Q2 2024 International Flavors & Fragrances Inc Earnings Call

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At this time I would like to welcome everyone. Welcome everyone to the Iff's second quarter earnings Conference call. All participants will be in a listen only mode until the formal question and answer portion of the call to ask a question at that time. Please press star one.

Operator: At this time, I would like to welcome everyone to the IFF Second Quarter Earnings Conference Call. All participants will be in a listen-only mode until the formal question and answer portion of the call. To ask a question at that time, please press star 1 on your telephone keypad. If you would like to remove your name from the queue, please press star 2. Participants will be announced by their name and company. In order to give all participants an opportunity to ask their questions, we request a limit of one question per person. I would now like to introduce Michael DeVeau, Head of Investor Relations.

Operator: At this time, I would like to welcome everyone to the IFF second quarter earnings conference call. All participants will be in a listen-only mode until the formal question-and-answer portion of the call. To ask a question at that time, please press star 1 on your telephone keypad. If you would like to remove your name from the queue, please press star 2. Participants will be announced by their name and company.

One on your telephone keypad, if you would like to remove your name from the queue. Please press star two.

Speaker Change: <unk> will be announced by their name and company.

Operator: In order to give all participants an opportunity to ask their questions, we request a minimum of one question per person.

Speaker Change: In order to give all participants an opportunity to ask their questions. We request a limit of one question per person.

Michael Deveau: I would now like to introduce Michael DeVeau, Head of Investor Relations. You may begin.

Michael Deveau: I would now like to introduce Michael Deveau head of Investor Relations you.

Michael Deveau: You may begin.

Michael Deveau: Thank you.

Michael Deveau: Thank you good morning, good afternoon, and good evening, everyone. Welcome to Iff's second quarter 2024 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 Dot ISS Dot com.

Michael Deveau: Thank you. Good morning, good afternoon, and good evening, everyone.

Michael Deveau: Good morning, good afternoon, and good evening, everyone. Welcome to IFF second quarter 2024 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.

Michael Deveau: Welcome to IFF's second quarter 2024 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.

Michael Deveau: Please note that this call has been recorded in live. It will be available for replay.

Michael Deveau: Please note that this call is being recorded live and will be available for replay.

Michael Deveau: During the call, we were 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 our press release, both of which can be found on our website.

Michael Deveau: During the call, we were 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 our 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.

Michael Deveau: During the call we were making forward looking statements about the company's performance and business outlook.

Michael Deveau: Statements are based on how we see things today and contain elements of uncertainty.

Michael Deveau: 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 that we issued yesterday.

Michael Deveau: With me on the call today is our CEO, Eric Beerwald, and our Executive Vice President, CFO, and Business Transformation Officer, Glenn Richter. We will begin with prepared remarks and then take any questions you may have at the end.

Michael Deveau: A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release that we issued yesterday. With me on the call today is our CEO, Eric Fierwald, and our Executive Vice President, CFO, and Business Transformation Officer, Glenn Richter.

Eric Beerwald: With that, I would now like to turn the call over to Eric. Well, thank you, Mike. Hello, everyone. I'm excited to join you all today and share the positive progress we are making in our strategic refresh and the solid performance IFF delivered in the second quarter. Also, during today's call, we will provide a brief update on the business-led strategic framework we are implementing across our organization. Over the last seven months, I've had the great pleasure to travel to many of our facilities and have met with customers that together represent over a third of our sales and several thousand of our IFF team members.

Eric Fierwald: I'm excited to join you all today and share the positive progress we are making in our strategic refresh and the solid performance IFF delivered in the second quarter. Also, during today's call, we will provide a brief update on the business-led strategic framework we are implementing across our organization. Now, over the last seven months, I've had the great pleasure of traveling to many of our facilities and meeting with customers that together represent over a third of our sales and several thousand of our IFF team members.

Eric Beerwald: I've been able to get great feedback on what makes IFF special and strategic and tactical moves our leadership team needs to make to strengthen our company to better serve customers and improve our performance. We have listened and are making the changes we need to unleash more of the potential for today and for the future. And I'm very pleased that the entire IFF team is rallying behind our resulting strategic refresh to make IFF better at bringing leading innovation to our customers.

Eric Fierwald: I've been able to get great feedback on what makes IFF special and strategic and tactical moves our leadership team needs to make to strengthen our company, to better serve customers, and improve our performance. We have listened and are making the changes we need to unleash more of the potential for today and for the future. And I'm very pleased that the entire IFF team is rallying behind our resulting strategic refresh to make IFF better at bringing leading innovation to our customers. Now, beginning with slide six.

Eric Beerwald: Now, beginning with slide six, IFF is building on last quarter's momentum and delivered another solid quarter. And I'm pleased with our performance and our results through the first half of the year. led by scent, health and biosciences and nourish, we delivered volume growth in the high single digits in the second quarter. On a comparable basis, adjusted operating EBITDA increased 22% driven by volume growth and productivity initiatives. This is a significant improvement over last year, and it is great to have IFF on a better sales growth and margin expansion track. Looking ahead, we are cautiously optimistic for the remainder of 2024.

Eric Fierwald: IFF is building on last quarter's momentum and delivered another solid quarter. And I'm pleased with our performance and our results through the first half of the year, led by Scent Health and Biosciences and Nourish. We delivered volume growth in the high single digits in the second quarter. On a comparable basis, Adjusted Operating EBITDA increased 22%, driven by volume growth and productivity initiatives.

Eric Fierwald: This is a significant improvement over last year, and it is great to have IFF on a better sales growth and margin expansion track. Now looking ahead, we are cautiously optimistic for the remainder of 2024. Given this outlook and our solid performance to date this year, we are raising both our sales and adjusted operating EBITDA guidance for the whole year. Glenn will speak more about this in a few minutes.

Eric Beerwald: Given this outlook and our solid performance to date this year, we are raising both our sales and adjusted operating EBITDA guidance for the whole year. Glenn will stick more about this in a few minutes. Now, it is encouraging that the steps we have taken and continue to take to refocus IFF on green customers, leading innovation while driving healthy productivity, are yielding encouraging results. We are making solid progress advancing the business-led refresh I have spoken about before, but we are not satisfied; we have got a lot more work to do. But I have got confidence that we are on the right track toward achieving IFF's full potential.

Eric Fierwald: Now, it's encouraging that the steps we have taken and continue to take, to refocus IFF on bringing customers leading innovation while driving healthy productivity are yielding encouraging results. We are making solid progress advancing the business-led refresh I've spoken about before. But we are not satisfied. We've got a lot more work to do, but I have confidence that we are on the right track toward achieving IFF's full potential. Moving to slide seven.

Eric Beerwald: Moving to slide 7. As I did last quarter, I would like to give a brief update on our progress as we work across the organization to refresh our strategy and focus on a business-led operating model. IFF has had a challenging last three years; constraints on our balance sheet led the company to under invest in our core businesses and focused on divestitures. The company was not structured to effectively navigate the complex and fast moving environment, and we underperformed relative to our peers. We have now had several quarters of growth as we have taken decisive actions to get our businesses back on track.

Eric Fierwald: As I did last quarter, I would like to give a brief update on our progress as we work across the organization to refresh our strategy and focus on a business-led operating model. ISF has had a challenging last three years; constraints on our balance sheet led the company to under invest in our core businesses and focus on divesting. The company was not structured to effectively navigate the complex and fast-moving environment, and we underperformed relative to our peers.

Eric Fierwald: We have now had several quarters of growth as we have taken decisive actions to get our businesses back on track. Our strategy moving forward will be driven by four key pillars. Our people.

Eric Beerwald: Our strategy moving forward will be driven by four key pillars: our people, our customer focus, our position as an innovation powerhouse, and our operational excellence. We will engage and empower our people to deliver customer success while we drive profitable market share growth over time. We will also continue to develop sustainable new products and applications that are aligned with our customers' needs now and in the future, all while being relentless in our commitment to safety, quality, and the efficiency in our operations. We have already taken several steps toward resetting and refocusing our operating model, including the announced divestiture of pharmaceutical solutions, which is still on track to close in the first half of 2025, and our pivot to an end-to-end business-led operating model that will promote greater accountability and better performance.

Eric Fierwald: Our customer focus. Our position as an innovation powerhouse and our operational processes will engage and empower our people to deliver customer success while we drive profitable market share growth over time. We will also continue to develop sustainable new products and applications that are aligned with our customers' needs now and in the future, all while being relentless in our commitment to safety, quality, and efficiency in our operations. We have already taken several steps toward resetting and refocusing our operating model, including the announced divestiture of Pharma Solutions, which is still on track to close in the first half of 2025, and our pivot to an end-to-end business-led operating model that will promote greater accountability and better performance.

Eric Beerwald: We are also working hard to improve employee engagement, and our seeing positive results. Furthermore, each of our business units is building a five-year strategic plan to define and close gaps where they exist versus best-in-class companies. These plans include executing a refreshed turnaround strategy for functional ingredients and leveraging health and bioscience's biotech expertise and capabilities across our scent and flavors platforms to enhance innovation and product development. Also, as mentioned last quarter, we are focusing on having lean corporate functions to support our business units with speed, agility, and closer collaboration. Now, as we prioritize growth investments to our highest value businesses, such as flavors, scent, and health and biosciences, we have already started to increase R&D and commercial investments.

Eric Fierwald: We are also working hard to improve employee engagement and are seeing positive results. Furthermore, each of our business units is building a five-year strategic plan to define and close gaps where they exist compared to best-in-class companies. These plans include executing a refreshed turnaround strategy for functional ingredients and leveraging health and biosciences biotech expertise and capabilities across our scent and flavors platforms to enhance innovation and product development. Also, as mentioned last quarter, we are focusing on having lean corporate functions to support our business units with speed, agility, and closer collaboration.

Eric Fierwald: As we prioritize growth investments in our highest-value businesses, such as flavors, scents, and health, and biosciences, we have already started to increase R&D and commercial investment. At the same time, we plan to increase our CapEx investments, targeting about 6% of sales for the next several years, to bolster capacity and accelerate our digital transformation, including ERP implementation. We believe these investments will generate strong returns, providing us with incremental growth and efficiency opportunities that will lead us to continue to improve how we serve our customers profitably.

Eric Beerwald: At the same time, we plan to increase our CAPEX investments, targeting about 6% of sales for the next several years to bolster capacity and accelerate our digital transformation, including the ERP implementation. We believe these investments will generate strong returns, providing us with incremental growth and efficiency opportunities that will lead us to continue to improve how we serve our customers properly. Lastly, we are committed to delivering significant value creation for our shareholders. Now, with that in mind, we are on track to achieve our raised guidance targets for the year as we continue to drive profitable growth across each of our businesses.

Michael Deveau: That will lead us to continue to improve how we serve our customers profitably.

Eric Fierwald: Lastly, we are committed to delivering significant value creation for our shareholders. And with that in mind, we are on track to achieve our RAISE guidance targets for the year as we continue to drive profitable growth across each of our businesses. I'll now pass it over to Glenn for a closer look at our quarterly results, which demonstrate the continued progress and growth we are achieving.

Michael Deveau: Lastly, we are committed to delivering significant value creation for our shareholders.

Michael Deveau: And with that in mind, we are on track to achieve our raised guidance targets for the year as we continue to drive profitable growth across each of our businesses.

Glenn Richter: I'll now pass it over to Glenn for a closer look at our quarterly results, which demonstrate the continued progress and growth we are achieving. Glenn, thank you; Eric, and thank you all for joining us today. As Eric noted, ISF has had a strong second quarter. Revenue of just below 2.9 billion increased 7% on a comparable currency-neutral basis, with scent, H&B, and nourished each growing revenue in the quarter. Volume's grew by high single digits, as our performance continued to improve sequentially across nearly every business. Our volume growth and strong gains from productivity initiatives together contributed to a 22% increase in comparable adjusted operating EVA.info.

Michael Deveau: I'll now pass it over to Glenn for a closer look at our quarterly results, which demonstrate the continued progress and growth we are achieving Glenn.

Glenn Richter: Thank you, Eric, and thank you all for joining us today. As Eric noted, IFF had a strong second quarter. Revenue of just below $2.9 billion increased 7% on a comparable currency-neutral basis, with Fent, H&B, and Nourish each growing revenue in the quarter. Volumes grew by high single digits as our performance continued to improve sequentially across nearly every business. Our volume growth and strong gains from productivity initiatives together contributed to a 22% increase in Comparable Adjusted Operating EBITDA in the quarter.

Glenn: Thank you Eric and thank you all for joining US today as Eric noted <unk> had a strong second quarter.

Glenn: Revenue of just below $2 9 billion increased 7% on a comparable currency neutral basis with HEB.

Glenn: <unk> and nourished each growing revenue in the quarter.

Glenn: Volumes grew by high single digits as our performance continued to improve sequentially across nearly every business our volume growth and strong gains from productivity initiatives together contributed to a 22% increase in comparable adjusted operating EBITDA in the quarter, our adjusted operating EBITDA.

Glenn Richter: Our adjusted operating eva.info improved by 310 basis points to 20.4% on a comparable basis, building off a strong first quarter, and the first time we were over 20% since the third quarter of 2022.

Glenn Richter: Our Adjusted Operating EBITDA margin improved by 310 basis points to 20.4% on a comparable basis, building off a strong first quarter and the first time we were over 20% since the third quarter of 2022. Turning to slide 9, I'll dive a bit deeper into each of our segments.

Glenn: Margin improved by 310 basis points to 24% on a comparable basis building off a strong first quarter and the first time, we were over 20% since the third quarter of 2022.

Glenn Richter: Turning to slide 9, I'll dive a bit deeper into each of our segments. Nourished, comparable currency neutral sales increased 4%, and we delivered an adjusted operating eva.info of 36% on a comparable basis. This was led by a second consecutive quarter of double-digit growth in flavors, with improvements in both volume and pricing. Functional gradient sales declined modestly in the quarter, as high single-digit volume growth was offset by lower pricing, consistent with plan. Both flavors and functional ingredients demonstrated strong year-over-year gross margin expansion. The strong profitability in nourished was driven by volume growth and productivity improvements, as well as the comparison to the one-time locust being kernel imagery right down in the year ago period.

