The operator welcomes participants to the IFF Second Quarter Earnings Conference Call and introduces Michael DeVeau, Head of Investor Relations. DeVeau discusses the Company's financial results and cautions about forward-looking statements. He also mentions non-GAAP financial measures and introduces CEO Erik Fyrwald and Executive Vice President Glenn Richter. Fyrwald expresses his excitement about the Company's progress in their strategic refresh and discusses their solid performance in the second quarter.

The speaker provides an update on the business-led strategic framework being implemented at IFF and mentions traveling to various facilities and meeting with customers for feedback. The company has listened and is making changes to improve performance. The speaker is pleased with the company's solid performance and results in the first half of the year, driven by volume growth and productivity initiatives. The company is cautiously optimistic for the remainder of the year and has raised their sales and adjusted operating EBITDA guidance. The steps taken to refocus on innovation and productivity are yielding positive results.

The company is making progress in refreshing its strategy and adopting a business-led operating model. It has faced challenges in the past but has taken decisive actions to improve performance. The strategy moving forward will focus on people, customer satisfaction, innovation, and operational excellence. Steps have been taken to reset the operating model and improve employee engagement, and each business unit is developing a five year strategic plan.

In the fourth paragraph, the speaker discusses the company's plans for executing a refreshed turnaround strategy and leveraging biotech expertise to enhance innovation. They also mention their focus on lean corporate functions and prioritizing growth investments in high value businesses. The company is committed to delivering value to shareholders and is on track to achieve their raised guidance targets for the year. The speaker then hands it over to Glenn to discuss the company's strong second quarter results, including a 7% increase in revenue and a 22% increase in adjusted operating EBITDA.

The adjusted operating EBITDA margin for the company improved by 310 basis points, reaching over 20% for the first time since 2022. The Nourish segment saw a 4% increase in sales and a 36% increase in adjusted operating EBITDA, driven by growth in Flavors and productivity improvements. Health & Biosciences had strong growth in all businesses, particularly in probiotics. Scent also had a strong quarter, with double-digit growth in Consumer Fragrance & Fragrance Ingredients. Pharma Solutions returned to volume growth, but profitability declined due to unfavorable mix and one-time items.

In the second quarter, the company had a strong cash flow from operations and increased its free cash flow. They also reduced their debt and are on track to achieve their deleveraging goals. The company is raising its sales and adjusted operating EBITDA guidance for 2024 but remains cautious about demand for the rest of the year. They expect to complete the divestiture of Pharma Solutions in the first half of 2025.

The company has raised its volume growth and adjusted operating EBITDA guidance for the full year due to strong profitability in the first half of the year. This increase also takes into account greater annual incentive compensation and investments in business development, R&D, and innovation. The company expects a 4% adverse impact on sales growth due to foreign exchange rates. For the third quarter, the company expects sales and adjusted operating EBITDA to be within a specific range. The CEO is pleased with the team's performance and believes there is still more to be done to reach the company's full potential.

The speaker is pleased with the progress made towards meeting their goals and believes that by taking advantage of market trends and investing in high-growth businesses, they will deliver attractive shareholder returns. They thank the entire team for their efforts and are focused on customer satisfaction and innovation. Looking ahead, they plan to continue bringing new products to the market and executing a turnaround strategy for their Functional Ingredients business. They believe this will create a stronger company. During the question and answer session, a question is asked about the EBITDA and volume forecast for the second half of the year, to which the speaker responds that there will be a step down in the third quarter and volumes will be up 1-2%.

The speaker responds to a question about the company's future performance by explaining that they are expecting more modest volume growth in the second half of the year, with a 4% increase in Q3 and flat growth in Q4. This is due to the unique consumer behavior and negative economic indicators. The speaker also mentions that the EBITDA in the second half will be lower due to seasonal factors and increased investment in OpEx for future growth.

The speaker discusses the company's increased investments in R&D and commercial assets, as well as the expected impact on the company's performance in 2025 and 2026. They mention specific examples, such as accelerating biotech transformation and finding more naturals for their Scent and Flavors businesses. The speaker also mentions increasing commercial capability and adding capacity in all three high-growth market segments. They clarify that these investments will also affect the company's CapEx in the coming years.

The company is making significant investments in their business units and plans to continue to do so in the future. The end-to-end operating model has replaced a previous reorganization and is well received by employees. The business teams are being put in place and are excited about the clarity in decision making and strategy execution. The benefits of the new model are already being seen and will continue to improve over time. The focus business units have their own strategies and a five-year plan, providing more clarity on where investments will be made.

The Company is able to better differentiate between business units and make strategic investments accordingly. This will lead to increased collaboration and productivity. The strategic refresh for R&D may involve increased spending or repositioning of resources with more accountability. The Company has been spending $0.5 billion in CapEx post the DuPont acquisition, but going forward, they plan to allocate 6% of sales towards growth CapEx.

