IFF Q2 Volume Lifts Sales 6% as Food Ingredients Sale Advances

International Flavors & Fragrances (IFF) reported second-quarter continuing-operations sales of just under $2 billion, up about 6% on a comparable currency-neutral basis, with volume growth across all three segments. Adjusted operating EBITDA rose 6% to $408 million, the company said. CEO Erik Fyrwald said the quarter reflected "volume growth across the board, disciplined margin execution, and robust free cash flow generation."

Taste sales rose 4% to $688 million, led by double-digit growth in Asia. EBITDA in the segment increased 6% to $124 million, supported by volume and favorable net pricing. Health & Biosciences sales grew 5% to $601 million, with gains in Grain Processing, Food Biosciences and Animal Nutrition; EBITDA there rose 6% to $150 million, primarily on volume leverage. Scent sales climbed 8% to $665 million, and EBITDA increased 5% to $134 million. Fragrance Ingredients grew more than 20%, partly because the business had declined by more than 10% in the year-earlier period, CFO Michael DeVeau said. The company also used its synthetic fragrance portfolio to capture sales during supply-chain disruptions and higher Brent crude prices, DeVeau said. He expects that growth to normalize in the second half as the mix shifts toward higher-value ingredients.

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

IFF is proceeding with the sale of its Food Ingredients business to CVC Capital Partners in a transaction valued at about $4.3 billion, or roughly 10 times enterprise value to EBITDA. The deal is expected to close by the end of the second quarter of 2027. IFF will retain a 10% ownership stake. Fyrwald said the sale leaves IFF focused on Taste, Scent and Health & Biosciences, which the company views as higher-growth, higher-margin operations. He said IFF has no significant divestitures remaining and plans to scale the three businesses organically and through bolt-on acquisitions.

The transaction will leave about $100 million of corporate and functional costs at IFF that had previously been allocated to Food Ingredients. Those costs are now spread across the remaining segments and are temporarily pressuring business-unit margins. Management said it has begun a remediation plan and expects to eliminate about two-thirds of the stranded costs in the first 12 months after the transaction closes, with the remainder removed during the second full year. The plan includes redesigning processes, simplifying systems, rationalizing activities, reviewing third-party contracts and aligning the remaining company's cost structure to its needs.

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

The company plans to use more than $1 billion of Food Ingredients sale proceeds to reduce debt, targeting net debt to credit-adjusted EBITDA of 2.0 times to 2.5 times by the end of 2027. IFF ended the first half of 2026 at 2.5 times leverage, while gross debt had declined about $5.7 billion. The board authorized a $2.5 billion share-repurchase program, including approximately $400 million remaining under a prior authorization. IFF expects to repurchase about $500 million of shares in the second half of 2026 before the sale closes, with the remaining authorization targeted for completion by the end of 2027.

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

IFF introduced full-year guidance on a continuing-operations basis following the Food Ingredients reclassification. The company expects 2026 sales of $7.4 billion to $7.6 billion, representing growth of 2% to 4%, and EBITDA of $1.53 billion to approximately $1.6 billion, representing growth of 4% to 8%. DeVeau said the guidance implies second-half sales growth of 0% to 4% and EBITDA growth of 4% to 8%. The higher low end of the full-year ranges primarily reflects the company's stronger first-half performance, he said, while the range continues to account for macroeconomic uncertainty and Middle East volatility.

IFF's Alpha Score of 39/100 reflects a mixed fundamental picture in the Basic Materials sector, with the company's strong margin and volume story balanced against elevated leverage and the pending transformation from the Food Ingredients sale.

Second-quarter growth was almost entirely volume-driven, according to DeVeau. For the second half, IFF expects volumes to remain the primary sales driver, with pricing providing only a modest contribution. Input costs for raw materials, energy and logistics are expected to rise modestly, with Scent most affected. The company is pursuing surcharges and other pricing actions, though management said there can be timing lags, particularly in Scent. The Food Ingredients sale is expected to close by the end of the second quarter of 2027.