Glenn Richter: Nourish comparable currency-neutral sales increased 4%, and we delivered an adjusted operating EBITDA increase of 36% on a comparable basis. This was led by a second consecutive quarter of double-digit growth in flavors with improvements in both volume and price. Functional ingredient sales declined modestly in the quarter as high single-digit volume growth was offset by lower pricing consistent with plan.

Glenn Richter: Both flavors and functional ingredients demonstrated strong year-over-year gross margin expansion. The strong profitability in Nourish was driven by volume growth and productivity improvements, as well as the comparison to the one-time locust bean kernel inventory write-down in the year-ago period. Health and Biosciences achieved strong growth in all businesses, with a noteworthy uptick in health led by a strong performance in probiotics.

Glenn Richter: Health and biosciences achieve strong growth in all businesses, with a noteworthy uptick in health led by a strong performance in probiotics H&B, in order for both revenue and profit growth. Fine Fragrances also remain strong, growing mid-single digits led by new wins and volume gains. Net sales in the quarter were $603 million, up 16% on a comparable currency-neutral basis, and we delivered adjusted operating EBITDA of $137 million, up 38% on a comparable basis. Lastly, Farmer Solutions returned to volume growth with revenue of $250 million.

Glenn Richter: H&B comparable currency-neutral sales increased 9%, and we delivered comparable adjusted operating EBITDA of $165 million, a 14% increase from a year ago. In scent, double-digit growth in consumer fragrance and fragrance ingredients led to a strong quarter for both revenue and profit growth. Fine fragrances also remain strong, growing mid-single digits, led by new wins and volume gains.

Glenn Richter: Net sales in the quarter were $603 million, up 16% on a comparable currency-neutral basis, and we delivered adjusted operating EBITDA of $137 million, up 38% on a comparable basis. Lastly, Pharma Solutions returned to volume growth with revenue of $250 million. However, profitability in this segment declined in line with our plan as we managed through unfavorable mix and one-time items.

Glenn Richter: Profitability in this segment declined in line with our plan as we managed to unfavorable mix and one-time items. Turning to slide 10, cash flow from operations totaled $336 million this quarter, while CapEx year-to-date was $200 million or roughly 3.5% of sales. For the year, we expect that CapEx will be approximately $575 million as we ramp up in the second half of the year. Our free cash flow position in Q2 totaled $136 million and increased sequentially of approximately $150 million from last quarter and a significant increase from $85 million recorded in the year-ago period. We pay $309 million in dividends through the end of the second quarter, and our cash and cash equivalence totaled $674 million.

Glenn Richter: Turning to slide 10, cash flow from operations totaled $336 million this quarter, while CapEx year-to-date was $200 million, or roughly 3.5% of sales. For the year, we expect that CapEx will be approximately $575 million as we ramp up in the second half of the year. Our free cash flow position in Q2 totaled $136 million, an increase sequentially of approximately $150 million from last quarter and a significant increase from $85 million reported in the year-ago period. We paid $309 million in dividends through the end of the second quarter, and our cash and cash equivalents totaled $674 million.

Glenn Richter: I have also continued to make progress toward achieving our deleveraging goals and reduced our gross debt by over $900 million from last quarter, yielding a net debt-to-credit adjusted EBITDA ratio of four times at quarter end, compared with 4.4 times at the end of the first quarter. This was driven by improved operational performance, including solid working capital management, as well as the closure of our cosmetic ingredients divestiture, which occurred early in the second quarter.

Glenn Richter: I have also continued to make progress for achieving our de-leveraging goals and reduced our growth debt by over $900 million from last quarter, yielding a net debt to credit adjusted EBITDA ratio of 4 times at quarter end compared with 4.4 times at the end of the first quarter. This was driven by improved operation performance, including solid working capital management, as well as the closure of our cosmetic ingredients to vestiture, which occurred early in the second quarter.

Glenn Richter: It's important to note that we remain committed to achieving our net debt to credit adjusted EBITDA target of 3 times or less following the completion of the divestiture of pharmaceutical solutions, which we continue to expect to be completed in the first half of 2020.

Glenn Richter: It's important to note that we remain committed to achieving our net debt-to-credit adjusted EBITDA target of three times or less following the completion of the divestiture of pharma solutions, which we continue to expect to be completed in the first half of 2025. On slide 11, I'd like to turn to our consolidated outlook for 24, where we are raising both our sales and adjusted operating EBITDA guidance ranges, given our stronger-than-expected financial and operational performance in the first half of the year.

Glenn Richter: On slide 11, I'd like to turn to our consolidated outlook for 24, where we are raising both our sales and adjusted operating EBITDA guidance ranges, given our stronger than expected financial and operational performance in the first half of the year. We are now expecting net sales to be in the range of 11.1 to 11.3 billion, reflecting our expectation that volume growth will continue across the majority of our portfolio in the back half of the year. I'll be at lower growth rates than the first half. Given the recent economic indicators and mixed results by CBG companies of late, we remain cautious relative to the outlook for demand in the balance of the year.

Glenn Richter: We are now expecting net sales to be in the range of $11.1 to $11.3 billion, reflecting our expectation that volume growth will continue across the majority of our portfolio in the back half of the year, albeit at lower growth rates than the first half. Given the recent economic indicators and mixed results by CPG companies of late, we remain cautious relative to the outlook for demand in the balance of the year.

Glenn Richter: Operating under this assumption for the full year, we now expect to achieve a 3 to 5 percent volume growth, up from our previously announced range of 0 to 3 percent. On the bottom line, we also raised our adjusted operating EBITDA guidance range to 2.1 to 2.17 billion, up from our previously stated range of 1.9 to 2.1 billion. This increase reflects our strong profitability performance in the first step of the year, with a consistent view of the second half from our previously communicated guidance. It should be noted that we are also factoring in a greater level of annual incentive compensation, given the relative strength of our performance versus budget and incremental second half spending related to business reinvestment.

Glenn Richter: Operating under this assumption for the full year, we now expect to achieve a 3-5% volume growth, up from our previously announced range of 0-3%. On the bottom line, we also raised our adjusted operating EBITDA guidance range to $2.1 to $2.17 billion, up from our previously stated range of $1.9 to $2.1 billion. This increase reflects our strong profitability performance in the first half of the year, with a consistent view of the second half from our previously communicated guidance.

Glenn Richter: It should be noted that we are also factoring in a greater level of annual incentive compensation given the relative strength of our performance versus budget and incremental second half spending related to business reinvestment. Specifically, as part of our strategy refresh, the team has identified investments that will accelerate the execution of our strategy, focused on business development, R&D, and innovation that will yield results in 2025 and 2026. Based on current market exchange rates, we expect that FX will be closer to a 4% adverse impact on sales growth within our 3% to 4% range. For the third quarter, we expect sales to be approximately $2.75 to $2.85 billion, with an adjusted operating EBITDA of approximately $520 to $540 million.

Glenn Richter: Specifically, as part of our strategy refresh, the team has identified investments that will accelerate the execution of our strategy, focus in business development, R&D and innovation that will yield results in 2025 and 26. Based on current market exchange rates, we expect that FX will be closer to a 4% adverse impact to sales growth within our 3 to 4% range given. For the third quarter, we expect sales to be approximately 2.75 to 2.85 billion, within the adjusted operating EBITDA of approximately 520 to 540 million.

Eric Beerwald: Now, turn back to Eric's proposal remarks. Well, thank you, Glenn. As I share at the top of the call, I am pleased with the team's solid performance throughout the first half of the year, especially as it represents a significant improvement over our prior year lows. We are moving on the right track because our teams around the world continue to relentlessly focus on efficiently meeting the needs of our customers, resulting in driving profitable growth.

Eric Fierwald: I'll now turn back to Eric for his closing remarks. Well, thank you, Glenn.

Operator: As I shared at the start of the call, I am pleased with the team's solid performance throughout the first half of the year, especially as it represents a significant improvement over our prior year lows. We are moving on the right track because our teams around the world continue to relentlessly focus on efficiently meeting the needs of our customers, resulting in driving profitable growth. And I'm energized by the progress we've made so far this year, yet I recognize that we have a lot more to do to achieve the full potential of this great company.

Eric Beerwald: And I'm energized by the progress we've made so far this year, yet I recognize that we have a lot more to do to achieve the full potential of this great company. Already, we are making progress to better meet our goals, and by taking advantage of the market's tailwinds and increasing our investments in our high growth businesses, we believe we will be positioned to deliver attractive shareholder returns over time. I want to especially thank the entire IFF team for delivering these results, including rallying behind our strategic refresh to advance our customer focus and innovation-led strategy. We want every IFFer to share the same passion and desire to help our customers differentiate and win in the marketplace.

Operator: Already, we are making progress to better meet our goals, and by taking advantage of the market's tailwinds and increasing our investments in our high-growth businesses, we believe we will be positioned to deliver attractive shareholder returns over time. I want to especially thank the entire IFF team for delivering these results, including rallying behind our strategic refresh to advance our customer focus and innovation-led strategy. We want every IFFer to share the same passion and desire to help our customers differentiate and win in the marketplace.

Glenn: Beat our goals.

Glenn: By taking advantage of the market's tailwind and increasing our investments in our high growth businesses. We believe we will be positioned to deliver attractive shareholder returns over time.

Speaker Change: I want to especially thank the entire <unk> team for delivering these results, including rallying behind our strategic refresh to advance our customer focus and innovation led strategy.

Speaker Change: We want every effort share the same passion and desire to help our customers differentiate and win in the marketplace.

Eric Beerwald: We are making much progress towards this goal.

Operator: We are making much progress towards this goal. As I look ahead to the remainder of the year, we will remain steadfast in bringing new products and innovations to the market, while simultaneously executing a turnaround strategy across our functional ingredients business, including strong productivity initiatives. And I'm confident the actions we're taking and the near-term operational priorities we are executing will create a stronger IFF. And with that, I would now like to open the call to questions.

Speaker Change: And we are making much progress towards this goal.

Eric Beerwald: As I look ahead to the remainder of the year, we will remain steadfast in bringing new products and innovations to the market, while simultaneously executing a turnaround strategy across our functional ingredients business, including with strong productivity initiatives. And I'm confident the actions we're taking and the near term operational priorities we are executing will create a stronger IFF.

Speaker Change: As I look ahead to the remainder of the year, we will remain steadfast in bringing new products and innovations to the market.

Speaker Change: While simultaneously executing a turnaround strategy across our functional ingredients business.

Speaker Change: Including with strong productivity initiatives.

Speaker Change: And I'm confident the actions we're taking in the near term operational priorities. We are executing will create a stronger <unk>.

Michael Deveau: And with that, I would now like to open the call for questions. Thank you. We will now begin the question and answer session.

Speaker Change: And with that I would now like to open the call for questions.

Speaker Change: Thank you we will now begin the question and answer session.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. In order to give all participants an opportunity to ask their questions, we request a limit of one question per person. Our first question comes from Josh Spector with UBS. Josh, your line is now open.

Operator: If you would like to ask a question, please press Door. Followed by one on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speaker phone, please pick up your handset before asking your question.

Speaker Change: Like to ask a question. Please press star followed by one on your telephone keypad. If your question has been answered or you wish turned into your question. Please press star followed by two again to ask a question press Star one.

Speaker Change: As a reminder, if you are using a speakerphone. Please pick up your handset before asking your question and.

Operator: In order to give all participants an opportunity to ask their questions, we request a limit of one question per person.

Speaker Change: In order to give all participants an opportunity to ask their questions. We request a limit of one question per person.

Joshua Spector: Our first question comes from the line of Josh Spector with UBS. Josh, your line is now open. Yeah, hi, good morning, and first, congrats on a really solid second quarter here. So I wanted to ask two related pieces here.

Speaker Change: Our first question comes from the line of Josh Spector with UBS, Josh Your line is now open.

Josh Spector: Yeah, Hi, good morning, and first congrats on a really solid second quarter here.

Josh Spector: Yeah, hi, good morning. And first, congrats on a really solid second quarter here. So I wanted to ask two related questions here. First, really around the sequencing of EBITDA in the second half. So, you know, the step down in 3Q versus 2Q, and then your implied 4Q is a pretty material seasonal step down. So what is driving that, in your view, versus the stronger 2Q, and then related is around volumes?

Josh Spector: So I wanted to ask two related pieces here is really around the sequencing of EBITDA in the second half so the step down in <unk> versus <unk> and then your implied <unk> is a pretty material seasonal step down so what what is driving that in your view versus the.

Joshua Spector: It's first, really around the sequencing of EBITDA in the second half. So the step down in 3Q versus 2Q, and then your implied 4Q, is a pretty material, reasonable step down. So what is driving that in your view versus the stronger 2Q?

Speaker Change: Stronger <unk> and then related is around volumes. So the 3% to 5% lift is clearly better than you expected, but that's largely just a reflection of that I think <unk> flowing through that would say volumes in the second half or up 1% to 2% the comps maybe do get harder, but it seems like with sequentially stable maybe.

Joshua Spector: And then related is around volumes. So the 3 to 5% lift is fairly better than you expected, but that's largely just a reflection of I think 2Q flowing through that would say volumes in the second half are up 1 to 2%. The comps maybe do get harder, but it seems like with sequentially stable, maybe moving around a little bit. That's a pretty easy bar to be. So what are you seeing on the volume side that we might be missing?

Josh Spector: So the 3 to 5% lift is clearly better than you expected, but that's largely just a reflection of, I think, 2Q flowing through. I would say volumes in the second half are up 1 to 2%. The comps, maybe, do get harder. But it seems like with sequentially stable, maybe moving around a little bit, that's a pretty easy bar to beat. So what are you seeing on the volume side that we might be missing? Thank you.

Speaker Change: Moving around a little bit that's a pretty easy bar to beat so what are you seeing on the volume side that we might be missing. Thank you.

