International Flavors & Fragrances(US:IFF)2024-11-05 22:19PART I - Financial Information Financial Statements This section presents International Flavors & Fragrances Inc.'s unaudited consolidated financial statements for the three and nine months ended September 30, 2024, and 2023 Consolidated Statements of Income and Comprehensive Income (Loss) For the third quarter of 2024, net sales increased to $2.925 billion from $2.820 billion year-over-year, driving net income attributable to IFF shareholders up to $59 million from $25 million Q3 & Nine Months 2024 vs 2023 Income Statement Highlights | Metric | Q3 2024 ($) | Q3 2023 ($) | YoY Change | Nine Months 2024 ($) | Nine Months 2023 ($) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,925M | $2,820M | +3.7% | $8,713M | $8,776M | -0.7% | | Gross Profit | $1,052M | $924M | +13.9% | $3,144M | $2,821M | +11.4% | | Operating Profit | $249M | $150M | +66.0% | $639M | $426M | +50.0% | | Net Income (to IFF) | $59M | $25M | +136.0% | $289M | $43M | +572.1% | | Diluted EPS | $0.23 | $0.10 | +130.0% | $1.13 | $0.16 | +606.3% | Consolidated Balance Sheets As of September 30, 2024, total assets decreased to $29.9 billion from $31.0 billion at year-end 2023, primarily due to a reduction in Goodwill and Other intangible assets Balance Sheet Summary (as of Sept 30, 2024 vs Dec 31, 2023) | Account | Sep 30, 2024 ($) | Dec 31, 2023 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Total Current Assets | $8,423M | $6,293M | +$2,130M | | Assets held for sale | $3,114M | $506M | +$2,608M | | Goodwill | $9,349M | $10,635M | -$1,286M | | Total Assets | $29,928M | $30,978M | -$1,050M | | Total Current Liabilities | $3,218M | $3,758M | -$540M | | Long-term debt | $8,631M | $9,186M | -$555M | | Total Liabilities | $15,118M | $16,336M | -$1,218M | | Total Shareholders' Equity | $14,810M | $14,642M | +$168M | Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash from operating activities was $702 million, a decrease from $795 million in the prior year period, with financing activities using $1.444 billion Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $702M | $795M | | Net Cash from Investing Activities | $586M | $638M | | Net proceeds from business disposals | $876M | $1,006M | | Net Cash used in Financing Activities | ($1,444M) | ($1,293M) | | Cash dividends paid | ($411M) | ($619M) | | Principal payments of debt | ($974M) | ($355M) | | Net Change in Cash | ($166M) | $110M | Notes to Consolidated Financial Statements The notes detail significant accounting events, including major business divestitures, assets held for sale, restructuring charges, and debt management - Completed the divestiture of the Cosmetic Ingredients business on April 2, 2024, for cash proceeds of approximately $841 million, resulting in a pre-tax gain of about $365 million2933 - Entered an agreement to sell the Pharma Solutions business, leading to a non-cash goodwill impairment charge of $64 million and a total year-to-date loss of $304 million to adjust the carrying value to fair value39 - Incurred restructuring charges of $6 million for the nine months ended Sep 30, 2024, a significant decrease from $61 million in the prior year period, primarily due to lower severance costs from the 2023 Restructuring Program4947 - The company is subject to ongoing antitrust investigations by authorities in the EU, UK, US, and Switzerland regarding its fragrance businesses, with a provision of €15.9 million recognized in Q1 2024 for a settlement with the EC related to a procedural charge106 Management's Discussion and Analysis (MD&A) Management discusses the financial results for the third quarter and first nine months of 2024, highlighting segment performance, profitability improvements, liquidity, and strategic divestitures Results of Operations - Third Quarter 2024 In Q3 2024, reported sales rose 4% to $2.925 billion, and 7% on a currency-neutral basis, driven by strong volume growth across all segments, with gross margin improving to 36.0% Q3 2024 Sales Growth by Segment (vs. Q3 2023) | Segment | Reported Growth | Currency Neutral Growth | | :--- | :--- | :--- | | Nourish | 3% | 6% | | Health & Biosciences | 10% | 