Q3 2025 International Flavors & Fragrances Inc Earnings Call
Speaker #1: At this time . I would like to welcome everyone to the . IWF Third Quarter 2025 Earnings Call . All participants will be in a listen only mode until the formal question and answer portion of the call .
Speaker #1: To ask a question at that time , please press star one on your telephone keypad . If you would like to remove your name from the queue , please press star two .
Speaker #1: 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 .
Speaker #1: I would now like to introduce Michael Bender , Head of Investor Relations . You may begin .
Speaker #2: Thank you . Good morning . Good afternoon and good evening , everyone . Welcome to IFS Third Quarter 2025 conference call . Yesterday afternoon we issued a press release announcing our financial results .
Speaker #2: A copy of the release can be found on our IR website at IR comm . Please note that this call is being recorded live and will be available for replay during the call .
Speaker #2: We'll be making forward looking statements about the company's performance and business outlook . These statements are based on how we see things today and contain elements of uncertainty .
Speaker #2: For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website.
Speaker #2: Today's presentation will include non-GAAP financial measures , which exclude those items that we believe affect comparability . I reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release .
Speaker #2: Also , please note that all the sales and adjusted operating EBITDA growth numbers that we will be speaking to on the call a comparable currency neutral basis , unless otherwise noted .
Speaker #2: With me on the call , today is our CEO , Eric Firewalled , and our CFO , Michael DeVeau . We will begin with prepared remarks and then take questions at the end .
Speaker #2: With that , I would now like to turn the call over to Eric .
Speaker #3: Thank you . Mike and hello everyone . Thanks for joining us today . I third quarter results demonstrate continued execution . Our performance this quarter shows that we continue to make progress towards our , operate with efficiency and discipline and further strengthen our financial position in a more challenging environment .
Speaker #3: goals And then I'll turn it over to Mike DeVault , who will provide for a detailed look at our results and segment performance in the third quarter .
Speaker #3: We are doing what we said we would do . As we expect to deliver financial results in line with our full year guidance that we outlined in February , we will do this as we continue reinvesting in our business and advancing our growth strategy while driving productivity .
Speaker #3: I'll start today's call by briefly summarizing the third quarter , and then I'll talk about some of the key strategic progress we have made so far this year .
Speaker #3: In addition to our outlook for the remainder of 2025 , we will then open the call to answer your questions . Turning to slide six , we are seeing encouraging results as we build a stronger , if through the actions we've taken to strengthen our customer focus and enhance productivity .
Speaker #3: It is improving its position to compete effectively and deliver value for all our stakeholders . We're operating in a dynamic environment with ongoing macro headwinds , geopolitical challenges and market uncertainty influencing our customers and end consumers .
Speaker #3: Plus , we had a strong 9% comparable from last year . We anticipated this and have been clear that the second half would likely be more challenging than the first .
Speaker #3: And even so , sales remain steady , holding flat for the quarter . Our scent and taste businesses both continued to deliver solid growth in the third quarter , which helped offset softness in food ingredients and short term pressures in health and biosciences .
Speaker #3: As I spoke about last quarter , most of the hnb pressure was related to expected slowdowns in the health business isolated to North America .
Speaker #3: To address this , we are investing to increase innovation and expand our commercial capabilities to ensure IFF is set up to address the needs of customers .
Speaker #3: Now and in the future . We continue to remain focused on what we can control and the current environment . If delivered strong adjusted operating EBITDA growth of 7% this quarter with a margin that improved by 130 basis points .
Speaker #3: Our focus on profitability continues to bear fruit as our results demonstrated strong profitability even in this lower growth environment . I am particularly encouraged as we are also doing this while our teams are reinvesting into our core businesses to position the company for long term success .
Speaker #3: On slide seven , I'd like to share some of the exciting strategic progress we've made in the first nine months of 2025 . Earlier this year , we opened a scent creative center in Dubai , a citrus innovation center in Florida , and expanded our LMR Naturals site in Grasse , France .
Speaker #3: All are significant initiatives that will further advance our innovation offerings and strengthen our go to market capabilities . Our customers are at the heart of everything we do and these strategic investments are increasing .
Speaker #3: Our commercial pipeline that will start to bear fruit in mid to late 2026 and into 2027 . We also deepen our commitment to innovation through external collaborations .
Speaker #3: We recently announced an exciting strategic collaboration with BASF to drive next generation enzyme and polymer innovation , including our design , enzymatic biomaterials or Deb technology .
Speaker #3: This partnership enables us to develop more market driven solutions that create sustainable value for both industry and the environment . Also , earlier this year , we announced a joint venture with Chimaira to provide high performance , sustainable alternatives to fossil fuel based ingredients .
Speaker #3: Also utilizing our Deb technology . Applying this technology not only provides superior purity and consistency compared to traditional biopolymers , but also enhances performance across various applications .
Speaker #3: We are already seeing commercial applications of this technology as we also announced that a major multinational CPG company has launched a new laundry detergent formulation enhanced by Deb technology , which delivers improved fabric softness and cleaning performance .
Speaker #3: While replacing non-biodegradable ingredients with a readily biodegradable alternative . In addition , during the year , we reduced our leverage significantly , reaching approximately 2.5 times net debt to EBITDA .