Glenn Richter: Thank you.

Speaker Change: Yeah.

Glenn Richter: Hey, morning, Josh. Thanks for the questions. I'll start with your second one, and we'll come back to the EBITDA questions. We are expecting more modest volume growth in the second half of the year, specifically in the fourth quarter. We are forecasting about a 4% volume uplift year over year in brief and flatish in Q4. As a reminder, last year's quenched lead was negative 7, negative 11, negative 7, and negative 3. We are somewhat sort of cautious on Q4 combination of A, the overlap from last year. And then secondarily, the end consumer continues to be very, very nemic, and the economic indicators that you're well aware of are probably more negative now than they were a few months ago.

Speaker Change: Hey, good morning, Josh Thanks for the questions I'll start with your second one and then we'll come back to the EBITDA question.

Glenn Richter: Hey Josh, thanks for the questions. I'll start with your second question, and then we'll come back to the EBITDA question. We are expecting more modest volume growth in the second half of the year, specifically in the fourth quarter. We are forecasting about a 4% volume uplift year-over-year in Q3 and flattish in Q4. As a reminder, last year sequentially was negative 7, negative 11, negative 7, and negative 3.

Speaker Change: We are expecting more modest volume growth in the second half of the year, specifically in the fourth quarter.

Speaker Change: We are forecasting about a 4% volume uplift year over year in Q3 and flattish in Q4 as a reminder, last year sequentially was negative 7% negative <unk> 11 negative 7% and negative three.

Glenn Richter: We are somewhat sort of cautious on Q4, the combination of A, the overlap from last year, and then secondarily, the end consumer continues to be very, very anemic, and the economic indicators, as you're well aware, are probably more negative now than they were a few months ago. So that's what's driving sort of the volume expectations. The EBITDA, first half versus second half, is really a reflection of lower revenues in the second half.

Speaker Change: We are somewhat cautious on Q4 combination of a the overlap from last year and then secondarily. The end consumer continues to be very very anemic and the economic indicators that youre well aware are probably more negative now than they were a few months ago. So that's what's driving.

Glenn Richter: So that's what's driving sort of the volume expectations. The EBITDA first half versus second half is really a reflection of lower revenues in the second half. Big portion of that is seasonal. We expect that basically we will be about $400 million less revenue based on our guide in the second half of the year. Then, in the first half of the year, that is notably 300 million in the fourth quarter, which is always our seasonally lowest. So that really drives the vast majority of the change in the first half versus the second half. I will also add that we are investing about 20 to 30 million dollars incremental Op X in the back half of the year given the performance this year.

Speaker Change: The volume expectations the.

Speaker Change: EBITDA first half versus second half is really a reflection of lower revenues in the second half big portion of that is seasonal and we expect that basically we will be about $400 million less revenue based on our guide in the second half of the year than in the first half of the year that is notably $300 million in the fourth.

Glenn Richter: A big portion of that is seasonal. We expect that, based on our guide, we will be about $400 million less revenue in the second half of the year than in the first half of the year. That is notably $300 million in the fourth quarter, which is always our lowest seasonally. So that really drives the vast majority of the change in the first half versus the second half. I will also add that we are investing about $20 to $30 million in incremental OPEX in the back half of the year. Given the performance this year, we want to reinvest to begin to accelerate growth for 2025 and 2026.

Speaker Change: Order, which is always our seasonally our lowest so that really drives the vast majority of the change in the first half versus the second half I will also add that we are investing about $20 million to $30 million incremental opex in the back half of the year.

Speaker Change: Given the performance this year, we want to reinvest to begin to accelerate growth for 25 and 26. So that's another piece of the equation.

Glenn Richter: We want to reinvest begin to accelerate growth for 25 and 26. So that's another PC equation.

Unknown Executive: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Nicola Tang with BNP Paribas.

Glenn Richter: So that's another piece of the equation. Thank you. Our next question comes from the line of Nicola Tang with BNP Paribas. Nicola, your line is now open. Hi, everyone. Thanks for doing the question. It actually feeds quite nicely from your

Nicola Tang: Thank you. Our next question comes from the line of Nicola Tang with BNP Paribas. Nicola, your line is now open.

Nicola Tang: Our next question comes from the line of Nicola Tang with BNP Paribas. Nicola, your line is now open. Hi, everyone. Thanks for the question. It actually feeds on quite nicely from your last answer to that. I was wondering if you could give more color on some of those incremental investments around R&D and commercial efforts and capacity. Could you give us a few more specific examples and how you expect that to feed through or contribute to 25 and 26. And you go some helpful quantification on the capex. for the next few years. In terms of this OPEX step-up, should we also extrapolate that going forward as well?

Speaker Change: Caller your line is now open.

Nicola Tang: Hi, everyone and thanks for taking my question and actually see some quite nicely from.

Nicola Tang: Thanks for that Glenn I was wondering if you could give more color on some of those incremental investments around R&D and commercial asset capacity could you give a few more specific examples and how are you.

Speaker Change: Expect that to feed through your contribute to 'twenty five and 'twenty six.

Speaker Change: You gave some helpful clarification on the Capex for that.

Speaker Change: She is in terms of this opex step up should we extrapolate that going forward as well. Thank you.

Nicola Tang: Thank you.

Eric Beerwald: Right, thanks for the question, Nicola, and we're very excited about the increased investment in OPEX, as Glenn mentioned, $20 to $30 million. They were putting into the company this year to have impact in the coming years, 25, 26, and beyond. That includes, of course, R&D, and we're increasing R&D spend, and both help in biosciences, scent, and flavors. And that includes, by the way, accelerating our transformation in biotech to come out with new fragrances and flavors with our biotech capabilities that will enhance our scent and flavors' businesses. We're also increasing the R&D to find more naturals, both for scent and for flavors.

Speaker Change: Great. Thanks for the question Nicola and we're very excited about the increased investment in Opex as Glenn mentioned $20 million to $30 million that we're putting into the company this year.

Eric Fierwald: Right, thanks for the question, Nicola. And we're very excited about the increased investment in OPEX, as Glenn mentioned, $20 to $30 million that we're putting into the company this year to have an impact in the coming years, 2025, 2026 and beyond. That includes, of course, R&D, and we're increasing R&D spend in both health and biosciences, scents, and flavors. And that includes, by the way, accelerating our transformation in biotech to come up with new fragrances and flavors with our biotech capabilities that will enhance our scents and flavors business.

Speaker Change: Didn't have impact in the coming years, 'twenty five 'twenty six and beyond.

Speaker Change: That includes of course, R&D and were increasing R&D spend in both health and biosciences scent and flavors.

Speaker Change: And that includes by the way.

Speaker Change: Accelerating our transformation to in biotech to come out with new fragrances and flavors with our biotech capabilities that will enhance sent in flavors businesses.

Speaker Change: We are also increasing the R&D to find more naturals, both percent and four flavors.

Eric Beerwald: Obviously, a great market trend towards naturals. We're leaders in that area, and we want to continue to strengthen our leadership position. Also, across all three of those businesses, we're adding commercial capability, and in our functional ingredients business, we're adding more technical service capability to better sell higher value products that we have in our functional ingredients portfolio. On the OPEX, or excuse me, on the CAPEX side, we're adding capacity, especially in health and biosciences, but across all three of those high growth markets, businesses, health and biosciences, scent and flavors, to ensure that we always have very reliable, high quality supply for all of our customers around the world for all those product lines.

Speaker Change: Obviously, a great market trend towards naturals, we're leaders in that area and we want to continue to strengthen our leadership position.

Eric Fierwald: We are also increasing R&D to find more naturals, both for scent and for flavors. Obviously, there is a great market trend towards naturals. We're leaders in that area, and we want to continue to strengthen our leadership position. Also, across all three of those businesses, we're adding commercial capability. And in our functional ingredients business, we're adding more technical service capability to better sell higher-value products that we have in our functional ingredients portfolio.

Speaker Change: Also across all three of those businesses, we're adding commercial capability and in our functional ingredients business, we're adding more technical service capability to better sell higher value.

Speaker Change: Products that we have in our functional ingredients portfolio.

Eric Fierwald: On the CapEx side, we're adding capacity, especially in health and biosciences, but across all three of those high-growth markets, businesses, health and biosciences, scents, and flavors, to ensure that we always have a very reliable, high-quality supply for all of our customers around the world for all those product lines. So we're making significant investments now, and we'll continue to ramp that up in the coming years to ensure that we continue to profitably grow these business units very aggressively. Thank you. Thank you. Our next question comes from the line of John Roberts with Mizuho.

Speaker Change: On the Opex or excuse me on the Capex side, we are adding capacity.

Speaker Change: Especially in health and Biosciences, but across all three of those high growth markets businesses health and Biosciences sent in flavors to ensure that we always have very reliable high quality supply for all of our customers around the world for all of those product lines.

Eric Beerwald: So we're making significant investment now, and we'll continue to ramp that up in the coming years to ensure that we continue to properly grow very aggressively those business units.

Speaker Change: So we're making significant investment now and we will continue to ramp that up in the coming years to ensure that we continue to profitably grow very aggressively those business units.

Unknown Executive: Thank you.

Speaker Change: Thank you.

Eric Fierwald: Yes, we're making a lot of really good progress, John. Thanks for the question.

John Roberts: Thank you. Our next question comes from the line of John Roberts with Mizuho. John, your line is now open.

Speaker Change: Thank you. Our next question comes from the line of John Roberts with Mizuho. John Your line is now open.

John Roberts: Our next question comes from the line of John Roberts with Mizzouho. John, your line is not open. Thanks, and I'll share some drops on the quarter.

John Roberts: Thanks, and also congrats on the quarter.

Eric Beerwald: Eric, on slide seven, this end-to-end operating model, the places that the organization that your predecessor is starting. Is the model fully in place, or can you tell us where you are when it will be fully in place? Yes, we're making a lot of really good progress, John. Thanks for the question. And what I would say is that the clarity has been very well received by our people, and I think that the uncertainty has been cleaned up. The business teams are getting put in place. They're very excited and very energized by the clarity of decision-making, their ability to set strategy.

Speaker Change: On slide seven.

Speaker Change: Operating model replaces the reorganization that your predecessor has started.

John Roberts: The model fully in place or can you tell us where you are when it will be fully in place.

Speaker Change: Yes, we're making a lot of really good progress John Thanks for the question and what I would say is that the clarity has been very well received by our people and I think that the.

Eric Fierwald: And what I would say is that the clarity has been very well received by our people, and I think that the uncertainty has been cleared up. The business teams are getting put in place. They're very excited and very energized by the clarity of decision making, their ability to set strategy, and then to execute all elements of the business, from R&D, operations, commercial, and all the functions to support those gears working together to drive each of the business units.

Speaker Change: The uncertainty has been cleaned up.

Speaker Change: The business teams are getting put in place and they're very excited and very energized by the clarity of decision.

Speaker Change: A decision banking their ability to set strategy and then to execute all elements of the business from R&D operations commercial.

Eric Beerwald: And then to execute all elements of the business from R&D, operations, commercial, and all the functions to support that those gears working together to drive each of the business units. And I can tell you that we're starting to feel the benefits of that by seeing the strategies being executed and being strengthened in terms of being able to take our innovation from R&D. And get it through the creation and into the commercial operations, produce it, and then get it in there commercially. And it'll take a while to fully... Drive the benefits, but we're starting to feel the strength and improvements in energy and ability to do that.

Speaker Change: And all of the functions to support that.

Speaker Change: Those gears working together to drive each of the business units.

Eric Fierwald: And I can tell you that we're starting to feel the benefits of that by seeing the strategies being executed and being strengthened in terms of being able to take our innovation from R&D and get it through creation and into commercial operations. Produce it, and then get it out there commercially. And, you know, it'll take a while to fully.

Speaker Change: And I can tell you that we're starting to feel the benefits of that by seeing the strategy is being executed and being strengthened in terms of being able to take our innovation from R&D and get it through the creation and into commercial operations.

Speaker Change: Produce it and then get it commercially.

Speaker Change: <unk>.

Speaker Change: Take a while to fully.

Eric Fierwald: Drive to Benefit. But we're starting to feel the strength and improvements in energy and ability to do that. The other thing that's really interesting here is the Focus Business Unit having their strategy. And, by the way, from that comes the five-year plan, which gives us more clarity on where we're investing. We're able to better differentiate between the units where we put more of the investment and where we put less of the investment, where we need more productivity, and where we need to focus that productivity to make sure that we're competitive cost-wise and able to drive margins.

Speaker Change: Drive the benefits, but we're starting to feel the heat.

Speaker Change: The strength and improvements in.

Speaker Change: Energy and ability to do that the other thing Thats really interesting here is.

Eric Beerwald: The other thing that's really interesting here is with the focus business units, having their strategy, and by the way, from that comes the five-year plan which gives us more clarity on where we're investing. We're able to better differentiate between the units on where we put more of the investment and where we put less of the investment, where we need more productivity and where we need to focus that productivity to make sure that we're competitive, cost-wise, and able to drive margins. And then also, as you get that clarity on each business unit, what they need to do to win, it also increases the ability of businesses to collaborate effectively, and so that collaboration, the synergy, is now much less driven corporately with corporate programs and lots of consultants and lots of complexity, and much more from the businesses where they know the customers and where that synergy, where that leverage makes sense.

Speaker Change: With the focused business units having.

Speaker Change: Having their strategy and by the way from that becomes a five year plan, which gives us more clarity on where we're investing.

Speaker Change: We're able to better differentiate between the units on where we put more of the investment and where we put less of investment where we need more productivity.

Speaker Change: And where we need to focus that productivity to make sure that we're competitive cost wise and enable to drive margins.

Eric Fierwald: And also, as you get that clarity for each business unit on what they need to do to win, it also increases the ability of businesses to collaborate. And so that collaboration, the synergy, is now much less driven by the corporate level with corporate programs and lots of consultants and lots of complexity and much more from the businesses where they know the customers and where that synergy, where that leverage makes sense. So we're making good progress, and by the end of the year, we'll have all five units operating well, and that's when we'll start reporting on the five business units.

