February 10, 2011 / 12:22 PM / in 7 years

UPDATE 3-Costs hit International Flavors profit; shares fall

* Q4 adj EPS 68 cents vs Street forecast 74 cents

* Revenue rises 8 percent to $629.9 million

* Cost of goods sold, R&D expenses jump

* Shares fall 4.2 percent in premarket trading (Adds cost info; Updates stock)

By Ernest Scheyder

NEW YORK, Feb 10 (Reuters) - High costs thwarted quarterly profit at International Flavors & Fragrances Inc (IFF.N) and overshadowed better-than-expected revenue, sending its shares down 4.2 percent in premarket trading.

Consumers are increasingly willing to buy expensive perfumes and foods made with IFF’s products, though rising raw material costs threaten to erode margins and test the company’s ability to raise prices in 2011.

IFF said its cost of goods sold increased 8 percent, its administrative costs rose 10 percent and research expenses rose 30 percent over the year-ago period.

IFF rival -- Swiss fragrance and flavor maker Givaudan GIVN.VX -- said on Tuesday it was preparing price increases to offset a big increase in raw material costs that will mean lower profitability over the next few months. [ID:nLDE71617D]

“As we enter 2011, we are optimistic in our ability to deliver local currency sales and EPS growth in line with our long-term financial targets and a margin profile that is approaching our long-term target,” Chief Executive Doug Tough said in a statement.

    For the fourth quarter, IFF reported net income of $55.6 million, or 68 cents per share, compared with $47.4 million, or 59 cents per share, in the year-ago period.

    Excluding European restructuring charges, IFF posted a profit of 69 cents per share. By that measure, analysts expected earnings of 74 cents per share, according to Thomson Reuters I/B/E/S.

    Revenue rose 8 percent to $629.9 million. Analysts had expected $621.5 million.

    Sales rose 10 percent to $298.2 million in the company’s flavors unit, and 5 percent to $331.6 million in the fragrances unit.

    The New York-based company’s shares fell $2.45, or 4.2 percent, to $56 in premarket trading. The stock has traded between $40.86 and $59.50 in the past 52 weeks. (Reporting by Ernest Scheyder, editing by Derek Caney and Maureen Bavdek)

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