Internationa Flavors & Fragrances, Inc. (IFF)

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International Flavors & Fragrances (IFF)

Q4 2011 Earnings Call

February 09, 2012 10:00 am ET


Michael DeVeau -

Douglas D. Tough - Chairman and Chief Executive Officer

Hernan Vaisman - Group President of Flavors and Member Temporary Office of the Chief Executive Officer

Nicolas Mirzayantz - Group President of Fragrances and Member Temporary Office of the Chief Executive Officer

Kevin C. Berryman - Chief Financial Officer, Executive Vice President and Member Temporary Office of the Chief Executive Officer


Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division

Lauren R. Lieberman - Barclays Capital, Research Division

Asher Cronk - RBC Capital Markets, LLC, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

Erik Sjogren - Morgan Stanley, Research Division

Edward H. Yang - Oppenheimer & Co. Inc., Research Division



At this time, I would like to welcome everyone to the International Flavors & Fragrances Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] I would now like to introduce Michael DeVeau, Investor Relations Manager. You may now begin.

Michael DeVeau

Thank you, operator, and good morning, everyone. With me on the call today are Doug Tough, our Chairman and CEO; Hernan Vaisman, our President of Flavors; Nicolas Mirzayantz, our President of Fragrances; and Kevin Berryman, our Executive Vice President and CFO. This call is being recorded and will be available for playback on our website.

Please keep in mind that during this call, we will be making forward-looking statements about the company's performance particularly with respect to the first quarter and full year of 2012. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning factors that can cause actual results to differ materially from forward-looking statements, I ask that you refer to the cautionary statements and risk factors contained in today's 8-K filings with the SEC as well as our 2010 10-K filed on February 24, 2011.

Some of today's prepared remarks will discuss non-GAAP financial information, which excludes those items that affect comparability. These items are laid out in our reconciliation to comparable GAAP measures, which are also available on our website.

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

Douglas D. Tough

Thank you, Michael, and good morning, and good afternoon, everyone.

From a local currency sales basis, we are pleased with our full year 2011 performance in light of the 13% growth we reported in the year-ago period. Our strong growth in Flavors and the emerging markets continue to provide us with the ability to grow on top of last year's strong performance as local currency sales improved 4% year-over-year for the company. In Fragrances, results were less strong particularly in the second half. However, it must be taken in the appropriate context, considering the very challenging 16% year-ago comparison, which included a record level of new wins as well as restocking benefits across all categories.

While gross margin declined due to significant raw material cost inflation of 10%, our ability to raise prices approximately 2.5% for the full year and our cost control efforts allowed us to deliver 11% adjusted operating profit growth and a 70-basis-point improvement in operating profit margin. This strong operating profit performance led to an 11% increase in adjusted earnings per share to a company record of $3.74.

Analyzing our performance over 2- and 3-year periods to include the heightened volatility of 2009 and 2010, you will note that we have either met or exceeded our long-term financial targets over a 1-, 2- or 3-year basis. We think this is a positive sign given the challenging environment we have been managing through over the past 12 months.

Before turning it over to the IFF senior team to take you through the details of our Q4 performance, I'd like to discuss our progress against the strategic priorities we outlined at our 2011 Investor Day.

Stemming from the in-depth analytical review of our business, we identified opportunities where we felt we could improve our financial performance, particularly our planned focuses on accelerating growth in attractive markets, mainly the emerging markets; aligning innovation to drive profitable growth; focusing on differentiation or offering our customers something that our competitors cannot; and improving returns by fixing underperforming businesses based on economic profit analysis.

Starting with our Global footprint, we felt that we could leverage our geographic reach to capture the attractive growth rates in the emerging markets. In 2011, our local currency sales growth in the emerging markets was approximately 8%, significantly faster than the developed markets. Key emerging markets now represent 46% of our total company sales, which can be considered among best in class for our industry.

Accordingly, earlier in 2011, we began construction of 2 manufacturing facilities in China and Singapore. As our growth in the Greater Asia region continues to accelerate, it was important that we align our infrastructure to support our projected capacity requirements. The Guangzhou site will be dedicated to Flavors while the facility in Singapore will be used for both Flavors and Fragrances. Located near existing IFF sites, both new facilities are ideally suited to ensure a smooth transition with experienced in-house talent.

On the heels of the investment into our creative centers in Shanghai and Mumbai, we believe these facilities underscore our long-term belief in the region, the strength of our local teams and IFF's dedication to serving the present and future needs of our customers as they expand in this region.

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