Speaker Change: And then also as you as you get that clarity on each business unit.

Speaker Change: What they need to do to win.

Speaker Change: It also increases the ability of businesses to collaborate effectively and so that collaboration is the synergy is now much less driven corporately with corporate programs and lots of consultants and lots of complexity and much more from the businesses, where they know us.

Speaker Change: <unk> and where that that synergy where that leverage makes sense. So we're making good progress and by the end of the year, we'll have all five units operating well and Thats. When we will start reporting the five business units.

Eric Beerwald: So we're making good progress, and by the end of the year, we'll have all five units operating well, and that's when we'll start reporting the five business units.

Tom Punjabi: Thank you. Our next question comes from the line, 'have gone,' Tom Punjabi with Baird. Tom, your line is now open. Thank you, operator. Good morning, everybody. Eric, I just want to go back to the strategic refresh specific to R&D. Does that entail more spending as it relates to R&D as the percentages of sales, or is it more repositioning resources with an overlay of accountability, and then also in the CapEx piece, and the company has been spending roughly half a billion in CapEx post the DuPont acquisition. So, as you sort of look back, was that just maintenance CapEx basically, and now you're adding growth CapEx?

Speaker Change: Thank you. Our next question comes from the line of Ghansham Panjabi with Baird Ghansham. Your line is now open.

Ghansham Panjabi: Thank you. Our next question comes from the line of Ghansham Panjabi with Baird. Ghansham, your line is now open.

Eric Fierwald: Thank you, operator. Good morning, everybody.

Ghansham Panjabi: Thank you operator, good morning, everybody Eric I, just wanted to go back to the strategic refresh specific to two R&D does that entail more spending as it relates to R&D as a percentage of sales or is it more repositioning resources with an overlay of accountability and then also on the Capex piece.

Eric Fierwald: Eric, I just want to go back to the strategic refresh specific to R&D. Does that entail more spending as it relates to R&D as a percentage of sales, or is it more, you know, repositioning resources with an overlay of accountability? And also, in the CapEx piece, the company has been spending roughly half a billion in CapEx post the DuPont acquisition. So as you sort of look back, was that just maintenance CapEx, basically, and now you're adding growth CapEx? Or is that the right sequence to think about as you go back to your comments about 6% CapEx to sales going forward? Yeah, thanks.

Speaker Change: Company has been spending roughly half of $1 billion in Capex post the Dupont acquisition. So as you sort of look back was that just maintenance capex basically I know youre, adding growth capex is that.

Eric Beerwald: Is that the right sequencing to think about as you go back to the comments about 6% capex to sales going forward? Yeah, thanks for the question. Very important.

Speaker Change: Alright sequencing to think about it.

Speaker Change: Go back to your comments about 6% capex to sales going forward.

Speaker Change: Yes, thanks for the thanks for the question very important.

Eric Fierwald: Yeah, thanks for the thanks for the question. It's very important. Let me start with CapEx. So now, with the strategic clarity of the business units, and the clarity of our strategies, we know we have to spend more on growth investments to realize our growth ambitions. But we also have some foundational investments that we need to make that were under invested in before. In essence, making sure that our plants are up to standards that we need to have them operate well, reliably, and with high quality.

Eric Beerwald: Let me start with the CapEx. So we now, with the strategic clarity with the business units, the clarity of our strategies, know we have to spend more on growth investments to realize our growth ambitions, but we also have some foundational investments that we need to make that we're under invested before in basic making sure that our plans are up to standards that we need to have them operate well, reliably, with high quality. We have some ERP investments that we need to make that are kind of that are foundational, but on top of that, we have aggressive growth targets, and we're going to make sure that we've got the facilities to deliver on those growth targets.

Speaker Change: Let me start with the Capex. So we now with the strategic clarity with the business units the clarity of our strategies.

Eric Fierwald: We have some ERP investments that we need to make that are kind of foundational. But on top of that, we have aggressive growth targets, and we're going to make sure that we've got the facilities to deliver on those growth targets. On R&D spend, we are absolutely increasing R&D spend as a percentage of sales in our health and biosciences business, and we'll increase the R&D spend in our flavors and scents businesses as we grow those businesses.

Speaker Change: We know we have to spend more on growth investments to realize our growth ambitions, but we also have some foundational investments that we need to make.

Speaker Change: We're underinvested before and basic making sure that our plants are up to standards that we need to have them operate well reliably with high quality.

Speaker Change: We have some ERP investments that we need to make that.

Speaker Change: <unk>.

Speaker Change: Our foundational but on top of that.

Speaker Change: We have aggressive growth targets and we're going to make sure that we've got the facilities too.

Speaker Change: Deliver on those growth targets on.

Eric Beerwald: On the R&D spend, we are absolutely increasing R&D spend as a percentage of sales, and our health and biosciences business, and we'll increase the R&D spend in our flavors and consent businesses as we grow those businesses. And I think that will be really important to ensure that we continue to strengthen those businesses and get the full benefit of their potential. on the functional ingredients side. It's heavily leaning towards making sure that we've got the right cost position, that we've got enough productivity to continue to turn around that business and get it on the right track and get it competitive with its competitive set.

Speaker Change: On the R&D spend we are absolutely increasing R&D spend as a percentage of sales in our health and Biosciences business and we will increase the R&D spend and our flavors and <unk> businesses as we grow those businesses.

Eric Fierwald: And I think that will be really important to ensure that we continue to strengthen those businesses and get the full benefit of their potential. On the functional ingredients side, a lot of meaning towards making sure that we've got the right cost position, that we've got enough productivity to continue to turn around that business and get it on the right track and make it competitive with its competitive set. And we're making good progress on that, by the way.

Speaker Change: And I think that will be really important to ensure that we continue.

Speaker Change: To strengthen those businesses.

Speaker Change: And get the full benefit of their potential.

Speaker Change: Functional ingredients side.

Speaker Change: Heavily.

Speaker Change: Leaning towards.

Speaker Change: Making sure that we've got the right cost position that we've got enough productivity to.

Speaker Change: <unk> continue to turn around that business and get it on the right track and get a competitive with its competitive set and we're making good progress on that by the way.

Eric Beerwald: And we're making good progress on that, by the way. And part of that will involve consolidation of some of our manufacturing facilities, which will take some initial caps, but we'll have very, very high returns. And then finally, we are pushing, strengthening our productivity across the company. When we talk about empowered business units, each of the business units also has a productivity meter now that's focused on making sure that we're driving productivity within each business unit to be able to improve margins and invest more in innovation. And then we're talking about lean corporate functions that effectively and efficiently support the business units, and each of those corporate functions has a productivity lead to make sure that we're fully competitive on costs for our corporate functions.

Eric Fierwald: And part of that will involve consolidation of some of our manufacturing facilities, which will take some initial capex, but we'll have very, very high returns. And then, finally, we are pushing and strengthening our productivity across the company. When we talk about empowered business units, each of the business units also has a productivity meter now that's focused on making sure that we're driving productivity within each business unit to be able to improve margins and invest more in innovation.

Speaker Change: And part of that will involve consolidation of some of our manufacturing facilities, which will take some initial capex, but will have very very high returns.

Speaker Change: And then finally, we are pushing strengthening our productivity across the company when.

Speaker Change: When we talk about empowered business units each of the business units also has a productivity leader now that's focused on making sure that we're driving.

Speaker Change: Productivity within each business unit to be able to improve margins and invest more in innovation.

Eric Fierwald: And then we're talking about lean corporate functions that effectively and efficiently support the business units. And each of those corporate functions has a productivity lead to make sure that we're fully competitive on cost for our corporate functions.

Speaker Change: And then we're talking about lean corporate functions that effectively and efficiently support the business units and each of those corporate functions has a productivity lead to make sure that we're fully competitive on cost for our corporate functions.

Unknown Executive: Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Kristen <unk> with Oppenheimer, Chris Dan. Your line is now open.

Kristen Owen: Thank you. Thank you. Our next question comes from the line of Kristen Owen with Oppenheimer. Kristen, your line is now open.

Kristen Owen: Our next question comes from the line of Kristen Owen with Oppenheimer. Kristen, your line is now open. Hi, good morning. Thank you for taking the question.

Kristen: Hi, Good morning, Thank you for taking the question.

Kristen Owen: I wanted to know if we could unpack some of the volume drivers behind each of the businesses in Q2 to help us understand the mix between end user demand, channel restock, and or some of the pricing incentives that you've talked about. Thank you.

Kristen <unk>: I Wonder if we could unpack some of the volume drivers behind each of the businesses in Q2, just help us understand the mix between end user demand channel restock and or some of the pricing incentives that you've talked about thank you.

Glenn Richter: Good morning, Kristen. Thank you for the question. What we're seeing is actually no incremental improvement in the consumer. So I know everyone sort of tracks what's happening, but neither food and beverage, PC really are showing any strengthening in the market. So our volume growth, we believe, is a function of two things. First of all, the lack of destocking from the prior year. So it's pretty significant. As you know, in the first half of the year, we do not see any restocking at this point in time.

Speaker Change: Good morning, Kristen. Thank you for the question.

Glenn Richter: Good morning, Kristen. Thank you for the question. What we're seeing is actually no incremental improvement for the consumer. So I know everyone sort of tracks what's happening, but neither Food & Bev or HPC really are showing any signs of strengthening the market. So our volume growth, we believe, is a function of two things. First of all, the lack of destocking from the previous year. So it's pretty significant, as you know, in the first half of the year. We do not see any restocking at this point in time. I would note that PhRMA's destocking lagged a bit. All the other businesses, we think, were largely done at the end of last year.

Speaker Change: What we're seeing is actually.

Speaker Change: No incremental improvement on the consumer so I know everyone's sort of tracks, what's happening, but neither food and bev or HCC really are showing any strengthening in the market. So our volume growth. We believe is a function of two things first of all the lack of destocking from prior year. So it was pretty significant as you know in the first half of the year, we do not.

Speaker Change: See any restocking.

Speaker Change: At this point in time I would note that farmers destocking lagged a bit all the other businesses. We think we're largely done at the end of last year pharma largely done at the end of this quarter. So that we see the volume trajectory for pharma improving going forward.

Glenn Richter: And I would note that pharma destocking lagged a bit; all the other businesses we think were largely done at the end of last year. Pharma, largely done at the end of this quarter, so that we see the volume of factory performance improving going forward. We also track very closely our volume performance of these VR key competitors by segment. And we're pleased in terms of where we are generally performing at or better across the entire board. And we believe it's really a function of sort of three things. One is, as Eric mentioned, the innovation focus. We've increased our intensity relative to our innovation pipeline.

Glenn Richter: PhRMA is largely done at the end of this quarter, so we see the volume trajectory for PhRMA improving going forward. We also track very closely our volume performance vis-à-vis our key competitors by segment, and we're pleased in terms of where we are generally performing at or better across the entire board. And we believe it's really a function of sort of three things.

Speaker Change: We also track very closely our volume performance of these VR key competitors by segment and we're pleased in terms of where we are generally performing at or better across the entire board and we believe that's really a function of sort of three things. One is as Eric mentioned, the innovation focus with increase our intensity relative to our <unk>.

Glenn Richter: One is, as Eric mentioned, the innovation focus. We've increased our intensity relative to our innovation pipeline. Secondarily, our sales pipeline. We spent a lot of energy to rebuild our pipeline and really accelerate our ability to win new business and win back business. And then third, I would have a special call out for the ingredients business. The ingredients business has actually come back very strongly based on the remediation efforts that we launched last year and this year.

Speaker Change: <unk> pipeline secondarily, our sales pipeline, we've spent a lot of energy to rebuild our pipeline and really accelerate our ability to win new business and win back business and then third I would have a special call out for the ingredients business ingredients business has actually come back very strongly.

Glenn Richter: Secondarily, our sales pipeline. We spent a lot of energy to rebuild our pipeline and really accelerate our ability to win new business and win back business. And then third, I would have a special call out for the ingredients business. Ingredients business is actually come back very strongly based on the remediation efforts that we launched last year into this year. Part of that, as a reminder, is taking some of the deflation that business has experienced in reinvesting and pricing at the start of the year. And that's actually played out very well. We had about 70% plus volumes in the ingredients business in the second quarter alone.

Speaker Change: Based on the remediation efforts that we launched last year into this year part of that is it.

Speaker Change: Minder is taking some of the deflation that business has experienced and reinvesting in pricing at the start of the year and Thats actually played out very well, we had about seven 8% plus volumes in the ingredients business in the second quarter alone. So so thats, how we sort of characterize again, we're confident in terms of what we can control, but the mark.

Glenn Richter: So that's how we sort of characterize again. We're confident in terms of what we can control. But the market continues to give us pause because we're just not seeing so a lot of strength in the consumer.

Speaker Change: It continues to give us pause because we just we're just not seeing a lot of strength in the consumer.

Patrick Cunningham: Thank you. Our next question comes from the line of Patrick Cunningham with City. Patrick, your line is now open. Hi, good morning.

Speaker Change: Thank you. Our next question comes from the line of Patrick Cunningham with City Patrick Your line is now open.

Patrick Cunningham: Thank you. Our next question comes from the line of Patrick Cunningham with Citi. Patrick, your line is now open.

Glenn Richter: Part of that, as a reminder, is taking some of the deflation that the business experienced in reinvesting in pricing at the start of the year, and that's actually played out very well. We had about 7, 8 percent plus volumes in the ingredients business in the second quarter alone. So that's how we sort of characterize, again, we're confident in terms of what we can control, but the market continues to give us pause because we're just not seeing a lot of strength in the consumer. Thank you. Our next question comes from the line of Patrick Cunningham with Citi.

Patrick Cunningham: Hi, good morning, given some of the incremental increase in Opex and Capex, but revised guidance upward is there any update to free cash flow guidance for the year and any items, we should be monitoring there. Thank you.

Patrick Cunningham: Given some of the incremental increase in, you know, optics and tactics, but, you know, revised guidance upward, is any update to free cash flow guidance for the year and any items we should be monitoring there.

