International Flavors & Fragrances Inc. (IFF) reported financial results for the second quarter ended June 30, 2020.
Second Quarter 2020 Consolidated Financial Results
- IFF reported net sales for the second quarter totalled $1.20 billion, a decrease of 7% from $1.29 billion in 2019. Currency neutral sales decreased 4% driven by pressure in Fine Fragrance and Food Service, across select emerging markets and particularly with small- and mid-sized customers as a result of the COVID-19 pandemic. Fine Fragrance and Food Service collectively declined 38% on a currency-neutral basis or 40% on a reported basis. The rest of the portfolio excluding Fine Fragrance and Food Service grew 2% on a currency-neutral basis and declined 1% on a reported basis.
- Reported operating profit for the second quarter was $119.4 million, a decrease of 40% from $199.9 million in 2019. Adjusted operating profit excluding amortization decreased 19% on a currency-neutral basis as acquisition-related synergies and productivity were more than offset by lower sales volume, weaker mix and unfavourable price to raw material cost.
- IFF’s reported earnings per share (EPS) for the second quarter was $0.74 per diluted share versus $1.20 per diluted share reported in 2019. Adjusted EPS excluding amortization was $1.36 per diluted share in 2020 versus $1.61 in the year-ago period. On a currency-neutral basis, adjusted EPS excluding amortization decreased 19% as a more favourable effective tax rate and higher other income were more than offset by adjusted operating profit performance.
Management Commentary
“Throughout the COVID-19 pandemic, we have continued to serve the needs of our customers and our communities around the world,” said Andreas Fibig, IFF Chairman and CEO. “Our unwavering dedication and commitment through this challenging set of circumstances are indicative of the passion and perseverance of our employees and the resiliency of our business.
“The second quarter coincided with peak COVID-19 regulatory actions to date around the world – presenting both opportunities and challenges for our business. We are fortunate that a large portion of our business is in end-markets such as packaged food, beverage, hygiene and disinfection products, all of which have performed well. As we communicated in early June, the categories most exposed to COVID-19 restrictions – Fine Fragrance and Food Service – did experience significant pressure.
“As restrictions and closures eased and mobility improved, we have seen an improvement in July, as sales were up low single-digits – a marked improvement and an inflexion point from the second quarter. We do, however, remain cautiously optimistic in our outlook, while recognizing that the environment is volatile, and much uncertainty remains about the duration and impact of the pandemic.
IFF Executive Vice President and CFO, Rustom Jilla commented,
“Even given our diverse and resilient product portfolio, COVID-19 resulted in a sales decline in the second quarter. This, along with higher pandemic related costs, more than offset the benefit of tight expense control. Nevertheless, even during this unprecedented global crisis, the strength of our business was apparent in our robust cash flow, which allowed us to continue to reduce net debt while also returning capital to our shareholders. Reflecting our confidence, we are pleased to announce we are raising our quarterly dividend. This marks eleven years of consecutive dividend increases and underscores our confidence in our business, long-term strategy and proven strong cash flow generation capability.”
Scent Segment
- On a reported basis, sales decreased 6% to $450.4 million or declined 4% on a currency-neutral basis. Consumer Fragrance growth remained strong with growth across nearly all sub-categories. Fine Fragrance declined 40% on a currency-neutral basis or 43% on a reported basis due to the temporary disruptions of consumer access to retail markets related to COVID-19. Fragrance Ingredients was down due to the internal prioritization of ingredients to support Fragrance Compounds in light of COVID-19.
- Scent segment profit decreased 25% on a reported basis and 25% on a currency-neutral basis due primarily to lower sales volume, weaker mix and unfavourable price to raw material cost.
Taste Segment
- On a reported basis, sales decreased 8% to $748.3 million or declined 5% on a currency-neutral sales. Away-from-home channels such as Food Service experienced significant pressure, declining 36% on a currency-neutral basis and 38% on a reported basis. From a geographic perspective, North America showed resiliency, but the emerging markets, especially India and several Latin American countries, were impacted by COVID-19 and regulatory restrictions put in place to protect communities.
- Taste segment profit decreased 18% on a reported basis and 15% on a currency-neutral basis as acquisition-related synergies were more than offset by lower sales volume and unfavourable price to raw material cost.
Quarterly Dividend
On August 10, 2020, the Board of Directors authorized a 3%, or $0.02 increase, in the quarterly dividend to $0.77 per share of the Company’s common stock. The quarterly dividend is payable on October 5, 2020, to shareholders of record as of September 24, 2020. Including this authorization, IFF has increased its quarterly dividend payment for the eleventh consecutive year.
2020 Full Year Financial Guidance
As the COVID-19 pandemic continues to evolve, there is uncertainty around its ultimate impact. Therefore, the Company’s full-year financial results cannot be reasonably estimated at this time.