International Flavors & Fragrances Inc. (IFF) Q3 2013 Earnings Report, Transcript and Summary

At this time, I would like to welcome everyone to the International Flavors & Fragrances Third Quarter 2013 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 third quarter 2013 conference call. Earlier today, we issued a press release announcing our third quarter 2013 financial results. A copy of the release can be found on our website at iff.com. Please note 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 our senior management team, I'd like to read our forward-looking statements. Please keep in mind that during the call we will be making forward-looking statements about the company's performance, particularly with regard to the third quarter and our outlook for the balance of the year. 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 risk factors contained in our 2012 10-K filed on February 26, 2013, and our press release that we filed this morning, all of which are available on our website. Today's presentation will include 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. With me this morning are Doug Tough, our Chairman and CEO; Kevin Berryman, our CFO; Nicolas Mirzayantz, our Group President, Fragrances; and Hernan Vaisman, our Group President, Flavors. Now I'd like to turn the call over to Doug Tough.

Thank you, Shelley. In the third quarter, we achieved strong momentum in many areas of the business, propelled by new wins in both business units and continued execution of our 3-pillar strategy. We are pleased with both our top line and bottom line growth momentum. We delivered local currency sales growth of 4% for the consolidated company, reflecting 5% growth in Fragrances and 3% growth in Flavors. Both business units benefit from a high, continued level of new wins which are meaningful since they continue to be based on our proprietary technology, the strength of our creation capabilities and our deep understanding of consumer tastes and preferences. Our overall performance was led by 8% growth in the emerging markets. For the first half of 2013, the emerging markets grew at 9.5%. Emerging market growth remains quite high and is more than twice the level of the developed markets. The BRIC countries grew at 9% this quarter, and we also had strong growth in Indonesia, Mexico, Turkey and Singapore. We continue to believe that our emerging market growth strategy is robust since it is based on providing Fragrance and Flavors to markets where consumer demand and engagement is growing based on increases in disposable income. This quarter, we also had strong growth in the more mature markets of Western Europe, including France, Spain and Germany. We are very encouraged by the progress we are making in growing all aspects of our portfolio. As you may know, we are not dependent on any one product, country or category for our growth. It is this diversity which provides us with more stability and enables us to achieve ongoing growth. To provide greater perspective on the top line, we entered the quarter knowing that we faced a more challenging comparison to the prior year. As you may recall in 2012, our local currency sales growth improved meaningfully throughout the year, from 3% in the first half the year to 8.5% in the second half the year. In the quarter, third quarter of 2012, our growth was 7%. Our 4% growth for this year on a 2-year stack basis equates to an average growth of 6%, which is in the range of growth projections for the business. We are also pleased with the momentum we achieved in the bottom line. The volume gains combined with a stable raw material cost environment resulted in continued expansion in our gross profit margins of 170 basis points over prior year quarter to 44.2%. And we're able to hold our gross margins steady with the second quarter of 2013. As planned, we reinvested some of this profitability into our R&D platforms so that we can strengthen our foundation for growth in the short term, medium term and longer term. Our adjusted gross margin expansion more than offset the increased research expense of this quarter, including a performance milestone to our biotechnology partner, Amyris, and resulted in operating profit growth of 7%. We also achieved below-the-line leverage in other income and expenses due to a reversal of the foreign exchange losses on working capital that we had experienced last quarter. As a result, our adjusted earnings per share increased 13% over the prior-year quarter. On a year-to-date basis, our performance is in line with our long-term targets for the business of 4% to 6% top line growth, 7% to 9% operating profit growth and 10%-plus earnings per share growth. For the first 3 quarters, like-for-like local currency sales growth was 6% and was made up of 6% like-for-like growth for Flavors and 5% growth for Fragrances. This growth was propelled by our emerging market strategy as well as our strong level of new wins. This marks the sixth consecutive quarter of year-over-year improvements in our profitability and metrics. We believe this reflects the strength of our strategies as executed by our global teams and their ability to execute in the marketplace. Year-to-date gross margins are up 210 basis points over prior year, reflecting the success of our strategic improvement initiatives in enhancing our gross margin profile combined with a benign raw material cost environment. Our adjusted operating profit increased 10%, and at the same time, we were able to invest 8.5% of our sales in R&D. On a year-to-date basis, our earnings per share increased 13%. And given our performance to date and the expected performance in the fourth quarter, we expect to deliver on our long-term targets for 2013. I would now like to turn the call over to Nicolas Mirzayantz, our Group President, Fragrances.

