International Flavors & Fragrances has a market cap of $5.21 billion; its shares were traded at around $63.82 with a P/E ratio of 16.7 and P/S ratio of 1.9. The dividend yield of International Flavors & Fragrances stocks is 2.1%. International Flavors & Fragrances had an annual average earning growth of 6.5% over the past 10 years. GuruFocus rated International Flavors & Fragrances the business predictability rank of 2.5-star.
Highlight of Business Operations:Operating profit increased $5.6 million to $134.2 million (18.9% of sales) in the 2012 third quarter compared to $128.6 million (18.0% of sales) in the comparable 2011 period. The three months ended September 30, 2011 included a reversal of a restructuring charge of $0.6 million associated with a pension settlement with certain employees associated with the closure of our Drogheda facility in late 2010. Excluding the $0.6 million restructuring charge reversal, adjusted operating profit improved by 5% or $6.2 million as of September 30, 2012 compared to the prior year period. The quarter-over-quarter improvement in adjusted operating profit was driven by new wins, mix improvements, price realization, lower volume declines on existing business and manufacturing efficiency that collectively more than offset the effects of increases in raw material costs (2%) and incentive compensation accruals.
Cash flows from operations for the nine months ended September 30, 2012 were $142.9 million or 6.7% of sales, reflecting an outflow of cash of $105.5 million associated with the Spanish tax settlement and a $248.4 million inflow of cash from our ongoing operations, compared to cash inflow from operations of $116.7 million or 5.4% of sales for the nine months ended September 30, 2011.
The Fragrances business experienced a 1% decrease in reported sales while LC sales increased 5% for the third quarter of 2012 when compared to the third quarter of 2011. New wins, the realization of price increases, and lower volume declines on existing business were partially offset by double-digit declines in Fragrance Ingredients principally related to commodity products. Our Fragrance Compounds categories saw LC sales grow 9% year-over-year compared to 12% declines in Fragrance Ingredients principally related to commodity products. Within Fragrance Compounds, sales were driven by double-digit growth in Fine and Beauty Care plus high double-digit growth in Personal Wash and high single-digit growth in Fabric Care.
Sales for the first nine months of 2012 totaled $2.1 billion, essentially unchanged from the prior year period. Excluding foreign currency impacts, LC sales increased 3% (or 4% on a like-for-like basis, excluding the effects of the exit of low margin sales activities), as new wins across both Flavors and Fragrance Compounds and the realization of price increases more than offset volume declines in Fragrance Ingredients principally related to commodity products. Overall LC growth was driven by 7% growth in emerging markets.
The effective tax rate for the nine months ended September 30, 2012 was 47.6% (substantially driven by the Spanish tax charge) compared with 27.2% for the nine months ended September 30, 2011. The nine-month period ended September 30, 2012 includes a $72.4 million charge based on the overall Spanish tax settlement comprised of (1) $56.0 million related to the settlement of the 2004-2010 fiscal years and (2) $16.4 million related to the increased liabilities for uncertain tax positions for years not settled, as discussed in Note 6 of the Consolidated Financial Statements. Excluding these charges, the adjusted effective tax rate for 2012 was 27.2%. The nine-month period ended September 30, 2011 included a $5.8 million write-off of deferred tax assets as a result of U.S. state law changes enacted during the third quarter of 2011 that was partially offset by several items, including approximately $3.0 million related to adjustments on uncertain tax positions and a favorable mix in earnings and remittances. The Company also recognized a $10.6 million benefit in the 2012 period associated with a corporate restructuring of certain of our foreign subsidiaries that was offset by $14.3 million of provisions related to the Spanish dividend withholding tax cases and other reserve adjustments on uncertain tax positions. The lack of an R&D credit for the nine-month period ended September 30, 2012 negatively impacted the effective tax rate for the period then ended.
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