International Flavors & Fragrances Inc. (IFF) Q2 2017 Earnings Report, Transcript and Summary

At this time, I would like to welcome everyone to the International Flavors & Fragrances' Second Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode until the formal question-and-answer portion of the call. Participants will be announced by their name and company. I would now like to introduce Michael DeVeau, Head of Investor Relations. You may begin. Michael DeVeau - International Flavors & Fragrances, Inc.: Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFF's second quarter 2017 conference call. Yesterday evening, we distributed our press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay on our website. Please take a moment to review our forward-looking statements. During the call, we will be making forward-looking statements about the company's performance, particularly with regard to our outlook for the third quarter and full-year 2017. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially from forward-looking statements, please refer to our cautionary statement and risk factors contained in our 10-K filed on February 28, 2017 and our press release that we filed yesterday, 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. With me on the call today is our Chairman and CEO, Andreas Fibig; and our Executive Vice President and CFO, Rich O'Leary. We will start with prepared remarks and then take any questions that you may have. With that, I would now like to introduce, Andreas. Andreas Fibig - International Flavors & Fragrances, Inc.: Thank you, Mike and good morning, good afternoon, and good evening to everybody. I would like to start as usually with an executive overview of our operational performance for the second quarter. Then I want to provide an update on our Vision 2020 progress. Once finished, I will ask Rich to cover our financial results in greater detail, including specifics on each business unit, as well as our cash flow statement and outlook for the remainder of the year. I will finish by providing some closing remarks and then take any questions that you may have. Our second quarter results finished in line with our expectations. The improved trends across several of our key financial metrics, currency neutral sales grew 8%, including 11% growth in Flavors and 5% growth in Fragrances. On a consolidated basis, our top line growth benefited by approximately 6 percentage points related to the contribution of our recent acquisitions of David Michael and Fragrance Resources and to a less degree PowderPure. Organically, Flavors currency neutral sales improved 3% as all regions except Greater Asia posted solid results. Fragrances sales were flat as Fine Fragrances and Fragrance Ingredients including cosmetic actives was offset by challenging results in Consumer Fragrances. From a profitability perspective, currency neutral adjusted operating profit grew 6% in the second quarter principally driven by the contributions from acquisitions, volume growth and cost savings initiatives. Currency neutral adjusted EPS increased 8%, driven primarily by operating profit growth, as well as year-over-year reduction in shares outstanding related to our share repurchase program. From a strategic perspective, we continue to make strong progress against the areas we have identified as strategic imperatives. In terms of innovating first in Flavors, sales of our sweetness and savory modulation portfolio continued its trend of strong double-digit currency neutral growth across all categories led by beverage and savory. In Flavors Latin America, our proprietary delivery system continues to perform well contributing to strong double-digit growth in the second quarter. We also successfully rolled out a new flavor modulator for our Flavors to use in formulation development. This technology can enhance mouthwatering perception in snacks and baked goods, and can also enhance the perception of freshness and mouth feel in citrus flavored beverages. In Fragrances, we launched a new fragrance ingredient called Veraspice. This ingredient is a warm spicy note bringing together the opulence of natural white flower with a smooth tobacco leaf undertone. The smart combination between salty and tarragon classes contribute to the creative differentiation. I am also happy to report that our IFF Lucas Meyer Cosmetics team won the bronze award at In-cosmetics Global 2017 Innovation Zone Awards with Siligel. Siligel is a natural gelling agent, providing improved skin feel and provides high resistance to electrolytes. Benefiting from recent strategic acquisitions of David Michael, Fragrance Resources & PowderPure, as well as from strong growth in our organic Flavors business, we saw a robust 90% increase in North America in the second quarter of 2017. We also saw robust growth trends in the Middle East and Africa in the second quarter as currency neutral sales improved strong double-digits with the contribution from both Flavors and Fragrances. We continue to position ourselves to be our customer's partner of choice and go-to supplier. In the second quarter of 2017, we launched Tastepoint by IFF designed to service a dynamic middle market customer in North America. I will speak more about this exciting launch in a moment. I'm also proud to acknowledge that we are the first and only Flavor and Fragrance house to sign the World Business Council for Sustainable Development's new publication, The CEO Guide to the Circular Economy. The purpose of the guide is to help companies embrace the Circular Economy mindset. We believe that the Circular Economy is one of the biggest opportunities to transform production and consumptions throughout the value chain. By sharing this information, we can be a vital link to unleash innovation needed to create positive transformational change in the world. I'm pleased to report that our three recent strategic acquisitions are key drivers of our financial performance. The combination of David Michael, Fragrance Resources and PowderPure contributed approximately 6 percentage points of sales growth and 4 percentage points of operating profit growth in the second quarter. In addition, Lucas Meyer Cosmetics acquired two years ago, continued to be a growth driver as Cosmetic Active Ingredients grew strong double-digits in the second quarter. More forward-looking, in the second quarter we also announced that we have joined the MIT Media Lab to Accelerate Sensorial Open Innovation. Our membership in the MIT Media Lab Alliance, is our strategy, which underscores how we are committed to innovation as an accelerator of business growth. Since 1985, the MIT Media Lab has combined a vision of digital future with a new style of creative invention. With was more than 30 years of innovation and 150 spin-off companies, The Media Lab currently supports 27 research groups and over 450 projects focused on designing the future. We are proud to join this innovation lab and collaborate with the next generation of research break-throughs. I would now like to take a moment to expand on our exciting launch of Tastepoint by IFF. Born out of the combination of David Michael and Ottens Flavors, the new brand was first revealed at the IFT 2017 conference in Las Vegas. Tastepoint is designed to serve as a dynamic and fast growing middle market customers in North America, which we believe will help us to drive growth going forward. By combining the long established and well regarded relationships of Ottens Flavors and David Michael with the R&D, technology and consumer inside of IFF, Tastepoint offers a new and innovative go-to-market approach that targets the unique needs and expectations of this subset of customers. As a fully dedicated organization within IFF, we believe we are well established and have a competitive advantage to meet the expectations of our middle market customers. With that, I would like to turn the call over to Rich. