01—Abstract
Summary
Summary of the 10-K filed February 27, 2018. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. reported 2017 net sales of $3,398,719 thousanda (about $3.4 billion), up 9.1% from $3,116,350 thousand in 2016, with sales growth of 9% on both a reported and currency neutral basis, of which acquisitions contributed approximately 5%.
Gross margin decreased 140 bps to 43.5%, and operating profit rose to $581,443 thousandb (17.1% of sales) from $567,356 thousand (18.2%). Net income fell to $295,665 thousand, or $3.72 per diluted share, from $405,031 thousand, or $5.05 per diluted share in 2016, reflecting a provisional $100.6 million one-time toll charge and $38.6 million deferred tax expense from the Tax Act. Adjusted operating profit was $647,440 thousand (19.0% of sales) and adjusted diluted EPS was $5.89 versus $5.51 in 2016, per the company's non-GAAP reconciliation.
Management highlighted emerging markets at 48% of 2017 sales, growth from the Fragrance Resources and PowderPure acquisitions, and a BASF supply disruption on a key ingredient that management expects to reduce currency neutral operating profit growth in 2018. Cash flow from operations was $390.8 millionc, down from $550.1 million, mainly due to higher core working capital needs and payments on legal claims. Total debt rose to $1,639.2 million at year-end 2017 after issuing $500 million of 4.375% Senior Notes due 2047, and the company repaid $250 million of 2007 senior notes.
The company's 2017 provisional tax figures may be adjusted in 2018, and the company expects its effective tax rate to be approximately 21% in 2018. The company also disclosed an FDA-mandated product recall with $11.0 milliond of charges in 2017, a $56 million settlement payment to ZoomEssence, and a 2017 Productivity Program with expected cumulative pre-tax cash charges of $30 to $35 million.
02—Key points
Key Highlights
- Net sales of $3.40 billion in 2017, up 9% on both reported and currency neutral bases, with acquisitions contributing approximately 5%.
- Diluted EPS of $3.72 in 2017 versus $5.05 in 2016, with net income of $295.7 million including a provisional $139.2 million U.S. tax reform charge.
- Adjusted diluted EPS of $5.89 in 2017 versus $5.51 in 2016, an increase of 7% per the company's non-GAAP reconciliation.
- Gross margin fell 140 bps to 43.5%, driven by $15.9 million of acquisition-related step-up costs and an $11.0 million FDA-mandated recall charge.
- Operating cash flow fell to $390.8 million from $550.1 million, mainly due to higher core working capital and legal claim payments.
- Total debt increased to $1,639.2 million after issuing $500 million of 4.375% Senior Notes due 2047, and $250 million of 2007 notes were repaid.
- Management expects a BASF supply disruption affecting a key ingredient to reduce currency neutral operating profit growth in 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, International Flavors & Fragrances kept $0.09.
- Revenue$3.40B100.0%
- Cost of revenue−$1.93B56.7%
- Gross profit$1.47B43.3%
- Operating costs−$919.8M27.1%
- Operating income$552.6M16.3%
- Interest, other & tax−$257.0M7.6%
- Net income$295.7M8.7%
Where FY2017 revenue went
$3.40B- Cost of revenue: $1.93B, 57% of revenue
- SG&A: $570.1M, 17% of revenue
- Net income: $295.7M, 8.7% of revenue
- R&D: $295.5M, 8.7% of revenue
- Other operating costs: $54.2M, 1.6% of revenue
- Interest, other & tax: $257.0M, 7.6% of revenue
Kept 8.7% as net incomeOther operating costs $54.2M · 1.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 27, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $3.40B$3.12B | +9.1% |
| Cost of Revenue | $1.93B$1.72B | +11.9% |
| Gross Profit | $1.47B$1.40B | +5.5% |
| R&D Expenses | $295.47M$258.86M | +14.1% |
| SG&A Expenses | $570.14M$572.52M | −0.4% |
| Operating Income | $552.63M$552.96M | −0.1% |
| Interest Expense | $65.36M$52.99M | +23.4% |
| Net Income | $295.67M$405.03M | −27.0% |
| EPS (Basic) | $3.73$5.07 | −26.4% |
| EPS (Diluted) | $3.72$5.05 | −26.3% |
| Shares Outstanding (Basic) | 79.07M79.65M | −0.7% |
| Shares Outstanding (Diluted) | 79.37M79.98M | −0.8% |
05—Questions
Frequently Asked Questions
How did IFF's sales and profitability change in 2017?
Net sales rose 9.1% to $3,398.7 million, and operating profit increased $14.1 million to $581.4 million, though operating margin declined to 17.1% from 18.2%. Adjusted operating profit was $647.4 million, or 19.0% of sales, compared with $623.0 million, or 20.0% of sales, in 2016.
What drove the decline in reported net income?
Net income fell to $295.7 million from $405.0 million, largely because of the effective tax rate of 44.9% versus 22.7% in 2016. The filing attributes this mainly to a provisional $139.2 million charge from U.S. tax reform, which included a $100.6 million toll charge and $38.6 million of deferred tax remeasurement.
What are the main risks to IFF's 2018 outlook?
The filing cites pressures from rising costs and a BASF supply chain disruption affecting a key ingredient, which is not expected to be resolved until the second half of 2018. It also cites volatile raw material prices, particularly for vanilla and citrus, and ongoing economic uncertainty in certain markets.
How is IFF's debt position and capital allocation?
Total debt was $1,639.2 million at December 31, 2017, and net debt to adjusted EBITDA was 1.59 to 1 under the credit facility. The company returned capital through $206.1 million of dividends and $58.1 million of share repurchases, and it expects 2018 capital spending of about 4.5% to 5% of sales.
06—Continue