Thank you, Doug. Good morning and good afternoon, everyone. This quarter the Fragrance business unit delivered local currency sales growth of 5%, supported by continued high level of new wins as well as continued strong growth in the emerging markets. Looking at our Fragrance compound business, we delivered local currency growth of 7%, continuing the momentum we saw in the first half of the year. We are very proud of our strong level of new wins which have been at a consistently high level every quarter this year. We have been trending significantly above levels we achieved last year, and the growth we are realizing from our new wins in the first 3 quarters of the year are the highest we have ever experienced since the first quarter of 2011. This quarter the emerging markets contributed over 70% of the growth in Fragrance Compounds, with double-digit growth in Greater Asia and Latin America. We also achieved strong growth in the developed markets of Asia, including Japan; and Western Europe, including first and foremost, France, where we won a lot of new business this quarter. We also had strong growth in Great Britain. In Fragrance Ingredients, we are beginning to see signs of stability, reflecting many of the strategic decisions we have made over the past year. This quarter Fragrance Ingredients had flat year-over-year local currency growth with a majority of the product families reporting increased volume. This is an achievement in light of the migration of volume from Fragrance Ingredients to Fragrance Compound this quarter as mentioned on our last call. Just to give you a better perspective for the progress we are making, if this volume are not shifted to our Fragrance Compounds business, the Ingredient business will have shown 4% growth. We believe we will see more stability going forward. While we do not expect it to be a straight-line trajectory, we believe the overall trend is more stable. Turning to Fine Fragrance & Beauty Care. We delivered growth of 5% in this category, which reflect double-digit growth in 3 out of 4 regions. Latin America achieved double-digit growth led by high growth in Hair Care and Fine Fragrance, reflecting strong win performance. Greater Asia also achieved double-digit growth, reflecting strength in Hair Care due to strong new wins from global accounts. 10% local currency growth in our EAME region reflects strong growth across the region with strong new wins in Fine Fragrance and Hair Care. In North America, we had double-digit growth in Hair Care, which was offset by a decline in Fine Fragrance as there were no major new launches in the quarter combined with a tougher comparison to 12% growth in the prior year. In our Functional Fragrance categories, overall local currency sales growth of 8% was led by double-digit volume growth in Fabric Care and Home Care. Fabric Care had double-digit growth in 3 out of the 4 regions. From a geographic perspective, growth was led by double-digit growth in Greater Asia and Latin America. The growth in Greater Asia and Latin America was led by volume gain in Fabric Care due to the traction we are gaining with key regional customers due to new wins in liquid and powder detergents driven by our deep understanding of local consumers and supported by our expertise in encapsulation technologies. North America had also solid growth of 7% in Functional Fragrances due to very strong momentum in Home Care based on important new wins and migration of some volume from Fragrance Ingredients to Functional Fragrance. In EAME, growth was flat in Functional Fragrances. Our double-digit growth in Fabric Care, fueled by the success of our customers' products in the market as well as new wins, was offset by declines in Personal Wash and Home Care due to volume erosion this quarter, which we believe to be temporary. Looking at our performance for the first 9 months of the year, the Fragrance business unit had growth of 5%, with 8% growth in Fragrance Compound. Fine Fragrance and Beauty Care grew by 7% for the first 9 months, led by double-digit growth in Latin America and strong performance in Greater Asia and EAME. Functional Fragrance increased 8% year-to-date due to very strong growth in the emerging markets. Turning to our financial results. We are pleased with the performance this quarter. The solid 5% local currency sales growth reflects growth in both our Compounds category, Fine & Beauty Care and Functional Fragrance. All of our categories are supported by our emerging market's presence, which had growth of 11%. The solid top-line growth in our Compounds business supported continued margin expansion. The improved profitability reflects moderating input costs as well as continued focus on our multiyear restructuring program to improve efficiencies and speed to market. At the same time, we were able to keep our RSA costs as a percentage of sales constant while making investments in R&D. This included a performance milestone payment to our biotechnology partner Amyris for the progress they are making in creating sustainable, cost-effective ingredients for us. As a result of the margin expansion combined with cost discipline, our operating profit increased 24% or $16 million, and our profit margin expanded by 300 basis points. Also, we have been reporting that we are now in a more benign input cost environment. The net impact of the input cost increased we have seen over the past couple of years continues to be a pressure point on our gross margins versus historical levels. For the Fragrance business, we are still facing headwinds regarding the net impact of price increases and input cost increase on our gross margin. It will take time and additional efforts to get to the point where the needed impact on our margin is breakeven. Kevin will talk more about it during his remarks. On a year-to-date basis, our segment profit is up 20% over the prior-year period. For the first 9 months of 2013, Fragrance segment profit is $222 million, which is a gain of $37 million over the prior year. Our segment margins on a year-to-date basis are 19.3% or an increase of 230 basis points compared to the prior segment margins. These gains are due to volume growth combined with margin expansion and ongoing cost discipline. Looking ahead to the fourth quarter, we're entering a more challenging quarter compared with the prior year quarter when, as a reminder, we delivered growth of 15% in Fragrance Compounds and 6% in Ingredients. In the fourth quarter of 2013, we expect to see continued momentum in our Fine Beauty Care and Functional Fragrance category, offset in part by a decline in Ingredients due to the continued migration of some volume from Fragrance Ingredients to Functional Fragrances. In total, we expect the fourth quarter to deliver continued momentum which would be somewhat muted by the strong comparables to the prior year. I would like now to turn the call over to Hernan Vaisman, our Group President, Flavors.

