What was highly encouraging is that the diversity across our IFF franchise in total is strong. Both the flavors and fragrance businesses have solid margins and a significant runway for future growth.

Similar to most businesses, we’re able to point our opportunities where we can accelerate our performance. By better understanding the facts, our leadership team now has the ability to make better business decisions, which in turn, should lead to greater financial returns for our shareholders.

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