IFF (NYSE: IFF) reported financial results for the third quarter
ended September 30, 2023.
Management Commentary
"In the third quarter we delivered both sales and profit ahead
of our expectations," said IFF CEO Frank Clyburn. "Our volume
performance improved sequentially across the majority of our
business, and we continued to benefit from our pricing actions and
productivity initiatives. Our emphasis to drive working capital
improvement yielded strong free cash flow generation, led by a
significant reduction in inventory over the course of the year. As
we look ahead, we remain committed to delivering our previously
announced full year 2023 sales guidance range, and now believe that
we can achieve full year 2023 adjusted operating EBITDA at the mid
to high-end of our previously announced guidance range."
Clyburn continued, "We also continue to execute our portfolio
optimization efforts with the announced sale of Lucas Meyers
Cosmetics. Additionally, we are rapidly pursuing divestitures
within our portfolio to further reduce our outstanding debt and
strengthen our capital structure."
Third Quarter 2023 Consolidated Financial Results
- Reported net sales for the third quarter were $2.82 billion, a
decrease of 8% versus the prior-year period. On a comparable
basis2, currency neutral sales1 decreased 3% versus the prior-year
period, as growth in Scent and Health & Biosciences was more
than offset by softness in Nourish and Pharma Solutions. Volume
performance improved sequentially across nearly all businesses, yet
remained challenged versus the year-ago period, and pricing
continued to be strong.
- Income before taxes on a reported basis for the third quarter
was $59 million. Adjusted operating EBITDA1 for the third quarter
was $506 million. On a comparable basis2, currency neutral adjusted
operating EBITDA1 declined 10% versus the prior-year period, as
pricing and productivity gains were more than offset by lower
volumes and unfavorable manufacturing absorption related to the
Company's inventory improvement program.
- Reported earnings per share (EPS) for the third quarter was
$0.10. Adjusted EPS excluding amortization1 was $0.89 per diluted
share.
- Cash flows from operations at the end of the third quarter was
$795 million, and free cash flow defined as cash flows from
operations less capital expenditures totaled $405 million. This
cash flow performance was driven primarily by a strong improvement
in inventories, and led by a greater than $600 million reduction in
inventory versus year-end 2022. Total debt to trailing twelve
months net income at the end of the third quarter was 573.6x. Net
debt to credit adjusted EBITDA1 at the end of the third quarter was
4.6x.
Nourish Segment
- On a reported basis, third quarter sales were $1.45 billion. On
a comparable basis2, currency neutral sales1 decreased 7% against a
strong double-digit comparison from the year-ago period. Flavors
returned to growth in the third quarter and Food Design remained
resilient, down modestly versus the prior-year period. Functional
Ingredients performance improved sequentially, yet declined
mid-teens versus the year-ago period.
- Nourish adjusted operating EBITDA1 was $178 million and
adjusted operating EBITDA margin1 was 12.3% in the third quarter.
On a comparable basis2, currency neutral adjusted operating EBITDA1
declined 26% as price increases and productivity gains were more
than offset by lower volumes and unfavorable manufacturing
absorption related to the Company's inventory reduction
program.
Health & Biosciences Segment
- On a reported basis, third quarter sales were $518 million. On
a comparable basis2, currency neutral sales1 increased 2% driven by
growth in Cultures & Food Enzymes, Grain Processing, Home &
Personal Care and Animal Nutrition.
- Health & Biosciences adjusted operating EBITDA1 was $150
million and adjusted operating EBITDA margin1 was 29.0% in the
third quarter. On a comparable basis2, currency neutral adjusted
operating EBITDA1 improved 12% led by price increases and
productivity gains.
Scent Segment
- On a reported basis, third quarter sales were $615 million. On
a comparable basis2, currency neutral sales1 increased 7% led by
double-digit growth in Consumer Fragrance and a high-single digit
increase in Fine Fragrance, with balanced contributions from volume
and price.
- Scent adjusted operating EBITDA1 was $131 million and adjusted
operating EBITDA margin1 was 21.3% in the third quarter. On a
comparable basis2, currency neutral adjusted operating EBITDA1
increased a very strong 19% led by net favorable price to inflation
and productivity gains.
Pharma Solutions Segment
- On a reported basis, third quarter sales were $238 million. On
a comparable basis2, currency neutral sales1 decreased 9% primarily
due to a strong double-digit comparison from the year ago
period.