Thank you, Nicolas; and good morning, and good afternoon, everyone. This quarter our local currency sales grew by 3%. Although we were disappointed by the lower level of growth this quarter, which we considered to be temporary, we believe that our overall momentum remains intact and that growth will improve next quarter and be more in line with historical growth patterns. We said last quarter that we were substantially completed with the exit of low-margin sales activities. There was a small piece of volume from low-margin sales activities that were exited in the third quarter of 2012. And if we excluded this activity from the prior year's result, then the like-for-like growth for Flavors was 4% this quarter. This marks the 31st quarter of consecutive local currency sales growth for Flavors. Our local currency sales growth was driven by strong level of new wins and continued growth in the emerging markets. Looking at our new win rate this quarter, we continue to innovate on behalf of our customers to offer them solutions that address consumer demand for products with reduced sugar and salt while still providing them with preferred taste profiles and to provide them with authentic citrus flavorings that enhance customer's Beverage offerings. We continue to win new businesses based on these innovations. This quarter the strong level of new wins, which was in line with its historical levels, was offset by a higher level of erosion on existing business. Turning to emerging markets, they continue to be a growth driver for us. Although they did not grow at the robust level we have seen in the past, they continue to deliver growth that are propelling our business forward. We experience strong underlying growth in emerging market countries, including Indonesia, Thailand, Russia, Brazil and Mexico. Turning to the regions. We achieved positive growth in every region. In North America, we delivered growth of 1%. While this was a disappointment, especially when compared to the high single-digit growth we achieved in the prior year, we delivered continued strong results in Beverage and Savory. The strong growth we achieved in Beverage from a citrus platform and Savory on account of our Flavors modifiers was offset by declines in Beverage this quarter. In addition, although we are not longer reporting the impact of like-for-like volume, there was a small piece of Sweet business in the last year's numbers which distorted our results. Readjusted both years, the exit of these low-margin sales activity growth in North America would have been 4%. In our EAME region, local currency sales growth of 3% was led by strong growth in Sweet, Beverage and Savory. That said, this quarter we achieved solid growth in Central, South and Eastern Europe and throughout the Middle East and Africa. In Latin America, local currency sales grew 7%. We continued to grow our market share due to strong momentum in Beverages, which dropped high single-digit growth in the region. This strong performance was partially offset by high single-digit declines in Sweet. On a country level, Brazil, our largest Latin America market, had a strong growth, followed by Argentina and Mexico. Our largest region, Greater Asia, continues to perform well, even though it compares to 9% growth in the prior year quarter. Looking at our end-use categories, Greater Asia had 4% local currency sales growth on a mid single-digit growth in Savory, Sweet and Beverage, driven by new win performance. The best performing country within our Greater Asia region in term of the dollar growth was Indonesia, with double-digit growth this quarter. However, we are seeing lower growth in India, where the economic environment is impacting our customers. As you know, we substantially completed the exit of low-margin sales activities last quarter. This effort took more than 6 quarters to complete, but it enable us, using the tools of economic profit, to focus on our energies on research against those categories that are most advantaged while working with our customers to fix those sales activities which were not providing us with an adequate margin. As a result, we estimate that our margins have improved by 90 basis points due to these changes we have made to our portfolio. Turning now to profitability. We delivered strong performance again this quarter, owing to our ability to provide innovative [indiscernible] solution to our customers and help them to grow their market share with new products that appeal to the targeted consumers. The local currency growth of 3% when combined with a net impact of moderated input costs and pricing delivered enhanced margins, which was somewhat offset by R&D spending and investment in the regions. Flavors' third quarter segment profit increased 7% or $5 million to $81 million, and the profit margins improved 80 points to 23.2%. On a year-to-date basis, Flavors' like-for-like growth is 6%. Our order book indicates that we have started the fourth quarter with strong growth. Looking ahead, we expect to see increased momentum in the fourth quarter, propelled by growth in emerging markets. We expect that our focus on controlling costs should allow us to sustain momentum and finish 2013 with a strong operational performance. In closing, the investment we are making in Greater Asia region will put us in a strong position to support regional growth. The liquid flavors and fragrance plant we built in Jurong, Singapore, is now fully operational. By the end of the year, our facility in Guangzhou, China, will be fully operational as well. And we plan to have a new state-of-the-art, creative facility in Jakarta, Indonesia, to better serve our customers in the region. Now I would like to turn the call over to Kevin Berryman, our CFO.