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Thank you, Andreas. To reiterate what Andreas mentioned earlier, our financial results for the second quarter were good, consistent with our expectations. Currency neutral sales improved 8%, including approximately 6 percentage points related to our recent acquisitions of David Michael's, Fragrance Resources, and to a lesser extent PowderPure. Our top-line performance both organically and inorganically continues to be driven primarily by new wins across both businesses. Our adjusted operating profit on a currency neutral basis grew 6% and currency neutral adjusted EPS improved 8%. Also want to take a moment to highlight our first half results. Our currency neutral sales growth in the first half was strong at 7%, with 11% growth in Flavors and 4% growth in Fragrances. Adjusted operating profit grew 5% on a currency neutral basis driven by contributions from acquisitions, volume growth and the benefits associated with our productivity programs. Our currency neutral adjusted EPS increased 9% in the first half, further benefiting from a lower tax rate and a reduced number of shares outstanding. Looking at our business unit performance for the second quarter, Fragrance currency neutral sales improved 5% driven by broad-based category growth and the acquisition of Fragrance Resources. From a category perspective, Fine Fragrances improved 11% on a currency neutral basis, including Fragrance Resources. Organically, performance was driven by double-digit growth in Greater Asia, EAME and North America, more than offsetting softness in Latin America, where we continued to experience abnormally high volume erosion due to weak economic conditions. Consumer Fragrances grew 1% on a currency neutral basis, including additional sales related to the acquisition of Fragrance Resources, as well as low single-digit improvements in Fabric Care and Home Care. On an organic basis, currency neutral sales declined as several of our largest household and personal care customers are continuing to experience volume weakness in various end markets plus continued weakness in Latin America and China. This ultimately impacted our volume on existing business and more than offset contributions from new wins. Fragrance Ingredients sales were up 9% on a currency neutral basis, primarily driven by double-digit growth in EAME and Latin America. IFF Lucas Meyer's also continued to perform nicely as we grew double-digits in the second quarter. From a profit perspective, Fragrance currency neutral segment profit decreased 3% on a currency neutral basis, as volume growth and the benefits from productivity initiatives were more than offset by unfavorable price and input costs, as well as a weaker sales mix. In terms of currency neutral segment profit margin, our profit margin remains strong, yet was under pressure year-over-year, driven by the items mentioned above plus the Fragrance Resources acquisition, which is inclusive of step-up and purchase price accounting before we fully realized synergies. Flavors currency neutral sales increased 11%, driven by strong contribution of sales related to David Michael and to a lesser extent PowderPure. On an organic basis, we achieved broad based organic growth across all categories driven by new wins. From a regional perspective, three of the four regions delivered growth led by strong double-digit performance in North America, which improved 30% reflecting additional sales related to the acquisitions of David Michael and PowderPure, as well as strong double-digit growth in Dairy and high-single-digit growth in Savory. EAME increased 9% on a currency neutral basis led by mid single-digit increases in Central, and Southeastern Europe and low single-digit increases in Western Europe, as well as additional sales related to the acquisition of David Michael. Greater Asia was soft in the second quarter, decreasing 2% on a currency neutral basis as double-digit growth in Thailand and India, plus low single-digit growth in China was more than offset by challenging conditions in Indonesia. Within that market, we're seeing a change in purchase behaviors as consumers limit spending, as cost of living has increased recently due to lower subsidies and higher taxes. Growth in Latin America continued, improving 11% on a currency neutral basis, led by double-digit growth in Argentina and Colombia. Flavors currency-neutral segment profit grew approximately 14%, led by volume growth, the benefit of acquisitions and our productivity initiatives. In terms of currency neutral segment profit margin, we experienced margin expansion year-over-year of approximately 70 basis points to 24.2%. Moving on to cash flow, operating cash flow was $58 million in Q2 on a year-to-date basis, compared to $172 million in the comparable 2016 period. Performance was adversely impacted by the previously announced ZoomEssence litigation settlement, which is about $56 million. And despite having core working capital level slightly improved due to accounts payable, we were challenged by lower net income, higher incentive compensation payments compared to the prior year period. From a capital allocation standpoint, we spent approximately $46 million in capital expenditures, or about 3% of sales. And we believe, we'll spend approximately 4.5% of sales in 2017. Regarding cash returned to shareholders, in the first half we spent approximately $101 million on dividend payouts and $53 million on share repurchases. Last week, our board of directors authorized an 8% increase in the quarterly dividend to $0.69 per share. The increased dividend is well aligned with our disciplined approach to capital allocation, returning 50% to 60% of adjusted net income as we strategically invest to drive long-term sustainable growth, while returning value to our shareholders. We believe this increase underscores our confidence in our continued financial strength and the long-term outlook of our business. Turning to our outlook, for the full year we remain optimistic that we can achieve our previously stated currency neutral financial guidance recognizing that end-market volume growth remains soft, particularly with our global and multinational customers. We are reiterating our currency neutral sales growth projection of 7.5% to 8.5%, which will be primarily driven by the contribution of acquisitions in David Michael's and Fragrance Resources, as well as modest organic growth primarily in Flavors. From adjusted operating profit and EPS perspective, excluding the impact of currency, we expect to achieve 5.5% to 6.5% and 6.5% to 7.5% growth respectively. For modeling purposes, please note that in Q3, we expect to have higher interest expense related to the dual carrying costs of our recent $500 million bond issuance, as well as existing private placements that are maturing in late September. Please take note of this when you think about EPS in the third quarter. We will also see favorable reduction in interest expense in Q4. While our currency neutral guidance has not changed, the effect of currency movements on our results have moved. From a top-line perspective, the impact of currency improved by approximately 50 basis points, to a 1% headwind, primarily driven by an improvement in the euro to U.S. dollar exchange rate. On a profit basis, we anticipate a 100 basis point improvement versus the last quarter guidance and on EPS a 50 basis point improvement. As a result on a full year basis, we expect the impact of foreign exchange on adjusted operating profit to be approximately 1.5 percentage points and approximately 2.5 percentage points on adjusted EPS. For your reference, please note that we remain hedged at approximately 75% on our net euro profit exposure, at approximately $1.12 and our forecast is based on current rates for second half of this year. With that I'd like to turn the call back over to Andreas. Andreas Fibig - International Flavors & Fragrances, Inc.: Thank you, Rich. In summary, we are pleased that we have achieved currency neutral growth across all metrics in the second quarter of 2017. Simultaneously, we continue to be focused on the execution of our Vision 2020, as we believe our emphasis on building great differentiation, which in turn should lead to sustainable profitable growth. We are on track to deliver our previously stated 2017 financial goals. With that, I would like to open up the call to your questions.