Speaker #3: After strengthening our balance sheet . We announced on our second quarter call a $500 million share repurchase authorization , making an initial move toward a more balanced and disciplined approach to capital allocation .
Speaker #3: Over the past few years , we have made significant progress streamlining our portfolio , which has allowed us to reinvest in our core business , achieve our deleveraging targets and strengthen our financial flexibility .
Speaker #3: During 2025 , we made significant progress on this as we completed the divestitures of pharma solutions and nitrocellulose and announced the divestiture of our Soy Crush concentrates and lecithin business to Bungie , which is aligned with our margin enhancement strategy .
Speaker #3: We continue to evaluate potential strategic alternatives for our food ingredients business as we look to drive our portfolio optimization strategy . While we do not have any additional information to share , today , we are making very good progress generating significant interest and will keep you updated as we make further progress on the year to date basis .
Speaker #3: We've delivered sales growth of 2% and achieved adjusted operating EBITDA growth of 7% . This is primarily due to the immense efforts of Ecfr's all around the globe , continuously striving to innovate , deliver results for their customers and communities , and elevate everyday products used by millions of consumers worldwide .
Speaker #3: With that , I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results . Mike . Thank you .
Speaker #3: Eric .
Speaker #4: And thanks , everyone for joining us today . In the third quarter , if delivered , revenue of nearly 2.7 billion , led by mid-single digit growth in cents and low single digit growth in taste .
Speaker #4: Our sales were flat against a strong 9% comparable , and were up approximately 4.5% on a two year average basis . We continue to focus on driving EBITDA growth through disciplined execution and margin improvement initiatives .
Speaker #4: In the third quarter , we delivered adjusted operating EBITDA of 519 million , a strong 7% increase . Our adjusted EBITDA margin also increased 130 basis points to 19.3% .
Speaker #4: Also worth noting is that our operational improvement plan continues to yield results in our food ingredients business . In the third quarter . Food ingredients delivered a strong adjusted operating EBITDA margin improvement of 230 basis points compared to last year .
Speaker #4: The team has done an excellent job on improving the margin profile over the past two years , where they increased adjusted operating EBITDA margin by over 400 basis points and are on track to achieve their mid-teen EBITDA margin profile .
Speaker #4: On slide nine , I will share additional details about this quarter's performance in each of our business segments . In taste sales increased 2% to 635 million , which strong growth in Latin America and Europe , Africa and the Middle East .
Speaker #4: On a two year average basis , growth remained strong at approximately 8.5% . The segment also delivered profitability gains of roughly 2% , driven by favorable net pricing and cost discipline .
Speaker #4: Our food ingredient segment achieved sales of 830 million , down 3% versus the year ago period , with strong growth in conclusions that were more than offset by softness , primarily in protein solutions .
Speaker #4: As I mentioned , food ingredients had an excellent quarter in terms of profitability , where the team delivered adjusted operating EBITDA of 106 million , a 24% increase year over year .
Speaker #4: Our health and Biosciences segment achieved 577 million in sales , which was flat versus the prior year on a two year average basis .
Speaker #4: Growth remained solid at approximately 6% . Growth in food Bioscience's home and personal care , and Animal nutrition was offset primarily by softness in health .
Speaker #4: Specifically in North America . In this market , we've improved our leadership team , placing a strong emphasis on commercial and marketing capabilities .
Speaker #4: Their objective is to leverage our strong R&D pipeline and win with a broader set of customers to capture strong growth potential in that market .
Speaker #4: And while the fourth quarter will remain a challenge , we expect trends to improve in 2026 . In the third quarter , Hnb adjusted operating EBITDA grew 3% , driven primarily by productivity sent delivered a strong quarter of sales growth , with net sales of 652 million , up 5% year over year on a two year average basis .
Speaker #4: Growth remained strong at approximately 7% . Third quarter performance was driven by 20% increase in fine fragrance and a low single digit performance in consumer fragrance .
Speaker #4: As expected , fragrance ingredients was under pressure and declined low single digits as growth in specialties were more than offset by declines in commodities .
Speaker #4: As a reminder , we are strategically shifting our fragrance ingredients portfolio towards higher growth and higher value added specialties . We will do this by leveraging R&D and biotech for new molecule development .
Speaker #4: Our goal is to accelerate the pace of our captive releases to ensure we can differentiate ourselves and grow disproportionately in this margin accretive business .
Speaker #4: With scent volume growth drove the segment's 135 million in adjusted operating EBITDA , a 6% increase year over year . Turning to slide ten .
Speaker #4: Our cash flow from operations totaled $532 million year to date, and CapEx was $406 million, or roughly 5% of sales. Our free cash flow position in the third quarter totaled $126 million.
Speaker #4: This year , we have paid 306 million in dividends through the end of the third quarter and our cash and cash equivalents was 621 million as of quarter end .
Speaker #4: Our gross debt was approximately 6 billion , a roughly 200 million decrease from last year and more than 3 billion decrease year over year .
