International Flavors & Fragrances Inc. missed Wall Street’s expectations Thursday when it posted a third-quarter profit decline of 2 percent, due in part to rising interest payments, higher raw material costs and slowing sales in North America.

This story first appeared in the October 31, 2008 issue of WWD. Subscribe Today.

For the three months ended Sept. 30, the New York-based global maker of flavors and scents reported income of $57.7 million, or 73 cents a diluted share, compared with $58.7 million, or 67 cents, for the same quarter last year. Sales grew 5.9 percent to $617.5 million, from $583.3 million. Analysts polled by Yahoo expected earnings per share of 77 cents on revenue of $629.2 million.

Net income for the nine months fell 9.6 percent to $180.7 million, or $2.25, versus $199.9 million, or $2.23, for the same 2007 period. Sales grew 7.4 percent to $1.85 billion, from $1.72 billion.

The company said revenue rose due to favorable foreign exchange rates, higher prices and a greater volume sold, which helped to offset a sales decline of 1 percent in North America. Sales in three of the company’s other regions delivered high-single-digit growth, the company said.

IFF also said interest expense increased, as it paid $18 million compared with $8.6 million a year ago. This included borrowed money to buy back shares and interest payments related to those loans, totaling $6.3 million, plus another $4.4 million that was paid for interest rate swaps.

“We continue to make progress on our stratewgic initiatives in flavors, which is driving positive trends across all categories, albeit at a slower rate than earlier in the year,” said chairman and chief executive officer Robert M. Amen. “In addition, we are seeing an improvement in our fragrances business, though challenges still remain.”

Sales for fragrances were up 3.8 percent to $339.3 million for the quarter, and up 3.9 percent to $1 billion for the nine months. Quarterly sales for the flavors business grew 8.5 percent to $278.2 million, and 11.9 percent to $841.8 million for the nine months.

Fine fragrances and beauty care had a “significant diminution in customer demand during September,” the company said, due to a local currency sales decline. On a regional basis, Europe, Africa and the Middle East reported that sales increased by 10 percent, and were offset by a 14 percent decline in North America, which was an improvement over the first two quarters of the year. Sales in Latin America and Greater Asia also had “strong growth,” according to the company.

Looking ahead, IFF said it is “cautiously optimistic,” and expects fourth-quarter revenue to be flat or up slightly. Analysts are looking for earnings of 58 cents a share, on sales of $584.4 million.