Your first question comes from the line of Mark Astrachan with Stifel, Nicolaus. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: Good morning, everybody. Andreas Fibig - International Flavors & Fragrances, Inc.: Good morning. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Good morning, Mark. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: I guess, first question is on the sales guidance for the year, and specifically, for the back half of the year. So, what gives confidence that you're going to be able to achieve the anticipated acceleration that's implied by the numbers? It would seem like you'd have to get to at least close to 4% in the back half of the year on an organic basis? Andreas Fibig - International Flavors & Fragrances, Inc.: Okay. Mark, thank you for the question. First of all, we see in terms of our win performance going forward is one argument. The second thing is that we had at least on the fragrance side actually a pretty good and favorable comparison for the third quarter. And we had with all the uncertainties around the third quarter, but we had a pretty good start into the third quarter already. Rich, do you want to add? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yes. I think a couple extra comments, Mark, from my side. I think, we do expect on the fragrance compound side to benefit from a couple things: one, some new product launches and wins that are expected to hit in the third quarter or early fourth quarter. We are starting to see signs of stabilization in Latin America. And we do expect to see some reduced headwinds in Greater Asia. And as Andreas talked about, I think we are starting to see signs of stabilization of the inventory levels at our customer standpoint. So we're expecting to see less headwinds from a destocking standpoint in the second half of the year versus the first half of the year. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: Got it. That's helpful. And then on the productivity acceleration in the second quarter, how sustainable is that? And what should we take from the increase in R&D spend? Is there thoughts on increasing that more longer term given just weakness at your customers from a volume perspective? Andreas Fibig - International Flavors & Fragrances, Inc.: Yes. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Mark, let me take the first half and then Andreas will talk to the R&D investments. When we look at our productivity objectives for this year, I'd say we are on target through the first six months. The impact is probably on the range of 3.5 percentage point of improvement in the first half of the year, so somewhere $10 million, $12 million roughly. And I think that positions us well to deliver on the full-year outlook, particularly as we start to get benefits later in the year related to Fragrance Resources, although the bulk of those synergy benefits are going to come next year. Andreas Fibig - International Flavors & Fragrances, Inc.: On the R&D front, we certainly invest wherever we think we get a good return, and we have certainly a pretty robust program in place with really very differentiating projects here. And we are now in basically, in the Phase 2 to look what could be the budget for next year, but it's not decided that we will significantly ramp up the R&D, but we'll certainly put the R&D dollars behind the projects where we think we can really create differentiation. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: Okay. So just to be clear then, Rich, on your first part. So the selling and administrative piece, is that a reasonable level to use over balance of the year? Or with overall expectations trending to longer-term targets, is there more of an increase in accrued compensation expense in the back half of the year? I mean, just sort of puts and takes would be helpful there. Richard A. O’Leary - International Flavors & Fragrances, Inc.: I think there's a couple of different dynamics going on there, Mark. I would say from an SG&A standpoint, there are some of the projects that I've talked about earlier around the corporate projects particularly on the finance area that we will have some increased spending in the second half of the year. On the other side, remember that on a year-over-year basis, last year incentive comp came down as results weakened, and so we will see increased incentive comp expense this year versus last year in the second half. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: Got it. Okay. Thanks, guys.