Speaker #4: Our trailing 12 month credit adjusted EBITDA totaled roughly 2.15 billion , in line with last quarter . While our net debt to adjusted EBITDA remained constant at 2.5 times , we will continue to be disciplined in our capital allocation priorities , reaching our deleveraging goals with strong achievement , and we are now focused on preserving this foundation through operational performance .
Speaker #4: Specifically , driving improvements in profitability and net working capital . Lastly , on slide 11 , I will walk you through our outlook for the balance of the year .
Speaker #4: We have talked today and in prior quarters about the environment in which we are currently operating . Our touchpoints across our global business and with our customers have allowed us to forecast this year well , as our teams are delivering results in line with the guidance ranges , we communicated in February .
Speaker #4: Based on our year to date actuals and expected fourth quarter performance , we are reiterating our full year 2025 guidance . As a reminder , we are expecting sales to be in the range of 10.6 billion to 10.9 billion and adjusted operating EBITDA to be between 2 billion and 2.15 billion .
Speaker #4: On a comparable currency neutral basis . We expect to finish the year at the low end of our 1 to 4% sales growth guidance range , as shared last quarter and near the midpoint of our 5 to 10 EBITDA growth range .
Speaker #4: We believe that this is the right call to maintain our full year guidance , even with a wider range implied for the fourth quarter .
Speaker #4: It is consistent with the message we have shared all year , which is staying focused on what we said we would deliver , even in a challenging environment .
Speaker #4: For the fourth quarter , we expect our typical seasonality resulting in a step down in sales and margin . And as a reminder , we again face another strong comparable versus the prior year with 12% growth in taste , 7% growth in scents , and 6% growth in HMV .
Speaker #4: With that, I would now like to turn the call back to Eric for closing remarks.
Speaker #3: Thanks , Mike . Taking a look at the year so far , our global team has delivered in a difficult environment with revenue and profitability increasing year over year .
Speaker #3: I'm proud of what our team has accomplished , yet we continue to strive for more . We are continuing to serve our customers with excellence while investing in an exciting innovation pipeline and positioning .
Speaker #3: To deliver stronger , profitable growth on a sustained basis . We are focusing on what we can control our strategy is clear . Our team is executing and we have confidence in our ability to deliver increasing value for our shareholders and all stakeholders .
Speaker #3: I know we are building a stronger if that will be well positioned for 2026 and beyond . Thank you . And I'll now open the call for your questions .
Speaker #1: Thank you . At this time , we will now begin today's Q&A session . If you would like to ask a question as a reminder , it is star one .
Speaker #1: And to remove your question , if start to feel , pause for briefly while your questions are registered . The first question is from the line of Flavio Casale with Berenberg .
Speaker #1: You may begin .
Speaker #5: Yes . Good morning , gentlemen , and thank you for for taking my question . It's in relation to the health and biosciences business .
Speaker #5: I was wondering if you can provide a bit more color on what's exactly going on in the North America region for the health business unit.
Speaker #5: I know that the decline in Q3 was well anticipated , and you highlighted this at the Q2 results presentation , but I was also wondering if you still expect to see any improvement starting in 2026 , or if there is more uncertainty today on the outlook for this business compared to , say , three months ago .
Speaker #5: Thank you .
Speaker #3: Thanks for the question , Fulvio . This is Eric . In health and Biosciences , the health business in North America has been slow , slow for us .
Speaker #3: And what we've been doing to turn that around is we've put in place new leadership with strong commercial and marketing capability . And you'll recall , last year we we stepped changed our investment in innovation pipeline in health .
Speaker #3: That's going well . We're connecting with our existing customers to help them grow faster . And we're finding new customers to to serve in North America .
Speaker #3: So bottom line is I absolutely expect to see improvements , particularly in the second half of 26 , going into 27 . And then a full recovery , fully back on track in 2027 .
Speaker #6: Here's what I found .
Speaker #1: The next question is from the line of Nikola Tang , BNP Paribas . You may begin .
Speaker #7: Hi everyone . Thanks for taking the question . I wanted to ask about the top line guidance . The bottom end . So the 1% currency neutral growth implies a negative low single digit for Q4 versus the flat year on year that you did in Q3 .
Speaker #7: Despite slightly easier comps . What are the main headwinds to top line in Q4 , and how much of your cautious outlook relates to the weak end market macro geopolitical trends that you referred to versus if specific exposures , and to what extent do we need to see end market recovery to see a top line acceleration in 2026 ?
Speaker #7: Thanks .
Speaker #4: Great . Hi , Nicole . Thanks . Thanks for the question . Yes , you are correct . While comparable is 6% in the fourth quarter , which is down from nine in the third quarter .
Speaker #4: We are being a little bit more prudent on our top line projection this quarter . The largest part of this , the driver of this is really the macro environment .
Speaker #4: And so when you look at the end market demand specifically on volumes , you'll see in the food and beverage category and HPC , it has been soft .
Speaker #4: And so we did as we kind of continue this trend through the balance of the year , just to make sure that we're fully we're fully forecasting it correctly .
Speaker #4: In our core portfolio . Eric touched on it . I think I touched on it in prepared remarks as well . We continue to work on fragrance ingredients .
Speaker #4: And health North America . And so the team is making good progress there . But we still got a little bit more work that we have to do to really get back to recover .
