Natural trend raises Frutarom sales while profit tumbles

By Laura Crowley

- Last updated on GMT

Related tags: Marketing, Profit

An increased demand for natural ingredients has led to a 23 per
cent growth in Frutarom's sales for the third quarter, but profit
is down because of rising raw material costs and the impact of

Israeli flavour and fragrance company Frutarom reported quarterly sales of $87.7m (€59.1m), pushing sales from the first nine months up to $260m (€175.3m). The company said its increased investment in the clean label, organic and functional foods markets, has aided sales growth by meeting customer demand. It also said its rapid growth strategy was paramount, with strategic acquisitions and knowledge in its main business segments and in geographic regions. Frutarom's results and margins were significantly influenced by its seven acquisitions this year, which have contributed to sales growth. They did not contribute to profit, but instead affected profitability. However, with strong sales and finalised acquisitions, the company is confident about the future. Frutarom president and chief executive officer Ori Yehudai said: "The acquisitions made this year will contribute not just to the ongoing upward trend in sales, but also to substantial growth in profit while improving margin."Profit results​ Operating profit dropped 9.8 per cent to $8.3m (€5.6m) in the third quarter compared to $9.2m (€6.2m) in the same period of 2006. This made the operating profit for the first nine months $27.2m (€18.3m), down from $29.3m (€19.8m) in 2006. The operating margin fell from 12.9 per cent in 2006 to 10.9 per cent in this year's third quarter. Gross profit for the third quarter rose 17.1 per cent, however, to reach $31.5m (€21.2m) compared with $26.9m (€18.1m) in the same quarter last year. Gross margin for the third quarter totalled 36 per cent in the quarter compared with 37.8 per cent in the same quarter of 2006. The company said that the effect on profitability was expected, and on completion of the merger process, savings will be made in many expenses and substantial operational improvement achieved. Raw materials​ Frutarom said an additional influence on the results of its activity and margin was the ongoing upward trend in most raw material prices. During the third and fourth quarters, Frutarom has, and will continue to, raise the selling prices of its products to adjust them to the continued rise in raw materials prices Yehudai said: "Similar to many of our customers in the global food market, we are working determinedly to raise the selling prices of our products in order to adjust them to the continuing rise in raw materials prices." Acquisitions​ Frutarom bought Belmay and Jupiter in England at the beginning of the second quarter, and Raychan and Adumim in Israel and the American company Abaco during the third quarter. In October of this year, the German Gewurzmuller group was acquired, and in November, the activities of RAD Natural Technologies were taken over in Israel. Frutarom is working to integrate the businesses with its existing activity, and hopes to take advantage of cross selling potential. At the same time it hopes to save costs and significantly improving the margins of those firms. Frutarom estimates that as of the first quarter of 2008, each of the acquisitions will not only contribute to the continued trend of sales growth, but also to growth in profit.

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