Your next question comes from the line of Gunther Zechmann with Bernstein.

Hey, guys. Good morning. Andreas Fibig - International Flavors & Fragrances, Inc.: Hey, good morning, Gunther.

Just on raw materials, can you confirm the 3% cost inflation for this year that you highlighted with Q1? And add onto that, given the currency moves we've seen recently, is this guidance is in dollar or in euro terms? Thanks, guys. Andreas Fibig - International Flavors & Fragrances, Inc.: Okay. So for the first one, I think we still see input cost in the 3% range for the full year. There will obviously be some timing impacts related to that when it flows through from a P&L standpoint. The increase is, again, primarily driven by naturals on both business units, whether it's vanilla or citrus, those are impacting both business units. From a currency standpoint, it's based on our current – our guidance that I gave you is based on existing exchange rate, the latest exchange rate. So call it roughly a $1.18 euro-dollar exchange rate, as that flows through, that's embedded in the guidance. And that's on a – the dollar basis will be, what I talked about, net of currency, that will be on a reported dollar basis.

That's, great. Thanks. Have a nice day. Andreas Fibig - International Flavors & Fragrances, Inc.: Okay.

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

Good morning. How are you? Andreas Fibig - International Flavors & Fragrances, Inc.: Good morning. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Good morning, Silke.

