IFF fails to meet expectations as fragrance sales plummet

By Andrew McDougall

- Last updated on GMT

International Flavors & Fragrances reported its quarterly profit is down on expectations as double digit increases in raw material costs and lower sales hit its Fragrance business.

The New York-based firm reported a six percent increase in quarterly revenue to $714m, compared to $673m for the prior year period, meanwhile analysts expected $722m.

In the Fragrance division, local currency sales fell 5 percent against a 15 percent increase in the prior year period, according to IFF, who also stated that higher pricing did not keep up with double-digit growth in raw material costs.

‘Pressured’ results

"In Fragrances, results were pressured by price-driven volume declines in ingredients, where changes in volume are more price sensitive, and a general weakening of our more discretionary categories such as Fine Fragrance and Beauty Care,"​ said Doug Tough, CEO.

For 2011, the New York-based company said it now expects local currency sales growth and adjusted earnings growth to approach the low end of its long term financial targets.

Tough explained that the company had a cautious approach to the upcoming fourth quarter, and expected sales growth to approach the low end of its financial targets for the full year 2011.

The same themes appear to have carried on from the second quarter after sales in the Fragrance division slowed considerably, especially compared to the Flavors side of the business.

Different quarter, same story?

The slower growth in Fragrance in the second quarter was attributed to a difficult comparison with the corresponding period last year, when growth was exceptionally strong, as well as the fragrance side of the business being more heavily impacted by the rising cost of commodity and raw material prices.

Financial analysis firm Morningstar also commented that rivalry between flavor and fragrance companies was likely to intensify as “commodity costs remain elevated and industry growth prospects limited”​.

“Another tough quarter for International Flavors & Fragrances (IFF) supports our view that input cost inflation and fragile consumer spending could challenge the firm,”​ it said. “…We expect the fragile economic environment could continue to challenge IFF and eventually present a better buying opportunity for investors.”

IFF’s Tough added: “Despite the challenging economic conditions, we continue to believe we can deliver adjusted operating profit growth above our long-term targets driven by our efforts in pricing, the benefit of previous restructuring activities, and cost control initiatives.”

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