At this time, I would like to welcome everyone to the International Flavors & Fragrances Third Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to introduce Shelley Young, Director of Investor Relations. You may begin.

Thank you, operator. Good morning, and good afternoon, everyone, and welcome to IFF's third quarter conference call. Earlier today, we issued a press release announcing our third quarter 2012 financial results. A copy of the release can be found on our website at iff.com. Please note that this call is being recorded live and will be available for replay for up to 1 year on our website. Before turning the call over to Doug Tough and our senior management team, I'd like to read our forward-looking statement. Please keep in mind that during this call, we will be making forward-looking statements about the company's performance, particularly with regard to the fourth quarter and full year 2012. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning factors that could cause actual results to differ materially from forward-looking statements, please refer to our forward-looking statements and risk factors contained in today's 10-Q filing with the SEC, as well as our 2011 10-K filed on February 28, 2012, and our press release that we filed this morning, all of which are available on our website. Some of today's prepared remarks will discuss non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in our press release that we issued earlier today and on our website. Now I'd like to introduce the participants on today's call. With me today is Doug Tough, our Chairman and CEO; Nicolas Mirzayantz, our President of Fragrances; Hernan Vaisman, our President of Flavors; and Kevin Berryman, our Executive Vice President and CFO. Now I'd like to turn the call over to Doug Tough.

Thank you, Shelley, and good morning, and good afternoon, everyone. Our focus on the call this morning is a review of our third quarter results and a short discussion on our outlook for the remainder of the year. As a company with significant operations in New York and in New Jersey, we are very well aware of the impact that Hurricane Sandy has had on people in the area. Our thoughts and our prayers go out to everyone who was affected by this storm, including our own numerous employees in the region. The solid growth we achieved this third quarter is due to the strategic priorities we have implemented over the past few years to deliver profitable growth, by improving the profitability of our product portfolio, strengthening our innovation platform and leveraging our geographic reach. You have heard us say many times that the diversity of our business model, in terms of geographies and use categories and customers, helps to provide us with stable results in good times and bad. This quarter, we are seeing the cumulative effect of our strategy, combined with the diversity of our business model, resulting in solid momentum and strong growth in both Flavors and Fragrances even with ongoing economic uncertainty in many parts of the world. We are very pleased with our progress and encouraged by our results and believe we are on the right path. Both our Flavors and Fragrances Compounds businesses delivered strong top line growth and margin recovery this quarter, and we saw strong contributions to overall profitability from both our businesses. For the total company, we delivered top line local currency sales growth of 5%, which is the highest quarterly sales growth we have seen since the first quarter of 2011. On a like-for-like basis, which excludes the impact of…

Thank you, Doug, and good morning and afternoon, everyone. We are very pleased with our progress this quarter. We achieved solid results in many areas of the business, and overall trends are improving. Our ability to execute on our plan is illustrated by both our top line growth as well as our recovering profitability. In terms of our sales performance, we saw accelerating growth in many areas of the business. Local currency sales growth for the Fragrance business was 5% in the third quarter. Fragrance Compounds grew by 9% in local currency, fueled by 10% growth in Fine & Beauty Care and 8% growth in Functional Fragrance. We attribute our success to the strength of our strategic relationships with our customers, our knowledge and insight into consumer preferences and our ability to provide superior product that meet customer needs. I want to focus on some of the positive trends we are seeing, and there are many. Over the past 3 quarters, Fragrance Compound local currency sales growth has accelerated in every quarter. We grew from the 1% decline in the first quarter to a 6% increase in the second quarter to a 9% increase in the third quarter. This growth in Fragrance Compounds was led by 17% growth in Latin America, 8% growth in North America and 7% growth in EAME. We are very encouraged by the results that we're seeing. In terms of drivers, Fragrances' growth this quarter was driven by a strong pipeline of new wins, continued pricing and lower volume declines on existing business. On a category basis, Fine & Beauty Care achieved 10% local currency sales growth, led by strong performance in Fine Fragrance and Toiletries. This quarter, new launches in Fine Fragrance included La Vie Est Belle from Lancome; Balenciaga's Florabotanica; Yves Saint Laurent's Manifesto;…