I was trying to like puzzle out your results in the Flavor division excluding the acquisitions. So David Michael, this is like $85 million in annual sales and PowderPure like $15 million and $20 million. So if you distribute it through the second quarter, did your North American business grow or didn't it grow because it looks like it's all acquisition growth. It looks like the underlying growth was negative? Richard A. O’Leary - International Flavors & Fragrances, Inc.: No, I mean North America, remember PowderPure, we only had it for a portion of the quarter. It had, on a total company basis a negligible impact in terms of sales growth in the quarter, I would say less than probably 30 basis points at a total company basis. When you look at North America for flavors, I mean the organic business grew mid-single digits and the balance of that relates to the contribution of David Michael's.

Mid-single digits, okay. Where did the growth in flavors come from on the mid-single digit range? Richard A. O’Leary - International Flavors & Fragrances, Inc.: I think it's growth across all the categories. Particularly I would say we had double-digit growth in snacks and dairy and mid-single digit growth in sweet.

Okay. Richard A. O’Leary - International Flavors & Fragrances, Inc.: And it's all driven – it's primarily driven by new wins. Andreas Fibig - International Flavors & Fragrances, Inc.: And we are actually pretty proud because you know just a year and half backwards, you saw that we had not so good of an organic performance in Flavors North America, and team has turned this around quite significantly. And that has led to the mid-single digit growth in North America and on top of it we have the great performance of Tastepoint as well, and that makes it actually a very good and sustainable business for us.

Thank you. And I wanted to ask one question on your cash flows if I may. And I was wondering if you had sort of like an operating cash flow targets for the year. So, in the quarter like I understand even if we strip out the litigation settlement, like your operating cash flows were like $114 million versus $173 million last year. So if you leave all the items in like what is your operating cash flow target for the year? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yes. Look the specific target I'll have to get back to you. I don't think we have that said or communicated that. I would tell you that the decrease year-over-year was roughly on a year-to-date basis $115 million. So $56 million of that is the settlement on ZoomEssence. We've got lower income, including the non-cash gain on the derivative or liquidation of the subsidiary. So that was two combined about $20 million, $10 million in incentive comps year-over-year and there's another $10 million roughly associated with deferred taxes and indirect taxes.

Thanks for the clarification. I'll get back in the queue.

Your next question comes from Faiza Alwy with Deutsche Bank.

Hi, good morning. So I was wondering, Rich Richard A. O’Leary - International Flavors & Fragrances, Inc.: Hey, Faiza, good morning.

Hi, Rich, if you could try and quantify for us the impact this quarter from the destocking and how that offset the new win performance that would be really helpful. Richard A. O’Leary - International Flavors & Fragrances, Inc.: The specifics are – it's hard to specifically identify the impact. I will tell you that we saw a pretty sizable increase in back-outs in the last week, the week and half of the quarter. I will say that on top of that we have seen – we're encouraged by the start to the third quarter.

Okay. And then could you just remind us – you're spending a lot in CapEx. I think you said 4.5% of sales. Could you just remind us sort of where you're building new facilities or sort of where that is going? Richard A. O’Leary - International Flavors & Fragrances, Inc.: It's principally around the facilities in Greater Asia and the deployment of technologies around delivery systems and some of the capacity. But we've got a big piece in China. We've got two new facilities that are going on there. We're going to have to continue. And as you know, we've talked that we're going to have some peaks in next year, this year, next year, and 2019 around 5% because not only do we have China, but we've got Indonesia and India that we have to deal with. Andreas Fibig - International Flavors & Fragrances, Inc.: And in particular, India is important to us because it's a high growth market for us, and we really have to make sure that we have state-of-the art facilities in India, and we will invest in two more manufacturing plants in India and we are well underway to do that.

Okay. Great. And then, Andreas, if you could just expand a little bit more on Tastepoint. Sort of just practically what's the difference in terms of how you're approaching your high growth, medium-sized customers versus what it was maybe before Tastepoint? Andreas Fibig - International Flavors & Fragrances, Inc.: Yes. So I would say that our exposure, and particular in the U.S., towards this middle market was not so good before we acquired actually Ottens two years ago. And we saw it with all the changing trends and the struggle of many of the bigger multinational global companies that we have to change our exposure towards the more dynamic markets. And with the entrance of Ottens, we saw that that's a very, very good hub for us. And we have combined this now with David Michael, made it Tastepoint, and that's creating actually our outlet in terms of customer segmentation towards exactly that dynamic middle market. They have the flexibility of a small company, but they can use the great technology we can give them from IFF, and that makes them uniquely positioned for that marketplace. And what we see so far is, first of all, the launch at IFT in Vegas went very well. The people are very motivated and our customers are very excited about this opportunity to work with us. What we see so far is probably two times to three times of growth we have in our organic business. So I think it's really important. And I would say, as we always say, it's small enough, but still big enough to help with technology.