Glenn Richter: Thank you.

Glenn Richter: Hey, good morning, Patrick. Thanks for the question. We are still guiding to the full year of 600 million. As a reminder, when we started the year, it was 500 million. We upped our guidance to 600 million in the last quarter. In part to reflect, we were pointing towards the higher end of our previous guidance. We are expecting earnings to be up, as we mentioned, with the higher guidance. It would be slightly higher working capital as the businesses are growing. Basically, have to make sure our inventories are in the right position to continue to support it.

Speaker Change: Hey, good morning, Patrick Thanks for the question.

Glenn Richter: Hey, good morning, Patrick. Thanks for the question. We are still guiding to a full year of $600 million. As a reminder, when we started the year, it was $500 million. We upped our guidance to $600 million the last quarter. In part to reflect this, we were pointing towards the higher end of our previous guidance. We are expecting earnings to be up, and as we mentioned, with the higher guidance, there'll be a slightly higher working capital.

Speaker Change: We're still guiding to the full year of $600 million as a reminder, when we started the year. It was $500 million, we upped our guidance to $600 million of last quarter in part to reflect we were pointing towards the higher end of our previous guidance. We are expecting earnings to be up as we mentioned with the higher guidance could be slightly higher working capital.

Speaker Change: As the businesses are growing basically have to make sure. Our inventories are in the right position to continue to support it.

Glenn Richter: As the businesses are growing, we basically have to make sure our inventories are in the right position to continue to support them. I would note that that $600 million of free cash flow includes roughly $350 million of Reg G items. Those are largely related to transactions, taxes, implementation costs, fees, etc. Adjusting for that, taking the Reg G costs out, we're more like $950 for the year, which is very consistent with what we guided previously as well.

Glenn Richter: I would note that that 600 million of free cash flow includes roughly 350 million of RIGG items. Those are largely related to transactions, taxes, implementation costs, fees, etc. So adjusting for that with taking the RIGG cost out for more like 950 for the year, which is very consistent with what we guided previously as well.

Speaker Change: Would note that that $600 million of free cash flow includes a roughly $350 million of Reg G items, those are largely related to transactions taxes implementation cost.

Speaker Change: Fees et cetera, so adjusting for that.

Speaker Change: <unk> taken the Reg G cost out or more like $9 50 for the year, which is very consistent with what we guided previously as well.

Mike Sison: Thank you. Our next question comes from the line of Mike Sison with Wells Fargo. Mike, your line is now open.

Mike Sison: Thank you. Our next question comes from the line of Mike Sisson with Wells Fargo. Mike, your line is not open.

Mike Sison: Thank you. Our next question comes from the line of Mike Sison with Wells Fargo. Mike, your line is now open. Hey guys, nice quarter and outlook.

Speaker Change: Thank you. Our next question comes from the line of Mike Sison with Wells Fargo. Mike. Your line is now open.

Mike Sison: Hey guys, nice quarter and outlook. In terms of functional gradients, probably the new strategy driven the volume recovery. I think we had nice, high single-digit recovery into Q. In addition, pricing is lower.

Mike Sison: Hey, guys nice quarter and outlook.

Speaker Change: In terms of fresh ingredients.

Speaker Change: And this strategy has driven the volume Youre correct.

Speaker Change: We had nice high single digit recovery entity Q.

Speaker Change: In addition pricing is lower can you can you share a little bit of <unk>.

Mike Sison: Can you share a little bit of details on EBITDA margin? Is it not meaningfully that it has been improved? Just your thoughts on the second half for functional gradients.

Speaker Change: Sales on EBITDA margin is it up meaningfully improve and then so just your thoughts on the second half for functional ingredients. Thank you.

Glenn Richter: Thank you.

Glenn Richter: Hey, thanks Mike.

Glenn Richter: Hey, thanks, Mike, and good morning. Yes, relative to functional ingredients, not only is the top line performing well, but gross profit and our EBITDA trajectory are actually progressing very nicely against expectations. So for the second quarter alone, on a like-for-like basis, including normalizing for the LBK write-off last year, so if you normalize for that, we were up about 250 basis points in terms of gross margin, which is consistent from the first quarter as well.

Speaker Change: Thanks, Mike and good morning.

Glenn Richter: Good morning. Yes, relative to functional ingredients, not only is the top line performing well, the gross profit and our EBITDA trajectories actually progressing very nicely against expectations. So for the second quarter alone, on a like-for-like basis, including normalizing for the LVK write-off last year. So, if you normalize for that, we're up about 250 basis points in terms of gross margin, which is consistent from the first quarter as well. And consistent where we think the full year is going to be, as we mentioned last year, the business had dropped a high single-digit EBITDA margin. Our goal has been to get it to basically mid teens.

Speaker Change: Yes relative to functional ingredients not only as the topline performing well, but gross profit and our EBITDA trajectory is actually progressing very nicely against expectations for the second quarter alone on a like for like basis, including normalizing for the <unk> write off last year. So if you normalize for that.

Speaker Change: We were up about 250 basis points in terms of gross margin, which is consistent.

Speaker Change: The first quarter as well and consistent with where you think the full year is going to be as we mentioned last year. The business had dropped to high single digit EBITDA margin. Our goal has been to get it to basically mid teens, we are tracking well to be low teens. This year.

Glenn Richter: And consistent with where we think the full year is going to be. As we mentioned last year, the business had dropped a high single-digit EBITDA margin. Our goal has been to get it to basically mid-teens, and we are tracking well to be in the low-teens this year. Generally, the volume recovery, the sales pipeline, and the innovation recovery are performing very well. The last set of initiatives are really focused on the cost structure of our global manufacturing footprint.

Glenn Richter: We are tracking well to be low teams this year. Generally, the volume recovery, the sales pipeline, the innovation recovery is performing very well.

Speaker Change: Generally the volume recovery the sales pipeline the innovation recovery is performing very well the last set of initial.

Glenn Richter: The last set of initiatives are really focused on the cost structure of our global manufacturing footprint. We've begun to implement some of those initiatives in the second half of the year, but they're going to fully begin to kick in next year 2025. So still so our work to do. We actually put a lot of effort against that business, but we have another sort of full year plus to sort of get the business back to where we think we are. But good progress today.

Glenn Richter: We've begun to implement some of those initiatives in the second half of the year, but they're going to fully begin to kick in next year, 2025. So still a lot of work to do. We've actually put a lot of effort into that business, but we have another sort of full year plus to sort of get the business back to where we think we are. But good, good progress today. Thanks, Mike.

Speaker Change: Initiatives are really focused on the cost structure of our global manufacturing footprint, we have begun to implement some of those initiatives in the second half of the year, but theyre going to fully begin to kick in next year 2025, So still sell a lot of work to do we've actually.

Speaker Change: Put a lot of effort against that business, but we have another sort of full year plus to sort of get the business back to where we think we are but good progress to date. Thanks, Mike.

Glenn Richter: Thanks, Mike.

Adam Samuelson: Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Adam, your line is not open. Yes, thank you. Good morning, everyone.

Speaker Change: Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Adam Your line is now open.

Adam Samuelson: Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Adam, your line is now open.

Adam Samuelson: Hi, yes. Thank you good morning, everyone.

Adam Samuelson: Yes, thank you. Good morning, everyone.

Speaker Change: Maybe keying off of that last.

Adam Samuelson: Maybe, keying off of that last question and answer, Glenn Erick. There's a little more detail on some of the more tangible steps within the functional ingredients business to improve the profitability and get that where it needs to be from the margin and earnings and returns perspective. I think it's a kind of refresh strategic plan there. So is that really about facility consolidation to lower your, to lower manufacturing costs? Is there intention on, on product and business mix across different categories? And can you talk about kind of how you think your volume performance in 2024, which has just been nicely against kind of a very challenging 23 compares to the end markets and peers that you look at it.

Speaker Change: A question and answer Glenn Eric.

Speaker Change: Just a little more detail on some of the some of the mortality steps within the functional ingredients business to improve the profitability and then get that where it needs to be from a margin and earnings and returns.

Speaker Change: Perspective, I think in the prepared remarks, you had.

Speaker Change: Kind of a refreshed strategic plan. There so is that really about facility consolidation to lower your lora.

Speaker Change: A lower manufacturing cost is there intention on product and business mix across different categories.

Speaker Change: And can you talk about kind of how you think your volume performance.

Speaker Change: 2024, which was up.

Speaker Change: Nicely against kind of a very challenging.

Speaker Change: Three compares to the end markets and it appears that you look at in that space.

Glenn Richter: Thanks. Thanks for the question. I think we're making good progress on transforming the business and getting it back healthy. We have achieved some significant volume recovery ahead of the market by going back to customers that we had before and making sure that they realize that we're serious about reliable supply, about serving them well, about making sure that, you know, we're very customer focused. And that's played out well. We've had to make some price moves with the market; others have done as well. But that was as expected; actually, it has resulted in the combination of the productivity, aggressive productivity, with some price give back.

Speaker Change: Okay.

Eric Fierwald: Um, maybe keying off of that last question and answer, Glenn, and Eric, could you give a little more detail on some of the more tangible steps within the functional ingredients business to improve profitability and get that where it needs to be from a margin and earnings and returns perspective? You know, I think Craig and I actually did a kind of refresh strategic plan there. So, is this really about facility consolidation to lower manufacturing costs?

Speaker Change: Yes. Thanks for the question I think we're making good progress on transforming the business and getting it back healthy.

Eric Fierwald: Is there intention on product and business mix across different categories? And can you talk about kind of how you think your volume performance in 2024, which was up, it's been up nicely against kind of a very challenging 23 compares to the end markets and peers that you look at it?

Speaker Change: We have achieved some significant volume.

Eric Fierwald: Yeah, thanks for the question. I think we're making good progress on transforming the business and getting it back healthy. We have achieved some significant volume recovery ahead of the market by going back to customers that we had before and making sure that they realize that we're serious about reliable supply, about serving them well, about making sure that, you know, we're very customer focused. And that's played out well.

Speaker Change: Recovery ahead of the market.

Speaker Change: Going back to customers that we had before and making sure that they realize that we're serious about reliable supply about serving them well about making sure that we're very customer focused.

Eric Fierwald: We've had to make some price moves with the market, as others have done as well. But that was as expected, actually, has resulted in a combination of the productivity, aggressive productivity, with some price giveback, we've still enabled us, still enabled us to achieve our margin goal and margin improvement goals in that business. So we're very much on track. But it is a combination of focusing on customers, really getting the clarity of strategy for the functional ingredients business, which we've been working hard on, which tells us where we focus our commercial efforts, what customers, what segments, what geographies, and making sure that we're driving the volume so that our plants are operating well, plus a very aggressive approach on productivity to ensure that we've got competitive costs and are able to have the target margins that we want for that business.

Speaker Change: And that's played out well we've.

We've had to make some price moves with the market as others have done as well but.

Speaker Change: That was as expected actually.

Speaker Change: Has resulted in an <unk>.

Speaker Change: Combination of the productivity aggressive productivity.

Speaker Change: Some price give back we've still enabled us and is still enabled us to achieve our margin goals margin improvement goals in that business. So we're very much on track, but it is a combination of focusing on customers really getting the clarity of strategy for the functional ingredients business, which.

Glenn Richter: We've still enabled us still enabled us to achieve our margin goal margin improvement goals in that business. So we're very much on track. But it is a combination of focusing on customers, really getting that the clarity of strategy for the functional ingredients business, which we've been working hard on, which tells us where we focus our commercial efforts. What customers, what segments, what geographies, and making sure that we're driving the volume so that our plants are operating well, plus a very aggressive approach on productivity to ensure that we've got competitive costs and are able to have the target margins that we want for that business.

Speaker Change: <unk> been working hard on which tells us where we focus our commercial efforts what customers what segments what geographies.

Speaker Change: And making sure that we're driving the volume so that our plants are operating well.

Speaker Change: Plus a very aggressive approach on productivity to ensure that we've got competitive costs and are able to have the the target margins that we want for that business. It's a work in progress we've still got a lot of room to go as Glenn mentioned, we've got another year plus to get back to where we believe that bill.

Glenn Richter: It's a work in progress. We've still got a lot of room to go. As Glenn mentioned, we've got another year plus to get back to where we believe that business should be. But I'm very, very proud of the team and the progress that they're making.

Eric Fierwald: It's a work in progress. We still have a lot of room to go. As Glenn mentioned, we've got another year plus to get back to where we believe that business should be. But I'm very, very proud of the team and the progress that they're making.

Glenn Eric: It should be but I'm very very proud of the team and the progress that they're making.

Speaker Change: Okay.

David Begleiter: Thank you. Our next question comes from the line of David Big Later with Go to Bank. David, your line is not open. Thank you.

Speaker Change: Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. David Your line is now open.

David Begleiter: Our next question comes from the line of David Begleiter with Deutsche Bank. David, your line is now open. Thank you.

David Begleiter: Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. David, your line is open.

David Begleiter: Thank you good morning.

Eric Beerwald: Good morning. Eric, I know you've been working on improving performance in your health business with return to growth in the second quarter. Kisha was driving the strong performance in probiotics and health. How stable is that growth? Thank you. Great. Thanks for the question, David. First of all, I think there's increasing emphasis on healthy health and gut health, which is great. And the US market particularly has rebounded and is picking up nicely. And as you know, we've focused a lot recently on our finished format approach, which is working very well. I would also say that we've added significant commercial capability.

Speaker Change: Eric I know you've been working on improving performance and your health business.

Speaker Change: With return to growth in the second quarter.

David Begleiter: Sure what's driving the strong performance in probiotics and how sustainable is that growth. Thank you.

Eric: Great. Thanks, Thanks for the question David.

Eric Fierwald: Great, thanks. Thanks for the question, David. First of all, I think there's increasing emphasis on good health and gut health, which is great. And the U.S. market, particularly, has rebounded and is picking up nicely. And as you know, we've focused a lot recently on our finished format approach, which is working very well. I would also say that we've added significant commercial capability. Our team there has actually done a great job of bringing back some really strong salespeople that left IFF in previous years and have now come back home, which is really helpful because it's great that they went out and thought that things were better, but now they have come back to IFF because they like what we're doing at IFF.

