International Flavors & Fragrances(US:IFF)2023-11-07 16:00Financial Performance - Sales for Q3 2023 decreased by $243 million, or 8%, to $2.820 billion compared to $3.063 billion in Q3 2022[207] - On a currency neutral basis, sales also decreased by 8% in Q3 2023 compared to the prior year period[210] - Gross profit in Q3 2023 decreased by $77 million, or 8%, to $924 million, representing 32.8% of sales[208] - Operating profit for Q3 2023 was $150 million, a significant recovery from a loss of $1.985 billion in Q3 2022[209] - Total sales for the first nine months of 2023 decreased by $820 million, or 9%, to $8.776 billion compared to $9.596 billion in the same period of 2022, with a currency neutral decrease of 6%[233] Segment Performance - The Nourish segment reported sales of $1.449 billion in Q3 2023, down 15% from $1.703 billion in Q3 2022[209] - The Pharma Solutions segment's sales decreased by 7% to $238 million in Q3 2023 compared to $257 million in Q3 2022[209] - Nourish sales decreased by $254 million, or 15%, to $1.449 billion in Q3 2023 compared to $1.703 billion in Q3 2022, with a currency neutral decrease of 14%[212] - Health & Biosciences sales increased by $6 million, or 1%, to $518 million in Q3 2023, with a currency neutral increase of 2%[213] - Scent sales increased by $24 million, or 4%, to $615 million in Q3 2023, with a currency neutral increase of 4%[214] - Pharma Solutions sales decreased by $19 million, or 7%, to $238 million in Q3 2023, with a currency neutral decrease of 9%[215] Adjusted Operating EBITDA - Nourish segment adjusted operating EBITDA decreased by $109 million, or 38%, to $178 million in Q3 2023, representing 12.3% of segment sales[229] - Health & Biosciences segment adjusted operating EBITDA increased by $13 million, or 9%, to $150 million in Q3 2023, representing 29.0% of segment sales[230] - Scent segment adjusted operating EBITDA increased by $12 million, or 10%, to $131 million in Q3 2023, representing 21.3% of segment sales[231] - Pharma Solutions segment adjusted operating EBITDA decreased by $22 million, or 32%, to $47 million in Q3 2023, representing 19.7% of segment sales[232] - Segment Adjusted Operating EBITDA decreased to $1.519 billion, down 24.5% from $2.014 billion in the prior year[250] Expenses and Costs - R&D expenses increased by 8% to $157 million in Q3 2023 compared to $145 million in Q3 2022[209] - Cost of goods sold decreased by $359 million to $5.955 billion, representing 67.9% of sales, compared to 65.8% in the prior year[239] - S&A expenses rose by $15 million to $1.343 billion, which is 15.3% of sales, compared to 13.8% in the prior year[241] - Restructuring and other charges increased to $61 million from $5 million in the prior year[242] Tax and Debt - The effective tax rate for Q3 2023 was 54.2%, compared to (7.9)% in Q3 2022[209] - The effective tax rate for the nine months ended September 30, 2023, was 62.6%, compared to (13.6)% in the prior year[248] - As of September 30, 2023, the company had a net debt to credit adjusted EBITDA ratio of 4.57 to 1.0, which is below the covenant limit[270] - The company has $9.015 billion in aggregate principal amount outstanding in senior unsecured notes, with effective interest rates ranging from 1.22% to 5.12%[274] - The company had no outstanding borrowings under its $2.000 billion Revolving Credit Facility as of September 30, 2023, with a drawdown capacity of $1.447 billion[268] Cash Flow and Dividends - Cash flows provided by operating activities increased to $795 million, or 9.1% of sales, compared to $189 million, or 2.0% of sales, in the prior year[257] - Cash flows used in financing activities increased to $1.293 billion from $1.087 billion in the prior year[260] - Dividends paid totaled $619 million, with a cash dividend per share of $0.81 declared in Q3 2023[261] - The company is prohibited from declaring and paying dividends in cash on common stock in excess of $0.81 per share per fiscal quarter during the Covenant Relief Period[267] Risks and Challenges - The company anticipates ongoing impacts from global supply chain challenges and inflationary pressures on input costs[282] - The company faces risks from disruptions in product development and sales due to events like natural disasters, public health crises, and international conflicts[286] - Increased volatility in raw material, energy, and transportation prices poses a significant risk to the company's operations[286] - The company must comply with various regulatory requirements and industry standards, which could impact costs and operational efficiency[286] - There is a growing focus on sustainability from customers, consumers, and regulators that the company needs to address[286] - The company is exposed to economic, regulatory, and political risks associated with its international operations[286] - The impact of global economic uncertainty, including inflation, could affect demand for consumer products[286] - The company has to manage working capital and inventory balances effectively to mitigate financial risks[286] - Compliance with data protection laws in the U.S. and abroad is critical for the company's operations and could incur additional costs[286] Financial Strategy - The company is focused on executing its growth strategy, including potential divestitures and acquisitions to optimize its portfolio[282] - The Term Loan Covenant Relief Period and Revolver Covenant Relief Period have been extended through December 31, 2025, with specific leverage ratio limits set for each fiscal quarter[267] - The company expects to contribute a total of $5 million to U.S. pension plans and $32 million to non-U.S. pension plans during 2023[275] - As of September 30, 2023, the aggregate fair value of the company's cross currency swaps was $89 million, indicating a liability position[289] - A hypothetical 10% change in the value of the U.S. dollar against the Euro would result in an estimated fair value change of approximately $139 million for the company's cross currency swaps[289] - The company has entered into various guarantees and undrawn letters of credit, which are not expected to materially impact its financial condition[276]