01—Abstract
Summary
Summary of the 10-K filed March 3, 2020. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. reported 2019 net sales of $5.14 billiona, up 29% on a reported basis and 32% on a currency neutral basis from $3.98 billion in 2018, driven principally by the Frutarom acquisition completed October 4, 2018.
Net income attributable to IFF stockholders was $455.9 millionb, or $4.00 per diluted share, compared with $337.3 million, or $3.79, in 2018. Operating profit rose to $665.3 million (12.9% of sales) from $583.9 million (14.7% of sales), and the company noted $127.8 million of charges related to operational improvement, integration, restructuring, and transaction items, while adjusted operating profit was $793.1 million (15.4% of sales). Cash flow from operations was $699.0 million, and total debt stood at $4.38 billion against cash of $606.8 million.
The central investor event is the pending DuPont N&B Transaction announced December 15, 2019, under which DuPont's nutrition and biosciences business will combine with IFF in exchange for IFF shares, with DuPont receiving a one-time $7.3 billionc special cash payment. Upon completion, DuPont shareholders would own approximately 55.4% of IFF and existing IFF shareholders approximately 44.6%. The company expects closing in early 2021, subject to IFF shareholder approval, the effectiveness of registration statements, and Hart-Scott-Rodino clearance.
The filing also discloses a termination fee of $521.5 milliond in certain circumstances. The filing describes ongoing integration of Frutarom, with approximately 35 manufacturing sites expected to close over two years, a Frutarom integration program with expected total costs of about $65 million, and a $145 million synergy target against roughly $50 million of cost synergies realized in 2019. It also discloses a securities class action filed in August 2019 and related Israeli actions tied to improper payments made by Frutarom businesses in Russia and Ukraine, which the company says were less than 1% of 2019 consolidated net sales.
02—Key points
Key Highlights
- Net sales of $5.14 billion in 2019, up 29% reported and 32% currency neutral, largely from the Frutarom acquisition, which contributed about 28% to reported growth.
- Diluted EPS of $4.00 in 2019 versus $3.79 in 2018; operating profit of $665.3 million (12.9% of sales) versus $583.9 million (14.7% of sales).
- Adjusted operating profit of $793.1 million (adjusted operating margin of 15.4%) versus 17.0% in 2018, with gross margin down 120 basis points to 41.1%.
- Pending DuPont N&B Transaction: DuPont shareholders to own about 55.4% of IFF post-closing, expected in early 2021, with a $7.3 billion special cash payment to DuPont and a $521.5 million termination fee in certain circumstances.
- Total debt of $4.38 billion at December 31, 2019 with a Net Debt/adjusted EBITDA ratio of 3.22 to 1, and no borrowings under the $1 billion Credit Facility.
- Frutarom integration: about 35 manufacturing sites to close over two years, roughly $65 million in expected program costs, and $145 million in targeted synergies with about $50 million realized in 2019.
- Ongoing litigation includes a putative securities class action filed August 12, 2019 and Israeli class actions tied to improper payments by Frutarom businesses in Russia and Ukraine.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, International Flavors & Fragrances kept $0.09.
- Revenue$5.14B100.0%
- Cost of revenue−$3.03B58.9%
- Gross profit$2.11B41.1%
- Operating costs−$1.45B28.2%
- Operating income$665.0M12.9%
- Interest, other & tax−$209.0M4.1%
- Net income$456.0M8.9%
Where FY2019 revenue went
$5.14B- Cost of revenue: $3.03B, 59% of revenue
- SG&A: $876.0M, 17% of revenue
- Net income: $456.0M, 8.9% of revenue
- R&D: $346.0M, 6.7% of revenue
- Other operating costs: $226.0M, 4.4% of revenue
- Interest, other & tax: $209.0M, 4.1% of revenue
Kept 8.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed March 3, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $5.14B$3.98B | +29.2% |
| Cost of Revenue | $3.03B$2.29B | +31.9% |
| Gross Profit | $2.11B$1.68B | +25.6% |
| R&D Expenses | $346.00M$311.58M | +11.0% |
| SG&A Expenses | $876.00M$707.46M | +23.8% |
| Operating Income | $665.00M$583.88M | +13.9% |
| Interest Expense | $138.00M$132.56M | +4.1% |
| Net Income | $456.00M$337.30M | +35.2% |
| EPS (Basic) | $4.05$3.81 | +6.3% |
| EPS (Diluted) | $4.00$3.79 | +5.5% |
| Shares Outstanding (Basic) | 112.00M87.55M | +27.9% |
| Shares Outstanding (Diluted) | 113.00M88.12M | +28.2% |
05—Questions
Frequently Asked Questions
What is the status of the pending transaction with Nutrition & Biosciences?
On December 15, 2019, IFF entered into agreements with DuPont under which DuPont's nutrition and biosciences business will combine with IFF. DuPont will receive a one-time $7.3 billion special cash payment, and DuPont shareholders will own about 55.4% of IFF on a fully diluted basis. Closing requires IFF shareholder approval of the share issuance, effectiveness of SEC registration statements, and expiration of the Hart-Scott-Rodino waiting period. The company expects the transaction to close in early 2021.
How did the Frutarom acquisition affect 2019 results?
Frutarom contributed about 28% to reported sales growth in 2019. Frutarom segment sales were $1.5 billion, and segment profit was $126.8 million (8.5% of segment sales). Results for 2019 included a full year of Frutarom, compared with one quarter in 2018. Amortization of acquisition-related intangibles rose to $193.1 million from $75.9 million.
What are the main charges and costs investors should note?
The company recorded $127.8 million of charges in 2019 related to operational improvement initiatives, integration costs, restructuring, asset sale losses, a product recall, compliance review costs, Frutarom acquisition costs and N&B transaction costs. Restructuring and other charges, net, were $29.8 million, up from $5.1 million in 2018. Integration related costs were $55.2 million, and N&B transaction related costs were $20.7 million.
What legal matters does the filing disclose?
IFF completed its investigation of improper payments to customer representatives by Frutarom businesses in Russia and Ukraine and stated that affected sales were less than 1% of 2019 consolidated net sales. A putative securities class action was filed in the Southern District of New York on August 12, 2019, and two related motions were filed in Tel Aviv District Court. IFF and Frutarom also filed a claim against former Frutarom CEO Ori Yehudai challenging a $20 million 2018 bonus. The filing states the impact of the reviews was not material to results or financial condition.
How is the company's liquidity and capital allocation positioned?
Cash and cash equivalents were $606.8 million at year-end 2019, of which $578.7 million was held outside the United States. Operating cash flow was $699.0 million, and capital spending was $236.0 million, with 2020 capital spending expected at about 4-5% of sales. Dividends paid totaled $313.5 million in 2019, and the company's stated capital allocation priority is debt repayment to maintain its investment grade rating. Share repurchases have been suspended since May 7, 2018.
06—Continue