Eric: First of all I think there is increasing emphasis on healthy health and gut health, which is great.

Eric: U S market, particularly has rebounded and is picking up nicely.

Eric: And as you know we focus a lot recently on our finished format approach, which is working very well I would also say that we've added significant commercial capability.

Eric Beerwald: Our team there has actually done a great job of bringing back some really strong salespeople that left IFF in previous years and have now come back home, which is really helpful because it's great that they went out and thought that there were things were better, but now come back to IFF because they like what we're doing at IFF. And by the way, that's happening in some other areas as well. And then finally, the current performance is starting to turn and making some good progress.

Speaker Change: Our team there has actually.

Speaker Change: Done a great job of bringing back some really strong sales people that left iaff in previous years and have now come back home, which is really helpful. Because.

Speaker Change: It's great.

Speaker Change: They went out and thought that there were things were better but now come back to iff's because they like what we're doing at ISS and by the way that's happening in some other areas as well and then finally.

Eric Fierwald: And by the way, that's happening in some other areas as well. And finally, the current performance is starting to turn and make some good progress. But I've got to tell you, we've got a very exciting pipeline in our health business that I think will bode well for the coming years.

Speaker Change: The current performance is starting to turn in and making some good progress.

Eric Beerwald: But I've got to tell you, we've got a very exciting pipeline in our health business that I think will go well for the coming years. Thank you.

Speaker Change: But I've got to tell you we've got a very exciting pipeline in our health business that I think will bode well for the coming years.

Speaker Change: Thank you. Our next question comes from the line of Salvator Tiano with Bank of America Capital. Your line is now open.

Salvator Tiano: Thank you. Our next question comes from the line of Salvator Tiano with Bank of America. Salvator, your line is now open.

Salvator Tiano: Our next question comes from the line of Salvator Tiano with Bank of America. Salvator, your line is now open. Thank you very much. I want to ask about a couple of recent trends and how they are of the main part of your volumes. And personally, a bunch of CPGs being the statement sales you mentioned are considering moving back into discounting products to get some volume. So, are you hearing about that, and could this give another boost in your volumes, perhaps next year? And on the other hand, a lot has been said about the return of innovations and more skewed by your customers post-COVID, which is helping now.

Salvator Tiano: Thank you very much.

Salvator Tiano: I wanted to ask about a couple of.

Speaker Change: Recent trends of healthy we are one of the main fuel volumes I'm personally a bunch of cyclic GMP, bringing the segment sales you mentioned are considering moving back to this <unk> product to get some volume. So are you hearing about that that could give another boost in your volume perhaps next year.

Eric Fierwald: recent trends and how they are or may impact your volumes. And firstly, a bunch of CPGs, seeing the stagnant sales you mentioned, are considering moving back to discounting products to get some volume. So, are you hearing about that?

Eric Fierwald: And could this give another boost to your volumes, perhaps next year? And on the other hand, a lot has been said about the return of innovations and more SKUs by your customers post-COVID, which is helping now. How important has this been in your 2024 results so far? And is there any risk that this runs out of steam after your customers have a new product slate and they're done with this innovation?

Speaker Change: And there'll be other had a.

Speaker Change: A lot has been said about the return of innovations and more skus by your customers post Covid, which is helping now.

Salvator Tiano: How important has this been in your 24 results so far? And is there any risk that these ones out of steam after your customers have a new product slate and they're done with this innovation focus?

Speaker Change: How important has this bringing your 2024 results so far.

Speaker Change: Is there any risk sub lease runs out of steam after.

Speaker Change: The customer saw the new product slate there David.

David Begleiter: Our innovation focus.

Salvator Tiano: Thanks for the question. And what we're seeing from CPGs is that they want to strengthen their growth and profitable growth, like we all do. And the way we're hearing most about their strategy is to drive more innovation. And that's terrific for us because we love working with our customers to enhance innovation, and just a couple of examples of what's happening there. Obviously, the health, the desire for better health, and our ability to reduce sugar and salt content through modulation with our flavors in a way that gets you the same taste, but significantly lower sugar or salt levels, is really strong and is one of the key drivers of our flavors business, which is doing very well.

Speaker Change: Thanks for the question and what we're seeing from Cpg's as.

Eric Fierwald: Thanks for the question. And what we're seeing from CPGs is that they want to strengthen their growth and profitable growth, like we all do. And the way we're hearing most about their strategy is to drive more innovation. And that's terrific for us because we love working with our customers to enhance innovation. And just a couple of examples of what's happening there.

Speaker Change: That they want to strengthen their growth and profitable growth like we all do and the way. We're we're hearing most about <unk>.

Speaker Change: <unk> is to drive more innovation.

And that's terrific for us because we love working with our customers to enhance innovation and just a couple of examples of what's happening there obviously the health the desire for better health and our ability to reduce sugar and salt content through modulation with our flavors and.

Eric Fierwald: Obviously, health, the desire for better health, and our ability to reduce sugar and salt content through modulation with our flavors in a way that gets you the same taste, but significantly lowers sugar or salt levels, is really strong and is one of the key drivers of our flavors business, which is doing very well. We also, in the scent business, are working with our fine fragrance customers, for example, to enhance the ability to trigger emotions that the fine fragrance companies want to have.

Speaker Change: The way that gets you the same taste.

Speaker Change: But significantly lower sugar or salt levels as.

Speaker Change: Is really strong and is one of the key drivers of our flavors business, which is doing very well.

Eric Beerwald: We also, in the scent business, are working with our fine fragrance customers, for example, to enhance the ability to trigger emotions that the fine fragrance companies want to have. Just an example of that is Charlotte Tilbury wanted to come out with a range of products that triggers different emotions for consumers. And we used our AI tool, our IFF Sent Cube algorithm with her and her team to develop this line of fragrances that bring one product brings joy and other product brings energy and other product brings relaxation and other product brings romance. And a whole slate of products, innovative products that if you go online on TikTok and you search for Charlotte Tilbury, she talks about how exciting it was to develop these great products, which are doing extremely well together with IFF to make them happen.

Speaker Change: We also in the <unk> business are working with our fine fragrance customers for example to enhance the ability to.

Speaker Change: Trigger emotions that fine fragrance companies want to have just an example of that is Charlotte Tilbury wanted to come out with a range of products that triggers different emotions for consumers and.

Eric Fierwald: Just an example of that is Charlotte Tilbury wanted to come out with a range of products, that triggers different emotions for consumers. And we used our AI tool, our IFF ScentCube algorithm, with her and her team, to develop this line of fragrances that bring one product brings joy, another product brings energy, another product brings relaxation, another product brings romance, a whole slate of products, innovative products, that if you go online on TikTok and you search for Charlotte Tilbury, she talks about how exciting it was to develop these great products, which are doing extremely well, together with ISF to make them happen.

Speaker Change: And we used our AI tool, our iaff sent cube algorithm with her and her team to develop this line of fragrances.

Speaker Change: One product brings joy and other product brings energy and other product brings relaxation and other product brings romance a whole slate of products innovative products, but if you go online on Tic Toc in your booth.

Speaker Change: We search for Charlotte Tilbury, she talks about how exciting it was to develop these great products, which are doing extremely well.

Speaker Change: Together with Iff's to make them happen.

Eric Beerwald: And then we're seeing other innovation, which helps to drive cost productivity, such as cocoa prices are very high. We have cocoa extender capabilities and our flavors and our biosciences businesses that are helping companies reduce significantly the amount of cocoa they use, but having the same exact same taste at lower cost. And then one other example I think is really exciting is that we recently, with a very large global food company, developed and they have launched a lactose-free milk in China where our enzymes take out the lactose and turn it into fiber. And so you get lactose-free milk that is lower calorie and healthier for you.

Eric Fierwald: And then we're seeing other innovation, which helps to drive cost productivity, such as, you know, cocoa prices are very high. We have cocoa extender capabilities in our flavors and our biosciences businesses that are helping companies reduce significantly the amount of cocoa they use but have the same exact taste at a lower cost. And then one other example I think is really exciting is that we recently developed and launched a lactose-free milk in China where our enzymes take out the lactose and turn it into fiber.

Speaker Change: And then we're seeing other innovation, which helps to drive cost productivity such as cocoa prices are very high we have cocoa extend our capabilities and our flavors and our biosciences businesses that are helping come.

Speaker Change: Companies reduce significantly the amount of cocoa they use but having the same.

Speaker Change: <unk> same taste at lower cost.

Speaker Change: And then one other example, I think is really exciting is that we recently with a very large global food company.

Speaker Change: <unk> developed and they have launched a lactose free milk in China, where our enzymes take out the lactose.

Speaker Change: And turn it into fiber and so you get lactose free milk that is lower calorie and healthier for you and as you know there are many many lactose intolerant consumers in China. So a big market. So this focus on innovation and our ability to work with our customers to bring great.

Eric Fierwald: And so you get lactose-free milk. That is lower in calories and healthier for you. And as you know, there are many, many lactose intolerant consumers in China, so a big market. So this focus on innovation, and our ability to work with our customers to bring great innovation that helps them drive their growth profitably, is really paying off.

Eric Beerwald: And as you know, there are many, many lactose intolerant consumers in China, so a big market. So this focus on innovation and our ability to work with our customers to bring great innovation that helps them drive their growth properly is really paying off.

Speaker Change: <unk> that helps them drive their growth profitably is really paying off.

Unknown Executive: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Marc Stratton with Stifel. Mark. Your line is now open.

Mark Astrachan: Thank you. Our next question comes from the line of Mark Astrachan with Stiefel. Mark, your line is now open.

Mark Astrachan: Our next question comes from the line of Mark Astrachan with Steve Hull. Mark, your line is not open. Yes, thanks. And morning, everybody. I guess two clarifications. One, just on the outlook over the balance of the year, the volume outlook to be weaker in 4Q. Is it something that you are theorizing? Is it something that you have line of sight on? It sounds like from your guidance that it's ReQ July has gotten off to solid starts. I guess I'm curious to, you know, how you disaggregate those two pieces, 3Q versus 4Q. And then, as we go into next year, are there any one-off to consider, like incentive comp?

Marc Stratton: Yes, thanks, and good morning, everybody.

Mark Astrachan: Yeah, thanks and good morning, everybody. Um, I guess two, two clarifications. One, just on the outlook for the balance of the year, you know, the volume outlook to be weaker in 4Q. Is that something that you were theorizing? Is it something that you have line of sight on?

Marc Stratton: I guess two clarifications, one just on the outlook over the balance of the year.

Marc Stratton: On the volume outlook to be weaker in <unk> is it something that you are theorizing is it something that you have line of sight on it sounds like from your guidance.

Marc Stratton: <unk>.

Speaker Change: July has gotten off to a solid start I guess I'm curious just how you disaggregate that.

Marc Stratton: Two.

Glenn Richter: It sounds like from your guidance that 3Q in July has gotten off to a solid start. I guess I'm curious just how you disaggregate those two pieces of 3Q versus 4Q and then, as we go into next year, are there any... One-offs to consider, like incentive comp. I think you had mentioned resets this year. So things to think about going into next year. Thank you.

Speaker Change: Use of <unk> versus <unk> and then.

Speaker Change: As we go into next year are there any.

Speaker Change: One offs to consider like incentive comp I think you had mentioned research. This year, so things to think about going into next year. Thank you.

Mark Astrachan: I think you had mentioned research this year, so things to think about going into next year. Thank you.

Glenn Richter: Good morning, Mark. Thanks for the questions. You know, Q4. We have very little visibility at this point in time. We have a very good view towards the third quarter book. Obviously, July is in the bank, and we have a good view to the current month and then September. So there's not a lot of data points at this point in time to sort of give us any direction on Q4 beyond. We are overlapping and improvement from prior years, so we're negative 7 and Q3 of last year versus negative 3. And again, we do think that the consumer dynamics basically suggests that and market demand will be flatish.

Speaker Change: Hey, good morning, Mark Thanks for the questions.

Glenn Richter: Hey, good morning, Mark. Thanks for the questions. You know, Q4 we have very little visibility at this point in time. We have a very good view toward the third quarter book. Obviously, July is in the bank, and we have a good view toward the current month and then September.

Speaker Change: Q4, we have very little visibility at this point in time, we have a very good view towards the third quarter book, Obviously July is in the bank and we have a good view to the current month and then September so theres not a lot of data points at this point in time to sort of give us any direction on Q4 and beyond we are overlapping and <unk>.

Speaker Change: Movement from prior year, so were negative 7% in Q3 of last year versus negative three and again, we do think that the consumer dynamics basically suggests that end market demand will be flattish, we don't see restocking happening either we think that the CPG firms are conservative they are not going to restock until they see a strength in the market. So all of those.

Glenn Richter: So there's not a lot of data points at this point in time to sort of give us any direction on Q4. But beyond, we are overlapping in improvement from prior years. So we were negative seven in Q3 of last year versus negative three. And again, we do think that the consumer dynamics basically suggest that end market demand will be flattish. We don't see restocking happening either, but we do think that the CBG firms are being conservative.

Glenn Richter: We don't see restocking happening either. We do think that the CBG firms are conservative. They're not going to restock until they see a strength in the market. So all those factors basically just make us cautious on the fourth quarter until we begin to see the order order book emerged.

Glenn Richter: They're not going to restock until they see strength in the market. So all those factors basically just make us cautious about the fourth quarter until we begin to see the order book emerge. One also is a good question.

Speaker Change: Factors basically just make us cautious on the fourth quarter until we begin to see the order order book emerge.

Glenn Richter: One off is a good question. The annual incentive plan is a very significant variable this year out of plan. Because there's a very strong performance across all of our businesses. We are accruing an incremental 100 million dollars this year of a IP that's actually 140 million aggregate versus prior year. That so think about our guide of 2.1 to 2.17. That includes 100 million that will be normalized for next year as you just go into next year and get back to 100% sort of payout from standpoint. That's the most significant. There's always puts and takes, and other items relative to where we are.