Okay, great. Thank you.

Your next question comes from the line of Adam Samuelson with Goldman Sachs. Adam Samuelson - Goldman Sachs & Co. LLC: Yes. Thanks. Good morning, everyone. Maybe first on the gross margin side. I'm wondering if you can give a little more color on maybe the price/cost headwinds specifically that you absorbed in the quarter, or if the gross margin decline will be on a percent basis is attributable to acquisitions and confident that can actually flip positive later this year as you get right side up on price/costs. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Let me try to answer that in the following manner. I'll talk to the overall return on sales profile for the two businesses. Flavors improved by roughly 90 basis points year-over-year. It's principally driven by productivity, cost, and volume. And price to input cost net were slightly favorable. And those were offset by unfavorable mix. And to a certain extent and slightly by FX. When you look at the Fragrance return on sales profile, it went down about 140 basis points. Price to input cost and M&A, which is principally related to Fragrance Resources, those were each about 1 point of headwind year-over-year and mix was probably another I'm going to call it 20 basis points. So those three items more than offset the benefits associated with volume and productivity gains. Adam Samuelson - Goldman Sachs & Co. LLC: Okay. And as you think about those pieces moving forward. I mean, Fragrance Resources that impact was fully layered in for the balance of the year. But I presume if there is an expectation of a reacceleration in organic in the back half that you should start to get then some tailwinds on the gross margin line as well. Is that fair? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yes. I think as we look at the second half of the year, I would expect to see improvements in Fragrances, again, as we have better leverage from a volume standpoint. There is still some volatility associated with sales mix. And then I think the biggest part of the benefit associated with Fragrance Resources, as I said earlier, will come next year, as we fully realize – we get the bulk of the synergies next year. Adam Samuelson - Goldman Sachs & Co. LLC: Okay. That's helpful. And then maybe just a quick follow-up actually on Tastepoint. I'm wondering if this is a model that you see as replicable in the current organization in other regions or do you think that has to be done via M&A? And specifically on Tastepoint in the U.S.? Do you have any growth targets or ambitions for that business that you could share? Andreas Fibig - International Flavors & Fragrances, Inc.: No. Actually that's a pretty good point because we see that this works very well in the U.S. market, and the challenge for our Flavors team or Taste team is basically to look, what can we do in the other geographies as well. But a prerequisite for that is a pretty big market because if you just take for example, Europe, you have a very fragmented markets for the different countries, and if you have an asset, let's say, in Spain, you probably can't serve a small customer in Germany. And so the challenge for us is right now to pick the right markets, let's say, a market like Brazil or let's say a market like China which has enough critical mass to cater for this kind of principle or this kind of model, but we're doing it because we really want to export it because what we have seen so far is really excitement on the customers' side and the results are pretty good as well. Adam Samuelson - Goldman Sachs & Co. LLC: Okay. I appreciate the color. Thanks so much. Andreas Fibig - International Flavors & Fragrances, Inc.: You're welcome.

Your next question comes from Katie Grafstein with Barclays.

Hi, thanks. So, first I was just wondering, what drove the strong performance in Ingredients this quarter, especially in Latin America and Europe? And then I was just wondering if you could also talk a little bit about the unfavorable price to input cost dynamic in Fragrances. I know it's been going on for some time, but just curious if the level of rebates have changed or if that dynamic has improved at all since last quarter? Andreas Fibig - International Flavors & Fragrances, Inc.: Okay. Let me take the first part and Rich takes the second part. So, the Ingredients business we have done probably a year ago quite some changes, how we approach our customers. We have also changed a bit our portfolio where we're working with it, we have changed our sales team, we have increased the sales productivity here as well and that has led already to a quite significant turnaround of our Fragrance and Ingredients business, and then we report the active cosmetics in that as well, which has yielded a double-digit growth for last quarter as well. So, all-in-all, actually it's an amazing turnaround story from lackluster performance for couple of years to a good growth engine for now and for going forward as well. Rich? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Okay. So, Katie, let me go back to the pricing input. I'd say overall for the company was basically flat, favorable by about 1 point in Flavors and unfavorable by about 1 point in Fragrances. Your point about has the dynamic changed from last quarter, I would tell you that the pricing impact of Q2 for Fragrances compared to Q1 has improved by about 70%. Andreas Fibig - International Flavors & Fragrances, Inc.: Okay.