Speaker #4: As Eric suggested . I do want to note , though , as a point of reference in these areas , when we put the two businesses together , it's about 5% of our total company sales .
Speaker #4: So it's small in nature , but a lot of emphasis in intention on that going forward . So as we move into 2026 , we are cautiously optimistic that we will get to a point where we will see growth acceleration as the market does normalize , and some of the self-help work that we're doing over the last 18 months start to yield results .
Speaker #1: The next question is from the line of David with Deutsche Bank . You may begin .
Speaker #8: Hi , this is Emily Fusco on for David Begleiter on food ingredients . Are we still on track for an update on this business with the Q4 earnings call in February ?
Speaker #8: And also, just to follow up, have you begun to engage with private equity and strategics on this business? Thanks.
Speaker #3: Thanks , Emily . Absolutely . You'll get an update and I'll give you a quick update . Now . We are seeing strong interest by both private equity and strategics and fortunately , the business transformation that Andy Mueller is leading with his team is on a strong track , which obviously is very helpful to this process .
Speaker #3: This is a very good business that keeps getting better and has a bright future . And we'll update where we are in February .
Speaker #1: Thank you . The next question is from the line of Lisa Denise with Morgan Stanley . You may begin .
Speaker #9: Hi . Thanks for taking my question . I have one question . Can you please reiterate your free cash flow outlook for this year and the components of how we should expect the different free cash flow components to move into the fourth quarter ?
Speaker #9: And if you expect to see an improvement . That's my first question . And I have a small follow up on previous question .
Speaker #9: You talked about investments in . Could you please remind us of where specifically you're making the investments ? Most notably if you're if you're opening any new plants in certain regions ?
Speaker #9: Thank you .
Speaker #4: Sure . So maybe I'll start on the cash flow question . Thanks , Lisa . In terms of the free cash flow expectation for 2025 , we do expect to be modestly below our target that we gave earlier in the year , which was about 500 million .
Speaker #4: There are some puts and takes in there that are worth noting on the positive side , we are expecting CapEx to be a bit lower as we've implemented a little bit more stricter policy , just given our cash flow generation .
Speaker #4: So that's a good guy , a positive aspect . There's two offsetting factors to that , one being inventories are higher in some areas of our business .
Speaker #4: Part of this is around building some strategic stock in some key areas to take advantage of current cost and availability of materials . And the second piece of it is really around some of the Reg G or one time costs are elevated really , because of the portfolio work that we're doing overall .
Speaker #4: And so when we put those two together , I think , you know , get you to kind of a a little bit modestly below that 500 .
Speaker #4: But but I do want to note that in terms of overall net working capital , you will see an improvement in the fourth quarter .
Speaker #4: And it is a big focus for us as we go into 2026 . And so there is a there is an opportunity for us to improve our free cash flow generation , which is in our control , and the team is committed to making strong improvements as we go forward .
Speaker #4: So maybe that's the cash flow . Eric , I'll pass over for you .
Speaker #3: On health and biosciences investment . As we said last year , we've significantly increased our spend in R&D and commercial capabilities , both for our health business , new next generation probiotics and other products .
Speaker #3: As well as our enzyme business and our deb technology . We've announced and we're making great progress that we're building a deb plant together with with our joint venture called Alpha Bio , and it's on track and we expect to start that up in 2027 and look forward to that .
Speaker #3: But significant investment into health and biosciences , and we see that starting to pay off . As we said significantly in the second half of 2026 and very strong into 27 .
Speaker #1: Thank you . The next question is from the line of Christian Owen with Oppenheimer . You may begin .
Speaker #10: Hi . Good morning . Thank you so much for the question . So I wanted to ask about the new wins that you cited in both taste and scent .
Speaker #10: I mean , we continue to hear about how challenging the the volume backdrop has been . So I'm hoping you can elaborate on maybe what contributed to those wins in this backdrop .
Speaker #10: Thank you .
Speaker #3: Thanks for the question , Kristen . Obviously there's there's economic challenges across the the businesses , especially in North America . We see right now .
Speaker #3: But in all our Faubus , including taste and scent , we've got a heavy focus on strengthening our commercial pipeline . Really strong focus on customers and increasing our win rate , as well as our innovation pipeline .
Speaker #3: And we're seeing really good progress across segments , across businesses and across geographies . And just to give you a couple of examples of wins in scent and taste , the first one is our new environment .
Speaker #3: Excuse me , our new enviro Caps scent encapsulation technology was recently commercialized in laundry with a major CPG company . The performance is great .
Speaker #3: They're very excited about it and the sustainability benefits are tremendous . So we'll see that technology add to our growth going forward . And then a second example I really , really like is we've been successful winning a Mew Mew by L'Oreal .
Speaker #3: Fine Fragrance with from our master perfumer Dominique Ropion . And that's going to be a nice a nice business for us going forward .
Speaker #3: A great product . And I think we'll do well in any economic scenario that we see . So good progress on our commercial pipeline , our innovation pipeline and and things that we can control by , by bringing great technology innovation to customers .
Speaker #3: And that's that's how we're going to grow . These continue to grow . These businesses .
Speaker #11: See you .
