Executive Vice President, Chief Financial Officer at International Flavors & Fragrances
Thank you, Frank, and welcome, everyone. Starting on Slide 8, I would like to provide an overview of our third quarter performance. In Q3, IFF generated approximately $3.1 billion in sales, representing 10% year-over-year growth on a comparable currency-neutral basis, primarily driven by double-digit growth in our Nourish and Pharma Solutions divisions. Pricing was a strong contributor to growth and as expected volumes were down marginally in the quarter. It should be noted that on a two-year average basis, which factors our strong 8% year-ago comparisons, volume growth is running at about 4%. And while we have seen strong volume growth across most parts of our Pharma and Scent businesses in the third quarter, Nourish and H&B volumes were challenged.
To provide some more color, nearly two-thirds of our volume decline in the quarter came in protein solutions, which is part of the Nourish business, where we have seen customer destocking to address higher inventory levels in response to sluggish end-consumer demand. In H&B, our health volumes were also challenged in the third quarter, a direct result from weakening market demand in the U.S. and Europe reflecting in public market data.
Gross margin was negatively affected by the significant inflationary pressures we faced across our markets. Yet through strategic pricing and productivity gains, IFF delivered adjusted operating EBITDA growth of 3% on a comparable currency-neutral basis. We also delivered solid adjusted earnings per share excluding amortization of $1.36. The strong dollar continued to be a headwind to our business. In the third quarter we saw an approximately 7% impact on sales and 8% adverse impact on EBITDA due to foreign exchange.
Before moving on, I want to share that we recorded a non-cash goodwill impairment charge of $2.25 billion for the third quarter related to our Health & Biosciences business. The primary drivers of the goodwill impairment are related to increases in interest rates and lower business projections due to adverse macroeconomic impacts on volume, continued cost inflation and unfavorable foreign exchange rate variations.
Now, moving to Slide 9, I will provide a brief overview of the performance across our business segments. In the third quarter, we achieved year-over-year currency-neutral sales growth of 10%, driven by broad-based sales growth across all of our business segments and nearly all of our sub-business units. Nourish had another strong quarter with double-digit growth and particularly encouraging performance from Flavors, Ingredients and Food Designs. Health & Biosciences also saw strong single-digit growth despite pressure in our grain processing business. Scent again saw a continued currency-neutral sales growth in the high single-digits, thanks to our Fine Fragrance, Consumer Fragrance and Ingredients businesses. Pharma Solutions rebound continues with an impressive 28% increase in sales, driven by continued strength in both Industrial and Pharma.
Turning to Slide 10 and looking at our profitability for the quarter. Third quarter adjusted EBITDA totaled $612 million. Comparable currency-neutral adjusted operating EBITDA grew 3% year-over-year due to the disciplined pricing actions to fully recover total inflation. We also achieved meaningful productivity gains and operational efficiencies from our productivity program, which has helped offset volume headwinds. As discussed last quarter, while we are clearly seeing signs of raw material inflation easing, we will continue taking appropriate targeted actions to offset inflation to maintain profitability.
Now, on Slide 11, I'd like to discuss the underlying dynamics impact in the third quarter performance of each of our business segments. Nourish delivered another strong top line quarter. Nourish's 10% year-over-year sales growth on a currency-neutral basis was driven by double-digit growth in Food Design and Ingredients and sustained growth in our Flavors business. Health & Biosciences also maintained strong performance, delivering 3% in comparable currency-neutral sales growth driven by mid-single-digit growth in our Culture & Food Enzymes, Health, Home & Personal Care and Animal Nutrition offerings. However, for each of these segments we saw 4% and 1% year-over-year decreases, respectively, and comparable currency-neutral adjusted operating EBITDA as our price increases and productivity gains we discussed earlier were offset by lower volumes.
Our Scent division once again delivered a strong performance with 9% currency-neutral sales growth this quarter, driven by mid-teen growth in Fine Fragrance and Fragrance Ingredients and high single-digit growth in Consumer Fragrance. The division also saw 3% growth in currency-neutral adjusted operating EBITDA due to volume growth, our price increases and productivity gains. Pharma Solutions contributed very strong performance with 28% growth in currency-neutral sales led by strong double-digit growth in Pharma and Industrial. Similar to Scent, Pharma Solutions also benefited from strong volume, our pricing actions and the productivity gains we achieved in the quarter, leading to an impressive 76% growth in currency-neutral adjusted operating EBITDA.
Turning now to Slide 12, I would like to cover our cash flow and leverage position. Through the first nine months, we generated $189 million in cash from operations with capex finishing at $344 million or approximately 3.6% of sales. The net result is that our free cash flow through nine months was a negative $155 million. Our free cash flow has been significantly impacted by much higher inventories due to a combination of inflation, strategic increases and improved customer service levels and the slowing volumes. In addition, included in our free cash flow numbers are one-time deal and integration related costs.
As a result, we are implementing a series of initiatives to improve our cash flow with an intense focus on managing inventories down. Much of this will be driven by leveraging new S&OP processes and tools in concert with specific targets for each business unit which we will believe will improve our inventory efficiency across all parts of the business while continuing to maintain high service levels to our customers. In addition, we will be taking targeted actions to reduce capex then and improve other working capital metrics to further improve our cash position.
Importantly, we continue to make progress towards achieving our deleveraging target. As Frank mentioned earlier, we improved our net debt to credit adjusted EBITDA ratio to 3.9 times from 4.4 times, which was supported by proceeds from our recent Microbial Control divestiture. We finished the third quarter with cash and cash equivalents of $538 million. Our gross debt for the quarter totaled $10.8 billion.
Turning to our consolidated outlook on Slide 13, I want to provide some update on our expectations for the remainder of the year. Our business and broader industry continues to face challenging operational conditions with persistent foreign exchange, inflationary and other economic pressures. These challenges have only increased since last quarter. We are certainly encouraged by the consistent sales growth achieved across each of our businesses this quarter, especially in this environment. However, we are adjusting our sales expectations for Q4 as we expect volume to further decelerate due to the lower end market demand and we expect foreign exchange to remain a significant headwind. These factors will also present challenges to adjusted operating EBITDA.
In light of these factors, we are adjusting our full-year guidance and now expect full-year sales between $12.4 billion and $12.5 billion and comparable currency-neutral sales growth of 9% to 10%. We are reconfirming our adjusted operating EBITDA guidance of $2.5 billion to $2.6 billion that we anticipate results to be at the bottom-end of this range as we maintained strong cost discipline and accelerate productivity to offset persistent headwinds and softer volumes. Looking into 2023, the current macroeconomic environment makes us cautious and as a result we anticipate that we will be in a low volume growth environment, particularly in the first half of next year.
In addition, while we see raw material inflation easing, we do anticipate some year-over-year increases in raw materials and continued volatile energy markets, which will require additional pricing actions. As a result, we will continue to examine and refine our resource allocation to focus on strong cost discipline and accelerating our productivity across our business. We will also continue to implement pricing actions surgically to support our profitability ensure our business remains resilient. And while it's still early in our planning process, we are targeting strong comparable currency-neutral sales growth in 2023 to be driven more predominantly by price with more modest EBITDA growth on a comparable currency-neutral basis as we reinvest in the business to accelerate sales momentum and drive long-term profitable growth. Foreign exchange will continue to be a headwind as we roll forward current spot rates. We will spend more time on 2023 at our Investor Day in a few weeks.
I'll now turn it back to Frank for closing comments.