Thank you, Hernan. And good morning and good afternoon, everyone. Again, turning to our third quarter 2013 financial results, I would like to provide some additional insight into the trends that we are seeing in our business. Third quarter revenue totaled $742.3 million, an increase of 5% from the prior-year period. Excluding the impact of foreign currency, local currency sales increased 4%. Although the exit of low-margin sales activities were substantially completed in the second quarter of 2012, as Hernan earlier indicated, there remains some minor levels of sales for these activities in the third quarter of last year. As a result, if we adjust our results for these sales activities, our consolidated growth would've been 5% on a like-for-like basis, which puts us right in the middle of our long-term growth objectives. The overall growth reflects a balanced mix between our 2 business units, with Flavors growth of 3% and Fragrance growth of 5%, based on a continued, strong level of new wins across both business units. The emerging markets continue to perform well, up 8%, and they're up 9% year-to-date on a local currency basis. We believe the diversity we have in all 4 regions of the world and our investments in our organization will continue to fuel our long-term growth. We are very pleased with our strong momentum in all geographic regions, especially Western Europe, where Fine & Beauty Care delivered double-digit growth this quarter. The BRIC countries generated local currency sales growth of 9% and 14% for Fragrance Compounds. Local currency sales growth in China increased strong double digits for Fragrance Compounds as well. The developed markets also performed well, including France, which reported strong growth in Flavors and Fragrances. Adjusted gross margins for the quarter increased 170 basis points to 44.2% in the third quarter from the year-ago period as a result of moderating raw material costs combined with the strategic initiatives we have put in place to improve productivity. This is the sixth consecutive quarter of our gross margin expansion versus year ago. It is important to note that while we have recovered input cost so that gross profit has been protected the input cost pressure still represents a significant pressure point on our gross margins from pre-inflation levels. I will speak to this in a moment. One last note on our gross margins. Last quarter, we noted that we expected that the year-over-year margin improvement trend would begin to slow. We are beginning to see that play out as we are comparing margins to prior year levels that have already benefited from the margin enhancement efforts embedded in our strategic initiatives. Regarding operating expense investments, we continue to make investments in our R&D platforms to fuel our future growth. This quarter, as Nicolas mentioned, we made a milestone payment to Amyris, one of our biotechnology partners. These types of payments signify that key milestones are being met, and we are pleased with the progress we are making. We continue to believe that the output of this programs will provide us with dependable, competitive advantages. Adjusted operating profit for the quarter increased 7% to $144 million. As a result, adjusted operating profit margin increased 50 basis points to 19.4% in the quarter. On a year-to-date basis, our adjusted operating profit has increased 10%. Going further down the P&L. This quarter we realized modest foreign exchange gains on our working capital positions, reversing the losses we saw last quarter that where generated in those countries where we do not have hedging programs due to market conditions or other practical considerations. This reflects normal movements in currencies in those countries where hedging programs are problematic. Finally, our EPS for the quarter was $1.22, which was 13% ahead of the prior year. On a year-to-date basis, our EPS of $3.55 is 12% ahead of the prior year period, and we are pleased with our bottom line growth. By now you are probably familiar with this chart, which demonstrates that even though we are seeing margin gains of 170 basis points this quarter the net impact of historical rising input costs continues to be a headwind on our gross margins. If we look at the period Q3 2010 to Q3 2013, you will see the factors leading to the gross margin improvement between the 2 periods. Again, we chose the third quarter of 2010 as the base period since that is the last comparable quarter prior to the large increase in input costs that we saw in 2011 and 2012. Over the 3-year period, the net impact of our pricing actions and industry input cost increases has been a negative 160 basis points on our gross margins as evidenced by the red bar. It is important to note that we proactively worked with customers to implement pricing increases to reduce the strong pressure from input costs and limit the inflationary pressure to the 160 basis points noted on our slide. However, the importance of the execution of our strategy where we adopt the numerous measures to improve our margins, including the exit of low-margin sales activities, cost-savings initiatives, innovation enhancements, manufacturing efficiencies and restructuring and other gross margin improvement efforts, cannot be understated. These strategic improvements had a 350 basis point positive