Speaker #1: Thank you. The next question is from the line of Salvatore Tiano with Bank of America. You may begin.
Speaker #12: Thank you very much . You spoke a little bit about 2026 . Hopefully , you know , growth accelerating a bit . But can you also mention any other major or discrete items that you see affecting your income statement or your cash flow next year versus 2025 ?
Speaker #4: Yeah . Thanks , Sal . Great question . We are , to be fair , in the middle of the planning process for 2026 .
Speaker #4: So we can't go into much detail . We'll provide the full guidance , update as part of our year end or Q4 call on February 4th , 2026 .
Speaker #4: That said , there in terms of moving moving parts , there's probably just one that I just want to remind everybody . I think it's pretty self-explanatory , but if you remember , we closed the pharma transaction on May 1st .
Speaker #4: And so when you think about 2026 , I think through the first five months of the year , four months of the year , it was about 369 million in sales and $76 million of EBITDA .
Speaker #4: So that will go away as we cycle that in the first half of the year . So I flagged that in terms of the rest of it , it is pretty normal course in terms of operations .
Speaker #4: So there's not really any any big discretionary items that would flag at this point in time .
Speaker #1: Thank you . The next question is from the line of Ghasem Panjabi with Baird . You may begin .
Speaker #13: Hey , guys . Good morning . You know , can you just give us an update on the internal initiatives you have going on ?
Speaker #13: And as it relates to both cost optimization and growth , you know , you called out capacity being tight in certain areas in the past .
Speaker #13: And I know you answered the question on health and biosciences , but what about across the rest of the portfolio ? And just on the cost savings side , you know , as it relates to productivity , etc.
Speaker #13: , can you give us a sense as to the savings that is likely to flow into 2026 ? In context of just the operating environment not being very helpful ?
Speaker #13: Thank you .
Speaker #3: Yeah , thanks for the question . I'll have Mike go through the details here .
Speaker #4: Yeah . Appreciate it . You know , over , over the last 18 months we've done a lot of work to improve our competitiveness as an organization .
Speaker #4: And so specifically , Eric has highlighted specifically around the Hnb health business that we put a lot of money in terms of R&D and commercial capabilities , starting really in the second half of 24 and over the course of 2025 .
Speaker #4: And that's really to build bolster some of the innovation pipeline and really strengthen again , the commercial capabilities . In addition , we've also increased and will continue to increase our CapEx in the areas to improve capacity , specifically in Hnb , where we think we have a good growth potential and really good incremental margins associated with that .
Speaker #4: And so that's something we've done , and we'll continue to do as we go forward from here in that business to really generate the value there as we go into 2026 , we believe we're positioned well and we are cautiously optimistic that we will lead to improved growth trajectories going forward .
Speaker #4: At the same time , we're also working on just generating better incremental productivity that comes with improving margins going forward as a focus .
Speaker #4: And so I don't want to go into too much of the details here . Again , we'll come back in February and give our overall guidance .
Speaker #4: But I think the team has made a tremendous amount of progress , both in reinvesting , really trying to get the growth aspect of it and targeting incremental productivity opportunities to continue to expand margin and reinvest in the business as needed through a self-funding mechanism .
Speaker #4: So feel feel good about the progress being made .
Speaker #1: Thank you . The next question is from the line of Patrick Cunningham with Citigroup . You may begin .
Speaker #14: Hi . Good morning . This is Alex on for Patrick . I guess , you know , we're hearing more about the economy taking a K shape .
Speaker #14: Where lower income households are spending less . I guess I'm wondering if you're seeing this , if this is something you're seeing across your business segments and maybe what that implies for volumes in 2026 .
Speaker #14: Thank you .
Speaker #3: Thanks , Patrick . Yeah , we are seeing some of this and we talked to the weakness overall in volumes in North America .
Speaker #3: But the good news is we've got a diverse customer base , both in size of customers , geography based and categories . And we're adapting our focus where around the world .
Speaker #3: And just to give you some examples on the lower end and private label area , we're seeing growth and we put more emphasis on that .
Speaker #3: On the high end , the fine fragrance business continues to do well . So we've put a lot of emphasis on making sure that that , you know , that we're a partner of choice in fine fragrances .
Speaker #3: And we talked about the new Mu win with L'Oreal . Very important for us . We're seeing geographies and even in fine fragrance like the Middle East growing very rapidly .
Speaker #3: We're putting more emphasis there . We opened a creative center there and we continue to obviously stay focused on ensuring that we do well with global key accounts .
Speaker #3: But also increasing our emphasis on regional and smaller customers in geographies that are fast growing . So yes , there's a K shaped economy more today than there was before , but we're adapting our model to make sure that we grow at or ahead of the market going forward .
Speaker #1: Thank you . The next question is from the line of Josh Spector with UBS . You may begin .
Speaker #15: Yeah . Hi . Good morning . I wanted to try again a little bit on 26 . And just thinking about really the range of scenarios and your ability to respond and specifically that if we stay in this kind of call it 1% growth environment , maybe from a consumer perspective , do you have actions and levers that you think would deliver earnings growth higher than that , be it self-help or other things in flight that we should be considering ?
Speaker #15: Thank you .