Thank you, Nicolas. Good morning and good afternoon. This is our 27th consecutive quarter of local currency sales growth. On a like-for-like basis, over the last 3 quarters, we have delivered local currency sales growth of 6%, 9% and 9% on top of the 9% growth for the third quarter of last year. We are proud of the -- our results and our ability to consistently deliver strong growth metrics. This quarter, as expected, the exit of low-margin sales activities accelerated, which had a 3-percentage-point impact on Flavor sales growth, but a favorable impact on segment and company margins. Once again, we delivered strong growth in every region and every category. Our growth was led by a strong pipeline of new business wins in Beverage and Dairy, both of which achieved double-digit growth. On a like-for-like basis, Savory and Sweet also delivered solid growth in this quarter. Our results were supported by 10% growth in the emerging markets. Our like-for-like growth in North America was 6%. Beverage and Dairy were once again the 2 best-performing categories and delivered double-digit growth. We also saw solid growth contributions from Savory and Sweet, owing in part to our savory and sweetness modulation tools. On a like-for-like basis, our EAME region delivered local currency sales growth of 13% led by strong growth in Dairy. EAME was our best-performing region this quarter. Western Europe continued to deliver solid performance with a strong volume growth from wins offsetting volumes declining on existing business. In addition, we are also delivering strong growth in the emerging market of Africa and the Middle East. Greater Asia, our largest region, delivered strong 8% local currency growth. On a like-for-like basis, Greater Asia grew at 9%. This growth was led by double-digit growth in Dairy and high single-digit growth in Beverage,…

Thank you, Hernan, and good morning and good afternoon, everyone. I would like to put our financial performance into context since it is a direct result of the actions we've taken to improve the profitability of our portfolio, harness the growth of the emerging markets and create innovative and appealing new products that will help our customers to win new business and obtain market share growth. Reported revenues for the third quarter totaled $709 million. Although sales decreased on a reported basis, on a local currency basis, they increased 5%. The 600-basis-point foreign currency impact reflects the strong U.S. dollar relative to other currencies versus the year-ago quarter. On a like-for-like basis, excluding the impact of the exit of lower-margin sales activities, our local currency sales growth was 7%, reflecting strong growth in both businesses, across geographies and categories. Approximately 70% of this growth was volume related with a balanced pricing. As you've heard from Hernan, Flavors continued their steady cadence of positive growth, which speaks to the consistency and stability of the Flavors business. This quarter, Flavors delivered 6% local currency growth. And excluding the impact of the exit of lower-margin sales activities, they delivered growth of 9%. Our Fragrance business delivered overall local currency sales growth of 5%, reflecting strong underlying trends in many areas of the business. Importantly, Fragrance Compounds delivered local currency sales growth of 9% and increased segment profitability, reflecting cost savings initiatives, improved category mix and the net impact of increased prices and lower increases in raw material costs. Overall, our strategic priority of leveraging the growth in the emerging markets is producing favorable results. We're seeing continued double-digit local currency sales growth in the emerging markets, which has made significant contributions to the top line of both businesses, with a growing global middle…

Thank you, Nicolas, Hernan, and Kevin. We are pleased with the progress we've made over the past few quarters. The diverse and stable nature of our business, combined with our customer intimacy and consumer insights, enabled us to deliver strong results in a challenged environment. Although we are mindful of economic volatility in various parts of the world, we are confident that, based on our diversification, we will be able to offset softness in one part of our business with strengths in another part of the business world. The accelerated momentum we see in the Flavor and Fragrance Compounds business is fueled by the strategic investments we have made in the emerging markets over many years, combined with our ability to provide customers with products that meet and surpass consumer expectation and lead to market share growth for both our customers and for us. We are committed to driving the business for the long term and executing on our growth plans. IFF's operations were impacted by Hurricane Sandy, resulting in short-term disruptions in power, manufacturing and in our information technology systems. I am pleased to say that most of these disruptions have now been resolved due to the rapid reaction of our employees in implementing our disaster recovery plans. We are currently in the process of estimating the impact of the storm on our business. We do not expect it to have a material impact on our fourth quarter financial results. For the fourth quarter, we expect to see continued strong local currency sales growth in Flavors, offset in part by the continued acceleration and exit of low-margin sales activities. In Fragrances, we expect momentum to continue in Fine & Beauty Care, while also maintaining solid growth in Functional. We expect to see improving volume trends in Ingredients business in…

[Operator Instructions] Your first question comes from the line of Mark Astrachan with Stifel, Nicolaus. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: I guess first question, Kevin, just housekeeping. 2013 input costs, if you could give us an update there, that'd be helpful. And then second question, you commented in the press release that the new facility in Singapore replaces an existing plant in the same area. Could you talk maybe more broadly about an opportunity for more of the same happening, meaning this year, spending 5% of sales on CapEx this year, next year, last year, and so new facilities are coming. I understand some of that is for demand. But also, new facilities are probably more efficient than existing facilities. So what is the opportunity longer term to do a better job of getting efficiencies and costs out of some of these new facilities coming online?

