International Flavors & Fragrances Q2 Earnings Call Highlights

Key Points

• Strong second-quarter performance: Continuing-operations sales rose 6% to nearly $2 billion, while adjusted operating EBITDA increased 6% to $408 million, led by volume growth across Taste, Health & Biosciences and especially Scent.
• Food Ingredients sale advances: IFF is selling the business to CVC Capital Partners for approximately $4.3 billion, retaining a 10% stake. More than $1 billion of proceeds will go toward debt reduction, while the company plans to address about $100 million in stranded costs.
• 2026 outlook and shareholder returns: IFF projects continuing-operations sales of $7.4 billion–$7.6 billion and EBITDA of $1.53 billion–$1.6 billion. The board also authorized a $2.5 billion share-repurchase program, with about $500 million expected to be repurchased in the second half of 2026.

International Flavors & Fragrances NYSE: IFF reported higher second-quarter sales and earnings across its continuing operations, supported by volume growth, productivity gains and improved working capital management, while outlining capital-allocation plans tied to the pending sale of its Food Ingredients business.

Chief Executive Officer Erik Fyrwald said the company generated volume growth across its businesses and improved free cash flow during the first half of 2026. On a continuing-operations basis, first-half sales rose 4% and EBITDA increased 8%. Free cash flow totaled $378 million, up $284 million from the prior-year period.

“IFF delivered volume growth across the board, disciplined margin execution, and robust free cash flow generation,” Fyrwald said.

Second-Quarter Results Led by Scent Growth

For the second quarter, IFF reported continuing-operations revenue of just under $2 billion, up about 6% on a comparable currency-neutral basis. Adjusted operating EBITDA rose 6% to $408 million.

Michael DeVeau, IFF’s CFO, said growth was volume-driven, reflecting new customer wins and higher sales within existing business. He noted that U.S. tariff refunds, netted against customer pass-throughs, benefited results, while higher incentive compensation accruals tied to the company’s first-half performance weighed on year-over-year EBITDA growth. Excluding those factors, he said underlying EBITDA growth would have been stronger.

• Taste: Sales increased 4% to $688 million, led by double-digit growth in Asia. EBITDA rose 6% to $124 million, supported by volume growth and favorable net pricing.
• Health & Biosciences: Sales rose 5% to $601 million, with growth across businesses and notable gains in Grain Processing, Food Biosciences and Animal Nutrition. EBITDA increased 6% to $150 million, primarily due to volume leverage.
• Scent: Sales grew 8% to $665 million and EBITDA increased 5% to $134 million. Fragrance Ingredients grew more than 20%, while Consumer Fragrances posted high-single-digit growth.

DeVeau said Fragrance Ingredients benefited partly from an easier comparison, as the business had declined by more than 10% in the year-earlier period. He also cited the company’s use of its synthetic fragrance portfolio to capture sales amid supply-chain disruptions and higher Brent crude prices. The company expects that growth to normalize in the second half as the mix shifts toward higher-value ingredients.

Fine Fragrances increased slightly in the quarter despite the Middle East conflict, compared with IFF’s prior expectation for a mid-single-digit decline. However, the company expects softer Fine Fragrances performance in the third quarter, partly because the business grew 20% in the comparable quarter last year, before anticipating recovery in the fourth quarter.

Food Ingredients Sale and Stranded-Cost Plan

IFF is proceeding with its agreement to sell Food Ingredients to CVC Capital Partners in a transaction valuing the business at about $4.3 billion, or roughly 10 times enterprise value to EBITDA. The deal is expected to close by the end of the second quarter of 2027, and IFF plans to retain a 10% ownership stake in the business.

Fyrwald said the sale will leave IFF focused on its Taste, Scent and Health & Biosciences businesses, which the company views as higher-growth, higher-margin operations. He told analysts that IFF has no significant divestitures remaining and plans to focus on scaling the three businesses organically and through bolt-on acquisitions.

The transaction will leave approximately $100 million of corporate and functional costs at IFF that had previously been allocated to Food Ingredients. These costs are now spread across the remaining segments and are temporarily pressuring business-unit margins.

Management said it has begun a remediation plan and expects to eliminate about two-thirds of the stranded costs in the first 12 months after the transaction closes, with the remainder removed during the second full year. The plan includes redesigning processes, simplifying systems, rationalizing activities, reviewing third-party contracts and aligning the remaining company’s cost structure to its needs.

IFF also announced an agreement to sell a portfolio of non-strategic botanical extracts, vitamins and minerals, and food enhancement products. The portfolio, primarily within Health & Biosciences and Taste, has about $170 million in annual sales and a mid-single-digit EBITDA margin. IFF expects about $75 million in proceeds and anticipates closing that transaction in the fourth quarter of 2026.

Capital Allocation and Cash Flow

The company plans to use more than $1 billion of Food Ingredients sale proceeds to reduce debt, targeting net debt to credit-adjusted EBITDA of 2.0 times to 2.5 times by the end of 2027. IFF ended the first half of 2026 at 2.5 times leverage, while gross debt had declined about $5.7 billion.

The board authorized a $2.5 billion share-repurchase program, including approximately $400 million remaining under a prior authorization. IFF expects to repurchase about $500 million of shares in the second half of 2026 before the Food Ingredients transaction closes, with the remaining authorization targeted for completion by the end of 2027.

Cash flow from operations reached $679 million in the first half, while capital expenditures totaled $301 million, or about 5% of sales. DeVeau said IFF expects transaction-related working-capital headwinds in the second half, potentially amounting to a couple hundred million dollars, related to separating Food Ingredients. Despite those headwinds, the company expects 2026 free cash flow to exceed its 2025 result.

For the remaining portfolio, management said it expects capital expenditures to run in a 5% to 6% range of sales, likely toward the high end over the next one to two years due to planned high-return investments.

2026 Outlook

IFF introduced full-year guidance on a continuing-operations basis following the Food Ingredients reclassification. The company expects 2026 sales of $7.4 billion to $7.6 billion, representing growth of 2% to 4%, and EBITDA of $1.53 billion to approximately $1.6 billion, representing growth of 4% to 8%.

DeVeau said the guidance implies second-half sales growth of 0% to 4% and EBITDA growth of 4% to 8%. The higher low end of the full-year ranges primarily reflects the company’s stronger first-half performance, he said, while the range continues to account for macroeconomic uncertainty and Middle East volatility.

Second-quarter growth was almost entirely volume-driven, according to DeVeau. For the second half, IFF expects volumes to remain the primary sales driver, with pricing providing only a modest contribution. Input costs for raw materials, energy and logistics are expected to rise modestly, with Scent most affected. The company is pursuing surcharges and other pricing actions, though management said there can be timing lags, particularly in Scent.

About International Flavors & Fragrances (NYSE:IFF)

International Flavors & Fragrances Inc NYSE: IFF is a global leader in the creation and production of flavors, fragrances, cosmetic actives and nutritional lipids. The company develops taste and scent solutions for a wide array of end markets including food and beverage, personal care, household goods and pharmaceutical products. Its portfolio spans natural and nature-identical flavors, fine fragrances, functional ingredients for skin and hair care, and specialty oils that enhance nutritional value and sensory appeal.

IFF's research and development network comprises innovation centers in North America, Europe, Asia-Pacific and Latin America, where multidisciplinary teams collaborate on aroma chemistry, sensory science and biotechnology.

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