IFF profits slip on higher raw material costs

08-Nov-2011 - Last updated on 08-Nov-2011 at 17:00 GMT

International Flavors and Fragrances (IFF) has reported a 6% increase in quarterly revenue, although higher pricing did not keep up with double-digit growth in raw material costs, the company said.

IFF reported revenue of $714m during the third quarter, ended September 30, compared to $673m for the prior year period. Gross profit fell 2% from $285m to $278m. However, the company said that flavors had achieved double-digit growth in emerging markets, while flavors growth was strongest in North America, for which it cited several health and wellness initiatives.

IFF’s CEO and chairman Doug Tough said in a statement 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 of 4-6%.

He said: “Our category, customer and geographic diversity continued to support our financial results in the third quarter. The Flavors business continued to gain market share led by our innovative health and wellness portfolio and double-digit growth in the emerging markets.”

Financial analysis firm Morningstar said 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 shares were down 6.4% at 12pm ET on Tuesday to $54.95.

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.”