International Flavors & Fragrances Inc. 2026 Q2 Earnings Call

Good morning, good afternoon, and good evening, everyone. Welcome to IFF's Second Quarter 2026 Earnings Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability.

A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all sales and EBITDA growth numbers that we will be speaking to on the call are on a comparable currency-neutral basis unless otherwise noted. Given the announced divestiture of Food Ingredients, we will discuss results and guidance on a continuing operations basis unless otherwise noted. Our P&L financials are presented on a continuing operations basis, while cash flow, net debt to credit-adjusted EBITDA leverage, and CapEx are presented on a total company basis, which includes both continuing operations and discontinued operations. With me on the call today is our CEO, Erik Fyrwald, and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Eric.

Thanks, Mike, hello, everyone. Thank you for joining us today. IFF's strong second quarter results reflect our relentless focus on our customers while driving productivity and cash flow improvements. IFF delivered volume growth across the board, disciplined margin execution, and robust free cash flow generation, strengthening our financial position and focusing our commercial and innovation pipelines to be even more competitive. We are transforming IFF with the divestiture of Food Ingredients, and a solid first half of 2026 gives us confidence in our ability to achieve our targets for the full year, even as market conditions remain uncertain due to the events in the Middle East. I'll start today's call by briefly summarizing the first half results and providing an update on our portfolio transformation efforts following our announced agreement to divest Food Ingredients.

I'll then turn the call over to Mike, who will provide more details on the second quarter results, segment performance, and our outlook for 2026. Turning to slide six. In the first half of 2026, our team delivered strong results across IFF on a total and continuing operation basis. Overall, on a continuing operations basis, our business achieved 4% sales growth and an 8% gain in EBITDA, driven by volume growth and productivity improvements. Our free cash flow for the first half of the year totaled $378 million, representing a gain of $284 million year-over-year with strong net working capital improvement, a focus of ours coming into the year. In the second quarter, we announced a significant milestone with the divestiture of the Food Ingredients business to CVC in a transaction that values the business at about $4.3 billion or about 10 times EV to EBITDA.

This transaction is a defining step in our portfolio transformation and simplification. Post-close, IFF will have a sharper focus around our higher growth, higher margin Taste, Scent, and Health & Biosciences businesses. With the Food Ingredients divestiture, there are stranded costs that represent about $100 million of corporate and functional expenses previously allocated to the Food Ingredients business that are expected to remain with IFF following the close of the transaction. With the move to discontinued operations, these costs are now spread amongst the remaining businesses of Taste, Scent, and Health & Biosciences and are currently temporarily pressuring the business unit margins. We are moving with urgency and currently have a remediation plan in place with actions already underway to eliminate these costs over time.

We expect to eliminate about two-thirds of these costs within the first 12 months following the transaction close and the remaining within the second full year post-transaction close. The combination of the portfolio simplification from the divestiture and the planned reduction of stranded costs is expected to support strong EBITDA margin expansion over the next few years. We are confident in our ability to execute this plan and over time eliminate these costs while enhancing the profitability and earnings power of the remaining IFF portfolio. Also, on July 20th, we announced a definitive agreement to divest our portfolio of non-strategic to us botanical extracts, vitamins and minerals, and food enhancement products, which are primarily included in our Health & Biosciences and Taste segments.

This business represents about $170 million in annual sales with a mid-single-digit EBITDA margin, and we expect to receive about $75 million in proceeds from the transaction, or about 10 times multiple. Much of this business was related to IFF's previous Frutarom acquisition, and the transaction further simplifies and upscales our remaining portfolio. We expect this transaction to close in the fourth quarter of 2026. We also announced our expected use of proceeds from the Food Ingredients divestiture, through which we will strengthen our balance sheet and return capital to shareholders. Today, we announced our plan to reduce debt by greater than $1 billion and allocate about $2.5 billion to a share repurchase program with about $500 million of that expected to be executed in the second half of 2026 in advance of the transaction close.

This reflects our confidence in IFF's long-term value creation opportunities and the compelling return profile of repurchases at current valuation levels. Given the Food Ingredients divestiture and the renewed focus on the remaining three businesses, we are introducing full year 2026 guidance on a continuing operations basis. This will provide greater visibility into the stronger growth and margin profile of IFF's portfolio without Food Ingredients. Mike will provide additional details later in the call. While there is more to do, I am very proud of how our global team continues to serve our customers, deliver on our commitments, and execute our strategy. IFF's strengthened balance sheet reflects disciplined capital allocation, and we are encouraged by the momentum we are building as volume growth, productivity, and enterprise-wide transformation initiatives drive tangible profitability improvements.

The first half of the year has demonstrated IFF's unwavering commitment to achieving the strategic goals we have set out. We will continue to execute, but I would like to recognize the dedication of our leadership team and IFFers all around the globe for delivering high-value solutions that address evolving customer and market needs with our leading innovations. Moving to slide seven. We are excited about IFF's transformation following our agreement to sell the Food Ingredients business to CVC Capital Partners. The transaction is progressing well with both sides actively engaged and moving with speed, and we remain on path to close by the end of the second quarter of 2027. The divestiture strengthens our position as an industry leader and global player in strong consumer-centric ingredient end markets. With a streamlined portfolio, IFF's businesses best align with the opportunities of long-term mega trends in health, wellbeing, food, and sustainability.

We will continue to be a partner in the Food Ingredients business by retaining 10% ownership, permitting our shareholders to participate in continued value creation under CVC's guidance, and it enables very effective and efficient collaborations. With a simplified customer base and manufacturing network, IFF will be better positioned to accelerate innovation, drive investment in R&D, improve execution, enhance free cash flow conversion, and deliver a stronger long-term growth and margin profile. Taste, Scent, and Health & Biosciences are primed for strong revenue and EBITDA growth opportunities powered by shared naturals and biotech capabilities. By focusing on these high margin core segments of our business, we are building upon the growth-oriented simplification strategy we have been progressing towards since the beginning of 2024. Turning to slide eight. In addition to positioning IFF to drive sustained, profitable long-term growth, I'd like to also outline the expected use of proceeds from the Food Ingredients transaction.

We will continue to strengthen our balance sheet by using greater than $1 billion of proceeds to reduce debt, and we expect net debt to EBITDA to finish 2027 between 2.0 and 2.5 times. This would mark a significant improvement from the 4.5 times net debt to credit-adjusted EBITDA leverage level at the beginning of 2024. We are also prioritizing targeted share repurchases as part of our use of proceeds. The board has authorized a $2.5 billion share repurchase program, inclusive of about $400 million remaining under the prior authorization.

We expect to execute approximately $500 million of repurchases in the second half of 2026 ahead of the Food Ingredients transaction close, reflecting our confidence in IFF's long-term value creation opportunities and the compelling return profile of repurchases at current valuation levels. This may result in a modest temporary increase in net debt to credit-adjusted EBITDA, which we expect to manage within our broader deleveraging plan. The remaining authorization is expected to be executed following the transaction close, with the program targeted for completion by the end of 2027. For the remaining proceeds, we also plan to reinvest in our growth businesses by prioritizing high return opportunities across the core portfolio. With that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results.

Mike? Thank you, Eric, and thanks everyone for joining us today.