Glenn Richter: The annual incentive plan is a very significant variable this year out of plan because of the very strong performance across all of our businesses. We are accruing an incremental $100 million in AIP this year. That's actually $140 million aggregate versus the prior year. So think about our guide of 2.1 to 2.17. That includes $100 million that will be normalized for next year as you just go into next year and get back to 100% sort of payout from a standpoint. That's the most significant. There's always puts and takes and other items relative to where we are, but that's probably the most significant item by far within our P&L.

Speaker Change: What else is a good question.

Speaker Change: The annual incentive plan is a very significant variable this year out of plan.

Speaker Change: Those are the very strong performance across all of our businesses. We are accruing an incremental $100 million. This year of AIP, that's actually a $140 million in aggregate versus prior year.

Speaker Change: So think about our guide of two 1% to $2 $1. Seven that includes a $100 million that will be normalized for next year. As you just go into next year and get back to a 100% payout from standpoint, that's the most significant there really are there's always puts and takes and other items relative to where we are but thats, probably the most significant item by far within our peer.

Glenn Richter: But that's probably the most significant item by far within our piano. Thank you.

Speaker Change: <unk>.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Kevin Mccarthy with vertical Research partners. Kevin Your line is now open.

Kevin Mccarthy: Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin, your line is now open.

Kevin Mccarthy: Thank you. Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin, your line is now open. Thank you and good morning.

Kevin Mccarthy: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin, your line is not open. Thank you, Ann. Good morning.

Kevin Mccarthy: Thank you and good morning.

Eric Beerwald: You're making some pretty good progress on the balance sheet in the quarter, and it appears as though that'll most likely continue with the EBITDA upgrade and, of course, the pending farm at the. Also, my question would be if we were to jump ahead, Eric, to a time when the balance sheet's fully repaired, so to speak. Are there other things that you have in mind that you'd like to do strategically if capital were not a constraint? Thanks for the question, and absolutely, you know, our plans are to continue to significantly strengthen our health and biosciences business, our flavors, and our scent businesses.

Speaker Change: We're making some pretty good progress on the balance sheet in the quarter and it appears as though that will.

Kevin Mccarthy: Most likely continue with the EBITDA upgrade and of course, the pending pharma deals. So my question would be.

Kevin Mccarthy: We have to jump ahead, Eric to a time when the balance sheets fully repaired so to speak.

Eric: Are there other things that you have in mind that you'd like to do strategically if capital were not a constraint.

Eric: Thanks for the question and absolutely our plans are to continue to significantly strengthen our health and biosciences business, our flavors and our <unk> businesses, we see a lot of opportunity with organic investments.

Eric Fierwald: Thanks for the question. And, absolutely, you know, our plans are to continue to significantly strengthen our health and biosciences business, our flavors, and our scent businesses. We see a lot of opportunity with organic investments, both in R&D, commercial capability, digital capability, as well as CAPEX opportunities to expand capacity and make sure that we always have enough products to sell all around the world. And then also...

Glenn Richter: We see a lot of opportunity with organic investments, both in R&D commercial capability, digital capability, as well as CAPEX opportunity, to expand capacity and make sure that we always have enough products to sell all around the world. And then also, I foresee us returning sometime next year to really looking at both acquisition opportunities and collaboration opportunities with companies that bring complimentary capabilities, especially technologies that would be useful for us. So we will, we're already working on our strategies, and you'll see us get more proactive in these areas.

Eric: Both in R&D and commercial capability.

Eric: Digital capability.

Eric: As well as capex opportunities to expand capacity to make sure that we.

Eric: Always have enough products to sell all around the world.

Eric: And then also.

Eric Fierwald: I foresee us returning sometime next year to really looking at both acquisition opportunities and collaboration opportunities with companies that bring complementary capabilities, especially technologies that would be useful for us. So we will, we're already working on our strategies, and you'll see us become more proactive in these areas. Yeah, I think it's also important to emphasize, given, I'll say, our jaded history here relative to acquisitions, that we feel like we have a phenomenal portfolio in place.

Eric: I foresee us returning sometime next year to really looking at bolt on.

Eric: Okay.

Eric: Bolt on acquisition opportunities and collaboration opportunities with companies that bring complementary capabilities, especially technologies that would be useful for us.

Speaker Change: So we will we're already working on our strategies and Youll see us get more proactive in these areas. Yes, I think it's also important to emphasize given our I'll say, our jaded history here relative to acquisitions is we feel like we have a phenomenal portfolio in place, we're going to prioritize the organic and as Eric mentioned.

Eric Beerwald: Yeah, I think it's also important to emphasize, given our, say, our jaded history here relative to acquisitions, we feel like we have a phenomenal portfolio in place. Yes, we're going to prioritize the organic, and as Eric mentioned, the focus really is on Bolton's small acquisitions that provide either a complimentary technology, a geographic strength, et cetera, as a way to continue to progress the business. At this point, anything large will be completely out of the question. Yeah, I think if you look at it, my experience, which lasts 16 years, is a CEO. We've had a lot of positive experience with Bolton acquisitions that clearly fill a strategic gap and are integrated well, bought fully, carefully, and done in a way that enhances the company's performance immediately; doesn't distract.

Eric Fierwald: We're going to prioritize organic growth, and as Eric mentioned, the focus really is on bolt-ins, small acquisitions that provide either a complementary technology, a geographic strength, etc., as a way to continue to progress the business. At this point, anything large would be completely out of the question. Yeah, I think if you look at my experience, the last 16 years as a CEO, we've had a lot of positive experiences with both acquisitions that clearly fill a strategic gap and are integrated well, thoughtfully. Carefully, and done in a way that enhances the company's performance immediately, doesn't distract, and doesn't take us backwards, as you've seen that happened over the last six years here.

Eric: The focus really is on Bolton's small acquisitions that provide either a complementary technology to geographic strength et cetera, as a way to continue to progress the business.

Speaker Change: At this point anything large will be completely out of the question.

Speaker Change: If you look at it my experience.

Speaker Change: In my 16 years as a CEO.

Speaker Change: We've had a lot of a lot of positive experience with bolt on acquisitions.

Speaker Change: That clearly fill a strategic gap.

Speaker Change: And our integrated well thoughtfully.

Speaker Change: Carefully.

Speaker Change: And and done in a way that enhances the company's performance immediately it doesn't distract it doesn't take us backwards like you've seen what's happened over the last six years here.

Eric Beerwald: It doesn't take us backwards like you've seen it's happened over the last six years here.

Speaker Change: Okay.

Lisa Neve: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Lisa de Neve with Morgan Stanley. Please Sir your line is now open.

Lisa Deneve: Thank you. Our next question comes from the line of Lisa Deneve with Morgan Stanley. Lisa, your line is now open.

Lisa Neve: Our next question comes from the line of Lisa Denise with Morgan Stanley. Lisa, your line is now open. Hi, everyone, and thank you for taking my questions. I have one follow-up and one question. So one follow up on the CAPEX program, sorry, one more. Could you please provide some detail on your digital investments, including the R.P. system, and can you please share how this will improve or impact your organization, and also, whether there's any risks to execute and implementing on this R.P. system in particular. And the second question I have is, is really how has your position with local and regional customers versus multinational customers evolved over the last couple of years?

Lisa Deneve: Hi everyone, and thank you for taking my questions. I have one follow-up and one question. So, one follow-up on the CAPEX program. Sorry, one more.

Speaker Change: Hi, everyone and thank you for taking my questions I have one follow up and one question one follow up on the Capex program sorry, one more could you. Please provide some detail on your digital investments, including the ERP system and can you. Please share how this will improve for impact your organization and also whether there is any risk.

Eric Fierwald: Can you please provide some detail on your digital investments, including the ERP system? And can you please share how this will improve or impact your organization? And also, whether there are any risks to executing and implementing this ERP system in particular? And the second question I have is, really, how has your position with local and regional customers versus multinational customers evolved over the last couple of years? And can you share your exposure to these types of customers and how dynamic they are compared to multinationals at the moment? Thank you.

Speaker Change: We executed on implementing this ERP system in particular.

Speaker Change: And the second question I have is really high.

Speaker Change: Is your position with local and regional customers versus multinational customers evolved over the last couple of years.

Eric Beerwald: And can you share your exposure to these types of customers and how dynamic they are versus multinational customers? All at the moment.

Speaker Change: And can you share your exposure to these type of customers and how dynamic they are versus multinationals at the moment. Thank you.

Eric Beerwald: Thank you. Great, so let me take the first question first and just tell you that we are taking an ERP approach that is very step by step and very careful to minimize wasted investment and also to minimize risk of implementation. Just giving me a couple of examples. So the first step in our corporate ERP ERP system development was implementing something called CFIN, our finance system, which we've done already. It's already in place. We've done the improvements, and it's getting better and better and enabling us to better do our closes with less people and less complexity and less corrections.

Speaker Change: Great. So let me take the first question first.

Eric Fierwald: Right, so let me take the first question first and just tell you that we are taking an ERP approach that is very step-by-step and very careful to minimize wasted investment and also to minimize risk of implementation. I'll just give you a couple of examples.

Speaker Change: And just tell you that we are taking an ERP approach.

Speaker Change: That is very step by step and very careful to minimize wasted investment and also to minimize risk of implementation and I'll. Just give you couple of examples so the first step in our corporate ERP system development.

Glenn Richter: So the first step in our corporate ERP system development was implementing something called CFIN. Our finance system, which we've done already, is already in place. We've done the improvements, and it's getting better and better and enabling us to better do our closes with less people and less complexity and less corrections. The next step was just implemented in the past week called Workday for the HR systems. That's going as planned so far, and things are going very fine.

Speaker Change: Implementing something called CPM or.

Speaker Change: Our finance system, which we have done already it's already in place we've done the improvements and that's getting better and better and enabling us to better do our closes with less people and less less complexity unless corrections.

Eric Beerwald: The next step was just implemented in the past week called Workday for the HR systems. That's going as planned so far, going very fine, and then we'll do additional steps in the coming three years. So we're doing it step by step to spread out the investment and spread out the manpower, the focus required on it, and make sure that we do it well with minimum risk. If I could just add two comments. So we will be converting with currently on three incidences of SAP. We will be converting them probably for the next five years into a single pipe, if you will.

Speaker Change: The next step was just implemented in this past week called Workday for HR systems, that's going as planned so far going very fine and then we will do additional steps in the coming three years. So we're doing it step by step two.

Glenn Richter: And then we'll do additional steps in the coming three years. So we're doing it step by step to spread out the investment and spread out the manpower, the focus required on it, and to make sure that we do it well with minimum risk.

Speaker Change: To spread out the investment and spread out the manpower.

Speaker Change: The focus required on it and make sure that we do it well with minimum risk.

Eric Fierwald: If I could just add two comments. So, we will be converting. We're currently on three incidences of SAP. We will be converting them, probably over the next five years, into a single pipe, if you will. We will be leveraging one of the legacy IFF pipes, if you will. That's going to be approximately $250 million over that five-year period to get that done. And it's very important to also add to Eric's comments that we actually have already separated one of our ERPs, we're on four, a little over a year ago, with a divestiture basically of our microbial control business, and we want to get basically pharma out of the way before we sort of launch on the ERP conversion. So, think about this, the second half of the year, once Pharma is done, we'll be in good shape, and it's about $50 million a year over the next five years. Now, on your second.

Speaker Change: If I could just add two comments.

Speaker Change: So we will be converting was currently on three incidences of SAP.

Speaker Change: We will be converting them probably over the next five years into a single pipe. If you will we will be leveraging one of the.

Glenn Richter: We will be leveraging one of the legacy IFF pipe, if you will. That's going to be approximately 250 million dollars over that five-year period to get that done. It's very important to also add to Eric's comments is we actually have already separated one of our ERPs. We're on four a little over a year ago with a divestiture basically over microbial control business. And we want to get basically farmer out of the way before we sort of launch on the ERP conversion. So think about this: the second half of the year, once farmers done, will be in a good shape.

Speaker Change: The legacy ICF pipe, if you will that's going to be approximately $250 million over that five year period to get that done. It's very important to also add to Eric's comments is we actually have already separated one of our ERP. We are in for a little over a year ago with the divestiture basically over microbial control business.

Speaker Change: And we want to get basically pharma out of the way before we sort of launch on the ERP conversion. So think about the second half of the year. Once farmers done we'll be in a good shape and it's about 50 million Bucks a year over the next five years.

Glenn Richter: It's about 50 million bucks a year over the next five years.

Eric Fierwald: Now on your second question, the way I would look at it, I've just been all around the world, and I've met with customers representing over a third, probably about 40% of our revenues with our people, and many of them had top-to-top discussions with major global multinationals, regionals, and locals, talking about what we do well, what we need to do better, and how we can even more closely work together on innovation and co-cre Global multinationals, regionals, and locals to work with us to tap into our innovation, and our people's capability to do that is really, really strong.

Eric Beerwald: Now, your second question. The way I would look at it. I've just been all around the world. I've met with customers representing over a third, probably about 40% of our revenues, with our people, and many of them top-to-top discussions with major global multinationals, regional, and locals talking about what we do well, what we need to do better. And how we can even more closely work together on innovation, co-creation of their product lines. And I tell you I'm very excited about the designer of customers, global multinationals, regional locals to work with us to tap into our innovation.

Speaker Change: Now on your second question.

Speaker Change: The way I would look at it I am just been all around the world and I've met with.

Speaker Change: Customers representing over a third probably about 40% of our revenues with our people and many of them top to top discussions with major global multinationals regionals and locals talking about what we do well, what we need to do better and how we can even more closely.

Speaker Change: Worked together on innovation co creation of their product lines.

Speaker Change: And I would tell you I'm very excited about the desire of customers.

Speaker Change: Global multinationals regionals locals to work with us.

Speaker Change: To tap into our innovation.