Speaker #4: Yeah , great . Great question . Josh , I'll take this one if that's okay . You know , growth is an important part of the algorithm .
Speaker #4: And so the more growth we get , the incremental margins associated with that growth in terms of fixed cost leverage . It's nice .
Speaker #4: So the more you can grow the better you are . So that's that's that's ultimately what we're striving to . Which is why some of those reinvestments were so important to make sure we accelerate the growth .
Speaker #4: At the same time , you do need to prepare that . If the event at the market is still , you know , in that 1 to 2% range , how do you work on your cost structure to ensure you generate profitability improvement ?
Speaker #4: We are fully focused on that. The team has done a very good job over the last couple of years to drive productivity, but it's something that is paramount now as we go forward to continue to do that.
Speaker #4: And so areas like streamlining corporate functions , leveraging automation , you know , redesigning processes that will allow us to be more effective and more efficient .
Speaker #4: And so I do believe we still have some opportunities there . They're is contingency planning associated with that . So as we think about the context going forward , we will include that as areas to accelerate to make sure we maximize profitability as we go forward .
Speaker #4: Even in a lower growth environment .
Speaker #1: Thank you . The next question is from the line of John Roberts with Mizuho . You may begin .
Speaker #16: Thank you . Have we been seeing any acceleration in the reformulation of food products ? And is that maybe part of the reason for the continued strength in the flavors business ?
Speaker #3: We haven't seen a big shift yet . What I would call it is a continued move towards cleaner labels and reformulation . For that which we like .
Speaker #3: And if that accelerates , that's good for us . But what we've been doing is following what our customers and consumers want , which .
Speaker #3: are cleaner labels . And we've got a very strong capability both in scent and in taste . And naturals . And that's played well for us .
Speaker #3: And that's why you're seeing growth because of our focus on the innovation , but also on our commercial capabilities to help customers delight consumers .
Speaker #4: Yeah , maybe just to add on that , when you look at it , John , the pipeline has actually improved and continue to improve .
Speaker #4: And so what that's a good barometer is that the customers are looking for more innovation , which is very good for our business overall .
Speaker #4: So I think that's the buoyancy that you've seen over the last couple quarters within scent and taste . Overall , which has provided a bit of tailwind there .
Speaker #3: As the customers see lower volume growth in the market , they're pushing for more innovation to be able to profitably grow themselves . And we're there to help .
Speaker #1: Thank you . The next question is from the line of Kevin McCarthy with Vertical Research Partners . You may begin .
Speaker #17: Hi , this is Matt on for Kevin McCarthy . Would you comment on two items ? A the potential pace of execution against the $500 million share repurchase authorization that you announced last quarter , and then b the expected cash proceeds from the pending divestiture of the deal with Bungie ?
Speaker #4: Sure . Thanks , Matt , for the for the question . In terms of the share buyback program , we actually started or commenced it on October 1st .
Speaker #4: And so that that was part our trading plan . And so that's now have been implemented as a reminder , the program is geared towards dilution plus model , which means at a minimum , our plan is to target offsetting dilution , which for us on a yearly basis is about $80 million .
Speaker #4: Then we have some flexibility based on intrinsic value free cash flow generation that we can increase or decrease to purchases within the trading grid .
Speaker #4: So we do have some of that flexibility . But as you think about modeling for the for the fourth quarter , just given that we started on October 1st , I would assume at this point we're offsetting dilution , which is , you know , the 80 million divided by four essentially , which is called about $20 million .
Speaker #4: We will give more update as we get to the guidance call in February . But that's kind of part number one , I think .
Speaker #4: Part number two , your question was the expected proceeds for the pending deal with Bungie in terms of gross proceeds ? I think it's about 110 million in gross proceeds .
Speaker #4: And I would estimate around 90 million in terms of net cash proceeds . After tax and some of the deal fees associated with it .
Speaker #1: Thank you . The next question is from the line of Lauren Lieberman with Barclays . You may begin .
Speaker #18: Thanks . Good morning . I just had two questions , actually . First was on taste in the slides you mentioned you had favorable net pricing .
Speaker #18: I'm just curious if that's comparable to what peers are doing . I just I was surprised to see that there was positive pricing in this environment .
Speaker #18: So that was just the first question . And the second one is if you could just offer any observations on growth of multinationals versus local and regionals .
Speaker #18: Thanks . And also the pipeline , sorry . And also like , you know , just the pipeline activity from those two subsets .
Speaker #4: So maybe Eric I'll start on the taste piece of it . The the team has really done a good job . And so when I think about the net pricing comment , Lauren , when there's areas of inflation and one area , there is some tariff inflation that we get , the team has done a really good job of offsetting that as part of their pricing , pricing areas .
Speaker #4: At the same time , it's a net pricing number . So in terms of the inflationary environment that we've seen throughout 2025 , which was about low single digit inflation , the team did a really good job of productivity to drive some of those costs down .
Speaker #4: And so when you combine productivity with the raw material cost , exposure and pricing strategy , that's how you got to your net pricing benefits there .
Speaker #4: And so I think I can't speak to the competition , but I can speak to the team has done a very good job at executing on that piece of it .
Speaker #4: In terms of the global versus local and regional . Eric . Yeah .