Okay, Mark, nice to hear from you. Look, I think that it is a little bit early for us to discuss what's been -- or what our expectations are for 2013 input costs. I think we've said in the past that we don't consider there to be a great level of variability as we look forward into 2013. And I'll leave it at that at this particular point in time. But certainly, it's a much more stable environment than we've seen in the past. So I'll leave it at that at this particular point in time. In terms of the investments in our factories, clearly these are investments that are capacity oriented and supporting our future growth initiatives largely in Greater Asia. The recent Turkey announcement is supporting other parts of the emerging market portfolio that we have. But clearly, they're about increasing our capacities. There are efficiencies embedded into those plants. But at the same token, there will be some incremental depreciation that we have at this particular point in time as well. Having said all of that, we will continue to try and drive incremental efficiencies into our business. And as you see through the initiatives that we have in recognizing the third quarter gross margin progression, it's a wide swath of efforts, including some pricing but also new wins, good margins on those new wins and working on price and cost efficiencies with our factories. And that will continue to be a focus as we go forward.

Our next question comes from the line of Edward Aaron with RBC Capital.

And so I wanted to clarify your comments in your prepared remarks about what sounds like an expected volume transfer from Fragrance Ingredients into Compounds. Are you essentially saying that you've been able to kind of negotiate to transition some of your external ingredients supply into kind of sales of higher value-added compounds? And then if that's the case, were you able to do that without making a trade-off on your Compounds margins?

It's Nicolas. What we did is that we really built upon our vertical integration in some parts of our portfolio and unique expertise to be able to provide solutions to our customers and build upon that expertise to go from a single ingredient to really a creation. And this is really creating a win-win situation for both our customers and really eliminating some of the volatility in the feedstock of the ingredients. So we're providing a more stable solution, which is providing stability to the brand of our customers.

And then just a follow-up. Kevin, I think relative to most Street estimates, your gross margin this quarter came in better, and the RSA expenses were a little bit higher to offset that. Was that the case versus your internal expectation as well kind of coming into the quarter? I'm just trying to kind of better understand this. Maybe you had more flexibility than you expected to have to spend back against the business in Q3.

I would say that the results are pretty much in line with kind of what our expectations were at. And I think that, as we've talked about, we will continue to evaluate investments in customer-facing initiatives and innovation long term, and in the short term when we think those opportunities are warranted and value enhancing. We certainly did some of that in the third quarter, and that will continue to be the case as we see opportunities and continued margin progression and growth at the top line.

Your next question comes from Jeff Zekauskas from JPMorgan. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: This is Silke Kueck for Jeff. In -- so it looks like your sales performance on a year-over-year basis was lower due to currencies. So maybe you lost $5 million in sales year-over-year. And your gross profits moved up quite significantly. And what you indicated is that your raw material costs are still up 2%, but you also got about 2% pricing. So you probably more than offset all of your raw material costs but, it seems also, other cost benefits that you're picking up. So I wanted to just see like what's the benefit of restructuring savings and other cost efficiencies may have been to your gross margin line, if you can quantify it. And secondly, I also have a question regarding -- just I wanted to get an update as to what has been done on the Ingredients side to better match the costs with the lower sales base of the business.

Sure, Silke. Let me take a stab and then I'll turn it over to any my colleagues who want to add any additional color. I think that again, as outlined in the prepared comments and some earlier comments, there was a wide swath of things that were driving our gross margin. While certainly, pricing helped to offset the incremental input costs that we talked about, it really wasn't the primary driver. The net pricing versus input costs was not the driver to our margins. Volume and mix certainly was a key determinant of that, and that certainly helped provide a big chunk of the benefits. And I think also, the cost savings initiatives were also important, and that is just the blocking and tackling of running the business where we saw some good progress again in Fragrance, where they were able to reduce some costs in their business. Hernan and their team, obviously, have been managing through the exit of some of the lower margin, and that benefit approached 50 basis points for the company as well. So there certainly was a wide range of issues that were executed, or opportunities that were executed against, which allowed us to deliver the strong margin profile. So it just wasn't about the pricing even though that continued to be an important element to help reduce some of the pressure from input costs.

Silke, it's Nicolas. Regarding Ingredients, as we have been saying in the past, I mean, following the strategic review of the portfolio, we concluded that the Ingredients business was and still continue to be of strategic and financial importance to us, and the #1 priority of the business is to provide cost-advantage ingredients to our Compound business. And that's why we're really driving higher consumption of IFF ingredients in our new wins, in our creation, in order to have a better absorption. It is also fair to say that the Ingredient part of our business has been probably one of the most efficient in terms of manufacturing. So we're constantly looking at opportunities to reduce costs and to bring it in line with some of the challenge. But we'll also continue to develop solution and -- that we will be sharing with the Board as we move forward and develop alternatives to adapt to our costs, to the new reality of the market. One thing that I wanted to add and I want to make sure also following the question from Edward, is that with the transfer of some of the Ingredients into Compounds, we will see a lower Ingredients top line sales in the future in 2013 as we're migrating business from Ingredients to Compounds.