Eric Beerwald: And our people capability to do that is really, really strong. And so when I believe is that our history with the large multinationals, are understanding of the markets around the world of what works has enhanced our ability to better serve them. As we focus more on customers as a core part of what we do in our innovation powerhouse, but also as we increase our commercial capability, better serve them and the regionals and the global. Excuse me. The regionals and the locals, which will enhance our ability to drive our growth rates ahead of the market. And that's a core part of our strategies for each of our business units.

Speaker Change: And our people capability to do that is really really strong.

Eric Fierwald: And so, what I believe is that our history with the large multinationals, our understanding of the markets around the world, and of what works, has enhanced our ability to better serve them as we focus more on customers as a core part of what we do in our innovation powerhouse. But also, as we increase our commercial capability, we will better serve them and the regionals and the locals, which enhances our ability to drive our growth rates ahead of the market. And that's a core part of our strategies for each of our business units.

Speaker Change: And so what I believe is that our history with the large multinationals our understanding of the markets around the world of what works.

Speaker Change: Has enhanced our ability to better serve them as we focus more on customers is a key.

Speaker Change: What we do in our innovation powerhouse.

Speaker Change: But also as we increase our commercial capability better serve them and the regionals and the globals are excuse me at the regionals and locals which will.

Speaker Change: Enhances our ability.

Speaker Change: To drive our growth rates ahead of the market and that's a core part of our strategies for each of our business units.

Unknown Executive: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Lauren Your line is now open.

Lauren Lieberman: Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Lauren, your line is now open.

Lauren Lieberman: Our next question comes from the line of Lauren Lieberman with Barclays.

Lauren Lieberman: Lauren, your line is not open. Hey, thanks. Good morning. Two questions. One was just, you guys have historically given forward quarter guidance for sales in EBITDA, and you didn't for three cues. So it was just kind of curious. Should we expect a change in that policy and approach?

Lauren Lieberman: Hey, thanks. Good morning.

Lauren Lieberman: Hey, Thanks, good morning.

Lauren Lieberman: So two quick questions one was just.

Lauren Lieberman: Guys have historically, given fourth quarter guidance for sales and EBITDA and you Didnt for three Q. So I was just kind of curious.

Glenn Richter: So, two quick questions. One was just, you guys have historically given forward quarter guidance for sales in EBITDA, and you didn't for 3Q. So, I was just kind of curious, Are we, you know, should we expect a change in that policy and approach? And then secondly, was just on gross margins, if we could walk through the bridge to get to the 500 basis points of margin expansion beyond lapping the LBK, like was deflationary raw materials a benefit?

Speaker Change: Should we expect a change in that policy and approach.

Speaker Change: And then secondly, just on gross margins, if we could walk through the bridge to get to the <unk>.

Glenn Richter: And then secondly, we just don't gross margins. If we could walk through the bridge to get to the 500 basis points of margin expansion beyond lapping the LBK, like with deflation raw materials, a benefit. I know you mentioned productivity gains a bunch in the release in the slides, but just, you know, how should we maybe think about gross margin progression in the back half and any details on those productivity programs could be helpful too. Thanks.

Speaker Change: 500 basis points of margin expansion beyond lapping that L. D K.

Speaker Change: With deflation raw materials benefit I know you mentioned productivity gains a bunch in the release in the slides, but just how should we maybe think about gross margin progression in the back half and any detail on some of those productivity programs can be helpful too. Thanks.

Glenn Richter: I know you mentioned productivity gains a bunch in the release and on the slides, but just, you know, how should we maybe think about gross margin progression in the back half? And any detail on some of those productivity programs could be helpful, too. Thanks.

Glenn Richter: Yeah, so more and more. We actually did provide outlook for Q3. So we guided top line of 2.75 to 2.85 and then relative to EBITDA 520 to 540 for the quarter. So that's the outlook for the quarter relative to progression on gross margin for the balance of the year. We had more significant upside in the first half of the year because of the absorption LBK and other items. We still are forecasting a solid improvement year over year in terms of our gross gross margins for the second half of the year. And it's going to be driven by volumes. Won't be quite up as much, so that's a little bit of a difference versus the first half.

Speaker Change: Yes.

Glenn Richter: Yeah, so good morning, Lauren. We actually did provide an outlook for Q3. So we guided the top line of 2.75 to 2.85 and, relative to EBITDA, 520 to 540 for the quarter. So that's the outlook for the quarter. Relative to progression on gross margin for the balance of the year, we had more significant upside in the first half of the year because of absorption of LBK and other items. We still are forecasting a solid improvement year over year in terms of our gross margin for the second half of the year.

Laurent: And Laurent.

Speaker Change: We actually did provide outlook for Q3, so we guided topline of $2 75 to $2 85, and then relative to EBITDA of $5 20 to $5 40 for the quarter. So.

Speaker Change: So thats the outlook for the quarter relative to the progression on gross margin for the balance of the year, we had more significant upside in the first half of this year because of absorption El PK and other items, we still are forecasting a solid improvement year over year in terms of our gross product.

Speaker Change: Gross margin for the second half of the year and it's going to be driven by volumes won't be quite up as much. So that's a little bit of let's say a difference versus the first half, but the productivity programs are continuing to deliver consistently quarter to quarter in the second half versus the first half the net.

Glenn Richter: And it's going to be driven by volumes won't be quite up as much, so that's a little bit of a difference versus the first half. But the productivity programs are continuing to deliver consistently quarter to quarter in the second half versus the first half.

Glenn Richter: But the productivity programs are contained the deliver consistently quarter to quarter in the second half versus the first half. The net raw material basket is generally flatish in terms of where we are running from the first half to the second half. So we don't really see any significant up size relative to that, nor do we see downside at this point in time. So hopefully that's helpful.

Glenn Richter: The net raw material basket is generally flattish in terms of where we are running from the first half to the second half of the year. So we don't really see any significant upsides relative to that, nor do we see any downside at this point in time. So hopefully, that's helpful.

Speaker Change: Raw material basket is generally flattish in terms of where we are running from the first half to the second half is going because we don't really see any significant upside relative to that nor do we see downside at this point in time, so hopefully that's helpful.

Jeff Sikowskas: Thank you. Our next question comes from the line of Jeff Sikowskas with JP Morgan. Jeff, your line is now open.

Speaker Change: Thank you. Our next question comes from the line of Jeff Zekauskas with J P. Morgan Jeff. Your line is now open.

Jeff Zekauskas: Thank you. Our next question comes from the line of Jeff Zekauskas with JP Morgan. Jeff, your line

Jeff Zekauskas: Thank you. Our next question comes from the line of Jeff Zekauskas with JP Morgan. Jeff, your line is now open. Two questions. Was there a diminishment of your

Jeff Sikowskas: Two questions. Was there a diminishment of your volume growth in July, or how were your volumes in July? How do they compare to the second quarter? And to try Lauren's question once again, your cost of goods sold was down 9% on flat to down sales. How much were your raw materials down? I know you said that they would be flat out of quentially into the second half. So yeah, so I'll answer our total net price in the business largely concentrated functional ingredients is around two and a half percent in the first half of the year versus prior.

Jeff Zekauskas: Two questions.

Jeff Zekauskas: Was there a diminishment of your volume growth in July or how are your volume centralized how do they compare to that.

Speaker Change: So the second quarter.

Speaker Change: And to try Lauren's question. Once again your cost of goods sold was down 9% on flat to down sales.

Speaker Change: How much were your raw materials down.

Speaker Change #100: I know you said that they would be flat sequentially into the second half sequentially yet.

Glenn Richter: Uh, so, uh, our... Yeah, so I'll answer. Our total net price in the business, largely concentrated in functional ingredients, is around 2.5% in the first half of the year versus prior. That's equivalent to basically the reduction in raw materials year over year. So we basically use that to reinvest. Again, that's largely concentrated in functional ingredients.

Speaker Change #100: So.

Okay.

Speaker Change #101: Yes, so I'll answer our total net price in the business largely concentrated functional ingredients is around two 5% in the first half of the year versus prior that's equivalent to basically the reduction in raw materials year over year. So we basically use that to reinvest again thats largely concentrated in functional ingredients.

Glenn Richter: That's equivalent to basically the reduction in raw materials year. So we basically use that to reinvest. Again, that's largely concentrated in functional ingredients; to the other businesses, are relatively flat year over year from the raw material standpoint. July started off well. I would note that we have a very good start of the quarter. However, Jeff, in the last two quarters, the pattern has been a very, very strong first month, and then it diminishes second and third, generally the third month of the quarter. And this is our outlook; tends to be the softest. We believe this is just consistent with our customers, sort of managing their inventory's tighter at the end of the quarter.

Speaker Change #101: The other businesses are relatively flat year over year from a raw material standpoint.

Glenn Richter: The other businesses are relatively flat year over year from a raw materials standpoint. July started off well. I would note that we have a very good start to the quarter. However, Jeff, in the last two quarters, the pattern has been a very, very strong first month, and then it diminishes in the second and third, generally the third month of the quarter. And this is why our outlook tends to be the softest. We believe this is just consistent with our customers sort of managing their inventories tighter at the end of the quarter.

Speaker Change #101: <unk> started off well.

Jeff Zekauskas: Note that we have a very good start of the quarter. However, Jeff in the last two quarters. The pattern has been a very very strong first month and then it diminishes second and third generally the third month of the quarter and this is our outlook tends to be the sources. We believe as this is just consistent with our customers sort of managing their inventories tightly tighter at.

Glenn Richter: So a good, good start in terms of July, but that's been consistent with what we've seen as a pattern in the last couple quarters. Thank you. Our next question comes from the line of Lawrence Alexander with

Jeff Zekauskas: We ended the quarter. So a good good start in terms of July but that's been consistent with what we've seen is a pattern in the last couple of quarters.

Glenn Richter: So a good good start in terms of your life, but that's been consistent with what we've seen as a pattern in the last couple of quarters.

Unknown Executive: Thank you.

Jeff Zekauskas: Thank you. Our next question comes from the line of Laurence Alexander with Jefferies. Your.

Laurence Alexander: Thank you. Our next question comes from the line of Laurence Alexander with Jeffreys. Laurence, your line is now open. Hi guys, this is Dan Rizzo on behalf of Lauren.

Laurence Alexander: Our next question comes from the line of Laurence Alexander with Jeffries. Laurence, your line is now open.

Speaker Change #102: Your line is now open.

Unknown Executive: Hi guys, this is Dan Rizzo on for Laurence. Just one question.

Speaker Change #102: Hi, guys. This is Dan Rizzo on for Laurence.

Dan Rizzo: Just one question.

Eric Beerwald: So, I mean, can we expect any more potential investors, other certain businesses where maybe you're making them or improving them just so you can tell them because they're non-core? We are focused right now. Now, on the divestiture of pharmaceuticals and doing that well. We're also going through this strategy refresh for each of our other businesses. And today, our total focus is on performance and performing those well, enhancing the growth rates of our health and biosciences, fragrances, scent business, and flavors businesses, and turning around our functional ingredients business. As I mentioned before, as we separate pharmaceuticals, we'll give you an update if there's any change in our strategy. But right now we're totally focused on performing well in 2024 and strengthening for 25 and beyond.

I mean could we expect any more potential divestitures are there certain businesses, where maybe youre, making them for improving them. Just so you can tell them because they're noncore.

Speaker Change #104: We are focused right now on the divestiture of pharmaceuticals, and doing that well.

Eric Fierwald: We are focused right now on the divestiture of pharmaceuticals and doing that well. We are also going through this strategy refresh for each of our other businesses. And today, our total focus is on performance and performing those well, enhancing the growth rates of our health and biosciences, fragrances, scent business, and flavors businesses, and turning around our functional ingredients. As I mentioned before, as we separate pharmaceuticals, we'll give you an update if there's any change in our strategy, but right now, we're totally focused on performing well in 2024 and strengthening for 2025 and beyond.

Speaker Change #104: Also going through the strategy refresh for each of our other businesses.

Speaker Change #104: Today, our total focus is on performance in performing those well enhancing the growth rates of our health and biosciences.

Speaker Change #104: Fragrances stent business and flavors businesses.

Speaker Change #104: And turning around our functional ingredients business.

Speaker Change #104: As I mentioned before as we as we separate pharmaceuticals will give you an update if there is any change in our strategy, but right now we're totally focused on performing well in 2024 and strengthening for 25 and beyond.

Speaker Change #104: Okay.

Eric Beerwald: Thank you.

Speaker Change #105: Thank you.

Michael Deveau: There are no questions registered at this time, so I'll pass the call back over to Eric for closing remarks.

Speaker Change #106: There are no questions registered at this time, so I'll pass the call back over to Eric for closing remarks.

Operator: There are no questions registered at this time, so I will pass the call back over to Eric for closing remarks.

Eric Beerwald: Now, let me thank everybody for joining the call today. I'm very proud of our IFF team and the improvements that we're making to deliver not only today, but to strengthen our innovation and our productivity and our customer focus to not only deliver in the second half, but further strengthen for 25, 26 and beyond.

Eric: And let me thank everybody for joining the call today I'm very proud of our team and the improvements that we're making to deliver not only today.

Eric Fierwald: And let me thank everybody for joining the call today. I'm very proud of our IFF team and the improvements that we're making to deliver not only today but to strengthen our innovation, our productivity, and our customer focus, to not only deliver in the second half but to further strengthen for 2025, 2026, and beyond. So thank you for your interest in IFF, and have a great day.

Eric: But to strengthen our innovation and our productivity and our customer focus.

To not only deliver in the second half, but further strengthened for 'twenty five 'twenty six and beyond.

Eric Beerwald: So thank you for your interest in IFF, and have a great day.

Speaker Change #107: So thank you for your interest in <unk> and have a great day.

Operator: That concludes today's call. Thank you for your participation. You may now disconnect your line. Thank you.

Speaker Change #108: That concludes today's call. Thank you for your participation you may now disconnect your lines.

Operator: That concludes today's call. Thank you for your participation. You may now disconnect your line.

Speaker Change #108: [music].

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Speaker Change #108: [music].

Speaker Change #108: [music].