Speaker #3: We're seeing the regional and locals growing faster , and we've put more emphasis on , on on growing with them . And accelerating our pipelines with them .
Speaker #3: But the global key account accounts are still critically important to us . And they're increasing . They're their focus on innovation . So our pipelines with them are very strong and robust .
Speaker #3: So we're not decreasing our emphasis on global key accounts , but we're increasing our focus on the regional and locals .
Speaker #1: Thank you . The next question is from the line of Lawrence Alexander with Jefferies . You may begin .
Speaker #19: So good morning . Can you give us some more color on what your customers are telling you about inventory levels and their patience on Reformulations and what I mean is , are they seeing the evidence that reformulations are driving significant organic growth acceleration ?
Speaker #19: And if not , how long will they keep reformulating before they switch to other ways to protect earnings and cash flow in a slow growth environment ?
Speaker #4: So maybe I'll start and feel free to add on the inventory question is a good question . Laurence . I think , you know , when you get into a slower growth environment , specifically with some of the global accounts , you always have to make sure the inventory management aspect doesn't have the impact on the business .
Speaker #4: I think, based on the feedback that we've heard from the team, there are some markets—very candidly, like North America—that have a little bit higher inventory levels.
Speaker #4: So I think embedded in our forecast is a little bit of a deceleration in that market . Specifically because of inventory levels . Broadly speaking , if you take a step back , inventories feel like they are in a good spot globally .
Speaker #4: But like I said , there are some markets like North America that could be there could be some inventory management that could potentially happen there .
Speaker #4: So I think that's that's part number one . Part number two , in terms of the patients , I think your question around patients of reformulation , it's an opportunity .
Speaker #4: And so when you look at the when you look at the customer set over the last several years , pricing has a big part of their algorithm .
Speaker #4: And so really and I think Eric just alluded to it to really differentiate yourself in a market where pricing becomes more challenging in the overall market , innovation becomes a key part of the driver going forward .
Speaker #4: And so I don't think you're going to see them throw up their hands and say , innovation is not important . And I think they're going to continue to make sure that that is a central part of their algorithm going forward .
Speaker #4: And for us at if that's a that's a good thing , because we like the portfolio , we like the R&D that we have and we're focused on on that .
Speaker #4: And so I think those are the two I would give Eric a pass to. If there's anything... the only...
Speaker #3: One thing I would add is that, on the inventory side, there's a lot of uncertainty with our customers, and they're trying to operate with lower inventory levels.
Speaker #3: So we absolutely can and will do a better job of managing our inventory levels. But we're also trying to make sure that we're not missing order opportunities.
Speaker #3: So we're really trying to stay close to our customers and understand what their needs are so that we're able to operate with lower inventories , but not miss any delivery reliability goals .
Speaker #1: Thank you . The next question is from the line of Silk Nook with J.P. Morgan . You may begin .
Speaker #20: Hi . Good morning . How are you ? When you look at 20 , when you look at 2026 , what do you think are the bigger product launches ?
Speaker #20: So the collaboration with BSF sounds that they're product opportunities on the detergent side . And is that something that will affect consumer fragrances , incense , or is that something that will that will be see in the that will see in the enzyme category under Hnb that that's my first question .
Speaker #20: Secondly , the the beverage can companies have spoken about growth and like , you know , protein enriched beverages and like protein being added to essentially like , you know , everything is that an opportunity for if and again , is that something you know , when it's just do you see that as like a taste opportunity or because it's protein .
Speaker #20: Will that show up and in H and B and my my third question is is , you talked about regional and locals growing faster than multinationals .
Speaker #20: The set mean private label is also growing faster . And how do you approach going after the private label business ? Thank you .
Speaker #3: Well , thanks for those questions . I'll try to take them one at a time . And Mike , please pitch in any time .
Speaker #3: So let's talk first of all about the BSF collaboration . I think it's really important BSF has a very strong position in chemistry with many home and personal care companies , and we've got a very strong capability in enzymes and have have very good positions with with a number of customers .
Speaker #3: But haven't reached the broader market as well as we would like to . And so the combination of us plus BSF , really strong commercial capability , our enzymes and their chemistry is , we believe , a very strong opportunity to to serve customers better for both of us .
Speaker #3: So we'll see that play out . And it should start to see enzyme growth . And toward the end of 26 , but more in 27 , I would say .
Speaker #3: And with that we'll improve our relationships and connections with customers . Percent on the protein movement . I would say it's very strong .
Speaker #3: And it obviously helps our protein business where the leaders in plant based proteins , which are very much in vogue and desired , less so in the alternate meats that that is rebased and growing .
Speaker #3: But off of a smaller base. But certainly in beverages, bars, and other areas. We see growth opportunities for the protein business.
Speaker #3: But also for our broader food ingredients business to make sure that the protein drinks and other products have the right mouthfeel , the right taste , don't settle out .
Speaker #3: The protein doesn't settle out . And very importantly , the taste , the flavors , which gives us an opportunity to to go in with with our protein and our other food ingredients , capabilities and bring more total solutions to customers that at least open the door for , for not only our food ingredients people , but for our taste capabilities .