Your next question comes from the line of Brett Hundley with Vertical Group.

Hey, good morning, guys. Andreas Fibig - International Flavors & Fragrances, Inc.: Good morning. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Hey, Brett.

My question was centered on Fragrance in Asia, and specifically Fine Fragrance in Asia accelerating during the quarter. And certainly, when you do the math, there's a portion of that that comes from Fragrance Resources in China, but the math also suggests that your legacy business is supplying nice gains in the region as well. And I think you mentioned that in your prepared remarks, so I just wanted to delve further into that and understand your organic performance in the region, and maybe even China specifically, and talking about whether or not that's coming from new wins, improved growth at existing accounts, any color you can give us there might be helpful. Andreas Fibig - International Flavors & Fragrances, Inc.: So, probably, let's start with a general comment is, if you look at Asia and the Fine Fragrance business, it's still a very, very small business. And the part of Fragrance Resources, we have bought into that was even smaller and it was actually a split between consumer and fine here as well. So, we see some movements in Asia, even in terms of Fine Fragrances, which is good for us to see because in the past, it was never a market which was very exposed to that category. We will see how it's going forward, particularly also in geographies like Japan, but certainly also China. So, still a small business, a very small piece of it is also Fragrance Resources and, yeah, we will see how we are going forward. In general, maybe backing off the just Fine Fragrance part going to the Consumer Fragrance, it's a tough environment we see in Asia and also in China, because we see that particularly for some of our bigger customers are that the market is changing and they have to adapt and we have to adapt as well, and here probably also compared with the question we had before on smaller customers, that plays a role as well that you have a good standing with some of the smaller or mid-sized customers in these markets as well. I don't know, Rich, whether you want to add? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah. I mean, as Andreas was talking, I'll talk total Fragrance compounds for Greater Asia, I think keep in mind there was a strong double-digit comp in the prior year. So, if I look at it on an organic basis, it's down mid single-digits in the region, primarily driven by China, which is also down mid single-digits. And then, some of the same pressures we saw and mentioned regarding Indonesia impact, and Flavors also impacted Fragrances.

Okay. And Rich, just quickly, do you have any update on some of the Fragrance Ingredient plant discussions and actions that you are taking in China this year. I think we're around the timing where you are in discussions with the government on a facility and maybe you've been taking some actions to move around some production there as well, do you guys have any update there? Richard A. O’Leary - International Flavors & Fragrances, Inc.: I will say, Brett, that we're still in the discussions, it hasn't been formalized yet. I think it keeps – to be honest, it's kind of kicked out a couple of months effectively. So, we expect it to be in a position to talk about it now, it's going to have to be fourth quarter now.

Okay. Thank you.

Your next question comes from the line of John Roberts with UBS.

Thank you. I assume there's not a Tastepoint equivalent on the Fragrance side. I mean, there are obviously some small dynamic customers there, but there's not really any Ottens or David Michaels to acquire to serve that market I would assume? Andreas Fibig - International Flavors & Fragrances, Inc.: John, actually it's an interesting question because if you look at our Fragrance Resources acquisition, that's actually why we did it for actually two markets. One is in the U.S. because they have some of the smaller customers and we are capitalizing on it. And believe it or not in my home country in Germany, they are serving a lot of smaller customers out of the Hamburg facility as well, and that's very welcome because we were not very strong in Germany despite a good engagement with Henkel. And so, you see Fragrance Resources is a bit an entry into these smaller customer base like Tastepoint.

And then, Rich, if you look at your full year currency guidance and compare it to the first half realized currency, at the EPS level, it looks like in the second half it's roughly neutral year-over-year in currency, and is there a significant difference between the third and fourth quarter? Richard A. O’Leary - International Flavors & Fragrances, Inc.: As I said, when I look at the second half, keep in mind we had a favorable – in relation to our guidance for the full year for tax rate, call it, 22.5%, we were favorable in the first half of the year, that obviously then turns around in the second half of the year. As I also mentioned that I would see more pressure on EPS growth year-over-year in Q3, particularly related to the interest expense dynamic that I mentioned earlier.