impact on our margins over the 3-year period as shown by the green bar on the chart. This more than offset the negative 160 basis point reduction from the net impact of input cost and pricing, resulting in our gross margins improving 190 basis points over the period. Turning to our RSA costs. RSA as a percent of sales increased to 120 basis points to 24.8%, up from 23.6% of sales in the prior year quarter. The higher RSA this quarter reflects higher incentive compensation accruals and higher R&D expenses versus year ago partially due to the previously mentioned milestone payment to Amyris in the Fragrance business. As we've mentioned in the past, strong performance versus budget in any quarter can lead to an increased compensation accrual through our AIP program. We accrue for these payouts on a quarterly basis, effectively matching the performance accrual to the performance in that specific quarter. In those quarters where we have strong sales and operating profit versus our expectations, we increase our accruals. Conversely, in those quarters where we fall short of performance expectations, we book smaller accruals, or even as we did in 2011, reversed previous accruals made. Importantly, including the incremental R&D costs and additional incentive compensation accruals, other RSA costs as a percent of sales, primarily sales and administrative expenditures, would've fallen 30 basis points as a percent of sales between Q3 of 2013 versus the comparable year-ago figure. It is important we remain disciplined in our approach to spending. And going forward, cost discipline will be a continued focus while strategically investing in R&D and other business development opportunities. Turning to foreign currency dynamics. Our foreign currency translation this quarter had 100 basis point positive impact on our reported sales. In addition, due to our proactive hedging activities with the euro, foreign currency had an immaterial impact on our operating profit results. As we have been communicating in 2013, we remain nearly 80% hedged against the euro at levels that approximate $1.29 per euro, effectively consistent with the average exchange rate levels for the full year 2012. At current rates, the operating impact on our full-year results is expected to continue to be muted. Importantly for 2014, we also have now hedged over 80% of our euro profit and cash flow exposure at $1.32 per euro. Turning to our cash flow. As you know, our business is very cash generative, and we are pleased with our improved operating cash flow performance this year. For the first 9 months of 2013, our operating cash flow was $257 million versus $138 million in the third quarter of 2012. However, there are some large items impacting our comparability that I would like to discuss. Number 1. Last year, we had a cash outflow of over $105 million related to our Spanish tax settlement. This outflow was included in our 2012 9-month year-to-date cash flow. Number 2, this year in the 9 months ended September 30, 2013, the company made an additional $30 million voluntary contributions to our qualified U.S. pension plans versus the 2012 comparable period. Finally, in the 9 months ended September 2013, the company paid out over $55 million in compensation payments based on the strong operating performance we had in 2012. In the first 9 months of 2012, our incentive compensation payments were less than $20 million, representative of the less-than-satisfactory performance that the company delivered in 2011 versus our internal objectives. If we exclude these items to make the year-over-year comparison more representative of our underlying operating cash flow trends, then the cash flow would've improved substantially from $263 million in the first 9 months of 2012 to $344 million in the first 9 months of 2013, or an increase of over $80 million. It is also worth noting that we accelerated our payment of our 2012 fourth quarter dividend into late December last year versus the normal planning of January of 2013. As a result, our 2013 year-to-date net cash flow has benefited as the first 9 months did not have the normally quarterly cash outflow associated with quarterly dividend payment in January. Turning to our capital structure. Early in the quarter, Standard & Poor's rating service raised its long-term corporate credit and senior secured debt issue ratings on IFF to BBB+ from BBB based our good operating performance and affirmed its A2 short-term corporate credit ratings. This brings S&P's ratings in line with Moody's. In July, we repaid $100 million of private placement notes from the proceeds of our $300 million public bond offering completed earlier in the year. The next material debt maturity is $125 million of private placement debt maturing in 2016, indicating that we continue to have significant financial flexibility. We are also making progress on our share buyback program. Through the end of the third quarter, we repurchased approximately 400,000 shares at an average price of $75 per share or approximately $33.4 million. Year-to-date through the end of October, we have spent a total of $42 million on buying back roughly 550,000 shares. We expect to meet our $50 million share repurchase goal for the year. With that, I would like to turn the call back to Doug to give a perspective on the balance of the year.