Speaker #3: So this protein dynamic , I think is , is was strong and is further accelerating with the GLP ones . And we see that continuing and we see us well positioned and , and we've we're already seeing good growth from it .
Speaker #3: The last one, the last one was on the regional and locals. Yes. Private label is increasingly important. That's back to the K economy.
Speaker #3: And we're putting more emphasis on working with the the private label retailers , but also the manufacturers who make the products and making sure that that our capabilities are helping them achieve what they want to help .
Speaker #1: Thank you . The next question is from the line of Abigail Everts with Wells Fargo . You may begin .
Speaker #21: Hi there . Thanks for taking my question . I know this was touched on already , but I wanted to push a little bit further on .
Speaker #21: Fine fragrance . You obviously reported 20% growth this year . This quarter and double digit growth last quarter . It's been growing very strongly .
Speaker #21: And I know you mentioned wins , but I'm wondering if there's something else in underlying trends driving this growth . And then looking forward .
Speaker #21: Is this a level of growth that we should expect going forward? I know you mentioned upside from your scent centers in Dubai and Florida bearing fruit in mid to late 2026.
Speaker #21: But how should we think about this next quarter or this coming quarter ? And then the first half of 2026 ? Thanks .
Speaker #3: The fine business has shown tremendous growth rates . I don't expect to have that strong growth going forward , but I do expect continued solid growth from fine fragrances .
Speaker #3: And I think that's because of our capabilities . We've got great perfumers , we've got great molecules , we've got significantly enhanced investment in innovation .
Speaker #3: That's going to be coming more and 2026 and 27 . And we've invested in places like Dubai , the Creative Center and creative centers and other parts of the world .
Speaker #3: Shanghai and others . And so we are absolutely committed to this market , and we are absolutely want to serve our customers with to help them have great products .
Speaker #3: But I think another dynamic here is the whole social media dynamic where you're seeing influencers really try starting to . Or have been , and I think will continue to expand the marketplace .
Speaker #3: Expand . Expand to new generations , to to not only females , but more to males . Younger generation and more , more diverse groups .
Speaker #3: And I think that's fueling the growth . And we see that continuing .
Speaker #1: Thank you. The last question is from the line of Christopher Parkinson with Wolfe Research. You may begin.
Speaker #22: Hey good morning . This is Harris . Fine on for Chris . I mean , there's been some solid some solid year on year margin comps in food ingredients .
Speaker #22: Just wondering if you could maybe talk about the line of sight to bridge that margin to the mid-teens next year. And we're also all looking forward to the strategic update early next year.
Speaker #22: But in the interim , maybe if you could talk about any opportunities you have to prune , maybe more along the lines of what you did with , you know , the soy crush business and the interim that also be helpful .
Speaker #22: Thank you .
Speaker #4: Yeah . Hey , Harris , thanks for the question . Look , I think the food Ingredients team has done a fantastic job .
Speaker #4: Really emphasizing margin improvement . And so just kind of bringing it back , if you remember , at the lows , it was about 9% EBITDA .
Speaker #4: So the trajectory now it was 912 moving towards 14 . If you adjust for portfolio gets towards that 15 . And so the line of sight is actually pretty strong in terms of overall recovery .
Speaker #4: And the team has done an excellent job as they go forward . Which really important because not only do we divest business , we were also very strategic in I'd say , ongoing pruning of our overall portfolio .
Speaker #4: We're very selective . So some of the lower margin businesses , we kind of walked away , which is embedded in some of our top line performance this year .
Speaker #4: In 2025 , I think . So as you go in , but as you go into 2026 , you know , the more growth you can get into that business and return to growth .
Speaker #4: That's where you get nice leverage with the Pinot. So that's kind of priority number one: how to get the business back towards that growth number.
Speaker #4: So one two we started a basically two years ago on a big productivity push . And so looking at plant optimization , raw material optimization , the team has done a good job .
Speaker #4: And that's a big driver of what you're seeing in the performance in 2025 . But that will also continue into 2026 . And so between those two levers I think you still have a line of sight to continue to improve that business , both from a top line perspective , but also from a margin perspective .
Speaker #4: I think then you'll get back to that mid-teens and the team is focused and fully focused on that as they drive . Going forward .
Speaker #4: And I'll just .
Speaker #3: Add one other thing is we are investing where we see high profit margin growth opportunities . For example , the Torah fruit inclusions business segment is where expanding the capacity significantly .
Speaker #3: There , the current capacity is sold out . High margins , high growth . So Andy and his team are really driving also growth in the higher margin areas .
Speaker #1: Thank you . There are currently no questions at this time , so I'd like to pass the call back over to Eric for any further remarks .
Speaker #3: Well , thank you all for joining today's call . Let me close by saying that I'm very proud of the progress . The team has made over the last 18 months .
Speaker #3: We are a much stronger company with a bright future . We have a solid balance sheet , a clear strategy , a strong and strengthening innovation pipeline , a strong focus on serving customers and consumers .
Speaker #3: And we're executing better and better and doing what we say we are going to do . So I look forward to the road ahead and thank you very much .
Speaker #1: Thank you all . At this time . This will now conclude today's conference call . We appreciate your participation . We hope you all have an amazing rest of your day .