01—Abstract
Summary
Summary of the 10-K filed March 2, 2015. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported 2014 net sales of $3.09 billiona, up 5% on both a reported and local currency basis, with the Aromor acquisition adding approximately 1% to growth.
Operating profit rose to $592.3 millionb (19.2% of sales) from $516.3 million (17.5% of sales) in 2013, and net income increased to $414.5 million, or $5.06 per diluted share, compared with $4.29 in 2013. Fragrances sales grew 7% reported and local currency, while Flavors grew 2% reported and 4% in local currency. Emerging markets represented 50% of 2014 sales, with 6% local currency growth in those markets.
Cash flow from operations was $518.4 millionc in 2014, up from $407.6 million in 2013. The company paid $133.2 million in dividends, repurchased $88.2 million of treasury stock under a $250 million program, and ended 2014 with $478.6 million in cash and $942.3 million of debt. Management expects 2015 local currency sales growth in line with its long-term targets of 4%-6%, operating profit growth at the low end of the range, and high single-digit EPS growth, citing a stronger U.S. dollar and higher incentive compensation expense.
The filing also highlights ongoing risks, including elevated raw material costs, international and emerging market exposure, currency fluctuations, and the Spanish tax disputes, which the company does not believe will have a material impact on its financial condition. A pending ZoomEssence trade secret lawsuit is not expected to be a material loss contingency.
02—Key points
Key Highlights
- Net sales of $3,088.5 million in 2014, up 4.6% from $2,952.9 million in 2013; local currency sales grew 5%.
- Operating margin improved to 19.2% from 17.5%; adjusted operating margin was 19.5% versus 18.3% in 2013.
- Diluted net income per share rose to $5.06 from $4.29, and net income reached $414.5 million.
- Fragrances segment profit increased to $335.4 million (20.6% of sales) from $283.7 million (18.5%); Flavors segment profit was $331.3 million (22.7% of sales).
- Operating cash flow was $518.4 million, with capital expenditures of $143.2 million (4.6% of sales).
- Emerging markets accounted for 50% of 2014 sales, and the 25 largest customers accounted for 53% of sales.
- Cash dividends declared rose to $1.72 per share from $1.46, and the board authorized a $250 million share repurchase program with $108.9 million remaining at year-end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, International Flavors & Fragrances kept $0.13.
- Revenue$3.09B100.0%
- Cost of revenue−$1.73B55.9%
- Gross profit$1.36B44.1%
- Operating costs−$769.8M24.9%
- Operating income$592.3M19.2%
- Interest, other & tax−$177.8M5.8%
- Net income$414.5M13.4%
Where FY2014 revenue went
$3.09B- Cost of revenue: $1.73B, 56% of revenue
- SG&A: $507.6M, 16% of revenue
- Net income: $414.5M, 13% of revenue
- R&D: $253.6M, 8.2% of revenue
- Interest, other & tax: $177.8M, 5.8% of revenue
Kept 13% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed March 2, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $3.09B$2.95B | +4.6% |
| Cost of Revenue | $1.73B$1.67B | +3.5% |
| Gross Profit | $1.36B$1.28B | +6.1% |
| R&D Expenses | $253.64M$259.84M | −2.4% |
| SG&A Expenses | $507.56M$505.88M | +0.3% |
| Operating Income | $592.32M$516.34M | +14.7% |
| Interest Expense | $46.07M$46.77M | −1.5% |
| Net Income | $414.54M$353.54M | +17.3% |
| EPS (Basic) | $5.09$4.32 | +17.8% |
| EPS (Diluted) | $5.06$4.29 | +17.9% |
| Shares Outstanding (Basic) | 80.94M81.32M | −0.5% |
| Shares Outstanding (Diluted) | 81.49M81.93M | −0.5% |
05—Questions
Frequently Asked Questions
How did IFF perform in 2014 compared with 2013?
Net sales rose 5% to $3.09 billion on both a reported and local currency basis, with Aromor adding about 1%. Operating profit increased $76.0 million to $592.3 million, and diluted EPS grew to $5.06 from $4.29.
What drove growth in the Fragrances and Flavors businesses?
Fragrances sales grew 7% in both reported and local currency terms, led by double-digit growth in Fragrance Ingredients and high single-digit growth in Fabric Care. Flavors grew 2% on a reported basis and 4% in local currency, led by Beverage and offset by declines in North America.
What is management's 2015 outlook?
Management expects local currency sales growth in line with its long-term targets, operating profit growth at the low end of the range, and high single-digit EPS growth. It cited a stronger U.S. dollar versus most currencies and higher incentive compensation expense as factors.
How strong is the company's liquidity and balance sheet?
IFF had $478.6 million in cash and cash equivalents and $942.3 million of debt at December 31, 2014. Its credit facility had $940.4 million of drawdown capacity, and it was in compliance with all covenants, with a Net Debt/adjusted EBITDA ratio of 0.65 to 1.
What are the main risks and legal matters disclosed?
Key risks include volatile raw material and energy costs, international and emerging market exposure, currency fluctuations, and dependence on a limited supplier base. Legal matters include Spanish tax disputes and the ZoomEssence trade secret lawsuit, which management does not believe will have a material impact.
06—Continue