Your next question comes from line of John Roberts with Buckingham Research Group.

I have a question on the Flavors business. How much of the business now is in products where customers have either a health label or an all-natural label?

It's Hernan speaking. We don't have available this information. But what we can say, that we -- we've seen a, I would say, material growth on these health and wellness trends. So while I cannot be precise, I could say that it's really gaining territory in almost all parts of the world.

Well, I asked that question because the developed markets growth continues to be quite good. And I would assume it's a big factor in the developed markets?

Definitely. In developed markets, it's one of the key factors. I mean, not only the health and wellness but also naturals are the key drivers. And since we have, I would say, very suitable tools, it's helping us to grow the business there.

But would it be maybe 1/3 of the developed market Flavors applications?

I could not say at this point in time 1/3 because I don't have this information. But I think that they're growing very fast and, at one point in time, probably will get there.

Your next question comes from Mike Sison with KeyBanc.

And Nicolas, in terms of new launches in Fine & Beauty, you talked about that and I was impressed with the recovery in growth there. Does that suggest that Fine & Beauty should show pretty steady organic sales growth for the next several quarters? And then one for Doug. In terms of the $50 million in EBIT that you can get for product rationalization, can you give us an update roughly where you're at on that through year end?

Mike, regarding Fine, as you mentioned, we have a good momentum and a good string of new wins that have already been launched or are in the pipe. As we all know, one of the most critical seasons for our customers is the one in which we're entering right now until Christmas. So I believe that the Christmas season will be driving a lot of the market trends. And from that, we will be able to project our performance. So I think it's too early in the season. What is important is that where we participate, we have a strong momentum, and we've been able to secure and to win significant new launches.

We pick up the next part of your question going -- and it's really flowing out of the Investor Day discussion. And while we haven't disclosed the number, I'll take you through the 3 planks that we had then and we have now. And it's been an interesting evolution. That maximization of the portfolio is both -- that's really where the concept flowed from. It was to really focus as much on growing where we could. And you can see in both the Fine discussion Nicolas has had and some of the categories that Hernan discussed, we've got some priority categories, and they're broadly doing well and contributing to that goal. The third plank was that if we couldn't fix things, we would exit businesses. And that was -- there was a little bit of that in Fragrances in previous quarters. The focus really for the company in the last few quarters has been on Flavors. And Hernan touched upon that, and Kevin has just mentioned the benefit of margin we get from exiting. Exiting was a last resort. But nevertheless, you can see the company's positive traction in margin recovery from having exited the business and still having some good top line growth. The second plank, and really the most interesting one and where we've candidly been treading water, and while that's disappointing in the absolute, I think the particulars around the facts are important. But treading water was really around some categories in Functional Fragrance in the Fragrance businesses. And the treading water was the identification of the need to fix some businesses. And candidly, the team have really taken some excellent actions to move the progress ahead, but we have been hit by significant raw material cost increases over the last couple of years. So it's a function of taking some pricing with customers, revising some formulas, doing some things we inside the company call "some value creation," which is streamlining the business. We've done a number of things, all of which have been positive in terms of margin recovery, but they've been offset by the, if you will, the tsunami of the raw material cost increases in the last couple of years. So since that meeting, we've probably made very little traction despite some really strong actions. But if this grow-the-categories, we're still doing that, we will exit some low margin. But that fixed Functional, we've made some -- little progress. We've still got more to do, but it's been a great experience. And had we not, frankly, been able to engender some of the successes I just talked about in the light of the cost increases, the margin would have been extremely negative.

Your next question comes from Erik Sjogren from Morgan Stanley.

Yes, [indiscernible], it's Erik Sjogren at Morgan Stanley. The only question remaining for me is really on the Flavors business. I mean, a 3% impact from the portfolio rationalization in the third quarter, is this a run rate now? Or are you adding significantly more to the products you're considering here for the next couple of quarters going forward?

It's Hernan. So this is the run rate. I mean, just to give more -- I mean, Flavors some more information, this is -- what you've seen this quarter is what we expect to have in the next few quarters. So in other words, after, I mean, the second half -- or in the second half of the next year, we will not see any more business discontinued. Of course, we are always reviewing our portfolio, but I would say that we can say that we are largely done by half of next year.

And there are no further questions. Do you have closing remarks?

Yes. Thanks. I'd like to thank all the participants on the call for their support today. Particularly with the federal election, there's many potential distractions for all of us. For those IFF employees on the call, I would like to reiterate my thanks and appreciation for all you've done during the last week in keeping the business going strongly. And for all the people on the call, we look forward to our Q4 and final year results, which we expect to be positive. Thank you for your participation today. Have a good day.

Thank you for joining today's International Flavors & Fragrance conference call. You may now disconnect.