12% | | Scent | 0% | 5% | | Pharma Solutions | 8% | 8% | | Total | 4% | 7% | Q3 2024 Segment Adjusted Operating EBITDA (vs. Q3 2023) | Segment | Q3 2024 EBITDA ($) | Q3 2023 EBITDA ($) | Change | Q3 2024 Margin | Q3 2023 Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | Nourish | $206M | $178M | +16% | 13.9% | 12.3% | | Health & Biosciences | $173M | $150M | +15% | 30.4% | 29.0% | | Scent | $127M | $131M | -3% | 20.7% | 21.3% | | Pharma Solutions | $62M | $47M | +32% | 24.2% | 19.7% | | Total | $568M | $506M | +12% | 19.4% | 17.9% | - S&A expenses increased by $51 million, primarily due to higher incentive compensation and divestiture-related costs for the Pharma Solutions disposal group123 Results of Operations - First Nine Months 2024 For the first nine months of 2024, sales decreased 1% to $8.713 billion, but increased 3% on a currency-neutral basis, with consolidated segment adjusted operating EBITDA growing 14% Nine Months 2024 Sales Growth by Segment (vs. Nine Months 2023) | Segment | Reported Growth | Currency Neutral Growth | | :--- | :--- | :--- | | Nourish | -4% | -1% | | Health & Biosciences | 7% | 9% | | Scent | 3% | 8% | | Pharma Solutions | -1% | -1% | | Total | -1% | 3% | Nine Months 2024 Segment Adjusted Operating EBITDA (vs. Nine Months 2023) | Segment | YTD 2024 EBITDA ($) | YTD 2023 EBITDA ($) | Change | YTD 2024 Margin | YTD 2023 Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | Nourish | $654M | $567M | +15% | 14.7% | 12.2% | | Health & Biosciences | $497M | $426M | +17% | 30.0% | 27.4% | | Scent | $421M | $353M | +19% | 22.6% | 19.4% | | Pharma Solutions | $162M | $173M | -6% | 22.1% | 23.3% | | Total | $1,734M | $1,519M | +14% | 19.9% | 17.3% | - The reported sales decline was primarily driven by divestiture impacts of approximately $314 million from the Savory Solutions, Flavors Specialty Ingredients, and Cosmetic Ingredients businesses140 Liquidity and Capital Resources The company ended Q3 2024 with $569 million in cash, maintaining compliance with debt covenants and prioritizing an investment-grade rating, business investment, dividends, and debt repayment - Cash from operations decreased to $702 million from $795 million YoY, primarily due to an increase in working capital162 - The company was in compliance with its debt covenants, with a net debt to credit adjusted EBITDA ratio of 3.89 to 1.0 as of September 30, 2024168 - Capital allocation strategy focuses on maintaining an investment-grade rating, business investment, dividend payments, and debt repayment, with dividends paid totaling $411 million in the first nine months of 2024164 Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in market risk from its 2023 Form 10-K, except for cross-currency swap agreements hedging European investments - There are no material changes in market risk from the 2023 10-K, except for cross-currency swaps used to hedge European investments182 - As of September 30, 2024, cross-currency swaps had a fair value liability of $164 million, where a 10% change in the USD/EUR rate would impact this value by about $154 million182 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the third quarter of 2024183 - No material changes to the internal control over financial reporting were identified during the quarter184 PART II - Other Information Legal Proceedings This section refers to Note 17 of the Consolidated Financial Statements for updated information on ongoing legal proceedings, including antitrust investigations and class-action lawsuits - For updates on legal proceedings, the report directs readers to Note 17 of the financial statements186 Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its 2023 Annual Report on Form 10-K - No material changes have occurred with respect to the risk factors disclosed in the 2023 Form 10-K187 Other Items (Items 2, 5, 6) This section covers remaining items, reporting no unregistered sales of equity securities and no Rule 10b5-1 trading plan adoptions or terminations by directors or executive officers - There were no unregistered sales of equity securities during the period188 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading plan in Q3 2024189