- Pharma Solutions adjusted operating EBITDA1 was $47 million and
adjusted operating EBITDA margin1 was 19.7% in the third quarter.
On a comparable basis2, currency neutral adjusted operating EBITDA1
declined 34% as price increases and productivity gains were more
than offset predominantly by lower volumes.
Financial Guidance
The Company reconfirmed its full year 2023 sales guidance range
of $11.3 billion to $11.6 billion and now expects to be at the mid
to high end of its full year 2023 adjusted operating EBITDA
guidance range of $1.85 billion to $2.0 billion driven primarily by
favorable price to inflation and improved productivity.
Based on current market foreign exchange rates, the Company
expects that foreign exchange will have approximately 2% adverse
impact to sales growth and approximately a 6% adverse impact to
adjusted operating EBITDA growth in 2023.
The Company cannot reconcile its expected adjusted operating
EBITDA without unreasonable effort because certain items that
impact net income and other reconciling metrics are out of the
Company's control and/or cannot be reasonably predicted at this
time. These items include but are not limited to acquisition,
divestiture and integration related costs, gains (losses) on
business disposals, and regulatory costs.
Audio Webcast
A live webcast to discuss the Company’s third quarter 2023
financial results will be held on November 7, 2023, at 9:00 a.m.
ET. The webcast and accompanying slide presentation may be accessed
on the Company’s IR website at ir.iff.com. For those unable to listen to the live
webcast, a recorded version will be made available on the Company’s
website approximately one hour after the event and will remain
available on IFF’s website for one year.
Cautionary Statement Under The Private
Securities Litigation Reform Act of 1995
Statements in this press release, which are not historical facts
or information, are “forward-looking statements” within the meaning
of The Private Securities Litigation Reform Act of 1995. Such
forward looking statements are based on management’s current
assumptions, estimates and expectations including those concerning
the ongoing impacts of COVID-19 and our plans to respond to its
implications; the expected impact of global supply chain
challenges; expectations regarding sales and profit for the fiscal
year 2023, including the impact of foreign exchange, pricing
actions, raw materials, energy and sourcing, logistics and
manufacturing costs; expectations of the impact of inflationary
pressures and the pricing actions to offset exposure to such
impacts; the impact of high input costs, including commodities, raw
materials, transportation and energy; our ability to drive cost
discipline measures and the ability to recover margin to
pre-inflation levels; expectations regarding the implementation of
our refreshed growth-focused strategy; expectations around our
business divestitures and the progress of our portfolio
optimization strategy (including the sale process for our Cosmetic
Ingredients business), through non-core business divestitures and
acquisitions; our combination with N&B, including the expected
benefits and synergies of the N&B Transaction and future
opportunities for the combined company, the success of our
integration efforts and ability to deliver on our synergy
commitments as well as future opportunities for the combined
company; the success of our optimization of our portfolio; the
impact of global economic uncertainty or recessionary pressures on
demand for consumer products; the growth potential of the markets
in which we operate, including the emerging markets; expected
capital expenditures in 2023; the expected costs and benefits of
our ongoing optimization of our manufacturing operations, including
the expected number of closings; expected cash flow and
availability of capital resources to fund our operations and meet
our debt service requirements; our ability to drive reductions in
expenses; our strategic investments in capacity and increasing
inventory to drive improved profitability; our ability to innovate
and execute on specific consumer trends and demands; our ability
enhance our innovation efforts and drive cost efficiencies; and our
ability to continue to generate value for, and return cash to, our
shareholders.
These forward-looking statements should be evaluated with
consideration given to the many risks and uncertainties inherent in
our business that could cause actual results and events to differ
materially from those in the forward-looking statements. Certain of
such forward-looking information may be identified by such terms as
“expect”, “anticipate”, “believe”, “intend”, “outlook”, “may”,
“estimate”, “should”, “predict” and similar terms or variations
thereof. Such forward-looking statements are based on a series of
expectations, assumptions, estimates and projections about the
Company, are not guarantees of future results or performance, and
involve significant risks, uncertainties and other factors,
including assumptions and projections, for all forward periods. Our
actual results may differ materially from any future results
expressed or implied by such forward-looking statements.