Thank you, Kevin, Hernan and Nicolas for the comments. We are pleased with our momentum on both sides of the business and believe we are well positioned for growth both due to our steady pulse with product innovations, our infrastructure and our feet on the ground in the faster growing markets, our relationships with both our global and regional customers as well as our deep consumer knowledge of global consumers and innovative solutions on how to drive consumer engagement. Looking forward, we expect to be able to deliver continued growth in the fourth quarter, noting that we will be comparing our performance to a much more challenging quarter and that the environment still poses certain challenges. We have started the fourth quarter well and are optimistic about our forecast. We have the right teams in place to continue to provide customers with superior customized products that deliver improved performance to consumers. Our perspective for 2013 remains in line with our long-term growth targets. We expect to deliver local currency growth in the range of 4% to 6%, supported by continued new wins and volume growth in the faster growing and more mature markets. We expect to grow our operating profit in line with our long-term growth targets of 7% to 9% as we continue to stress efficiency in all that we do, exercising financial discipline while nonetheless investing in required growth activity. And finally, we are optimistic that we will be able to deliver greater than 10% earnings per share growth. In conclusion, we believe our strong performance at IFF this quarter is the result of strong execution of our strategy to leverage our geographic footprint, strengthen our innovation platform and maximize our portfolio. We believe we are very well positioned in the market, and we plan to continue to selectively invest in those areas where we see the most growth, whether in regions, countries or categories. We continue to focus on executing our 3-pillar strategy. Thank you for your participation. And I will now open up the call to questions.

