IFF's Q3 2025 Earnings Call: Contradictions on Health Business Recovery, Fine Fragrance Growth, and Food Ingredients Margins

Business Commentary:

* Financial Performance and Guidance: - IFF's third quarter 2025 results demonstrate continued execution, with sales remaining steady at $2.7 billion, flat year-on-year. - The company maintains strong profitability with a 7% growth in adjusted operating EBITDA and a margin improvement of 130 basis points. - The stable performance is attributed to the resilience of Scent and Taste businesses, which offset pressures in Health & Biosciences and Food Ingredients due to macroeconomic factors.

• Strategic Investments and Innovation:

• IFF has invested in enhancing innovation with new centers in Dubai and Florida, and an expanded facility in Grasse, France.

• These investments aim to increase the commercial pipeline and drive long-term growth, with benefits expected in mid-2026 and 2027.

• Strategic collaborations, such as with BASF and Kemira, are expected to develop sustainable solutions using DESIGNATED ENZYMATIC BIOMATERIAL technology.

• Portfolio Optimization and Divestitures:

• IFF has divested the Pharma Solutions and Nitrocellulose businesses, and announced the divestiture of the Soy Crush, Concentrates & Lecithin business to Bunge.
• The divestitures align with the margin enhancement strategy and focus on portfolio optimization.

• These actions contribute to improving IFF's financial flexibility and strategic focus on core business growth.

• Health & Biosciences Challenges and Turnaround Strategy:

• The Health business in North America faced expected slowdowns, impacting overall segment performance.
• IFF is addressing these challenges by investing in innovation and commercial capabilities, expecting improvements in the second half of 2026 and a full recovery in 2027.
• New leadership with strong commercial and marketing capabilities is also in place to leverage the strong R&D pipeline and enhance customer engagement.

Contradiction Point 1

Health Business Performance and Outlook

It involves differing perspectives on the performance and outlook of the Health business, which is a critical area for company growth and investor expectations.

What's driving the North America Health business performance, and does the 2026 improvement outlook remain intact despite potential increased uncertainty compared to three months ago? - Fulvio Cazzol (Joh. Berenberg, Gossler & Co. KG, Research Division)

2025Q3: In Health & Biosciences, the Health business in North America has been slow. To turn this around, we've put in place new leadership with strong commercial and marketing capability, and we've stepped up investment in innovation and pipeline in Health. We're connecting with existing customers to help them grow faster and finding new customers. Bottom line, I absolutely expect to see improvements, particularly in the second half of '26 going into '27, and a full recovery in 2027. - Jon Erik Fyrwald(CEO)

Can you break down the performance of each segment in Health & Biosciences? - John Roberts (Mizuho)

2025Q2: Food Biosciences and Animal Nutrition are performing well, with Animal Nutrition facing a slowing market. Health is challenging due to customer slowdowns, but R&D and commercial investments are expected to improve performance in 2026 and 2027. - Jon Erik Fyrwald(CEO)

Contradiction Point 2

Fine Fragrance Growth Expectations

It involves differing expectations for the growth trajectory of the Fine Fragrance segment, which is a significant contributor to company revenue and investor confidence.

What trends are driving Fine Fragrance's strong growth, and is this growth sustainable? - unknown analyst (Wells Fargo)

2025Q3: Fine Fragrance growth is due to social media expansion, reaching diverse generations and demographics. We expect continued solid growth due to innovation and customer focus, but growth may not be at the same level as seen recently. - Jon Erik Fyrwald(CEO)

What is the strategic rationale for the divestiture to Bunge? Are there any disincentives, and how will this affect Food Ingredients' margins? - Patrick Cunningham (Citi)

2025Q2: Fine Fragrance is expected to maintain strong performance, driven by new wins and commercial success. - Michael DeVeau(CFO)

Contradiction Point 3

Economic Slowdown and Order Book Stability

It involves differing perspectives on the economic slowdown and its impact on the company's order book, which are crucial for understanding the company's financial stability and growth prospects.

What are the main headwinds to Q4 top-line growth? How much of the cautious outlook is due to macro/geopolitical factors versus IFF-specific issues? How much end-market recovery is needed for 2026 top-line acceleration? - Ming Tang(BNP Paribas)

2025Q3: We are seeing a cautious environment, but the order book is actually strong. - Jon Erik Fyrwald(CEO)

Can you clarify which parts of IFF's portfolio might be at risk versus resilient in a recessionary scenario, given the outlook excludes potential impacts from recent trade policy shifts? Also, have you observed any sequential slowdown or caution from customers so far? - Nicola Tang(BNP Paribas)

2025Q1: However, we are concerned about all the uncertainty. A major HPC company executive recently expressed caution. Our portfolio is mainly in essential products, about 80%, with discretionary areas like fine fragrances, consumer fragrances, and health probiotics. So far, the order pattern has been solid, but we are cautious about the back half of the year. - Erik Fyrwald(CEO)

Contradiction Point 4

Food Ingredients Margin Improvement

It involves differing expectations for the improvement of Food Ingredients margins, which are critical for the company's financial performance and profitability.

What is the path to achieving a mid-teens margin for Food Ingredients next year, and are there further pruning opportunities? - Harris Fein(Wolfe Research, LLC)

2025Q3: We started on a productivity push, which will continue into 2026, enhancing margin recovery. - Michael DeVeau(CFO)

What impact did net pricing and productivity have on food ingredient EBITDA margins? Is there additional upside potential to the mid-teens goal? - Michael Sison(Wells Fargo)

2025Q1: We're committed to achieving 15% margins by 2026. - Erik Fyrwald(CEO)

Contradiction Point 5

North America Health Business Outlook

It involves differing expectations for the recovery timeline of the North America Health business, which impacts revenue growth projections and strategic focus.

Can you clarify the situation in the North America Health business unit? Do you still anticipate improvement by 2026, or has uncertainty increased compared to three months ago? - Fulvio Cazzol (Joh. Berenberg, Gossler & Co. KG, Research Division)

2025Q3: In Health & Biosciences, the Health business in North America has been slow. To turn this around, we've put in place new leadership with strong commercial and marketing capability, and we've stepped up investment in innovation and pipeline in Health. We're connecting with existing customers to help them grow faster and finding new customers. Bottom line, I absolutely expect to see improvements, particularly in the second half of '26 going into '27, and a full recovery in 2027. - Jon Erik Fyrwald(CEO)

What is the expected volume growth by core division in 2025? - Nicola Tang (BNP Paribas)

2024Q4: In Health & Biosciences, which generated $3 billion of sales, adjusted operating income was $556 million, up 10%. We expect solid growth in Health & Biosciences in 2025, with a particular emphasis on volume growth in North America. - Erik Fyrwald(CEO)