Such risks, uncertainties and other factors include, among
others, the following: (1) inflationary trends, including in the
price of our input costs, such as raw materials, transportation and
energy; (2) supply chain disruptions, geopolitical developments,
including the Russia-Ukraine war, the Israel-Hamas war, or climate
change related events (including severe weather events) that may
affect our suppliers or procurement of raw materials; (3) our
ability to successfully execute the next phase of our strategic
transformation; (4) risks related to the integration of the N&B
business, including whether we will realize the benefits
anticipated from the merger in the expected time frame; (5) our
substantial amount of indebtedness and its impact on our liquidity,
credit ratings and ability to return capital to its shareholders;
(6) our ability to enter into or close strategic transactions or
divestment or successfully establish and manage acquisitions,
collaborations, joint ventures or partnerships; (7) our ability to
successfully market to our expanded and diverse customer base; (8)
our ability to effectively compete in our market and develop and
introduce new products that meet customers’ needs; (9) our ability
to retain key employees; (10) changes in demand from large
multi-national customers due to increased competition and our
ability to maintain “core list” status with customers; (11) our
ability to successfully develop innovative and cost-effective
products that allow customers to achieve their own profitability
expectations; (12) the impact of global health crises, such as the
COVID-19 pandemic, on our supply chains, global operations, our
customers and our suppliers; (13) disruption in the development,
manufacture, distribution or sale of our products from natural
disasters (such as the COVID-19 pandemic), public health crises,
international conflicts (such as the Russia-Ukraine war and the
Israel-Hamas war), terrorist acts, labor strikes, political or
economic crises (such as the uncertainty related to protracted U.S.
federal debt ceiling negotiations), accidents and similar events;
(14) volatility and increases in the price of raw materials, energy
and transportation; (15) the impact of a significant data breach or
other disruption in our information technology systems, and our
ability to comply with data protection laws in the U.S. and abroad;
(16) our ability to comply with, and the costs associated with
compliance with, regulatory requirements and industry standards,
including regarding product safety, quality, efficacy and
environmental impact; (17) our ability to meet increasing customer,
consumer, shareholder and regulatory focus on sustainability; (18)
defects, quality issues (including product recalls), inadequate
disclosure or misuse with respect to the products and capabilities;
(19) our ability to react in a timely and cost-effective manner to
changes in consumer preferences and demands, including increased
awareness of health and wellness; (20) our ability to benefit from
our investments and expansion in emerging markets; (21) the impact
of currency fluctuations or devaluations in the principal foreign
markets in which we operate; (22) economic, regulatory and
political risks associated with our international operations; (23)
the impact of global economic uncertainty (including increased
inflation) on demand for consumer products; (24) our ability to
comply with, and the costs associated with compliance with, U.S.
and foreign environmental protection laws; (25) our ability to
successfully manage our working capital and inventory balances;
(26) the impact of our or our counterparties’ failure to comply
with the U.S. Foreign Corrupt Practices Act, similar U.S. or
foreign anti-bribery and anti-corruption laws and regulations,
applicable sanctions laws and regulations in the jurisdictions in
which we operate or ethical business practices and related laws and
regulations; (27) any impairment on our tangible or intangible long
lived assets, including goodwill associated with the N&B merger
and the acquisition of Frutarom; (28) our ability to protect our
intellectual property rights; (29) the impact of the outcomes of
legal claims, disputes, regulatory investigations and litigation,
related to intellectual property, product liability, competition
and antitrust, environmental matters, indirect taxes or other
matters; (30) changes in market conditions or governmental
regulations relating to our pension and postretirement obligations;
(31) the impact of changes in federal, state, local and
international tax legislation or policies, including the Tax Cuts
and Jobs Act, with respect to transfer pricing and state aid, and
adverse results of tax audits, assessments, or disputes; (32) the
impact of the United Kingdom’s departure from the European Union;
(33) the impact of the phase out of the London Interbank Offered
Rate (LIBOR) on interest expense; and (34) the impact of any tax
liability resulting from the N&B Transaction; and (35) our
ability to comply with data protection laws in the U.S. and
abroad.
The foregoing list of important factors does not include all
such factors, nor necessarily present them in order of importance.
In addition, you should consult other disclosures made by the
Company (such as in our other filings with the SEC or in company
press releases) for other factors that may cause actual results to
differ materially from those projected by the Company. Please refer
to Part I. Item 1A., Risk Factors, of the Company’s Annual Report
on Form 10-K filed with the SEC on February 27, 2023 for additional
information regarding factors that could affect our results of
operations, financial condition and liquidity.
We intend our forward-looking statements to speak only as of the
time of such statements and do not undertake or plan to update or
revise them as more information becomes available or to reflect
changes in expectations, assumptions or results. We can give no
assurance that such expectations or forward-looking statements will
prove to be correct. An occurrence of, or any material adverse
change in, one or more of the risk factors or risks and
uncertainties referred to in this press release or included in our
other periodic reports filed with the SEC could materially and
adversely impact our operations and our future financial results.