[Operator Instructions] And your first question comes from Mark Astrachan with Stifel, Nicolaus. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: I guess, Doug, curious what your interpretation of the word moderate. What does that mean for fourth quarter growth? I guess, my math suggests you need 2% to 3% in fourth Q to hit the low end of sales growth target. Maybe just a little bit of color there would be helpful, please.

Sure, Mark. I'll be glad to provide the color. I guess, just a couple of generation comments. I think we probably categorize this quarter as moderate as well. And you're trying to dimensionalize some targets. But I think I want to just put into context a couple of things and tie them together which have come out in this morning's call. I mean, I think we've touched upon -- the last year in Q4 of 2012 was our most challenging. And on a like-for-like basis, Fragrances is going up against 13% growth and Flavors is going up 7%, which are significant targets. So that was kind of the context of putting in moderate. We expect as we've kind of achieved the year somewhere in the range of 5% YTD through the first 9 months we'll end the year generally in that range as well. So our context of moderate is still satisfactory results and ending up in the range, but we're cognizant that we've got the most stretching target. But the last comment here is looking at our Q4 order book progress to date, it's very positive on both sides of the house. And it's most encouraging on Fragrances so far because it's up against the most challenging target. But Hernan has already touched upon the expectation that there'll be a resumption of more traditional growth above what we did in Q3. So putting them all together, we're optimistic. But it's early. And the one other complicating factor is a lot of companies, including this one, were slightly disrupted year ago by the hurricane which hit the East Coast, so the comparability to the order book isn't going to get sorted out for a couple of weeks yet. But so far, what we see is quite positive. So moderate, Mark, is really quite encouraging and an expectation of broad continuation of what we've done, YTD. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: That's great. Maybe just a follow-up then from a Fragrances standpoint. Nicolas, so positive local currency growth in the fourth quarter in spite of the comparisons, is that reasonable then?

Yes. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: Great.

That's the trend, the way things are going, Mark, yes.

And Mark, really, as I have mentioned, it's continued momentum and good traction in Compounds and somehow muted by the strong comp from last year, but the momentum is still there.

Your next question comes from Michael Sison from KeyBanc Capital Markets.

Nicolas, could you comment on sort of the order patterns heading into the holiday season for Fine & Beauty? What type of growth or -- that your customers were looking for, for the holiday season?

Look, it depends where you are around the world obviously; and it's very, very different region to region. Obviously, our numbers are augmented by a very, very strong pipeline of new wins this year. We had a very strong new wins of activity. But overall, the overall order book is positive, but people obviously remain cautious for the holiday season. Now I understand that there are some pockets of pressure in different parts of the world, but this is offset by a good pipeline of new wins for us.

Okay, and a quick follow-up. Fine & Beauty in North America was down for the first time. Was that sort of just a one-off in the quarter?

I think that you have to take into consideration 2 different dynamics, Michael. First, the strong comp of 12% last year, number 1. And also, it's coming on the heels of also a very strong second quarter at plus 13.5%. So probably, some of the launch we have some early intake for the pipeline. So we were putting these 2 quarters into perspective but also compared to last year. And it is true that a lot of the new wins intake and measure initiatives impacted us positively in Q2, and we have the same magnitude of intake for Q3.

[Operator Instructions] And your next question comes from Jeff Zekauskas from JPMorgan. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: This is Silke Kueck for Jeff. The first question I have is that what sort of interesting when I look at your 9-months result is that the North American local currency -- or I'm sorry, the Latin American local currency comparisons have been strong very year-over-year. They were great last year, and they are great this year. And similar for Greater Asia. But in North America, it seemed like for the 9 months last year North America didn't really grow. And for the 9 months this year, it didn't really grow. So one of the question is just like what happened? And are you optimistic that these trends should improve and why? And I have one follow-up to that.

Silke, is your question skewed to Flavors, Fragrances? Just guide us a little bit, please. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: I looked at it just on a combined basis. I just looked at North America in total for like the 9 month last year versus the 9 months this year. And it just sort of like didn't grow in either period or maybe grew a little bit last year and like for the 9 months really didn't grow at all this year.

I think that -- Silke, it's Nicolas. I think that we're getting tractions by getting access to more quality [ph] opportunities, new business opportunities. We have to remember for some categories some customers are manufacturing in North America for the rest of the world, so there are maybe also related to some performance of some of our key partners. But overall, we're getting traction, and we're getting access to more business opportunity. And the pipeline of new wins for the future and the pipeline of new projects that we're working on is strong and healthy. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: Okay. So if I understood that right, it seems that some of your larger multinational customers are also shifting manufacturing from the North American region to someplace else, and that's sort of like reflected in your regional performance as well?

