Question-and-Answer Session
Operator
Thank you, sir. (Operator instructions) We’ll take our first question from Mike Sisson, KeyBanc.
Mike Sisson – KeyBanc
Hi, guys, good morning.
Rob Amen
Good morning, Mike.
Richard O'Leary
Good morning, Mike.
Mike Sisson – KeyBanc
It looks like the -- when you take a look at your first quarter results that the raw material situation is really the big headwind -- I know Fine Fragrances was pretty weak, but when look at the little chart, the input costs refer that $0.16. So I mean, do you just sort of have to wait unfortunately till that reverses until the raw material fall before you can get some margin expansion going forward?
Rob Amen
Well, Mike, first of all, raw material stocks is a function of flowing through the inventory, when average inventories were there for a while. We’ve begun to see the incremental purchase prices moderate, but it’s going to take a while for that to average down. And I think earlier for the fourth quarter call we said we didn’t really expect to see improvement in material cost until the second half of the year. And I still think that’s accurate. We may see some commodities come in sooner, but many of the natural materials continue to be at high level. And that has been a big drag.
Richard O'Leary
And Mike, as we talked about it last time, (inaudible) several of the key contracts have either quarterly or semiannual resets. So those -- we do believe from a market standpoint that the peak levels in terms of purchase prices were late last year, but we’ve got to go through the reset process on the contracts and then have it flow through the inventories.
Mike Sisson – KeyBanc
Okay. Then, on a sequential basis then, when you think about second and third quarter, it looks like in total Flavors and non-Fine Fragrances are going to hold up very well. If you assume that Fine Fragrances are about in that range that you suggested, it looked like local currency sales could be down sort of low -- sort of mid-single digits. So when you think about profitability, as we think about second, third and fourth quarter, can you see a sequential improvement sort of in that given the raw material headwind?
Rob Amen
Sequential to what? Sequential to --
Mike Sisson – KeyBanc
To the first quarter.
Rob Amen
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