Any public statements or disclosures made by us following this
press release that modify or impact any of the forward-looking
statements contained in or accompanying this press release will be
deemed to modify or supersede such outlook or other forward-looking
statements in or accompanying this press release.
Use of Non-GAAP Financial
Measures
We provide in this press release non-GAAP financial measures,
including: (i) comparable currency neutral sales; (ii) adjusted
operating EBITDA and comparable currency neutral adjusted operating
EBITDA; (iii) adjusted operating EBITDA margin; (iv) adjusted EPS
ex amortization; (v) free cash flow; and (vi) net debt to credit
adjusted EBITDA.
Our non-GAAP financial measures are defined below.
Currency Neutral metrics eliminate the effects that result from
translating non-U.S. currencies to U.S. dollars. We calculate
currency neutral numbers by translating current year invoiced sale
amounts at the exchange rates used for the corresponding prior year
period. We use currency neutral results in our analysis of
subsidiary or segment performance. We also use currency neutral
numbers when analyzing our performance against our competitors.
Adjusted operating EBITDA and adjusted operating EBITDA margin
exclude depreciation and amortization expense, interest expense,
other (expense) income, net, and certain non-recurring or unusual
items that are not part of recurring operations such as,
restructuring and other charges, impairment of goodwill,
acquisition, divestiture, and integration related costs, losses
(gains) on business disposals, strategic initiatives costs,
regulatory costs, and other items.
Adjusted EPS ex Amortization excludes the impact of
non-operational items including, restructuring and other charges,
impairment of goodwill, impairment of long-lived assets,
acquisition, divestiture, and integration related costs, losses
(gains) on business disposals, gain on China facility relocation,
strategic initiatives costs, regulatory costs, and other items that
are not a part of recurring operations.
Free Cash Flow is operating cash flow (i.e. cash flow from
operations) less capital expenditures.
Net debt to credit adjusted EBITDA is the leverage ratio used in
our credit agreements and defined as net debt (which is debt for
borrowed money less cash and cash equivalents) divided by the
trailing 12-month credit adjusted EBITDA. Credit adjusted EBITDA is
defined as income (loss) before income taxes, depreciation and
amortization expense, interest expense, specified items and
non-cash items.
Comparable results for the third quarter exclude the impact of
divestitures and acquisitions.
These non-GAAP measures are intended to provide additional
information regarding our underlying operating results and
comparable year-over-year performance. Such information is
supplemental to information presented in accordance with GAAP and
is not intended to represent a presentation in accordance with
GAAP. In discussing our historical and expected future results and
financial condition, we believe it is meaningful for investors to
be made aware of and to be assisted in a better understanding of,
on a period-to-period comparable basis, financial amounts both
including and excluding these identified items, as well as the
impact of exchange rate fluctuations. These non-GAAP measures
should not be considered in isolation or as substitutes for
analysis of the Company’s results under GAAP and may not be
comparable to other companies’ calculation of such metrics.
The Company cannot reconcile its expected adjusted operating
EBITDA under "Financial Guidance" without unreasonable effort
because certain items that impact net income and other reconciling
metrics are out of the Company's control and/or cannot be
reasonably predicted at this time. These items include but are not
limited to acquisition, divestiture and integration related costs,
gains (losses) on business disposals, and regulatory costs.
Welcome to IFF
At IFF (NYSE: IFF), an industry leader in food, beverage, scent,
health and biosciences, science and creativity meet to create
essential solutions for a better world – from global icons to
unexpected innovations and experiences. With the beauty of art and
the precision of science, we are an international collective of
thinkers who partners with customers to bring scents, tastes,
experiences, ingredients and solutions for products the world
craves. Together, we will do more good for people and planet. Learn
more at iff.com, Twitter, Facebook, Instagram, and LinkedIn.
_____________________________ 1 Schedules at the end of this
release contain reconciliations of reported GAAP to Non-GAAP
metrics. See Use of Non-GAAP Financial Measures for explanations of
our Non-GAAP metrics. 2 Comparable results for the third quarter
exclude the impact of divestitures and acquisitions.
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Media Relations: Paulina Heinkel 332.877.5339
Media.request@iff.com
Investor Relations: Michael Bender 212.708.7263
Investor.Relations@iff.com
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