NEW YORK — Executives of IFF expect volume levels to improve once the New York-based company completes its inventory reduction program. The volume decline negatively impacted financial results for the first quarter ended March 31, especially in the Nourish segment.
A loss of $9 million compared with net income of $244 million, or 96¢ per share on the common stock, in the previous year’s first quarter. Net sales of $3.03 billion were down 6% from $3.23 billion in the previous year’s first quarter.
“Adjusted operating EBITDA finished at $503 million in the first quarter of 2023 and largely was impacted by the lower volumes as well as our proactive effort to rebalance inventories to drive cash flow generation,” said Franklin K. Clyburn, chief executive officer, in a May 9 earnings call. “As we shared earlier this year, we are executing our inventory reduction program, making strong progress in the first quarter. As expected, while it was cash flow positive, it did lead to a significant headwind in terms of profitability as our fixed costs were absorbed over reduced manufacturing volumes, which represented approximately a 15-percentage point year-over-year impact.”
IFF’s stock on the New York Stock Exchange closed at $90.31 per share on May 9, which was down 7% from a close of $97.14 per share on May 8.
In the Nourish segment, sales of $1.65 billion were down 5% from $1.73 billion in the previous year’s first quarter. Currency-neutral adjusted operating EBITDA declined 27% as lower volumes and unfavorable manufacturing absorption related to the inventory reduction program more than offset price increases and productivity gains.
“Within our Nourish segment, our Ingredients division, which represents approximately 25% of total company sales and includes protein solutions, emulsifiers and sweeteners, texturants and cellulosics and food protection, drove about 60% of our total volume decline in the quarter,” Mr. Clyburn said. “As we outlined at our December investor day, we are working to improve our performance and have largely addressed our capacity issues and have improved our service levels in these businesses. We are now working on modifying our pricing strategies, enhancing our commercial coverage and simplifying our internal processes, all to grow our project pipeline and deliver more robust growth going forward.”
In the Health & Biosciences segment, first-quarter sales plunged 22% to $513 million from $661 million. Currency-neutral sales decreased 3% as growth in Culture & Food Enzymes and Home & Personal Care was offset by softness in Health, Grain Processing and Animal Nutrition.
The Scent segment, with sales up 4% to $585 million, and the Pharma Solutions segment, with sales up 2% to $249 million, were bright spots in the quarter.
Companywide, full-year sales guidance dropped to $12.3 billion from previous guidance of $12.5 billion.“As we look ahead to the balance of the year, we continue to believe our volume performance will improve yet acknowledge that market conditions remain uncertain,” said Glenn R. Richter, chief financial and business transformation officer. “In our discussion with customers, the majority have signaled that their destocking efforts are ending as they believe the consumer will be resilient in the second half. Nevertheless, we have yet to see a broad-based volume improvement across our business, but we remain steadfast in our focus to control what we can control to protect profitability, maximize cash flow and drive portfolio optimization.”