I was asking about currency that's there. The currency year-over-year in the first half was significantly higher than full year currency effect? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah. So currency, in general, will be favorable in the second half of the year, more of that coming in Q3 than Q4.

Okay, thank you. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Sorry.

Your next question comes from Gunther Zechmann with Bernstein.

Yeah. I have a spectacular question, actually you just touched on it a little bit. What's your guidance on tax rate? Richard A. O’Leary - International Flavors & Fragrances, Inc.: That's the reason for the second question, okay. Sorry.

Just a short one I promise. It's been quite volatile, what's your guidance on tax rate for the last two quarters of the year, please? Richard A. O’Leary - International Flavors & Fragrances, Inc.: So again, I think my guidance for tax rate hasn't changed since the beginning of the year it's about 22.5%. The calendarization of that of quarter-by-quarter, there is volatility in that depending upon specific items that occur in the mechanics in terms of how we have to report some of the items relative to the pre-tax in the quarter. So in general, the second half will be higher than the first half, but I'm still comfortable with the guidance of full year at 22.5%.

Great. Thank you.

Your next question comes from Mark Astrachan with Stifel, Nicolaus. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: Hey, guys, again thanks for the second question. I guess just broadly Andreas, what are your thoughts on industry consolidation given slowing customer volumes and maybe more specifically, how do you think about bolt-on versus larger scale M&A sort of given where we are and you've done a bunch of smaller deals and yeah, a broader context there would be helpful. Andreas Fibig - International Flavors & Fragrances, Inc.: Sure. Mark, if you look at our M&A strategy, you know that we were not very active for many, many years. We've done now in the last two years round about five acquisitions and they have different, let's say, strategic reasons for it. Three of these acquisitions are basically to look whether we can broaden our exposure to small and midsize customers to grow on that front. Another one is basically going into an adjacent area like active cosmetic ingredients and PowderPure is a pure technology play because it gives us access to a technology which we had not before, which can help us to grow in certain segments of the business. So all of these things we have experienced. We are very happy with all of the five acquisitions and we're very happy that they are actually performing at or above the business case we have given, which is actually pretty, pretty good, if you look at five of these acquisitions. So, we certainly, certainly will go ahead with the bolt-on strategy because it just has paid off and we will make sure that that we continue that path. I certainly can't tell you how many and how big these are because it's a bit opportunistic as well. But that's certainly in the cards and we have to be disciplined here as well how much money we put at work. And for the transformational one, as usually I have to say, it depends on the opportunity and if the opportunity arises, we look at it and then we make a call and a decision. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: And on the bolt-on piece, just out of curiosity, so you've done deals as you mentioned for customers and servicing middle market consumers in some ways, Lucas Meyer was an adjacent category, so as you think about it going forward, if you had a choice, is it that you want more the former or the latter? Andreas Fibig - International Flavors & Fragrances, Inc.: For me the most important question, and here I'm getting Rich already nervous. For me the most important thing is to create value. So, either one we take as long as we see an opportunity for us to create value in the long term, and that's probably the answer. But I have to say, I hope that we will do some more of this technology plays going forward because now we're geared towards this as well, because what we see was PowderPure was a patented drawing technology, which is a very great opportunity with less processed ingredients to go into a market segment, which is very natural and very, very organic, and even prevent food waste streams. That's something which is exciting as well and gives us exposure even some markets where we were not before like, for example, some of the natural color markets, because you know the technology leaves the color metrics intact in the ingredient, which is fantastic and our Flavors team is now looking at different directions and we'll build out of it. And we'll have unfortunately some CapEx, but it's not too big. Richard A. O’Leary - International Flavors & Fragrances, Inc.: So Mark, let me wrap-up from my perspective. I think, both the technology side and the bolt-ons are attractive to us. I think we've demonstrated the ability to create value. And I think what's most important is that we continue to exhibit the financial discipline that we have around the targeting and the selection process. Andreas Fibig - International Flavors & Fragrances, Inc.: Yeah. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: Yeah. That's helpful. Thanks, guys. Andreas Fibig - International Flavors & Fragrances, Inc.: Thank you.

There are no further questions at this time. I'd now like to turn the conference back over to Andreas for closing remarks. Andreas Fibig - International Flavors & Fragrances, Inc.: Yeah. Thank you very much for all the insightful question. I guess, we will talk to, to many of you during our one-on-one calls, as well. Have a good day. Thank you, bye-bye. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Thank you.

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