No, that's not what I meant. I said that some customers are manufacturing in North America for the rest of the world, so some challenge that might be seen in some parts of the world are affecting our local sales in North America. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: I see. And my follow-up is this. I was wondering whether you're sort of like caught up in terms of compensation accrual for the year and how you think your fourth quarter global corporate expense -- what it may look like and whether it's like a double-digit number or like a single-digit expense number?

Silke, this is Kevin. Just a couple -- a follow-up question on your first -- follow-up comment on your first question as well. The other thing that you have to remember is that a big impact on the Flavors business in North America was this exit of lower margin sales activity. So that was a big impact on our year-to-date figures. I think it was 6 or 7 percentage points of growth in Flavors. So you have to really take into account that dynamic because that was one of the material impacts in Flavors. So you take that and that will fundamentally improve your North America numbers at a pretty material level, 3 to 4 percentage points, I would say, on a consolidated level. That's first comment. Second comment is as we look at Q3 quarter to date, as we have said in the past, we kind of true-up our performance levels through the quarter depending upon how we are performing at that particular point in time. So our true-up in the final quarter of the year relative to incentive comp will be dictated by how we perform in the fourth quarter. I will say that one point is that as we've talked all year long, we were concerned about our plan and our execution in the fourth quarter relative to our fourth quarter local currency sales growth because of the strong comparability issue that has already been highlighted. And given the renewed outlook that we have or revised outlook, which shows us coming in levels that are more in line with kind of our year-to-date figures, you can pretty much assume that, that will require some incremental incentive comp in fourth quarter could the expectation would be that we will be growing faster than what we would've originally envisioned.

Silke, it's Hernan. One more comment following your question regarding North America. I mean in some way complementing what Kevin mentioned. If you go like-for-like basis, in last year North America Flavors has a growth of double digit. And this year, like-for-like is 6%. So I could say that the performance of North Africa Flavors in the last year was very really, very positive.

Your next question comes from Mark Astrachan with Stifel, Nicolaus. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: I feel bad ignoring, Hernan. So 2 questions for you. Some thoughts on Asia Flavors in the third quarter. Maybe just talk sort of broadly about what you're seeing over there. And then how much of the impact in the quarter was the slowdown that you alluded to in India? And then just more broadly, from an operating margin standpoint, so you're now basically done lapping the exit of the low-margin businesses. The operating margin was up year-on-year. It was just up less than we've seen in prior quarters. So I guess, I'm just trying to get a sense of whether this is a good run rate going forward or not?

Okay, Mark, let me start with the first one. Obviously, I mean, Greater Asia was not growing as quickly as they had been in the past. It's still have been growing a very solid path. I will say you have -- we have been in this quarter a kind of mixed bag. They were countries, as I mentioned before, that were doing pretty well, like for example, Indonesia, that is really delivering very good growth. India is a matter of concern. I mean, we -- everyone, not only IFF, is recognizing that the economy is hitting severely in the country. We used to grow at the high double-digit, and we are now in the mid-single digit. And we don't see that it's going to recover in the short term, but it's not forever. We still believe that the growth story in India is still there, and we will be there for many, many years. So we say it's a kind of mixed bag. And now as mentioned by Doug and myself, the orders in hand, order book, is much stronger at the back of some slowdown in the third quarter. So as already commented, we saw some slowdown, but we strongly believe that our fundamentals and the fundamental of the emerging market will be there for many times -- for many years to come. And regarding your question in margin. As you can see, I mean, we really delivered a very high -- I mean in gross margin. We always strive for improvement. Of course, when you get at that level, it's becoming kind of uphill. But then we in every single year, we work out with the teams initiative to improve productivity. So we believe that even though at the very high level we have some room to improve.

And I'm showing no further questions at this time.

Thank you very much for your participation in reviewing the IFF third quarter results. We're confident with our strategy, and we look forward to updating you in 3 months on Q4 results. Thanks very much.