The company has a clear strategy in place and is planning to invest more in growth and foundational investments. They will increase R&D spending in their Health & Biosciences, Flavors and Scent businesses, and focus on improving the cost position and productivity of their Functional Ingredients business. Each business unit has a productivity leader and the company is also implementing lean corporate functions to support the business units.

In the second quarter, the company saw no significant improvement in consumer demand for their products. The volume growth is mainly due to the lack of destocking from the previous year and the lag in Pharma's destocking. The company is tracking their volume performance compared to their competitors and is performing well. This is attributed to their increased focus on innovation, rebuilding their sales pipeline, and the success of their Ingredients business.

The ingredients business has seen a strong recovery due to the company's efforts to address previous issues. This includes reinvesting in pricing and seeing a 7-8% increase in volumes in the second quarter. The company is confident in what they can control, but the market remains uncertain due to lack of consumer strength. The company is still expecting free cash flow of $600 million for the year, with slightly higher working capital and $350 million of Reg G items. Adjusting for these costs, the free cash flow is expected to be around $9.50 for the year, consistent with previous guidance.

Mike Sison asks about the recovery in volume and pricing in Functional Ingredients and the impact on EBITDA margin. Glenn Richter responds that the business is performing well in terms of topline, gross profit, and EBITDA margin, with a goal of reaching mid-teens margin. The volume recovery, sales pipeline, and innovation are all on track, and initiatives to improve the cost structure are being implemented. The business is expected to reach its target margin within the next year. Adam Samuelson from Goldman Sachs is up next to ask a question.

The company is working on improving the profitability of its Functional Ingredients business by focusing on customer service and increasing productivity. They have already seen success in increasing volume and are on-track to achieve their margin improvement goals.

The company is focusing on customers and developing a clear strategy for their functional ingredients business. They are working on driving volume, improving productivity, and achieving target margins. The health business is also performing well, particularly in the probiotics sector due to an increased emphasis on gut health and the company's finished format approach. The team has also added commercial capability and has seen some former employees return to the company.

The speaker discusses the current performance and future prospects of their Health business, which has a strong pipeline. The next question is about recent trends in the CPG industry, including the possibility of increased discounting and a focus on innovation. The speaker responds by stating that many CPGs are prioritizing innovation and that this is beneficial for their company. They give examples of how their flavors and scents can help reduce sugar and salt content and trigger emotions for fine fragrance companies.

The speaker gives examples of how IFF has used their AI tool to develop innovative products for their customers, such as fragrances that trigger different emotions and cocoa extender capabilities. They also mention a recent collaboration with a global food company to create lactose-free milk in China. The focus on innovation has helped drive growth and profitability for IFF. In response to a question, the speaker clarifies that the weaker volume outlook for Q4 is based on their current knowledge and predictions.

The speaker discusses the company's performance in the third quarter and the lack of visibility for the fourth quarter. They mention a potential improvement in the third quarter compared to the same time last year, but caution about the market demand and restocking. The speaker also mentions an increase in the annual incentive plan, which will have an impact on the company's performance in the next year.

The speaker, Erik Fyrwald, is responding to a question about the company's plans for their balance sheet. He explains that they plan to continue strengthening their Health & Biosciences, Flavors, and Scent businesses through organic investments and potential acquisitions. They will prioritize small, complementary acquisitions and focus on organic growth. Any large acquisitions are currently not an option.

The speaker discusses their experience with successful acquisitions and contrasts it with the negative impact of previous acquisitions. They then answer a question about their digital investments and their approach to implementing an ERP system, emphasizing the steps they are taking to minimize risk and wasted investment. The speaker also mentions two recent implementations, CFIN and Workday, and their positive progress.

The company will be converting three SAP incidences into a single pipe over the next five years, which will cost approximately $250 million. They have already separated one of their ERPs and plan to launch the conversion after completing a divestiture in the second half of the year. The CEO has met with customers representing a large portion of their revenues and is excited about their desire to work with the company on innovation and cocreation of product lines.

The speaker believes that their company's history with large multinationals has helped them better serve customers and increase commercial capability. They have provided guidance for the third quarter and expect a solid improvement in gross margin for the second half of the year.

The company's second half volume growth will not be as high as the first half, but productivity programs are still delivering consistent results. The net raw material basket is expected to remain flat for the rest of the year. In July, the company's volumes were strong, but typically decrease in the third month of the quarter due to customer inventory management. The company's total net price increase in the first half of the year is equivalent to the reduction in raw materials.

The speaker discusses the positive performance of the company in July and how it aligns with the pattern seen in the last few quarters. He also mentions that they are focused on divesting their pharmaceuticals business and improving the growth rates of their other businesses. They are not currently planning any additional divestitures and are solely focused on performing well and strengthening their company for the future. The speaker thanks everyone for joining the call and expresses pride in the team and their efforts. The call is then concluded.

This summary was generated with AI and may contain some inaccuracies.